Wednesday, May 30, 2018

8 Golden rules of trading on Forex

In just a few years, the foreign exchange market has rapidly escalated and gained confidence in the issues of trading in the Forex market. And yet, not every trader can increase his investment, although opportunities for this are usually enough. All this happens for the most part because of a lack of experience, the inability to organize a trading process and the lack of a clear trading strategy.


Discipline is a quality that must be inherent in every trader. It helps to plan and execute the conceived deals. To understand the principles of work, we have collected for you a list of the basic rules of Forex trading. Let's look at each of them in detail.


Rule number 1: do not rush things


Many beginners tend to set incredibly high goals. Of course, this is a good quality, but only if you know how to achieve them. Many traders are not able to really assess their capabilities and lose their starting capital almost immediately. Often starting traders implement the same scheme: the first few days are characterized by a constant profit, but in the following days, capital is lost at the same rate. Before you have enough experience to conduct real trading, try trading on a demo account. This simulator of the currency market will help you train in planning and execution of transactions. In addition, at first follow the advice: open a deal with a minimum deposit until you learn the market well enough.


Rule number 2: do not stand still


As we said earlier, any newcomer should practice on a demo account, which is available directly on your trading platform. Its advantages are obvious: such a valuable practice will not cost you a penny. This virtual forex market is developed in accuracy, as well as real. However, one should be careful with unreal capital. The following Forex rule says that although the study is good, but you will only appreciate the real money if you value investment. The fact is that by practicing too long on a demo account you will understand how the market works, but you will not be able to fully experience and evaluate all the risks.


rules of trading on ForexLet's take a closer look at the basic details of work in the virtual market. To begin with it is necessary to be defined with the size of your initial deposit. Approximately it should be equal to your potential account in order to make a virtual auction as realistic as possible. Learn to determine goals for yourself. They must be realistic: so you will have an incentive to make transactions. For example, let's take an income of 200 points, or a month with 100% income. Choosing a goal is entirely up to you, but go to the next one only after you complete the first one. Try to set yourself 2-3 goals: often this is enough for basic practice. Once you get a full deal on a demo account, you can safely go to the real market. If you are not sure that you have already trained enough in the trade, you should wait with the trade in own capital. It is better to be confident in your abilities, because your investment depends on it.


Rule number 3: the plan is first of all


This advice is suitable for any businessman, not just a trader. After all, when you know exactly what to expect, it becomes easier to control the situation. This is the golden rule of Forex trading, because it can be attributed to any industry. More precisely, the strategy should include such parameters:


o Entry points


o Exit points


o Stop loss indicator


o Take profit level


Develop your trading strategy and clearly adhere to it. Pay attention that it needs to be improved, because the prices for the currency constantly fluctuate and every move of the market somehow affects your deal. It is very important to remember that you can change the plan only if all your transactions are completed. Especially do not do it for a knowingly losing deal. No matter how hard you try, there is a very small chance of its salvation.


Rule number 4: always use the Stop Loss indicator


There are so-called "golden rules of Forex", and the fourth rule on our list is among them. If you have already practiced in transactions or read theoretical articles, you probably heard about this indicator. Its installation insures you: if the value of the items reaches the stop loss mark, the trade will automatically close with minimal losses. For example, buying a lot of JPY / EUR at the price of 1,14500 the indicator should be put on the price of 1,14470. Thus, we can calculate that as much as you lose only 30 points. Note that the stop loss indicator may not work, because liquidity is not always available at the selected level. One of the main mistakes of newcomers is the absence of stop loss. Instead, they themselves monitor the price changes, and this is a true loss not only of time, but also of opportunities to earn.


Rule number 5: do not succumb to emotions


In the list of "the main trading rules of Forex" this board takes a special place. You should always control your feelings because they are the main enemy in the currency game. The fact that a person inherent experience. That is why many automated systems have been created over time. Spontaneous decisions can turn your expectations in a completely different direction. It is always necessary to follow the pre-established strategy accurately, where all the necessary factors will be taken into account. If you are in an unfavorable state of mind, do not start work. It is better to wait a little, to cope with emotions, perhaps, to walk on fresh air. Remember: the discipline should be in the first place, do not deviate from the planned plan and do not succumb to emotional outbursts.


Rule number 6: do not waste time on trivia


Obviously, the main purpose of working in the Forex market is to generate revenue. Despite this, the trade itself can drag you on for a long time, because this process is not devoid of excitement. Spare time for learning and gaining experience, constantly train. At first, you will do this on a demo account, but do not wait with the transition to real mode. After the first few deals, you need to understand how well this profession suits you. Even if you do not succeed, but the process you like, do not throw. After all, giving enough time to study, in the end you will succeed. Nevertheless, do not be lazy to calculate the loss of your time. For example, you decided to combine the main job with work in the foreign exchange market. Let's say the salary at the main job is $ 10 per hour, and your starting capital is $ 500. An experienced trader will return investments in the form of 5% ($ 25). Thus, you will incur losses if you need to spend more than 2.5 hours on making deals in the amount of $ 25.


Formulating the following rule of Forex trading, we can say that time is a valuable currency, and you should trade it for nothing. If you do not get it even after hard training, well, maybe it's just not your vocation. Try to turn Forex trading into a source of basic profit: if you focus exclusively on this occupation, it will repay you in the same coin. Another important advice may be to increase the volume of trade through the size of the deposit. That is, the size of your starting deposit should not be large: it is better to increase your income gradually.


Rule number 7: do not leave school


The foreign exchange market is in constant motion. Each trader simply must from time to time develop his strategy, apply new tactics, techniques and edit them in accordance with the behavior of the Forex market. The currency market itself is quite large and contains many different components. You must carefully study them all in order to constantly be in a trend. You must understand that the ideal strategy for today, will not be tomorrow. It is necessary constantly to monitor the new information and act in accordance with it.



Adhere to these rules of foreign exchange trading in order to get the most positive results. They are created by experienced traders after analyzing their mistakes.



Nevertheless, all the rules that you set for yourself, sooner or later become obsolete, after which you change them.


Rule number 8: do not forget about the analysis


As in any other profession, the more you learn, the higher you raise your level. For your trading route, you will gain experience and be able to independently assess their trade. It will be useful to develop a habit of comparing oneself of the past and the present. All your actions are interrelated, but if you do not improve, you will not be able to achieve maximum profit. To learn from other people's mistakes is certainly more convenient, but it is much more effective to learn from your own failures or ups. Do not throw a deal that ended in success. It is the analysis of successful transactions that will give you an additional advantage: some elements can be copied into the next experiment.


For traders who know the discipline, the rules of Forex trading, which we talked about today, will not seem complicated. Understand that only systematic trade will bring real success. Training and training will bear fruit only to diligent traders. Using these tips, you can easily create a basic trading strategy, and then modify it to your trading style. Trading in the foreign exchange market is what you should strive for and you will see the result of your efforts before you can think about it.

How does automated forex trading work?

Forex traders and investors can customize the entrance, exit and rules of money management in automated forex trading systems that allow computers to execute and monitor transactions. One of the biggest advantages of an automation strategy is that it can eliminate any negative and destructive emotions from the trade, because deals that meet certain criteria are automatically executed.


In other words, the chosen program or forex robot performs all trading processes, opens and closes deals while you sit and relax. But is such a trade effective, and if so - how to perform automated Forex trading? In this article we will answer some of the most frequently asked questions so that you get a true understanding of automated trading in the Forex market.


What is an automated trading system?


Automated trading system, or automated Forex trading, allows traders to set certain rules for entering and exiting the transaction, which can be automatically executed by the computer. Trading rules for entry and exit can be based on simple conditions, for example, the intersection of moving averages, or on complex strategies that require a thorough understanding of the programming language on which the Forex trading platform was developed.


Typically, for the application of automated trading systems, you need an application or program that has direct access to the broker, and specific rules that are written in the language of this platform. For example, the most popular trading platforms MetaTrader 4 and MetaTrader 5 use the MQL programming language, whereas the NinjaTrader platform uses the NinjaScript programming language.



[caption id="attachment_1563" align="alignleft" width="328"]automated forex trading automated forex trading[/caption]

Some automated forex trading platforms have built-in "hints" that allow traders to make a choice from a list of available technical indicators to create a set of rules based on which automatic trading will be performed. For example, a trader can set a long-term trade opening when the 50-day MA crosses the 200-day MA on top of the 5-minute chart of a particular trading instrument. Users can also enter an order type (for example, a market or a limit) and a specific transaction time (for example, when the next bar is opened or closed), or use the default settings on the platform. However, most traders prefer to program their own strategies and custom indicators, or work closely with the programmer to create their own system of automated forex trading. This often requires more effort than using platform hints, but self-programming provides more flexibility, so its results can bring significantly more profit.


After setting the rules, the computer will scan the markets in search of opportunities for buying or selling, based on a given trading strategy, and carry out auto Forex trading. Once the transaction is opened, depending on the special rules, protective orders stop loss, trailing stop, and also the target profit are activated. Moreover, in fast moving markets, such an immediate opening of an order can mean the difference between a small loss and catastrophic losses, in the event that the transaction goes wrong as planned by the trader.



Advantages of  automated trading and automated systems


Let's take a look at some of the advantages of automated forex trading. The first advantage, which we already wrote about earlier, is that automated trading minimizes the influence of emotions in the trading process. If a trader keeps his emotions under control, it is usually easier for him to stick to his basic plan. Since transaction orders are executed automatically, as soon as the situation on the market matches the specified parameters, forex traders will not have a single chance to doubt the feasibility of planned actions. In addition, automated trading helps prevent excessive trade, that is, buying and selling occurs only if there are real trading opportunities.


The next advantage is the possibility of backtesting. Backtesting allows you to apply the rules of trade on historical market data to determine the viability of the idea. Developing a system for Forex automated trading, all the rules should be clear and unambiguously prescribed, that is, the computer must clearly understand what needs to be done.


In addition, Forex traders can use these rules and check them on historical data before risking real money in real trading. Attentive backtesting allows traders to evaluate and debug a trading idea, as well as to identify system expectations - the average amount that a currency trader can win (or even lose), per unit of risk.


Forex auto trading also supports discipline. When trading rules and transactions are established automatically, discipline is observed even in volatile markets. In the currency market, discipline is often lost due to emotional factors, such as fear of loss or the desire to get even more profit from the transaction. Automated trading helps ensure that discipline is observed, that is, a clear adherence to the trading plan. In addition, the probability of a trader's mechanical error is reduced, and an order for the purchase of 100 lots will not be entered with an extra zero, as an order to purchase 1000 lots.



It would be a mistake not to mention one more important advantage - automated trading helps to achieve consistency. One of the biggest tests in Forex trading is planning a deal, and then trading according to plan. Even if the trading plan has good chances to bring enough profit, traders who ignore the rules, change all the results that the system, in fact, could bring.



You should understand that there is no trading plan that wins all trades with a probability of 100% - losses are always part of the game. Nevertheless, losses are dangerous from a psychological point of view, since the Forex trader, who already had two or three losing trades in a row, may decide to skip the next deal. And just this next transaction may turn out to be winning, but the trader has already destroyed the expectations of the system. Thus, forex trading systems allow traders to be consistent.


Another advantage is the increased speed of execution of orders. Because computers respond instantly to changing market conditions, automated systems can create orders as soon as trading criteria are met. Therefore, entering or leaving the transaction in a few seconds can seriously affect the outcome of the trader. Once the position is open, all other orders are automatically created, including defensive target profits and stop loss. You know that markets can move very quickly, so it's very sad if the transaction has reached the target profit level, or flew past the stop loss level before the order was opened.


Finally, the last advantage is that you can diversify your trading. The automated forex trading platform allows the user to trade on multiple accounts or different strategies simultaneously. In turn, it has the opportunity to share the risk on different instruments, while hedging the loss-making positions. The program can scan trading opportunities in several markets, create orders, and monitor transactions.


Against automated trade and automated systems


Despite the advantages, you should understand that automated trading is also not devoid of certain drawbacks.


The program is still a program, so from time to time it may cause technical errors. Auto Forex trading in theory seems pretty simple: you need to install a program, program the rules and watch how it trades. However, reality does not always reflect expectations. Automated trading can not guarantee a 100% probability of success. Depending on the trading platform, the trade warrant can, in fact, be on the computer, not on the server. This means that if you have a connection with the Internet, the order will not be sent to the market. There may also be a discrepancy between the so-called hypothetical transactions created by the strategy, and the elements of entering orders on the platform, which turn them into real deals.


The second negative is monitoring. Of course, it's very tempting to turn on the computer and go for a whole day, but automated shopping systems still need supervision. With an automated trading system, a technical malfunction may occur - there may be connection problems, computer malfunctions, power drops or other system failures. The system of auto Forex trading can function with errors, for example, issue wandering orders, skip or even duplicate orders. If the system is monitored, such errors can be quickly identified and corrected.


And the most obvious drawback is excessive optimization. Although this is not typical for auto currency trading systems, forex traders who use backtesting techniques can create systems that look great on paper but work terribly in the real market. Thus, excessive optimization leads to the construction of an unrealistic curve, because of which the trading plan is not viable in real trading. For example, you can configure a strategy to achieve exceptional results on the historical data on which this strategy was tested. Traders sometimes make the wrong assumption that a trading plan should guarantee almost 100% of profitable trades or should never show a drawdown, then it can be considered a good plan. The set parameters can be adjusted to create an "almost ideal" plan,


Outcomes


We hope that after reading this article you could find the answer to the question - what is Automated Forex Trading? Although automated trading may seem attractive for a variety of reasons, such systems should not be considered a substitute for permanent trading. Technical mistakes can not simply arise, they actually arise, so the system needs control. Platforms based on the server can provide a good solution for traders who want to reduce the risk of mechanical errors. We suggest that you combine manual and automated forex trading to achieve the best results.

EURUSD Technical Chart | 30-May-2018

Below is the technical chart of EURUSD currency pair on H4 time frame. For a change, this time, I've used Alligator technical indicator.


EURUSD Technical Chart


EURUSD Technical Chart | 30-May-2018


As you can see, the price closes below Alligator's Lips i.e. Green line and EURUSD started its downtrend again.


Now, let us see the same chart using Doda DonchianDoda-Bollinger BandsIchimoku and ADX Candles technical indicators.


EURUSD technical chart


Doda-Donchian gave last sell signal @1.16775 and after that It has moved about 143 pips and still counting. Do NOT take any long position whatever technical indicator you're using till EURUSD is trading below Ichimoku - Kumo - which is its great resistance.


It's immediate target and support is at 1.14950 as per Wolf Wave Theory.


Major Support Levels:


1.15158


1.14862


1.14382


Major Resistance Levels:


1.16117


1.16413


1.16892


 

Monday, May 28, 2018

Guide to Accumulation Swing Index Indicator (ASI)

The cumulative fluctuation index (Accumulation Swing Index, ASI) was developed by the well-known trader-analyst Wales Wilder. The indicator examines the previous minimums and maximums of the price of the trading instrument and on the basis of them gives its signals.


For the first time, the indicator is described in Wilder's book "New concepts of technical trading systems." The author claims that the indicator is very close to this schedule. Therefore, the ASI graph can be analyzed using graphical analysis. The cumulative fluctuation index (Accumulation Swing Index, ASI) perfectly confirms the breakdowns and rebounds from the support and resistance lines. If there was a breakdown in the price chart, the indicator will save you from false signals, when you can not confirm the breakdown on your chart. And vice versa.


The formula for calculating the Accumulation Swing Index (ASI)


SI (i) = 50 * (CLOSE (i-1) -CLOSE (i) + 0.5 * (CLOSE (i-1) -OPEN (i-1)) + 0.25 * (CLOSE (i) - OPEN (i)) / R) * (K / T)


ASI (i) = ASI (i-1) + SI (i)


Where:


SI (i) is the Swing Index value;
SI (i - 1) - the value of the Swing Index on the previous candle;
CLOSE (i) - the closing price;
CLOSE (i - 1) - the closing price of the previous candle;
OPEN (i) - the price of opening;
OPEN (i - 1) - the price of opening the previous candle;
R - the ratio of the closing price to the previous extremum;
K - comparison of extremes: (HIGH (i - 1) - CLOSE (i)) and (LOW (i - 1) - CLOSE (i));
T - the limiting change in price;
ASI (i) is the value of the Accumulation Swing Index, ASI (Cumulative Vibration Index).


Adding an indicator to the MetaTrader


The cumulative fluctuation index (Accumulation Swing Index, ASI) is not included in the standard equipment of MT4 and MT5 trading platforms. In order to add it, you need to copy the indicator files to the appropriate directory on your computer.


If you have MetaTrader 4. Open C: \ Program Files. Then find the file folder of the trading terminal there and open it. Go to the directory ... \ MQL4 \ Indicators and copy the file / files to the file there. The Accumulation Swing Index (ASI).


If you have MetaTrader 5. Open C: \ Program Files . Then find the file folder of the trading terminal there and open it. Go to the directory ... \ MQL5 \ Indicators \ Examples and copy the file / files to the file there. The Accumulation Swing Index (ASI).


After that, start the trading terminal. Click " Insert / Indicators / Custom ". A list of indicators appears. Select the Accumulation Swing Index (ASI).


Trading system for Accumulation Swing Index Indicator


The cumulative fluctuation index (Accumulation Swing Index, ASI) in addition to graphical analysis makes it possible to analyze the divergence of the price chart and indicator.


The main signals of the Accumulation Swing Index (ASI) for Wilder:



  • ASI gives quantitative parameters of price fluctuations;

  • ASI gives short-term fluctuations;

  • Using ASI, you can see the real strength and direction of the market.


Simple trading tactics


To open a deal for sale:



  • The cumulative fluctuation index (Accumulation Swing Index, ASI) formed an upward support line.

  • We wait until the indicator line breaks through it.

  • At the opening of the next candle after the breakdown - we open a deal for sale.

  • Stop Loss is set higher by 3-5 points of the previous extremum.


Further, the transaction can develop in two scenarios:



  • The price will go up and Stop Loss will work

  • The price will go where we need, that is down and MA will break, which we previously added to the schedule. The MA period should not be taken very long, for example, 25.


 


If the transaction develops according to the second scenario - perfectly, wait for the signal to close with a profit. We will close the deal when the candle closes above the MA, as shown in the figure below.


Accumulation Swing Index Indicator (ASI) accumulation_swing_index_mt4


For a transaction to buy the reverse terms.


A few simple rules in conclusion


Remember, there are no indicators on Forex that are not mistaken. The cumulative fluctuation index (Accumulation Swing Index, ASI), like any other, requires confirmation of its signals. When building your own trading system, use several indicators.


Observe Money Management. Never in one transaction risk more than 2 percent of your capital. This approach protects you from ruin and will allow you to earn a stable income on Forex using the Accumulation Swing Index (ASI).


Clearly, follow your trading strategy. If you need to open a deal on the Accumulation Swing Index (ASI) strategy, open it, fix the result, fix it, and it does not matter whether you are positive or not. Only following the rules of the Accumulation Swing Index (ASI) "from and to" will make it possible to earn.


Download Accumulation Swing Index Indicator (ASI)


You may download The cumulative vibration index (Accumulation Swing Index, ASI) for MT4 


or you may download The cumulative vibration index (Accumulation Swing Index, ASI) for MT5 

Friday, May 25, 2018

Is it possible to earn money on Forex?

How much you can earn in the Forex market - the main question for those who are just mastering trading. There are no exact answers to it. Everything depends on the circumstances: market conditions, trader's skill, deposit size, analysis accuracy and many other factors. Let's understand.


How much do they usually earn on Forex traders?


In international practice, professionally managing assets of the organization - various investment funds - on average show an average annual return on each dollar invested at a rate of 15-20%. Of these, the most successful are 30-40%. These figures can be considered a target for the trader to understand how much profit he can get.


Factors determining profitability


State of the market


For a year from the summer of 2014 to the summer of 2015, millions of traders could earn on Forex. The fact is that during this time the dollar has risen in price relative to the euro by 30%. Meanwhile, the EUR / USD pair is the most popular instrument of the Forex market, traded by millions of traders around the world. At the end of the year, all of them received, respectively, 30% of profits, which is close to the maximum indicators (see the graph).


forex money


Deposit amount


An important factor limiting the trader's opportunities in his earnings on Forex. 30% of the profitability of the pair EUR / USD from $ 100 or $ 1,000 will be, respectively, $ 30 and $ 300. Therefore, if a trader wants to secure a decent income by trading in Forex, he needs to have a starting deposit, which, given the average profitability of the market, will be able to meet his earnings needs. In addition, the risks of trading a small deposit increase many times, while a deposit of sufficient size allows reducing risks. Due to the small size of the starting capital, traders are often forced to abandon interesting and profitable trades, as there is a risk of losing the entire deposit. / P>


Trading strategy


A good market situation and sufficient start-up capital will not save a trader from losses if he leads unreasoned and unbalanced trade. Therefore, each trader should work out his own trading strategy and adhere to it in the work. This will allow him to monitor possible risks and avoid unnecessary losses.


How can I make profits on FOREX without investing money?


To understand how much you can earn on Forex, we suggest using a secure demo account in trading terminal MetaTrader. Having opened a demo account, you can participate in the process of trading using virtual money. Thus, you will see how real-time trading in the foreign exchange market is going on, try to develop your own trading strategy, learn how leverage works, and learn how to assess possible risks depending on the size of the deposit. After you master the work on the demo account, you can try to apply the knowledge and skills obtained by opening a real trading account.

Thursday, May 24, 2018

Guide to Alligator Indicator

Most of the time the market does not move anywhere. Only 15-30% of the time it forms some trends, and many traders derive almost all of their profits from these trend movements. Everyone knows that the best trading system is one that avoids a double interpretation of signals, that is, the simplest one. And today we will analyze the trend indicator, which is quite capable of becoming the main element of such a vehicle - the Alligator from Bill Williams.


Introduction to Alligator Indicator


Indicator Alligator (or Alligator Bill Williams) is a trend and signals the beginning of a new trend. It includes a number of moving averages , in which fractal geometry is applied, as well as nonlinear dynamics. The indicator is quite popular and comes in packages for the analysis of most terminals. It was used by Williams in the system " Trading chaos ", described by him in the book "New Changes in the Exchange Trade."


Characteristics of the Alligator Indicator


Platform: Metatrader 4
Currency pairs: Any
Timeframe: from H4 and higher
Trading time: round the clock
Type of indicator: classic trend
Recommended DC: Alpari , Forex4You , RoboForex


Description of Alligator Indicator


The combination of the three moving averages is a more complex construction, "read" which is not always easy. Perhaps that's why many quit working with the averages, hoping to get more information from all sorts of indicators, most of which are nothing but a slightly different way of displaying a sliding line.


This indicator is displayed on the price chart by three moving averages that have certain periods and offsets. Trading on the indicator Alligator is best done on the daily charts and higher. Its distinctive feature is that it theoretically works on all timeframes, which makes it universal, but, as practice shows, on TF less than H4 it is better not to drop.


Forex alligator got its name due to some similarity with the crocodile. In form, it resembles an alligator that is closed, then with a slightly open, or even open jaw.


 


Determining the mood and intentions of the Alligator is not difficult. It's enough just to look at the three smoothed moving averages that have just been considered by us.



  • The longest of them, which is at the same time the balance line, is the "Alligator's Jaw". Note this line in blue.

  • A faster moving average (8-period, having a shift of 5 bars to the future) is the "Alligator's Teeth," making it red.

  • The shortest is called "Lips of the Alligator", and it will be designated green.


Alligator Indicator


Together these three lines perfectly show the character of the Alligator, and also determine all his actions in the present and plans for the future.


When the Alligator is satisfied, he does not care what happens in the market. He's sleeping. At this time, moving averages show his complete indifference to the environment. All three lines are intertwined at this moment in such a way that they are often difficult to distinguish and even more so, where each of them will go when the following bars occur. In the period of "hibernation" of the Alligator the market is characterized by a state of a regza, or a lateral trend.


But some time passes, food in the stomach of the Alligator is digested, it awakens him from sleep. What do you do when you wake up? I do not think that you immediately jump up and run somewhere. The alligator starts to "yawn," and this immediately reflects on the nature of the interlacing of the moving averages: the amplitude of the oscillations becomes wider, so the space between the lines widens slightly. At such a time, you should wait for the appearance of a fractal, indicating where the Alligator is going to crawl in search of food. As soon as the fractal appears, it's time to prepare for trading along with the indicator. So, after Alligator picks, he wakes up and goes hunting.


The question remains - how to determine how the Alligator is hungry?


Very simple! As soon as he begins to hunt, his Mouth opens (the blue line), exposing the Teeth (red line), and leaving the Lips (the green line) closest to the price bars. In other words, all three lines diverge in the order that is customary for the trend: the line with the longest period (13 period) is the most distant from the price bars, the 8th period is located between the 13th and the 5th period, the last of them are closest to the bars. While the Alligator is hungry, his Mouth opens wider and wider, which indicates an increasing desire to eat well. This is a clear sign of the trend. On the end of the trend can be judged only when the mouth begins to close, that is, the Alligator intends to stop hunting. Sometimes this means only a temporary respite.



It should be noted that the intersection of the Alligator lines is the first signal of the beginning of the movement in one direction or another. The intersection of all three lines is another additional signal, after which the "mouth" should begin to open.




  • The blue line (Alligator Jaw) is the Balance Line for the time period, which was used to plot the graph (13-period smoothed moving average, shifted by 8 bars to the future);

  • The red line (Alligator's teeth) is the Balance Line for a significant time period an order of magnitude lower (8-period smoothed moving average, shifted by 5 bars into the future);

  • The green line (Alligator's Lips) is the Balance Line for a significant time period, which is lower by another order (5-period smoothed moving average, shifted 3 bars into the future).



Lips, Teeth and Jaw Alligator show the interaction of different time periods. Since trends in the market can be identified only within 15-30 percent of the time, it is necessary to follow the trends and not work in markets that change only within certain price periods.


When the Jaw, Teeth and Lips are closed or intertwined - the Alligator is going to sleep or is already asleep. When he sleeps, his hunger increases - the longer he sleeps, the more hungry he will be when he wakes up. When he wakes up, the first thing he does is open his mouth and start yawning. Then he begins to smell the food: the bull's meat or the bear's meat, and the hunt begins. When the Alligator thoroughly nests - he loses interest in the food-price (the Balance Lines converge) - this is the time for profit taking.


Calculation of Alligator Indicator


MEDIAN PRICE = (HIGH + LOW) / 2
ALLIGATORS JAW = SMMA (MEDIAN PRICE, 13, 8)
ALLIGATORS TEETH = SMMA (MEDIAN PRICE, 8, 5)
ALLIGATORS LIPS = SMMA (MEDIAN PRICE, 5, 3)
Where:


MEDIAN PRICE - the median price;
HIGH - the maximum price of a bar;
LOW - the minimum price of a bar;
SMMA (A, B, C) is the smoothed moving average. Parameter A - smoothed data, B - smoothing period, C - shift to the future. For example, SMMA (MEDIAN PRICE, 5, 3) means that the smoothed sliding is taken from the median price, while the smoothing period is 5 bars, and the shift is 3;
ALLIGATORS JAW - Alligator jaws (blue line);
ALLIGATORS TEETH - Alligator teeth (red line);
ALLIGATORS LIPS - Lips of the Alligator (green line).


"Jaws of the Alligator" show information about what prices will be set on the market, if new factors do not affect it. If the price is above this line, then the market will not only move up, but also positively evaluate new factors. Accordingly - if the price is below the "jaws", then the market will move down and negatively assess the new factors.


How to use Alligator indicator?


Determination of the strength of the trend


In order to determine how strong the market will be, you need to analyze how long the moving averages are in the crossed state. The longer the indicator lines are in this position - the greater the likelihood that a strong trend movement is expected soon.


entrance


The Alligator indicator also provides signals that indicate when to enter the position. If during the trade the moving averages begin to increase in amplitude, and the distance between them gradually grows, then it shows that a new trend starts. Its direction will show the appeared fractal, when the candle completely closes above all three moving average indicators. After this fractal appears - you should start trading. The purchase should be made only when the Alligator lines start to move up and are below the formed fractal, which will be directed upwards (a closed bulb of a candle) and be above the green line.


The signal for sale is the position of the fractal below all the lines, which will be completely directed downwards (a closed bearish candle) and be below the lips of the Alligator (green moving average).


Typically, the Alligator indicator is not used alone (like any other indicator) to enter the market. We need confirmation in the form of a fractal directed upwards, or one more signal from another indicator (for example, a stochastic ).


Stop Loss


To set a stop-loss when opening a position, it is recommended to navigate along the blue line of the indicator.


Trend filter


The signals of the Alligator indicator are also used to determine the trend. In the event that the blue moving average is farthest from the price bars, the red line between 13 and 5 moving averages, and the green line is closest to the rest of the price chart, then you can be sure that there is (or only starts) a trend. If the price is higher than 3 lines - it is upward, if on the contrary - downward.


Exiting the position


You are already probably figuring out how, using the Alligator, to choose the right time to exit the market with maximum profit. Best of all, perhaps, any system, built on the use of trailing stops, will do. For example, you can focus on the line of teeth, which is an 8-period smoothed moving average, shifted by 5 bars into the future. Another very good option - the use of the indicator Parabolic SAR, which draws points above or below the price, depending on the current trend. If you still prefer work in high periods (from H4 and higher), then you might well approach trailing by shadows of candles, extremums or fractals.


Disadvantages of Alligator Indicator


Alligator has several drawbacks, like any other indicator.



  • Firstly - any signal appears late. For its formation, a definite trend in the market is needed;

  • Secondly, Forex Alligator creates a lot of false signals in a quiet market (especially when crossing lines). For more or less accurate response to the signal, it is necessary to use additional filters (RSI, for example, which also generates signals for the movement and rollback of the currency pair).


Practical Examples


Some practical examples of technical chart using Allegator indicator are at:


EURUSD Technical Chart | 30-May-2018



Conclusion


Today we reviewed the application of the classic trend indicator Alligator in the trade. If you are a fan of trend trading systems, then you definitely should try to try on the Alligator to your strategy. Perhaps this is exactly what you so long did not have.

Wednesday, May 23, 2018

EURUSD Technical Chart | 23-May-2018

Below is the technical chart of EURUSD. Time frame used is H4. Technical charts used are Doda DonchianDoda-Bollinger BandsIchimoku and ADX Candles technical indicators.


EURUSD Technical Chart


After trying for little upward movement last week, EURUSD failed to cross Kumo as shown in above chart.


Then, it started its downward journey again, followed by Doda-Donchian and Doda-Bollinger Bands indicator.


Even at this stage, the chart is weak and is in a downtrend. 


The weekly EURUSD chart indicates that it will take some support at 1.6792


Major Support Levels for EURUSD


1.17596


1.17423


1.17143


Major Resistance Levels for EURUSD


1.18155


1.18328


1.18607

Linear Regression Technical Indicator

The Linear Regression Indicator is a simple indicator included in the basic equipment of MT4 and MT5 trading terminals.



[caption id="attachment_1538" align="aligncenter" width="546"]Linear Regression Technical Indicator Linear Regression Technical Indicator[/caption]

The indicator builds a channel on the chart of the price of the trading instrument. Despite the simplicity, most Forex traders do not use it when trading, but in vain. But first things first.


Applying the Linear Regression Indicator to the graph is very simple. If you have MT5 - open the Insert-Objects-Channels-Regression channel menu.


Once again, this is a very simple indicator in its essence, the only thing that is really difficult in it is the formula for calculating it, built on the basis of regression analysis. You do not need to understand it, because it is not necessary for practical application in trade.


Appearance of the indicator Linear Regression


The indicator is three lines. The central line is built on the basis of regression analysis, and the other two (the canal boundaries) are equally remote from and parallel to it. In fact, this indicator is a tool for graphical analysis, therefore it does not have additional parameters to be set, but is simply constructed according to a formula. The basic idea is that you can take any gap on the price chart and build the corresponding channel according to the values of the candles. The channel is being built at the closing price of the candles.


Mathematical Principles in Linear Regression


So, what's the point? It is proved that if the set of points is located on the plane (in our case it is the prices of the trading instrument), then we can build on them only one straight line, where each of its points will be at the minimum distance from the sum of the squares of the distances of the original points.


This straight line is constructed from the simple linear equation y = ax + b. It is for this reason that the channel is called the linear regression channel. The boundaries of the channel are at the maximum average deviation from the price.


Signals of the Linear Regression indicator and trading tactics


You already guessed, the Linear Regression Indicator is a trend indicator. Its main task is to point to the current trend. Its direction and strength, as well as signaling about market corrections.


We understand the direction by analyzing the slope of the indicator's midline. If the indicator is directed upwards - the trend is positive, on the contrary, negative.


The current strength of the movement is indicated by the location of prices in the channel. If the prices for the three candles touch the upper border of the channel, there is a strong upward movement. And vice versa, down.


On the correction in the market, may indicate a rebound from the border of the channel and a reversal of the price movement against the main direction. At the same time, when the opposite border of the channel is reached, the movement, as a rule, resumes.


But, as in the case of other indicators, you can not use only these signals to enter the market. Always need confirmation.



Conditions for opening a position


Trend ascending. The middle line of the indicator is growing.
The price approached the lower border of the channel and punched it.
We put the pending order for the purchase higher by 2 points from the maximum price of the candle, at which the breakdown of the channel took place.
If, within four candles, the order does not work, we delete it. As you can see in the picture, the order was opened on the third candle after the signal.
Stop Loss set lower by five points from the previous minimum value.
We close the transaction with profit, as soon as the price closes above the upper border of the channel.


For a deal to sell similar conditions, but vice versa.


Note. For a more stable trade, use clear rules for managing capital in the work and, as mentioned above, confirming signals from other indicators.


Download Linear Regression Technical Indicator


You may download Linear Regression Technical Indicator for MetaTrader.

Tuesday, May 22, 2018

Price Channel Technical Indicator

Description of the Price Channel Indicator


Probably the most common trading tactic in financial markets, including Forex, is the use of channel strategies for trading. The simplest strategy is to build a channel for three extremums on the chart of the price of the trading instrument. This is not difficult, but requires the trader to constantly "handmade" the schedule. It is much easier to use technical indicators to build channels. There are many options for such indicators. Let's look at one of the most popular indicator:


Application of the Price Channel Indicator


Price-Channel-Indicator-1


The boundaries of the indicator are calculated from the average values of the price minima for the lower limit and the highs for the upper for a certain period of time (the number of candles). The average line of the indicator is the arithmetic mean between the boundary values.


The Price Channel indicator can be adjusted by one parameter - by time (by the number of candles for calculation). The standard value is 14. Nevertheless, in practice, when trading, traders select the most appropriate value for a specific timeframe. You should choose the indicator value for the trading instrument and the corresponding timeframe, when 95% of all prices will be inside the channel. Then you can confidently declare with trade that when the price is inside the Price Channel Indicator, the market is stable. And when outside the indicator - there is a pronounced impulse movement, and, most likely, short-term. And soon, there will be a return to the channel.


To build trading tactics, traders often set one indicator for several Price Channel indicators, PCs with different time periods. In order to see both the current situation with the trading instrument, and global. This helps to avoid false signals to enter the transaction. Serves, so to speak - a confirmation, an indication of the prevailing trend.


Price Channel Indicator


In this system of channels, it is possible to build various trade tactics, oriented both on the retreat from the borders and on the breakdown. The use of 2 indicators immediately gives the trader a huge space for maneuvers in building trade tactics.


The strategy based on the price channel


Simple trading strategy based on a single indicator of the price channel Open the deal at the opening of the third candle after the candle closes behind the middle line of the indicator. And we close the deal on the reverse conditions. Stop Loss after opening we put on a minimum of a candle on which there was a breakdown of an average line of the indicator.


Accordingly, for transactions to sell mirror conditions.


When building trade tactics based on the Price Channel indicator, always remember about the rules of capital management, and also use the confirmation signals from other indicators.


Downloads Price Channel Indicator


Indicator Price Channel for MT4 can be downloaded from here.


Indicator Price Channel for MT5 can be downloaded from here.

Friday, May 18, 2018

Beginners Guide to Moving Average

Moving average ( MA - moving average ) is a technical indicator based on an analysis of the behavior of securities quotations and their moving average. The moving average is one of the oldest and most common indicators of technical analysis related to trend indicators.


The moving average is a low-pass filter, that is, it passes low-frequency activity (long-term cycles and their trend lines), cutting off high-frequency - random oscillations.


To use the indicator at the same time, the price charts and its moving average are combined.


The type of moving average and the construction period (the number of time periods over which averaging is performed, sometimes called the order or time window or length ) is selected by the trader at his discretion and depends on the trading horizon, the market volatility and the instrument. And, at different intervals of time different types of moving averages and different construction periods can be used. The choice of these parameters is considered so complex that it has become a separate branch of technical analysis. However, in the general case it is recognized that the longer the forecast time, the greater the order it is necessary to choose for the moving average, and vice versa.


For the construction and analysis, usually use any of the generally accepted stock prices (opening, closing, maximum, minimum, average, weighted average), but usually, use the closing price.



[caption id="attachment_1526" align="aligncenter" width="778"]moving average moving average[/caption]

Moving Average Strategies


The most popular strategy is that the instrument is bought, provided that the price chart crosses its moving average from the bottom up, and is sold when the price chart crosses the moving average chart from top to bottom. Both phenomena are called breakdown.


In addition, it is believed that if the price chart line is above the moving average, then the market is considered "bullish", on which you can buy, and if on the contrary - "bearish", preferred for sale.


Moving Average Signals


Usually, the indicator gives a lot of false signals to buy or sell. To minimize this phenomenon, several methods are used:



  • The decision to buy / sell is taken if between the price chart and the moving average after its breakdown a distance equal to a certain number of minimum price changes for the instrument is established.

  • The decision to buy / sell is accepted if, after the breakdown of the moving average, some fixed time has passed, but the trend has not changed.

  • By the method of interest envelope. Instead of a moving average, two lines are built: one above, and the other below, separated by a certain percentage from the calculated moving average. The decision to buy is taken after the price chart crosses the upper line from the bottom to the top and vice versa, the decision to sell is taken after crossing the price of the lower line from top to bottom.

  • By the strip method. Instead of the moving average, built at the closing price, two moving averages are constructed at the maximum and minimum price. Decisions are made when crossing these lines with a price chart similar to the method of percentage envelope method.


In 1992, Tushar Chande (Tushar Chande) developed an adaptive model of the moving average, in which the construction period depends on the volatility of the price - VIDYA . In 1995, Perry J. Kaufman (Perry J. Kaufman) offered his version of such a technical indicator - Adaptive Moving Average Kaufmann.


In general, the moving average graph is correlated with the last price, but some traders shift it a few gaps forward or backward.


Advantages of the moving average



  • Any change in the trend is preceded by a break in the curve of the moving average of a certain type, calculated for a certain period.

  • Full automation of decision making.

  • The most effective tool with pronounced trends.

  • Easy to use and easy to understand.

  • Multifunctionality.


Disadvantages of moving average



  • Signal lag.

  • A significant number of false signals, especially with a sideways trend.


You also need to know that moving averages can be applied not only to a number of prices, but also to arbitrary series, for example, to other indicators, interpreting the result in the way described above.

Tuesday, May 15, 2018

EURUSD Technical Chart | 15-May-2018

Below is the technical chart of EURUSD. Time frame used is H4. Technical charts used are Doda DonchianDoda-Bollinger BandsIchimoku and ADX Candles technical indicators.


EURUSD Technical Chart


After settling around 1.18493, EURUSD currency pair started its upward movement and this currency pair managed to close ABOVE Doda-Donchian and Doda-Bollinger Bands. That indicates beginning of upward journey.


But wait a sec...


The currency pair is still trading INSIDE kumo, which is no trade zone and major resistance for it. So, DO NOT take any long position, till it manages to close above Kumo cloud. The future kumo is also bullish. So, it can show some upward movement.


But if it closes below Doda-Donchian and Doda-Bollinger Bands, just take short position without any second thought as EURUSD Daily chart is weak.


Major Support Levels for EURUSD


1.19220


1.19054


1.18786


Major Resistance Levels for EURUSD


1.19756


1.19922


1.20190

Theory of Fibonacci numbers in technical analysis

Theory of Fibonacci numbers


The Fibonacci mathematician lived in the twelfth century and was one of the most famous scientists of his time. Among his achievements is the introduction of Arabic numerals in Europe in place of Roman numerals. He opened the summation sequence, called his name:


0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, ...


This mathematical sequence arises when starting from 1, 1 the next number is obtained by adding the two previous ones. But why is this sequence so important?



[caption id="attachment_1521" align="alignleft" width="306"]Fibonacci numbers Fibonacci numbers[/caption]

This sequence asymptotically (approaching more and more slowly and slowly) tends to some constant relation. However, this ratio is irrational, that is, it is a number with an infinite, unpredictable sequence of decimal digits in the fractional part. It is impossible to express it accurately. If any member of the Fibonacci sequence is divided into the preceding one (for example, 13: 8), the result is a value oscillating around the irrational value 1.61803398875 ... and once more superior, it does not reach it. But even after spending an eternity on this, it is impossible to know the ratio exactly, up to the last decimal figure. For the sake of brevity, we will quote it as 1.618.


 


The Fibonacci sequence has very interesting features, not the last of which is an almost constant relationship between numbers:


1. The sum of any two adjacent numbers is equal to the next number in the sequence. For example: 3 + 5 = 8, 5 + 8 = 13 and so on.


2. The ratio of any number of sequence to the next approaches 0.618 (after the first four numbers).


For example: 1/1 = 1.00; 1/2 = 0.50; 2/3 = 0.67; 3/5 = 0.60; 5/8 = 0.625; 8/13 = 0.615; 13/21 = 0.619 and so on.


Notice how the values of the ratios oscillate around the value 0.618, and the range of fluctuations gradually narrows; as well as the values: 1.00; 0.50; 0.67.


3. The ratio of any number to the previous one is approximately equal to 1.618. This is the reciprocal of 0.618.


For example: 13/8 = 1.625; 21/13 = 1.615; 34/21 = 1.619. The higher the numbers, the more they approach the values of 0.618 and 1.618.


4. The ratio of any number to the next one after it, s close to 0.382, and to the previous one through one - to 2.618.


For example: 13/34 = 0.382, 34/13 = 2.615. Another important fact is that the square of any Fibonacci number is equal to the number in the sequence before it multiplied by the number after it, plus or minus 1.


5 2 = (3 x 8) + 1
8 2 = (5 x 13) - 1
13 2 = (8 x 21) + 1


Plus and minus constantly alternate. This is another manifestation of an integral part of the Elliott wave theory, called the rule of alternation. It says that complex correction waves alternate with simple ones, strong impulse ones are full - with weak corrective waves and so on.


The Fibonacci sequence contains other curious relationships, or coefficients, but the ones that we just brought out are the most important and famous. In fact, Fibonacci is not the pioneer of these numbers. The fact is that the coefficients 1.618 or 0.618 were known to ancient Greek and ancient Egyptian mathematicians, who called them the "golden ratio" or "golden section". His traces we find in music, fine arts, architecture and biology. The Greeks used the principle of "golden section" in the construction of the Parthenon, the Egyptians - the Great Pyramid in Giza. Properties of the "golden ratio" were well known to Pythagoras, Plato and Leonardo da Vinci; These coefficients are widely used today.


Individual numbers from the Fibonacci summation sequence can be seen in the movement of commodity prices. Oscillations of ratios near 1.618 to a greater or lesser magnitude are found in the Elliott wave theory, where they are described by the "rule of alternation". A person subconsciously searches for the Divine proportion: it is needed to satisfy his need for comfort.



It was the number 0.618 that became the basis for application in the technical analysis of Fibonacci lines, where it turned into 61.8%.


Thursday, May 10, 2018

Guide to ADX Indicator (Average Directional Index)

Introduction to ADX Indicator


J. Welles Wilder developed the Average Directional Index ( ADX) indicator to determine the strength of the trend, whether the trend will develop further or gradually decline. The ADX indicator allows analyzing market trends and making trading decisions, including in the forex market.


Formula for ADX Indicator


Calculate positive and negative directional movement (Directional Movement or DM) - + DMj and -DMj


If Highj (maximum current bar)> Highj-1 (maximum of the previous bar),
then + DMj = Highj - Highj-1, or + DMj = 0
If Lowj (at least the current bar) <Lowj-1 (low of the previous bar),
then -DMj = Lowj-1-Lowj, otherwise -DMj = 0
if + DMj> -DMj,
then -DMj = 0
if -DMj> + DMj,
then + DMj = 0
if + DMj = -DMj,
then + DMj = 0 , -DMj = 0


Determines the true range - TRj (True Range)
TR = the maximum of the modules of the three values ??of
| High - Low |, | High - Close j-1 |, | Low - Close j-1 |.
Where Close j-1 is the closing price of the previous period.


Note: at forex in the absence of price breaks the maximum in most cases will be | High - Low |.


The positive direction indicator and the negative direction indicator - + DIj and -DIj (Directional Index) are determined .


+ DIj = Exponential Moving Averagej (+ SDI, N)
-DIj = Exponential Moving Averagej (-SDI, N)


where, if TRj is not = 0,
then + SDIj = + DMj / TRj;
-SDIj = -DMj / TRj
if TRj = 0,
then + SDIj = 0,
-SDIj = 0,


The mean directional motion is determined - ADXj.
ADXj = Exponential Moving Average (DX, N)
Where DXj is calculated by the formula


Formula for ADX Indicator


The ADX itself looks like this.



[caption id="attachment_1518" align="aligncenter" width="828"]ADX Indicator ADX Indicator[/caption]

 


Description of ADX Indicator


Actually, the ADX indicator refers to the oscillator class , which ranges from 0 to 100. Although the movement of the ADX indicator is in the range from 0 to 100, the movement above the 60 mark is quite rare.



A value below 20 signals a weak trend, a value above 40 signals a strong trend. Data above 40 can show both a strong downtrend and a strong uptrend.



The ADX indicator can also be used to identify potential changes in the market. When the indicator reading crosses the limit of 20 from the bottom up - this can indicate a trend change and its further development. When the indicator shows a value less than 40, falling from a higher level, this may mean that the trend has lost power.


The ADX indicator is derived from the other two, which are also developed by Wilder. One indicator is called a Positive Directional Indicator (in most cases, sometimes referred to as "+ DI"), the second indicator is a Negative Directional Indicator (denoted as "-DI"). On the chosen time interval + DI- shows the strength of the movements up, and -DI shows the strength of the movements down for a certain period.


The ADX indicator shows the strength of the trend and combines + DI and -DI, then smoothing the data of the moving average. Since ADX uses the data + DI and -DI does not indicate the direction of the trend.


How to use ADX indicator



  • In its basic form, signals for buying and selling come at the intersections + DI / -DI. The buy signal comes when + DI crosses from below-DI, and the signal to the sale is intersection by the indicator -DI indicator + DI from top to bottom.

  • For a trader, it will be important to catch the trend at an early stage of development and the ADX indicator should help it when achieving its goal and getting the benefits of making deals.


To catch the trend in the early stages, you need to look at currency pairs, where the ADX crosses 20 from the bottom up. Accordingly, the fall of ADX from below 40 signals that the current trend is weakened and the trading range may start. Thus, the ADX indicator itself shows the presence or absence of a trend, and other indicators can be used to determine the entry points and the direction of entry.


Disadvantages of ADX Indicator


The signal to the input fed by the intersection of the indicators -DI and + DI is often false when the currency pair is in the trading range.


Further Recommended Reading


How to Use ADX (Average Directional Index) in Forex

Wednesday, May 9, 2018

Guide to MACD Indicator and MACD Histogram

In our previous tutorial on MACD, we've learned the basics of MACD. In this tutorial, we'll try to understand MACD in detail.


Introduction to MACD


The MACD indicator (moving average convergence divergence, which translates as convergence or convergence - the divergence of moving averages) is, on the one hand, classed as oscillators, on the other hand, it can also be referred to the class of complex averages, since it is nothing more than an improved visual the perception of two simple moving averages (or exponential moving averages). It is believed that the MACD indicator significantly reduces the inherent drawbacks of moving averages.


MACD Formula


There are two ways to build and analyze MACD:



  1. MACD linear, which is more often used for the analysis of the trenches;

  2. MACD-histogram, by the method of analysis and value rather refers to the class of oscillators.


1. Linear MACD


To calculate the linear MACD from the moving average price (usually an exponential moving average is taken) with a smaller period, an exponential average with a long period is subtracted. In most cases, the result is smoothed using the exponential moving average (EMA) to eliminate random fluctuations.


MACD = (EMAs (P) -EMAl (P)),
Signal = EMAa (EMAs (P) -EMAl (P)),


Where:
EMAs (P) - exponential moving average with a long period from the price.
EMAs (P) - exponential moving average with a short period from the price
EMAa (P) - smoothing exponential moving average with a short period from the difference of the other two sliding.
P is the price, the closing price of the Close period is usually taken, but other options are possible (Open, High, Low, Close, Median Price, Typical Price, etc.)


By default, the following MACD settings are usually taken :
EMAs (short) with a period of 12 (two weeks)
EMAl (long) with a period of 26 (month)
EMAa (smoothing difference) with a period of 9


2. The MACD histogram formula


To use the MACD histogram, you need to subtract the signal line from the MACD line.
MACD Histogram = MACD - Signal.



Comments: In modern textbooks on the Internet, and in many new publications, there is a confusion between the descriptions of the MACD indicator and the MACD histogram. The confusion is caused by the same names of the indicator "MACD-histogram" and the way the linear MACD is displayed in the form of a histogram.



The MACD graph


Typically, technical analysis programs such as Metastock, Trade Station, Metatrader, Dealing Desk place the MACD indicator (and a line and histogram on a separate chart) on which the zero line is marked.


1. Graph of linear MACD


On the schedule are drawn two curves.


The first MACD = EMA (12) [p] - EMA (26) [p];
The second Signal = EMA a (EMA l (P) -EMA s (P)),


In most cases, MACD is drawn in the form of a histogram (it is in the form of a histogram and not a MACD histogram indicator ), and its smoothed moving average (signal line - Signal) is drawn as a line.


The zero line of the MACD indicator shows the level at which the average prices of the two periods are equal, ie, there is a certain equilibrium between the prices of the short and long-term periods.


The MACD yield above the zero level indicates an increase in prices in the short term relative to long-term prices. an upward trend. Accordingly, the output of values below zero means a decrease in prices in the short term relative to the long-term period and, accordingly, a downward trend.


MACD


2. Graph of the MACD-histogram


The MACD histogram measures the distance between the MACD line and the signal line. She draws this difference in the form of a histogram - a sequence of vertical columns.



  • If the MACD is above the signal line, the value of the MACD histogram is positive and is laid up from the horizontal axis (zero).

  • If the MACD is lower than the slow one, then the MACD-histogram has a negative value and is displayed below the horizontal axis.

  • When the MACD and signal line intersects, the MACD histogram is 0.

  • When the gap between the MACD line and the signal line increases, the MACD histogram becomes wider.

  • When two lines approach, the MACD-histogram becomes narrower.


MACD



Signals of linear MACD:



  • The appearance of a maximum or a minimum on the signal line means that the signal of the MACD indicator may soon follow and should be prepared for the transaction.

  • If the MACD is above the zero line, then in the market an uptrend, respectively, the intersection of the zero-line MACD from the bottom up gives a buy signal. The strength of such a signal depends on what the previous MACD movements were like. If MACD was above the zero line for a long time, and then began to fall crossed the zero line from top to bottom, then this is treated as a sell signal. And if MACD was in the negative zone for several months, then the rise is above zero and then the return below the zero line is most likely indicative of only a temporary correction.

  • If the MACD is below the zero line, then in the market a downtrend, respectively, the intersection of the linear zero line MACD from top to bottom gives a sell signal. Here also it matters how long before this MACD was below the zero line.

  • When using MACD in divergences, if a Bullish divergence is formed , i.e. a new high on the chart of the price above the previous one, and a new high on the chart the MACD indicator below the previous one, it shows the weakness of the current upward trend and likely soon turn. It is about probability, but not about the spread itself, so do not immediately open a position against the existing upward trend. In such cases, analysts are usually advised to wait for confirmation signals, for example, breaking a trend line or signals from other analysis systems. Bull discrepancy may be poorly confirmed by the intersection of MACDits signal line from top to bottom. Divergences (divergences) are the least frequent of MACD signals, but, as a rule, warn of a possible maximum or minimum price.

  • If the Bearish convergence is formed, i.e. a new low on the chart price lower than the previous, and a new low on the chart indicator MACD above the previous one, it shows the weakness of the current downward trend and the market is more likely turn up. However, as in the case of the Bullish divergence, it is not necessary to open positions for purchase without waiting for more weighty evidence of a trend reversal. Bearish convergence may be poorly confirmed by crossing the MACD of its signal line from the bottom up.

  • Multiple discrepancies (triple or more Bull Differences and Bear Convergence) are treated as well as usual, with the only difference being that the stronger signals are MACD.

  • When the linear MACD itself is below 0 and crosses the signal line from the bottom to the top, then if there is no bearish convergence, the most likely rise in prices.

  • When the MACD is above 0 and crosses the signal line from top to bottom, then, if there is no bullish divergence, the most likely drop in prices.

  • In the event that the market clearly does not have a trend, reaching a maximum of MACD suggests that short-term prices have deviated significantly from long-term prices - this is a weak sell signal. In the event that MACD designated its minimum, it is a weak signal to buy. The strength of these signals increases if the maximum or minimum was really abnormal, i.e. went beyond the values you see.

  • On the MACD as well as in graphical analysis of prices can be used to support line of resistance, and technical analysis of the figures.


 


MACD-Histogram Signals


Some authors, in particular, A. Elder (Book how to play and win on the stock exchange), believe that the MACD histogram gives a deeper understanding of the balance of power between bulls and bears than the original MACD. Using the MACD-histogram , it gives an opportunity to evaluate not only who is stronger at the moment buyers or sellers, but also the tendency of their strength, how and how quickly the preponderance between them changes.



  • The slope of the MACD histogram is not talking about the current preponderance of sellers and buyers, but about how the balance of power is changing: the upward slope suggests that buyers are getting stronger than before (but not necessarily stronger than sellers), and a downward slope indicates that sellers are becoming stronger (but not necessarily that they are already stronger than buyers), so changing the slope is a signal of the MACD histogram . Changing the slope from below with "down" to "up" gives a buy signal. Changing the slope from "up" to "down" gives a sell signal.

  • If the market is growing trend, and the slope of the MACD histogram down, it means weakening that the rate of trend growth is gradually decreasing and we need to start looking for points for sale. Conversely, if the downside trend in the forex market and the MACD histogram increases, it means that the rate of falling prices decreases and you need to gradually think about closing positions for sale or thinking about buying.

  • In most cases, MACD highs and lows - the histograms very long anticipate the highs and lows of the price, so when such highs and lows appear on the MACD indicator chart, you should prepare for the appropriate action. But it is prepared, and not to make purchases and sales. For example, when a histogram MACD reaches a maximum during a rally, the upward trend in its highest development, and following up to chart the price is likely to be larger than the previous. Accordingly, if the MACD- histogram falls to a new low during a downtrend, then the new minimum price is likely to be lower than the previous one.

  • Divergences (Bullish divergence and Bearish convergence) allow you to catch the moments of the main reversals and the beginning of a new trend.



Disadvantages of MACD



  • It is believed that both the linear MACD and MACD histogram give too many false signals on intraday charts, and MACD indicators are better used for periods from day to day.

  • The MACD line indicator is sometimes significantly delayed when generating trend signals.

  • As in most cases, the smaller the MACD setting, the more false signals the indicator gives the more MACD settings, the more signals it misses. Naturally, there are no optimal MACD settings.

Tuesday, May 8, 2018

EURUSD Technical Chart | 08-May-2018

Below is the technical chart of EURUSD. Time frame used is H4. Technical charts used are Doda DonchianDoda-Bollinger BandsIchimoku and ADX Candles technical indicators.


EURUSD Technical Chart | 08-May-2018


As it is clearly visible from the chart, the currency pair EURUSD is in downtrend since 19-Apr-2018, when it closed below Doda-Donchian indicator @1.23410. It started its downtrend journey and has not given any buy signal thereafter.


Even at this stage, the chart is bearish. It gave sell signal @1.19300 and getting some support around 1.19010 but it's just a matter of time. It can easily go further down from here.


Do NOT take any long position even if any buy signal given by any technical indicator at this stage. Just make a stop-loss of 1.19457


Important Support Levels are:


1.19010


1.18820


1.18513


Important Resistance Levels are:


1.19624


1.19814


1.20121


 


 

Understanding Relative Strength Index (RSI)

Introduction to Relative Strength Index


The indicator was developed by J. Wallace Wilder. For the first time, the Relative Strength Index was introduced in June 1978 in the journal Commodities (now known as Futures), and then published in his book "New concepts in technical trading systems" and has since become one of the most popular oscillators assessing the strength of the movement. The Relative Strength Index compares the value of recent asset price rises with the magnitude of its falls and provides this information in the form of a number ranging from 0 to 100. The only parameter of the relative strength index is the time period used in the calculation.


Note: Be careful, since the name Relative Strength is quite common in various types of technical market analysis , for example, John Murphy's Relative Strength analysis or indicators that show the relative strength of various securities in the stock market. It must be remembered that the Relative Strength Index is calculated based on the price of one asset.


Formula of Relative Strength Index


Formula of Relative Strength Index


where
CU (n) - the average value of positive changes in the closing price;
CD (n) - the average value of negative changes in the closing price;


Formula of Relative Strength Index


 


if Cj-Cj-1 <0


The author himself recommends 14 periods as the main parameter.



It should be noted that for the RSI period of 14, the average value of positive closing price changes (and the average value of negative closing price changes) is divided by 14, even if these positive (or negative) deviations themselves are 5.



Average value of positive closing price changes and average the value of negative changes in the closing price are not real moving averages. Instead of dividing by the number of positive and negative changes, both indicators in the denominator have a total number of periods for calculating the RSI.


Sample Chart with Relative Strength Index Indicator


Relative Strength Index


Description of Relative Strength Index Indicator


When the average value of positive closing price changes is greater than the average value of negative changes in the closing price of the RSI, the value of RS is increasing, since the value of RS is greater than one, respectively, when the average value of positive changes in the closing price is less than the average value of negative changes in the closing price of the RSI falls, since RS is less than unity.


As with most oscillators, the more data is used to calculate RSI (the longer the RSI period), the more accurate the results will be. In most cases, for the RSI market analysis, a typical overbought and oversold zone method is used. The author (Wilder) recommends using for zones overbought and oversold zones correspondingly above 70 and below 30. The zone above 70 thus by the author shows that the market is overbought (ie further upward movement will soon exhaust itself), and the zone below 30 is considered oversold zone(ie further downward movement will soon exhaust itself). However, there are many other variations regarding the ratio of these levels: 75/25 or 80/20.


In the Forex market, the last level ratio is often used. As the central, usually consider the level of 50. 


The Relative Strength Index is mainly used in markets that are in a sideways trend because in markets that are in a directed trend, it can be used only to determine entry and exit points within a trend.



The use of the Relative Strength Index as the main indicator in the trend market can lead to a large number of false signals.



 


How to use Relative Strength Index Indicator?



  • As an advanced indicator without signals. Maxima behind level 70 and lows below 30 often outstrip the highs and lows on the price chart.

  • Trend strategy: some traders perceive the intersection as an indicator on the trend market of point 50 upwards as an uptrend, and fall below 50 as a downtrend. Therefore, crossing level 50, when the market is a trend, in itself is a signal for entering the market. However, in the formation of an undirected lateral trend, such a strategy will give a lot of false signals, since RSI will often cross level 50.

  • Countertrend strategy. Signal levels used are 70 and 30, 75 and 25, 80 and 20, or others. At the same time, the signal for sale is given when the RSI leaves the overbought zone. crosses the level of 70% down, and the buy signal is sent when the RSI is out of the oversold zone, i.e. crosses level 30 from the bottom up. However, this strategy works only in the non-trendy period of the market. In the trend period, the indicator will go into one of the zones (with an uptrend in overbought, with a descending oversold) and will feed in this zone a lot of false signals constantly crossing the line separating the zone.

  • In Lebo's book, Lucas "Computer analysis of futures markets" describes a way to deal with false RSI signals, which often occur in overbought and oversold zones. A sell signal appears if RSI forms a double vertex (a figure of the type // - the letter M) in the overbought zone (for example, over 70), with the second vertex lower than the first. The sell signal appears when the bottom of the double top is broken. Conversely, if the RSI creates in the oversold zone (for example below 30) a double base figure (figure of type // or W), where the second minimum is higher than the first, then the buy signal is given if RSI breaks the level of the average high up. It is believed that the higher in the overbought zone and the lower the oversold zone, the stronger the signal.

  • Signal divergence. As with other oscillators, the divergence signal comes in the case of a discrepancy between the ratio of new highs or lows on the oscillator chart and the price. If on the oscillator chart the new maximum is lower than the previous one, and on the price chart the new maximum is higher than the previous one, there is a "discrepancy" between the oscillator and the price. This is a signal to sell. If the price makes a new low below the previous one, but an oscillator makes a new low above the previous one, this means that the relative strength of the downward trend. The decline is nearing, the turn is coming up and the signal for purchase comes. It is assumed that the distance between the minima and maxima on the oscillator should be from 7 to 50 periods, otherwise, the divergence will be too "raw" (if less than 7) or already "burnt out" (if more than 50).

  • Graphic patterns. On the RSI chart, there often appear graphic patterns that traders use in analyzing price charts (such as head-shoulders, triangles, etc.).

  • Support and resistance levels on the relative strength index graph often show more explicit levels of support and resistance than on the price chart itself.


 


Disadvantages of Relative Strength Index Indicator


It works poorly during the trend on the market (it gives many false signals).


External Links


Check another great tutorial on Relative Strength Index Indicator on ForexTradingKit.com