Marketiva Forex: Trade as low as $1 & FREE $5 + $10000 Virtual Practice Money
Marketiva Forex: Trade as low as $1 & FREE $5 + $10000 Virtual Practice Money
Marketiva Forex: Trade as low as $1 & FREE $5 + $10000 Virtual Practice Money
Marketiva Forex: Trade as low as $1 & FREE $5 + $10000 Virtual Practice Money
Experience traders usually rely heavily on the fundamental analysis more than technical in their daily trading. This is because they have already study for so many years about the behavior of market movement affected by each of the economic data. Despite of their overall success there are certain times they still at least incur some losses. And their only solution to cut that losses is by putting a stop loss limit so that the market will not slide away too far of the expectation.
As for the beginner forex traders please don't mess up with the economic data if you totally have no idea how it works. However I would suggest take your time to make a thorough study in order to build your own experience on the market behavior for each of the economic data such as interest rates, non farm payrolls, Gross Domestic Product (GDP), Consumer Price Index (CPI), etc. These are the unexplainable facts that you cannot find in any forex books written by any experts because they don't know the effect on the market either. This is where you have to be your own experts in forex trading.
The very problem of fundamental factors is because they are so unpredictable especially its immediate effect which can drive you crazy. Take for example during non-farm payrolls data release, some traders consider it as profitable and some others see it dangerous time of trade. The fact is no one really knows and when it happens they either could be wrong or right. No matter what figures comes out whether it is as expected or not the market still can go crazy moving at any directions i.e. ups, downs, or up and downs defying all the technical rules. As a result some traders will make huge profits in matter of seconds i.e. 200 pips or more and others may suffer great losses. Some can even profit in both direction to double their pips earning.
Now in this topic I will discuss how can we use technical advantage to solve the problems of fundamental factors dilemma. And for that reason I am not going to discuss how to make profits in both directions or straight win on the first setup but rather to identify the point of overbought/oversold positions. Furthermore I will not guarantee you will make profits because the market will be very fast moving and the likelihood for you to miss the boat is very high. In this case if you miss it just let it go.
In order to make discussion easier to understand i am going to use 4 hourly time frames which is one of the most difficult for the market to break its resistance without solid support. During non-farm payrolls data or significant economic data the market may shake vigorously without any direction. The quicker it moves the weaker the foundation of the movement. Most often it will pass the resistance level in this case 4 hourly time frames and create overbought/oversold positions. You can see this on the Bollinger Bands indicator. So this is chance for you to setup your position, but don't do it too quickly when it is still moving underway and let it go slide further away from the resistance level to create super overbought/oversold position. As it is reside far outside the B. Bands resistance lines then just setup your position.
At this point even the most powerful trader with most money including those brokers traders use to call "bucket shop" will not dare to try any further move because it is already too far from the moving average.
The market will eventually make corrections to normalize the overbought/oversold situation to the ideal position where the market supposed to be. Or in fact you may get lucky if the market make total reversal you will make good profit for the day.
I am sorry for unable to provide visual image of the non-farm payroll data because it happens less regularly at this point of time. Therefore i am unable to get the recent chart. You will find out yourself someday and check economic calender here at forexfactory
To illustrate this problem we can see it on GBP-JPY monthly time frame where stochastic is moving up while MACD is still moving down. At this point we will not know how far the market is following stochastic direction. There are two possibilities which is the middle of weekly time frame or further more to the middle of monthly time frame as shown below. Now that the weekly time frame seem to be broken it is possible that the market might continue moving upside to its upper band or making a sudden reversal. Beware of sudden reversal!!! Because it will have little stopping when it happens. This is very dangerous position to trade because of the unknown situation.
Although we know that eventually the market will go down because of the MACD still moving downwards. But that is only to be confirmed when stochastic is moving inline with the MACD moving downwards again.
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Now i leave it to you to integrate all the relevant indicators that i have discussed here and also remember to sharpen your instinct by practicing to compare the market movement and the indicators behavior.
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Even though their opposite shape, the caused of formation of the double bottom is exactly the same as double top. Where the market fail to break second resistance and then make a complete reversal.
Even though their opposite shape, the caused of formation of the double bottom is exactly the same as double top. Where the market fail to break second resistance and then make a complete reversal.
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Despite of that concerns, what matters most to us is the intraday or short-term trading where we should make money. So where is going along this month? in order to answer this question i would like to refer back to my previous post in the past about candlestick chart counting.Counting candlestick, Candlestick counting post analysis, EUR-USD post analysis, EUR-USD Technical Analysis.
Let's observe and give me your feedback what is your opinion on this.
Below is the new chart with another white candlestick formation at the end of April 29, 2009.
As discuss in the earlier blog, Bollinger bands is used to measure the level of support and resistance where the market usually fluctuates. In other words the market will move ups and downs inside the area of the Bollinger bands. However in reality as you may notice on your trading chart, the market moves not necessarily exact within the bands area (support & resistance level). This is cause by the effect of emotions involves in everyday trading which resulting the market to create overbought and oversold patterns that goes beyond the Bollinger bands area. See picture below.
The interesting part of overbought/oversold position is because it is emotional therefore the effect is very short. And the chances of the market movement to make a correction back to its normal position are very high. Despite of this in most cases inexperience traders would execute their trading ahead of the overbought/oversold positions which can create emotional doubts that they are making the wrong decision. Further more they are loosing some precious pips from the short-term movement.
Now the point is how can you improve you trading decisions by reducing the amount of such errors and utilize the situation to harvest precious pips. One of the ways experience traders usually do is by adding another indicator called Slow Stochastic. As discussed earlier the slow stochastic advantage is the movement is the most recent along with the market movement. Therefore the fluctuations of the market generally move according to the slow stochastic fluctuations.
By using the two indicators we can have better signals of twists and turns of the market. As the market generally move inside the area of the Bollinger bands as but it is also frequently move beyond the bands area. In order to reduce the possibility of error not to make decision ahead of the market we use the slow stochastic signals using the following strategies.
However yet again I have to remind you the best use of these indicators will be better if you have in-depth understanding of it on multiple time frames application.
MACD or Moving Average Convergence/Divergence is a lagging indicator that still very much in used today by traders. Despite of its lagging effect the application is solid when it is moving on its way. For example when it moves upwards it will not easily stop until it is reaching the point of interception. And further more to twist direction it will at least take sometimes generally two cycles of the stochastic. This solid movement provides the traders the hint of the overall direction of the market movement.
Even though slow stochastic is the most recent movement of the chart but it requires a solid foundation to support its movement. Without the solid foundation stochastic usually make temporary short-term fluctuation without clear direction. Therefore by using a lagging indicator like MACD the movement of slow stochastic can be assured and solid.
Let's take a look how these two indicators can work hand in hand to show a clear direction of movement. See the chart below.
Notice on the chart above when stochastic is moving along on the foundation of MACD it will keep moving up. Because of stochastic is moving faster than MACD it will make the first downturn but only for temporary and later move up again follow the MACD. Until then when MACD is making a twist downwards direction, following by stochastic the movement will be strong.
In this example we can see that Stochastic is unable to move long enough perfectly without the foundation of MACD. It will only cause short-term correction. Until MACD is moving parallel with stochastic then it will be perfect movement. This combination of technical indicators is best use on 4 hourly and daily time frames to increase its accuracy.
