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Forex Trading

Point & Figure Trading (Part I)

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Point and figure trading in many ways is similar to the support and resistance breakout trading on bar or candlestick charts. The main difference is the look and functionality of the price charts themselves!

Many forex charting platforms provide the option of point and figure charts. Point and figure charts represent price in a radically different manner from the more familiar bar and candlestick charts.

Point and figure charts do not show any timeframe. This may confuse you in the beginning. Point and figure charts are a pure price action play because these charts generally exclude all other elements like time, volume and open/close other than price. Point and figure trading is based exclusively on price action.

Technical analysis is the study of price action. Technical analysis is used to predict or confirm an uptrend or downtrend or a consolidation in the market. Point and figure charts represent clear evidence of such important technical characteristics like trend, support/resistance and breakouts. Thus a point and figure chart focuses on the behavior of price action which is the most important factor from the technical analysis point of view.

A point and figure chart is constructed with a column of boxes alternately labeled with Xs and Os. An X column means that the price has risen in that column. Conversely, an O column means that the price has declined in that column.

So there is no concept of time in a point and figure chart. Only when price moves a significant amount regardless of time will an existing column grow or a new column is created. A new column is created going in the opposite direction when a reversal occurs on any column. So there is no time, volume, opens and close on point and figure charts.

Two variables can alter the way the point and figure charts look and act. The first variable is the box size. This is the minimum amount that the price is supposed to move before a new box in the existing column is created.

X is equal to fixed price increase. Each X denotes a rising trend. For example, if a column of Xs has 10 boxes, price would need to move an additional amount equal to the preset box size before another X would be added to the top of the column.

Suppose, you are using the point and figure chart. You set the box size on the point and figure chart to be equal to 10 pips on the point and figure charting software.

Now the price would have to move another 10 pips above each X box before another X could be added on top of that X. On the other hand, price would have to move 10 pips lower than the each box in O column to add another O box on the bottom of the column.

How do you decide to add another column to the point and figure chart? The second important variable is the reversal amount. This is the amount of pips the price needs to reverse before a new column is created.

Mr. Ahmad Hassam is a Harvard University Graduate. Try This Cash Printing Forex Signal Service From Heaven! First practice on your Forex Demo Account! Get a totally unique version of this article from our article submission service

Forex Trading

Trading Divergences

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Divergence trading is one of the ways to trade the market. Though divergence trading is not often used but if used correctly it can be highly profitable. Divergences are often used as important trading signals. But it doesn’t mean that divergences will always predict a reversal correctly. Price oscillator divergences have long been acknowledged by technical traders as a solid indicator of potential price reversals. Well defined divergences particularly on the long term charts can be surprisingly accurate in many instances.

Catching a major price reversal at the correct time can be so profitable that only a few accurate divergence signals are needed to offset the inevitable false signals. Price divergence oscillators can be spotted with just two elements on the price charts.

The first element is the price and the second element is an oscillator that runs either above or below a price level. This second element can be Stochastics, RSI, MACD or any similar oscillator.

Many traders use Moving Average Convergence Divergence (MACD- pronounced McDee) as their sole confirming indicator. The MACD is among the most popular technical indicator or an oscillator invented.

Some traders also take trading signals exclusively from MACD. MACD is a multifaceted indicator that acts as a sign of trend momentum by representing the relationship between two moving averages.

You must have used MACD in your trading. MACD is basically the difference between two moving averages. MACD can be traded by taking signals from the crossovers of two lines, crosses above and below the zero line. Relative Strength Indicator (RSI) is another popular oscillator that provides a measure of price momentum.

RSI is an indicator that gives overbought and oversold signals in ranging markets. However, its usefulness like most other indicators tends to diminish during a trending market. RSI may also be used for divergence purposes. Stochastic indicator may also be used for divergence trading.

Technically speaking what is a divergence? When there is an imbalance between the price element and the oscillator element a divergence occurs. This is the point when the oscillator is providing a strong hint that price may be losing its momentum and a change in price direction may therefore be impending. Both the price action and the oscillator begin to go separate ways and start telling opposite stories.

A bearish divergence occurs when the price hits a higher high while the oscillator hits a lower high. A bearish divergence is a hint for an impending reversal back down.

What does a bearish divergence means? It is an indication that price may soon turn and go back down as the higher high in the price may lose its momentum and begin falling in case of a bearish divergence.

On the other hand, a bullish divergence occurs when price hits a lower low while the oscillator hits a corresponding higher low. A bullish divergence hints at an impending reversal back up.

When used in conjunction with other trading tools, divergences can be a remarkably effective method for helping to time major market events. Divergences are often used as hints of possible turns and reversals. However, divergences are not frequently used as a full fledged self sufficient trading strategy.

Mr. Ahmad Hassam is a Harvard University Graduate. Try These Cash Printing Forex Signals From Heaven! Learn Fibonacci Retracement Visit the Uber Article Directory to get a totally unique version of this article for reprint.

Forex Trading

Backtesting Explained (Part I)

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With Backtesting, traders can actually test their trading strategies and how well they would have done if executed in the past. Backtesting any trading strategy allows a trader to simulate its expected performance using historical price data.

Any trading strategy that does not have any ambiguity in its rules can be backtested effectively. Example of a simple trading strategy that can be backtested can be as follows.

When the MACD histogram has crossed above the zero line and the DMI+ is above DMI-, go long when the 5 period moving average has crossed above the 20 period moving averages.

When DMI- is above DMI+ and the MACD histogram has crossed below the zero line, sell short when the 5 period moving averages has crossed below the 20 period moving averages.

This one example is just meant to illustrate that any trading strategy having clear cut rules can be backtested with the historical data. However, using the past price data to simulate future results often misleads traders into thinking that their backtested results will also give into similar results in actual real time trading.

Many potential factors can and will make hypothetical performance and actual performance differ significantly. So you should not fall into the trap of thinking that Backtesting may be a perfect method for identifying the most profitable trading strategies.

A trading strategy that may have worked very well over the past three years may work in an entirely different manner for the next three years as the market changes and evolves. One of the most important facts that you should always keep in your mind is that market change considerably overtime.

Often technical indicators that have been giving profitable signals in the past are subsequently unable to replicate their performance in the future. This may frustrate you. But this is exactly what makes trading a challenging endeavor.

Secondly in term of trade execution, a trading strategy in real time may be much different from the way the trading strategy behaves on Backtesting. These differences can potentially skew the results.

However, Backtesting is still the best available method for evaluating a trading strategy without actually trading it in real time environment. Backtesting can provide a trader with a reasonable expectation of the trading strategy’s potential worth and usefulness.

Backtesting can be done by using two methods. The first one is the automated Backtesting. This is the most popular method. Automated Backtesting entails using a specialized program. The trader inputs the specific rules and criteria for the trading strategy into the Backtesting program.

Automated Backtesting is very easy. An entire picture of the past performance is created with the help of that software program. The software automatically applies those rules to the past price data and tallies the past hypothetical profits, losses and other information.

Mr. Ahmad Hassam is a Harvard University Graduate. Try This Cash Printing Forex Signal Service From Heaven! First practice on your Forex Demo Account! Click here to get your own unique version of this article with free reprint rights.

Forex Trading

Learning To Trade Multiple Timeframes

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Multiple time frame trading is a trading method used extensively by forex traders. It involves the use of multiple timeframes. In this method, a trader first looks at a longer timeframe like a monthly or weekly chart to determine the overall direction of the trend.

Multiple timeframe trading means using three or more timeframes in your trading. If the trader finds a decisive long term trend on this timeframe, he/she then decides to drill down to a shorter timeframe like the daily or 4 hourly chart to look for dips or pullbacks in the trend.

In a strong long term uptrend, a minor downward retracement would represent a potentially high probability entry to get in the trend at a reasonably good price. Finally the trader may drill down to an even shorter timeframe like the 30 minutes or 15 minutes charts to pinpoint and time the exact entry.

How do you trade multiple timeframes? Suppose, you are interested in trading multiple timeframes! You identify the retracement in an uptrend on a 4 hourly chart. What you need to do is to wait for a resistance breakout on a 15 minute chart in the direction of the trend before entering into a long position.

What make multiple timeframe trading so powerful is that it puts the traders on the right side of the market while also identifying the highest probability entries available.

What is Triple Screen trading? Have you heard of the triple screen trading method? One of the multiple timeframe trading strategies is known as Triple Screen. A triple screen resolves the contradiction between the technical indicators and timeframes. The first screen is the long term charts and strategic decisions on long term charts are made using the trend following indicators. How do you decide what is long term? It depends on your favorite timeframe.

The second screen is the intermediate charts. The second screen is used to make technical decisions about entries and exits using oscillators. The third screen can be an intermediate chart or a short term chart. The third screen is used to place buy and sell orders.

How do you decide what is intermediate and what is long term? Begin by looking at your favorite chart, the one that you use the most. Call it intermediate chart. In our case, the intermediate time frame is the 4 hour chart. Multiply its length by five to find the long term chart. A factor of 4-6 is more flexible and practical. Our long term chart is a daily chart (4X6=24 hours). Now use trend following indicators on the long term charts.

Staying out of the trade is a legitimate position. Use these trend following indicators like the moving averages, MACD or trendlines in the long term charts to make your strategic decision to go long, short or stay out of the trade.

Return to the intermediate chart if the long term chart is bearish or bullish. Use oscillators to look for entry or exit points in the direction of the long term trend. Set stops and profit targets before you switch to short term charts to fine tune entries and exits.

Triple screen is a simple but ingenious multiple timeframe approach to forex trading. Use it on your demo account to get familiar with it before you trade live with the triple screen method.

Mr. Ahmad Hassam has done Masters from Harvard University. Try This Cash Printing Forex Signal Service From Heaven! First practice on your Forex Demo Account! Grab a totally unique version of this article from the Uber Article Directory

Forex Trading

Pivot Point … Fibonacci Trading (Part II)

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Beginning with the main Pivot Point that is calculated from the previous day’s key price points, the resulting support and resistance are subsequently derived from the following calculations. How is the pivot levels calculated? Beginning with the main Pivot Point that is calculated from the previous day’s key price points, the resulting support and resistance are subsequently derived from the following calculations:

Resistance 1 R1 = 2PP- Previous Low. Resistance 2 R2 = PP + (R1-S1). Resistance 2 R3 = Previous High + 2(PP-Previous Low).

PP (Pivot Point) = (Yesterday’s Low + Yesterday’s High + Yesterday’s Close)/3.

S3 (Support 3) = Yesterday’s Low-2(Yesterday’s High -PP). S2= PP- (R1-S1). S1 (Support 1) = 2PP – Yesterday’s High.

After calculating these points they are plotted on the currency price chart. Trader’s can calculate the current days pivot points using the above formulas based on the previous day’s price data.

Breakouts or bounces may be traded with pivot points and they are often also used as profit targets. Once these pivot levels are calculated and plotted, they are used in much the same way as Fibonacci Retracement. Pivot points also indicate whether the market sentiment is bullish or bearish. Traders also use pivot points as reference levels to provide information as to whether the current price is relatively low or relatively high within its expected price range for the day.

S1, S2 and S3 as well as R1, R2 and R3 are used as references in pivot point trading. For example, traders may look for long trading opportunities with the view that the price will reasonably move towards equilibrium around the main PP level if the price is near the day’s S2.

Many traders use different time frames in their trading decisions. You can also calculate the pivot levels for a week and for a month time frame too. Instead of calculating the pivot points for the current day you can also calculated the above levels for 4 hour charts as well as 8 hour charts.

Both Fibonacci and Pivot Points are excellent technical tools that often encompass entire trading discipline in themselves. Just replace the day’s highs, lows and the closing prices with the appropriate time frame highs, lows and closing prices when calculating the pivot points for the other time frames.

The main pivot point indicates the mood of the market. Any price level above the main pivot point indicates a bullish sentiment in the market and any price level below the amin pivot point indicates the bearish sentiment in the market. The pivot point can become the target low for the trading session in an extremely bullish market condition. This number represents the true value of a prior session. It is important to understand that especially in strong bull or bear market conditions, it can be used as an actual trading number in determining the high or the low of a given time period.

Traders will step in and buy the pullback until that pivot point is broken by prices trading below that level. A retracement back to the pivot will attract buyers if the market gaps higher above the pivot point in an uptrending market. The opposite is true for the pivot point will act as the target high for the session in an extremely bearish market condition.

Technically speaking, in a bearish market, the highs should be lower and the lows should be lower than in the preceding time frame. Generally prices come back up to test the pivot point if a news-driven event causes the market to gap lower after traders take time interpreting the information and the news. Sellers will take action and start pressing the market lower again if the market fails to break that level and trade higher.

Mr. Ahmad Hassam is a Harvard University Graduate. Try These Cash Printing Forex Signals From Heaven! Learn Fibonacci Retracement This and other unique content ‘forex’ articles are available with free reprint rights.