17 Pips Last Week

I have not been posting regularly because I just haven't had the time.  I've said this many times before but this is only temporary and I have not lost my dedication to trading. 

Last week, I only made 1 trade and profited 17 pips.  It's not much but I've been using a new system that has been in the works for a year that pretty much kept me out of the market.  I really don't want to get into much detail about it because I don't know how it will turn out and I'm still trying to see what works and what doesn't.  It's really nothing new; it incorporates moving averages, MACD, RSI, the Ichimoku Cloud, and 3 time frames (60-minute, 240-minute, Daily)  I don't use the Ichimoku as it was designed.  I just use the Cloud.  This is not a system that generates automated signals for me.  It is a lot more discretionary.

So I'll continue to use this going forward and see if I can develop some sense of consistency.  I'll try to come around my blog more regularly as I feel bad when it's neglected.  I hope everyone is doing well. 

Popularity: 4%

Regular vs. Hidden Divergence

I realized today that unbeknownst to me, regular divergence and hidden divergence are absolutely and totally different beasts.  In fact, I'm not even sure if I knew about hidden divergence.  What this means is that I may have been classifying regular divergence as hidden divergence and vice versa.  This is my mistake, one in which I don't want you to make too.  So I am going to reference some material to give an overview of both types.

Divergence happens when price makes one pattern and a corresponding indicator makes the opposite pattern.   You can use any indicator but the most commonly used are RSI, MACD, CCI, or Momentum.  I'm going to go through the process of identifying 4 types of divergence.

The first type is Regular Bullish Divergence.

Characteristics:  

• Occurs in a downtrend
• Possibly signals the end of a downtrend
• Possible bullish correction
• Lower lows in price
• High lows in indicator

#1

 

 

 

 

 

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The second type is Regular Bearish Divergence.

Characteristics:

• Occurs in an uptrend
• Possibly signals the end of an uptrend
• Possible bearish correction
• Higher highs in price
• Lower highs in indicator

#2

 

 

 

 

 
 

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The third type is Bullish Hidden Divergence.  

I would have simply called this next type of divergence regular bearish divergence in the past and I would have also expected it to have the regular bearish divergence characteristics above.  Let's first look at a chart of Bullish Hidden Divergence.

#3

 

 

 

 

 

As you can see, the price continues its ascent because Bullish Hidden Divergence is a continuation pattern.  You have to look closely but look at the MACD in the chart #3 above as opposed to the MACD in chart #2.  In chart #3, the price is making higher highs and the indicator is making lower lows and the MACD in chart #3 IS ALREADY IN OVERSOLD TERRITORY.  This is quite different than chart #2 as MACD is still in positive territory.   

Characteristics:

• Trend continuation
• Higher highs in price
• Lower lows in indicator

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The fourth type is Bearish Hidden Divergence.

This too is a continuation pattern as the bearish trend is expected to continue.

#4

 

 

 

 

 

You also have to look closely at the MACD in chart #4 above.  The MACD is already in overbought territory and the indicator is making higher highs.

Characteristics:

• Trend continuation
• Lower highs in price
• Higher highs in indicator

This isn't the easiest thing to explain.  Just look closely at the four charts above and the four different types of divergences shouldn't be hard to see.

Popularity: 5%

The Best Traders on Oanda Forums

I know it isn't easy to define who are the best forex traders because really, you only know how good you are.  Knowing this, I posted to the Oanda forum asking the more informed and experienced users who the most "successful" or experienced traders were.  

www2.oanda.com/cgi-bin/msgboard/ultimatebb.cgi

I received a response with traders whose member names were
~chaffcombe , blueingreen, oldhand, craigatk, altman, Airoekhion, and danielgsx.  I wanted this information because I really want to concentrate on reading posts by them with the hope of learning more.

The post that caught my eye asked the question, "Right tools for trends and ranges?"  The post is located here: http://www2.oanda.com/cgi-bin/msgboard/ultimatebb.cgi?ubb=get_topic;f=15;t=004808;p=1

There are a lot of recommendations but I was watching what oldhand had to say:

While I agree with the "eyeball" indicator, I'd have to disagree about
the value of "indicators" taken by many. For example, s/r lines,
whether horizontal or angled are probably used by all traders to
greater or lesser degree and they are just as much "indicators" as
MACD/RSI/CCI etc. Trend lines and channels in my experience being the
strongest of all devices to suggest high probability directional clues.
What about moving averages? The 100/200 SMAs in virtually all time
frames are a must for any trader to track. The 200 SMA especially on
weeklies and dailies is a must and to ignore such an indicator or be
oblivious to it is guaranteed to lead to mis-steps on trades. Not
knowing Fib levels for your price analysis is likewise operating with
one eye closed.

Whether
"indicators" inform about some objective underlying reality about price
patterns or simply are self-fullfilling reations of various trading
segments is a question that can never be answered one way or another.
But, the fact that the majority of traders rely upon the variety of
indicators to make decisions is not in doubt. Your best trades are
always going to be when a variety of indicators, whether moving
averages, Fib levels, trend lines etc all line up at certain points and
within different time frames. For example, if you see price touch a
channel line on the daily and let's say the 3 hour, and RSI is in over
sold/bought territory, and a Fib level is at the same point, and MACD
or Momemtum paint a divergence, price is going to react in a major way
and predictably. Why? Simple really. The different trader segments,
some weekly or daily players relying lets say on channel lines, and
another segment relying on Fib levels, and another on RSI levels and so
on, are going to all react at that point causing a counter price
movement. How far price will move is very difficult to predict but
direction is not.

So, I'd say a study and attention to indicators is a must for any trader and well worth the effort.

Popularity: 38%

Busy Trading Week

I’ve been keeping a close eye on the charts this week.  I have never quite felt out of the market whether I’m studying the charts or thinking about what might happen next.  While this can be mentally draining, I feel like it is necessary for my training. 

I’ve kept the indicators on my chart quite busy this week as they must constantly dodge each other on the screen.  Yes, I still have too many indicators yet I don’t feel like any of them should be taken away at this point in time.  I am using the following indicators this week:

1.  Ichimoku - I love this indicator. I’m still learning to use it.  Ichimoku actually means "one glance cloud chart."  I’ve found it very useful for support/resistance confirmation.  In addition, the current trend can be determined in a glance.

2.  Trend Lines - Where would any of us be without these

3.  EMA’s - 21 EMA Wave, 8 EMA, and 50 EMA

4.  Bandwidth - Similar to the squeeze.  This indicator is used to indicate volatility or lack thereof

5.  RMOM - An indicator that I developed that uses MACD histogram values to compute whether the existing MACD value is greater than or less than the last up or down segment

6.  RSI (7) - Relative Strength Index (7 period)

7.  Directional Movement Index

8.  MACD(12,26,4)

9.  Pivot Point Oscillator - An indicator that I developed that I find quite useful now that I made modifications to it last night.  I now paint the pivot point values directly on the indicator.  This saves having to plot pivot lines on the price chart.  Using the 15 minute charts can indicate trend nicely.   See the indicator below:

 

 

 

 

 

 

Popularity: 6%

Relative Strength of Currencies Update

From looking at my Relative Strength charts at http://www.forexproject.com/staticfiles/forex_relative_strength.php, I’m finding that the 14-day EMA may be the best to use to gauge true strength of currencies at any given time.

The chart receives live hourly updates starting each day at 2 p.m. so the delay at most in the afternoon is only an hour.

Currently, we can see that the USD is quite strong, while the GBP is weakening, and the JPY strengthening.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Popularity: 2%

Currency Relative Strength Updated

I’ve updated my Currency Strength charts to include functionality to just graph the currencies that you are interested in. 

 

 

 

Above is a graphic of your choices.

1.    Select a Calculation method (simple moving average, exponential moving average, or triple exponential moving average)
2.    Select a period between two and fourteen days
3.    Select the currencies that you want to graph 

The higher the period, the smoother the graph. 

http://www.forexproject.com/staticfiles/forex_relative_strength.php

 

Popularity: 3%

Currency Relative Strength

I’ve finished a new website feature tonight that displays currency strength graphs based on parameters you choose.  You can specify how you want relative strength to be calculated, either the simple moving average, exponential moving average, or TRIX with a period between 2 and 14 days. 

The whole idea was inspired by a trading model at http://www.mkl.sp.ru/charts.html. He no longer keeps his calculations updated so I decided to try to perform them myself.  Below is a quote from his site that explains this whole idea best:

Using momentum data derived from relative-strength studies of a basket of currencies, it is possible to calculate an average “exchange rate” involving any two currency families and plot its rising and falling action on a graph. If the rate is rising, the odds favor a long trade in the pair. If the rate is falling, the odds favor a short trade. This is valuable information to have, but by digging deeper into the data we can learn even more. 

You can click the link to the left, "Currency Strength" or browse to http://www.forexproject.com/staticfiles/forex_relative_strength.php 

Popularity: 5%

Relative Strength Formula using EMA

I’ve changed my relative strength calculations to use EMA, specifically the 5-day EMA.  This information will be updated automatically as I am automating the data retrieval and data crunching this weekend.  There are more changes to come but I find that this graph is useful for determining a base currency strength or weakness against others in the basket.  Think of it as being an index for each countries currency…

http://www.forexproject.com/staticfiles/ema_rs.php 

As always, feedback is appreciated.  It is beneficial to everyone that the graph is tweaked in any way possible that would make it more useful.

Popularity: 2%

Tough Week of Trading Forex

I’ve been busy this week so my posting has been limited.  I’m going to spit some stuff out now to give everyone an idea of what I’ve been doing. 

It’s been a pretty tough week of trading.  I’ve been busy with my full-time job and have been trying to squeeze in trades here and there.  I’ve been experimenting with some new setups recommended by John Carter, specifically the Squeeze and the Scalper High/Low.  Unlike most people, I experiment sometimes in my real trading account. 

My trading suffers when I don’t have a clear setup plan as it should. 

I’ve been doing a lot of speed reading and this week have been skimming John Carter’s book, "Mastering the Trade." I’ll have more comments later but there is a chapter that deals with formulating a written trading plan.  This is a very beneficial chapter and stresses the need for all traders to have a written trading plan.  I’ll have to write mine and use the examples he gives.

I’ve been experimenting with the Relative Strength studies to formulate a currency "Power Ranking." Based on how a given currency performs against a basket of currencies, a relative strength figure is formulated and graphed to compare to all other currencies.  So for example, a Relative Strength value will be determined for the GBP based on it’s performance against the USD, EUR, CAD, AUD, NZD, CHF, and JPY.  The formula is based on the relative strength index formula but in this case, the daily price changes are figured in for GBP/USD, GBP/EUR, GBP/CAD, GBP/AUD, GBP/NZD, GBP/CHF, and GBP/JPY.  I’ve graphed this using a 9 day moving average and it looks like it may be useful in determining whether a trade would be going with or against the relative strength of a currency pair.  I’m still working on this and will post the graphs when it’s more complete.

I’ve been also experimenting with Pivot Points and plan on doing some extensive studies to use pivot points to create a custom indicator.  I’ve subscribed to a NON-FREE End Of Day data provider so that I have accurate open, high, low, and close values for all currency pairs.  I also needed to do so to be able for my scripts to automatically download the data periodically throughout the day via FTP.  All pivot point calculations on this website as well as any other studies will be based on this new data. 

Popularity: 1%

Week 5 Performance

This week was my most profitable since I started "the project" 5 weeks ago.  I profited 289 pips for a total of $2450.  This was a 22% increase of capital. 

By week, here are my profit % of balance:

week 1    +6.5%
week 2    +7.0%
week 3    -0.5%
week 4    -2.0%
week 5    +22.0% 

I made a lot of my trades this week using the 30, 60 and 240 minute charts of 5 currency pairs: EUR/USD, USD/JPY, USD/CHF, GBP/USD, and GBP/JPY.

I relied on making trades near or at support or resistance mostly using CCI, RSI, and momentum as confirmation along with a couple of other indicators.  I don’t know if you would call this a trading system but nevertheless, this has worked for me over the weeks.

1.   Identify support/resistance on 240 minute or daily chart
2.   Draw upper/lower trendlines on RSI and CCI indicators of 30/60/240 minute charts.  
3.   If bounce off CCI trendline, take the trade direction of bounce
4.   Confirm furthur with RSI and momentum
5.   Place stop (1 pip + pip spread) above resistance.  If the stop is at a round number move the stop another pip; same process for support
6.   Use fibonacci or 8/21/50/100/200 EMA’s to set target price for exit

This method is nothing new or exciting.  I’m applying very common principles here.

I hope everyone had a great trading week.  Let’s do it again on Monday.  Have a good weekend. 

Popularity: 3%

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