Forex Open Orders and Bollinger Bands

I placed several orders last night looking for a break of the 60 pip channel in the EUR/USD and USD/CHF but neither were triggered.  I have since removed those orders and will continue to scan the market looking for setups.  Volatility is weak and I don’t see any point in entering the market until these conditions change.  If anything, you have to expect some more volatility after new Fed Chairman Bernanke gives his semiannual monetary policy testimony to House Financial Services Committee Wednesday morning.

I have not had a chance to test my newest setup strategy due to the low volume.  I noticed 2 possible setups last night in Yen crosses but the setup conditions were never met.  This setup strategy involves Keltner channels, exponential moving averages, momentum indicators, and velocity indicators.  I’ll give more details once I’ve had more time to test it. 

I’ve just started using a custom indicator called Velocity.  It performs similar to the Squeeze which was developed by John Bollinger.   Here is a brief description of the Squeeze:

Bollinger Bands employ upper and lower standard deviation bands together with a center simple moving average band around price to identify high and low volatility points. While it can be a real challenge to forecast future prices and price cycles, volatility changes and cycles are relatively easy to identify. This is because equities alternate between periods of low volatility, followed by periods of high volatility, and so on - much like the calm before the storm and the inevitable inactivity afterward. 

Quite simply, when the bands are far apart, volatility is high and when close together, volatility is low.  What we’re looking for is for the bands to be close together and as they begin to separate more, the explosion of volatility and a subsequent breakout.

I find that the velocity indicator is more responsive to impending volatility.  Instead of using standard deviation like the Squeeze, velocity uses weighted moving averages.

Popularity: 3%

USD/CAD trade profitable

I have not lost a trade in 2 weeks, not since week 8, one of my worst weeks to date.  Granted, I have only made 5 trades in the last 2 weeks but I’m finding that this style suits me.  I am by no means bragging about this because I can just as quickly lose 5 in a row.

2006-02-13 19:08:00

USD/CAD

2

s

1.15

1.1473

54

$464.4

I made the above trade yesterday and exited this evening.  My exit was going to occur based on when the price closed back into the Keltner Channel.  Unfortunately, I had no way of determining this at work today and I let the position go a little furthur than it should have.  I would have made another $200 if I exited earlier but it turns out the CAD has regained control and it is now heading back down.

I went short on the Yen last night also and it looks like it has taken control in every way tonight.  I entered at 118.46 last night so I was down about $900 earlier.  I had a stop at 119.06 but the resistance below this looks quite strong with the price unable to break this level in 5 tries since 2006/02/03.   The pair have made its way back to my entry point so I’ll let this ride for a while and watch the charts to see where this will go.  I’ll move my stop down a bit also. 

Popularity: 2%

Forex Blog Week 10

Week 10 will start for me this evening once I get home from my full-time job.  I took yesterday evening off to attend a Super Bowl party so I haven’t had much time to look at the charts.  Everyone trading this week have probably seen that US Dollar strength is the story today.

My default chart style had some minor changes this weekend.  I have kept the Keltner channel and the standard technical indicators such as MACD, CCI, Stochastic, and RSI.  In addition, I have added Daily high/low and "The Wave."  Yes, I have added Raghee Horners 34 EMA (High, Low, Close) back to my charts in an effort to develop some consistent trading strategy.  Ever since I used the Wave,  I’ve respected its simplicity.  I’m not sure how I’m going to use it but I’ll be experimenting a bit this week with it.

I have not been happy with eSignal lately as it has consistently been crashing on me anytime I apply a style to a chart.  I’m not sure if it is a poorly constructed custom indicator that is causing it but nevertheless, it gets quite annoying. 

Good luck this week.  I’ll try to be more consistent with posts and content.  Any suggestions of things to add to the site would be appreciated. 

Popularity: 11%

Yesterday’s Trade Strategy

 Yesterday’s Trading Opportunity

Pictured below is an hourly chart of the EUR/JPY.  The green channel is called the Keltner Channel and the indicator at the bottom is the CCI or Commodity Channel Index.  My short came at around the purple downfacing triangle.

My rationale for this trade was that the price before I entered was hovering above the top channel line indicating that the price may have reached exhaustion.  Now there is no guarantee that exhaustion had been reach yet in this case.  The price could have continued to go up.

The key here is to wait to see if the candle closes below the upper channel line which it does.  Once it does, a selling opportunity arises and can be furthur confirmed by the CCI which in this case had begun to fall below the 100 level.  In addition, I looked at other momentum indictors and they showed similar findings.

I initiated a short at 142.26 once the indicators confirmed this.  The Keltner Channel as well as other channels expect that price will gravitate towards the median line 80% of the time.  I was betting that gravity was on my side.

The price retraced a bit to the top line of the channel once my short was in but then declined and passed through the median line.  I had place a stop at the high of the previous candle which was never close to being hit.  

Once momentum slowed, I got out of the trade for a 43 pip profit x 2 lots = 86 pips.

 

 

 

 

 

 

Popularity: 4%

Forex Trading Tonight

What is my trading strategy going into Week 9?

I’m not drastically changing anything with my actual trading style this week.  What I do every week though is adjust the indicators on my charts to some degree.  This week I’ve rid myself of permanently placing 6 different exponential moving averages on my charts.  I’ve always had the 8, 21, 34, 50, 100, and 200 EMA lines on all my charts and I’m finding that I don’t use them all the time.  Therefore I’ll enable them when I need them.  Other than that, the only addition to my charts this week are the EMA Keltner Channels.

What I have been doing today is taking more notes on what I see on the charts so that I can refer back to it later.  In addition, I’m not planning on trading this evening (Sunday.)  I’ve always traded when my broker opens for business at 5 pm EST Sunday but this week I’m going to take the time to study price action going into the higher volatility London, New York hours.

Currently I’m trying to expand my knowledge by watching a video that was recommended on several forums.  This video is titled "How to Successfully use Pitchforks and Median Lines to trade." Since it is the belief that the market is greatly influenced by support and resistance, this may be another tool to use in my toolbox.  Last week if anyone remembers, I mentioned an article on Andrew’s Pitchfork which is part of what this video demonstrates.

I cannot fully comment on this video yet as I’m just in the process of watching it but if anyone is interested in checking it out, it can be found at http://www.cbot.com/cbot/pub/cont_detail/0,3206,1058+35604,00.html

Popularity: 4%

Determine Price Action Using Channels

I read a decent article today about Donchian and Keltner Channels.  I’ve had limited  experience with both of them in the past but after reading this article, I really can see their usefulness. 

The Donchian Channel indicator, sometimes referred to as the Moving Average Indicator is used to capture short-term bursts or longer-term trends.  Quite simply, when price action breaks through (and closes) above the upper band, a buy signal is created.  When price action breaks through (and closes) below the lower band, a sell signal is created.  This indicator works a little different than one might think because when the price breaks a lower or upper band, THIS DOES NOT SIGNAL A REVERSAL.  This actually signals a new trend establishing itself.  As with all indicators, Donchian channels should be used with other confirmation indicators.

The Keltner Channel is a reversal indicator.  It looks similar to a Bollinger Band except that it uses high and low prices to represent volatility instead of standard deviation.  If price action breaks above the band, traders should consider shorts.  If price action breaks below the band, traders should consider longs. 

Here is an actual example using a current JPY 60-minute chart.  This example shows sell signals being created from the Keltner Channel.

 

 

 

 
After looking for an example where a Donchian Channel generated a buy/sell signal, I’ve given up.  Can anyone find where an upper or lower band was violated by a closing price.  I cannot.

The full article can be viewed at http://www.investopedia.com/articles/forex/06/BandsChannels.asp.

Popularity: 4%

What is the Squeeze

Before I get into what "the Squeeze" is, I want to thank everyone that has sent positive comments about the website. (I’d equally appreciate negative comments as well)  I’m glad it has been able to help you in your quest to become a Forex trader.  In addition, the visitor traffic to the site has been improving by the day which motivates me more to post worthwhile content.

The Squeeze is actually a pretty cool setup that can be used for both day trading and swing trading.  Some of you may have already heard about it from John Carter’s website, "Trade the Markets." The Squeeze particularly takes advantage of quiet periods in the market when volatility has decreased.

John Carter has turned The Squeeze into an indicator but it isn’t free.  You can create the indicator yourself if you have Bollinger Bands, Keltner Channels, and any momentum index oscillator.   The real disadvantage is that you have increased the number of indicators on your charts and if anyone has seen a Keltner Channel before, it’s not easy on the eyes.  Whereas Bollinger Bands are smooth, the Keltner Channel is jagged.  You can use the default setting for both of these indicators and a 12-period for your momentum oscillator.  The oscillator is used to indicate whether you will go long or short.  [Continue reading by clicking Read More]

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Popularity: 4%