Moving Average Explosions

There is a new article on Investopedia titled, "Moving Average Explosions."  You can find the article at: http://www.investopedia.com/articles/forex/06/movingaverageexplosion.asp

Popularity: 2%

The MACD Is Overrated

I read a pretty enlightening article on the MACD today and how this indicator has been elevated to mystical status.  Is this deserving?  According to the author, no.  The MACD is an indicator based on moving averages; that's it.  "In the end, the performance of moving averages and indicators based on moving averages will always be, well, average." I personally use the MACD and I'll admit that I've been guilty of elevating this indicator to mystical status as well.  I predominantly use it to identify divergence between price, but I also use it to identify momentum.  

I've talked in the past about my avoidance of lagging indicators and the author of this article says that if this is the route that you want to go (I do), then here is what your toolbox should and should not be.

Your toolbox if you want to perform technical analysis in a lagging manner:

1. Moving averages
2. MACD
3. Stochastics
4. Parabolic SARs
5. Bollinger Bands 

Your toolbox if you want to know where price "is likely to go next… as often as 80% of the time."

1. Trendlines
2. Pivot Points
3. Candlestick

This article presents far from revolutionary information but it goes against from the norm and states why you would be best served by using something other than the MACD.   That is why I like this article.  There are just so many articles on how to use the MACD to your advantage.  

The author also mentions some candlestick patterns (hammer, star) that when identifying them when price is near pivot points or trend lines, can be more powerful.

Article: http://www.investopedia.com/articles/trading/06/AgainstMACD.asp

Popularity: 5%

The Only Seven Indicators You Will Ever Need

I was reading an article today that talks about the top 7 indicators that can be incorporated into your trading style.  I tend to agree with most of them.  I have gone through that stage of jumping from indicator to indicator with the illusion that the previous indicator I was using was broke.  There is no perfect indicator but I feel that if you stick to those that lag least, you will be getting out of positions when lagging indicator followers are just getting in.  And now for the list….

The Top 7 Indicators

1. Candlesticks - I use these the least, probably because the can vary so much depending on your broker or charting provider.  As you increase your time frame though, the variations are less of a factor and I believe the candlesticks can be more valuable. (Daily charts)
2. Trendlines - I use these often as do a lot of you, I'm sure.  Need I say more.
3. MACD - This is on every one of my charts.  I use it to spot divergences in price.  I'm constantly referencing http://www.forexproject.com/technical_analysis/divergence.html to do so.
4. 200 EMA - I have been through so many moving averages.  I always seem to have at least 3 on my chart though.  If anything, I glance at them to spot the trend.  The article states that this is an all time favorite for traders across the board.  Take note whether price is above or below to give you a sense of price direction.
5. Pivot Points - I use these often but mainly for exiting positions.  I'm still doing a lot of experimentation with data to understand them better.  All of this experimentation will be posted on the http://www.allpivotpoints.com site.
6. Fibonacci - I've used these many times in the past but currently I don't use them at all.  They are very subjective but can be quite powerful especially at the 62% retracement level.
7. PRICE - Probably the most important of indicators but the hardest to master.  It takes lots of experience to do so.  The articles makes a good point by stating that "let price prove to you where it wants to go by setting entry order rather than market orders when entering a trade."

Top 7 Indicators For Developing Your Own Trading Style

Popularity: 3%

Are Moving Averages Most Profitable Technical Analysis?

Thanks to Craig for this interesting post:

Here is an interesting research paper you might like to read (http://reports-archive.adm.cs.cmu.edu/anon/2003/CMU-CS-03-123.pdf).
This
guy did statistical studies on the major TA's which everybody uses &
used genetic algorithms to try and breed trading stratergies using TA
combinations. Some interesting results, e.g.

1. MA's are by far the most profitable TA
2. Some common strategies are so bad that turning the buy signals into sell and vice versa produces quite good results!

Seems
to me trading is a bit like surfing, you watch the ocean and learn to
pick the good waves, but you can't ride a wave until it has actually
developed.  But experience allows you to size up the good rides
early. This analogy also applies to timeframes, beginner surfers spend
a lot of time thrashing about in the shorebreak fighting over slop, the
old hands wait patiently for the big ride out back.
Nothing more or less.

Popularity: 1%

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: 4%

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: 2%

Forex Blog Week 8

Entering week 8, I have learned much.  The most knowledge has come from my everyday trading experiences.  There is just no substitute for this.  There is also no substitute to trading a real account with real money.  Demo accounts are o.k. to test your setup ideas, but other than that, there is no possible way that a demo account can prepare you for the real thing.  The main reason is because when you trade a demo account, there is no emotion.  Emotion is what moves this market and if you aren’t experiencing this emotion, your not learning.  To start your education, get a mini-account, trade single lots, and less volatile currency pairs.

Going into this week, I’m focusing on what has made prior weeks successful.  I’m focusing on support/resistance setups with the thought that the forex market will continue with its range trading environment.   In the meantime, I will continue to experiment with my relative strength calculations to prove their usefulness.  Last night, I completed a TRIX version of my relative strength charts.  TRIX is a triple exponential moving average of my Relative Strength values.  This provides a smoothing factor and perhaps more of a leading indicator.

You can view my 8 EMA Relative Strength Currency chart at: http://www.forexproject.com/staticfiles/ema_rs.php

The 8 EMA TRIX Relative Strength Currency chart is at http://www.forexproject.com/staticfiles/trix.php

The pairs I’m looking at possible setups for Sunday/Monday:

CHF/JPY (180-min)
USD/CHF (180-min)
EUR/USD (180-min)
GBP/USD (60-min)
EUR/CHF (180-min)
GBP/JPY (240-min)
NZD/USD (Daily)

I also forgot to mention that this week I am moving my default lot size from 1 to 2.  This will double my gains but also double my losses. 

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: 2%

Sluggish Market Ahead of Payroll Report

The forex market was real slow today attributed to the fact that the first big economic release of the year is tomorrow.  Consolidation looks likely to continue until then and maybe the rest of Friday.  I would expect the market to react next Monday as it did earlier in the week as we are near many key levels.  The dollar is reaching support at the 200 EMA (88.82) as well an uptrend line.  It’s currently stalled at the .500 fibonacci level after pushing slightly through it yesterday.

 

 

 

 
Expectations for non-farm payrolls tomorrow is 200K and a 5% unemployment rate.  I want to remind everyone that the direction of the market after the release of the payroll report tomorrow is the hardest to forecast.  Here is a post I made a couple of months ago:

I was reading Currency Trader magazine and it is interesting to note that the payrolls report which is released this Friday is very difficult to forecast.  According to the article, no matter what the forecast is, the forex market will spike on it, sometimes in both directions on the same day.   This is why it is not recommended to open a position in the morning on the first Friday of each calendar month.

According to an analysis by S.A. Johnston, on the payroll date each month from January 1999 to September 2005, the Euro had 42 payroll date-days closing up and 36 days closing down.  The maximum spike up was 240 points and the maximum spike down was 249 points.

Popularity: 2%

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Reviewing the Weekly Charts

December 17, 2005

As I mentioned in my previous post regarding the Commitment of Traders Report, there was a substantial decrease in short positions in the EUR, GBP, CHF, and AUD.  These positions were not replaced with long positions.  I take this as being a consolidative signal as the balance between net longs and net shorts is approaching. 

I’ve also been looking at the weekly charts as I do on most weekends.  I wonder if the USD will have another down week? One chart I would like to point out in the CHF Weekly where RSI bearish divergence is evident.

 

 

 

From what I’ve read about RSI, it was designed to anticipate price changes and if a divergence occurs, it should be taken as merely an alert for the trader.  This alert raises the possibility that a reaction will occur or maybe a reversal of trend.  Bearish RSI divergence IS NOT a sell signal.  A swing trade should be confirmed with an additional indicator such as moving average crossover or the break of a trendline.  A break of the trendline at 1.2650 could be a confirmation but as of now there is no moving average crossover confirmation as the 8 period EMA > 21 EMA  > 55 EMA.   

Popularity: 1%

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