Post of the Day - Page 13

Richard Krivo · #**181** (**permalink**) 04-06-2009, 07:26 PM

Student’s Question:

I picked the first chart I came to... Looks to me like it was in a downtrend until 12/08 or so, then appears to be ranging... I labeled S/R even though it is not perfect and placed a demo trade. In reality I would have waited a little longer for the Stochastic to fall below 70. I'm going to leave it on long enough to see what takes place. I am, as always, very interested in hearing what you think.

Power Course Instructor’s Response:

Be certain when you begin "live" trading, that all the charts are examined so that optimum trading opportunities can be identified.

That being said, you have done a good job with this pair...see the Daily chart on this NZDUSD pair posted below.

Although the pair has been building higher highs and higher lows (the definition of an uptrend) since about the first of March, the pair technically has a bearish bias since it is trading below its 200 SMA. Price came close to touching Resistance at .6000 (it made it to .5977) and since has retraced some. Ideally, if our preference is to enter short, we would want to see MACD/Stochastic indicate that bearish momentum favors such a position.

Noting the chart below, a trader would wait for a candle to close above .6000and/or the 200 SMA or close below trendline support.

Another option would be to check price action on this pair on a 1 hour or 4 hour chart to see how price is behaving in a shorter time frame.

Good work...

Richard Krivo · #**182** (**permalink**) 04-07-2009, 10:11 PM

Student’s Question:

Based on the example in the video, pretending no candles existed after the doji, where would you put your take profit? I am assuming at the next support level?

Power Course Instructor’s Response:

Since we are going long, it would be the next level of resistance. Resistance will always be above where the pair is trading while Support will be below it.

Another limit placement technique would be to simply double the amount of the stop and place that as the limit. So, if a 50 pip stop was placed on the trade, a 100 pip limit would be put in place. In that manner, a trader would have a 1:2 Risk Reward Ratio in place.

Richard Krivo · #**183** (**permalink**) 04-08-2009, 07:32 PM

Student’s Question:

GBP/USD daily chart.

Double bottom with MACD crossover, enter long position.

Question: after MACD crossover enter the next candlestick open price: 1.4063, where to put stop? the next candle low point was 219pips different from entry price, means would be stopped out if stop set up within 219pips.

if under support level, would be 1.3620, there would be 443pips risk. pass this trade because of the high risk level?

Thanks!

Power Course Instructor’s Response:

The way the MACD indicator was used for this trade was fine...good job. The crossover of the MACD line and the Signal line to the upside indicate that a bullish position is favored.

Keep two things in mind, however…the overall trend on this GBPUSD pair still has a bearish bias on the Daily chart and, as such, the higher probability trades will be in that direction; also, the more “touches” of a trendline there are, the more valid it can be considered. Trendline resistance on the chart posted has very few touches with most of them coming at the very beginning of the line. More touches in the middle of the line would greatly enhance its validity.

Regarding the placement of stops…

On the chart below three likely points for stop placement have been identified in red.

When placing stops, one always needs to take into consideration the size of the trading account so as not to be in an overleveraged situation. Never put more than 5% of the account at risk at one time.

Another stop placement method is to go down to a 1 hour or 4 hour chart to look for likely points to place the stops. On a 1 hour or 4 hour chart, the need for a stop to be as deep as they will be on a Daily chart is much less likely.

Richard Krivo · #**184** (**permalink**) 04-09-2009, 10:18 PM

Student’s Question:

Here is my morning star pattern for review. The stop would be at 1.0430, buy order at 1.0496 which on 1:2 risk / reward makes the profit target 1.0631. I don't think I would have traded in here because it didn't seem likely to me that the profit target would be hit. As it turns out, the price did meet the profit goal on the next 2 days. Would appreciate it if you could comment and also whether you see the support line as valid.

Power Course Instructor’s Response:

Very nicely done...good work all round.

And, yes, your support line is valid.

Personally, I like to place my line as close to the tops/bottoms of the bodies of the candles as opposed to connecting only the wicks....see the chart below. Either way is fine, however.

Richard Krivo · #**185** (**permalink**) 04-13-2009, 10:04 PM

Student’s Question:

It seems to me that I can draw two lines of support. Am I correct?

Power Course Instructor’s Response:

Good observation...

Yes...you can have two levels and even more depending on the chart. Given the horizontal nature of the closest level of support to price action (S 1), I would draw the support line as represented on the chart below. The next level of support would be designated as S 2 and the nearest level of resistance would be R 1.

Richard Krivo · #**186** (**permalink**) 04-14-2009, 08:45 PM

Student’s Question:

I have heard the expression to “buy on dips in an uptrend”. What does it mean?

Power Course Instructor’s Response:

Take a look at the chart below for a visual…

You will see that the pair is in an uptrend. Each time that price action retraces (dips down) from its upward move, that is an opportunity to buy the pair. The rationale is that the trader is entering at a better price as it has come down from a high and also the trader will not have to endure the retracement that would occur if they bought at the high.

In a downtrend the reverse would be true and the trader would sell the pair each time it rallied up.

So, in an uptrend we “buy on dips” and in a downtrend we “sell on rallies”.

Richard Krivo · #**187** (**permalink**) 04-15-2009, 07:35 PM

Student’s Question:

How can I use Multiple Time Frame Analysis in my trading? I have heard of it but I am not sure that I understand it…thanks.

Power Course Instructor's Response:

Good question about a significant topic…

Multiple Time Frame Analysis (MTFA) is an excellent method of analysis whereby a trader takes a look at a currency pair in at least three different time frames. By so doing, it becomes more clear as to where a pair is in its overall trading cycle.

Below is a link for the Daily FX Instructor’s Trading Tips on the DailyFX.com site that will go into more detail…

Post of the Day

Richard Krivo · #**188** (**permalink**) 04-16-2009, 07:42 PM

Student’s Question:

What I would like to know is... are the forex charts always represented by candlesticks? or is this just a way of describing the trends of charts?

Power Course Instructor’s Response:

It is a way of describing/depicting the movements of the currency pairs. Depending on the charting package that you might be using, the movement can be represented by candlesticks, bars or lines...check the examples below...

Candlestick charts are far and away the most widely used charting format as they provide all the key pieces of price information (high, low, open and close), are accurately depicted and can be identified in glance.

rtd · #**189** (**permalink**) 04-17-2009, 09:05 AM

in the seminar last night you used the nzd/usd. on the daily the stoch showed k high in the 91 range & not crossing over d yet. In the 60 min the k was much lower when it crossed the d & was at 43 & rising. is it best to enter a trade on the 60 min? if so which time frame stoch do i pay attention to?

Richard Krivo · #**190** (**permalink**) 04-19-2009, 08:05 PM

Quote:

Originally Posted by rtd

in the seminar last night you used the nzd/usd. on the daily the stoch showed k high in the 91 range & not crossing over d yet. In the 60 min the k was much lower when it crossed the d & was at 43 & rising. is it best to enter a trade on the 60 min? if so which time frame stoch do i pay attention to?

Good question...

As we did in the Webinar, consult multiple time frames to be certain of the trend and that we are entering in that direction...the Daily, 4 hour and 1 hour are most efficient in that regard.

The smaller time frames will allow us to "fine tune" our entry. So, if we are using the 60 minute chart to enter for example, we would use the Stochastics signal generated by the 60 minute chart.

Richard Krivo · #**191** (**permalink**) 04-19-2009, 08:10 PM

Student’s Question:

But isnt trading divergence going against the trend? Some traders say that divergence occurs against the trend and it would be wiser to wait for an opportunity to trade with the trend after the divergence has dessipated. What do you advise?

Power Course Instructor’s Response:

I can see how you arrived at that conclusion...

Ideally we would want to observe divergence signaling a trade in the direction of the trend on the Daily chart.

So, if the Daily trend is down for example, a good way to use divergence on the MACD or any of the indicators would be on a 1 hour or a 4 hour chart where we can observe that upside momentum is fading while price action is making a higher high.

The conclusion then would be that momentum is fading and, as such, price action will be dropping...in the direction of the trend.

See the chart below for an example...

Richard Krivo · #**192** (**permalink**) 04-20-2009, 10:02 PM

Student’s Question:

I prefer to be a swing/position trader holding to positions over weeks and even months. I read an example once of Warren Buffet. He was criticized for holding a long EUR/USD position (years!!) and had suffered some losses along the way but on the whole he still made tons.

My question is what is a reasonable strategy for a position trader apart from the obvious?
The obvious: 1. fundamental analysis to determine upward or downward trend.
-GPD growth, long term market economy etc
2. Long time-frame technical analysis, trade only on trends.
-Monthly & weekly charts?
3. Enough margin/capital to cover short-medium term volatility
-using 6 month ATR to determine margin and leverage.
Does the above plan make sense?

Power Course Instructor’s Response:

Yes...all of what you mention would come into play...nice breakdown.

A key will be looking for a "fresh move" back in the direction of the trend on a longer term...Daily/Weekly/Monthly chart. For example, a longer term trader could use the Weekly chart for trend determination, and then a Daily and/or 4 hour chart for timing an entry.

Another thought to consider is the carry trade (going long the higher yielding currency in the pair) so that interest would be earned on the position on a daily basis.

You may find the grid below interesting and helpful as it alludes to three of the more prevalent styles of trading along with their positives and negatives…

Richard Krivo · #**193** (**permalink**) 04-21-2009, 08:11 PM

Student’s Question:

I think this is a valid double top?
As the support line has been breached Is this a possible indicator of a down trend?
If so how do I know when to enter a short position?

Power Course Instructor’s Response:

Yes…that would be a valid double top...the two tops on this 4 hour chart are within 11 pips...more than close enough. Also, when trading a Double Top formation, the entry would occur on the opening of the next candle after the double top has been confirmed.

There are a few things at work here...

The pair has been building higher highs and higher lows (the textbook definition of an uptrend) since the beginning of March. However, on the Daily chart (see below) it is up against the 200 SMA. Based on those two items, you are correct in mentioning indecision on your posted chart.

A prudent trader would wait for a break below support or above resistance as identified on the 4 hour chart below.

A more aggressive trader could short the pair at the opening of the candle after the Double Top has been confirmed (see chart below) with a stop above. The risk would be small for the potential reward…

billh · #**194** (**permalink**) 04-22-2009, 01:45 PM

Quote:

Originally Posted by Richard Krivo

Ideally we would want to observe divergence signaling a trade in the direction of the trend on the Daily chart.

So, if the Daily trend is down for example, a good way to use divergence on the MACD or any of the indicators would be on a 1 hour or a 4 hour chart where we can observe that upside momentum is fading while price action is making a higher high.

The conclusion then would be that momentum is fading and, as such, price action will be dropping...in the direction of the trend...

Richard, is MACD divergence used to enter a trade? Or is it just a signal to be ready and watch if price action indicates a trade is in order and use MACD crossover to time the trade?

Richard Krivo · #**195** (**permalink**) 04-22-2009, 06:16 PM

Quote:

Originally Posted by billh

Richard, is MACD divergence used to enter a trade? Or is it just a signal to be ready and watch if price action indicates a trade is in order and use MACD crossover to time the trade?

You are correct...

It is not an entry signal but rather an indication of the bias of the pair based on current momentum.

For example, price may be going higher but MACD is moving lower. So, momentum is showing that going forward this pair has a bearish bias to it even though price is not indicating that at the moment.

Using the above example, if the pair is trading at a resistance level and the question is will price action break through to the upside but MACD is showing divergence, the higher probability trade would be to take a short position when the MACD crossover occurs to the downside.