Post of the Day - Page 15

Richard Krivo · #**211** (**permalink**) 05-19-2009, 07:44 PM

Student’s Question:

I have heard that it is a good idea to use a Trading Journal. How should it be set up?

Power Course Instructor’s Response:

Good question and a good idea…

Take a look at the example below. You can set up a journal in whatever format will be easiest for you to use and understand. The data points that are shown below are the primary headings that should be included.

In the Notes/Remarks section, you can include what prompted you to enter the trade…what indicators were used, market conditions at the time, any relevant news announcements and like information would be helpful. Also, when the trade is closed, include a few words as to why you feel the trade was profitable or not. The overriding point here is that when you go back to look over the trade, you would like to be able to reconstruct it as accurately as possible.

The benefit of keeping a journal is that over days, weeks and months you can go back and see what you might be doing that is leading to successful trades and, likewise, what might be leading to unsuccessful trades.

Also, the mere fact of having to write down key data on each trade will cause you to think through each trade in a little more depth right from the outset.

Journals can be quite enlightening when used in conjunction with both a demo account as well as a live account.

Richard Krivo · #**212** (**permalink**) 05-20-2009, 08:41 PM

Student’s Question:

I just cannot visualize how a downtrend can have uptrends in it…or downtrends in an uptrend for that matter. It does not make sense to me.

Power Course Instructor’s Response:

Believe me, you are not alone in that…

Have you ever heard the expression, “you may have to take 3 steps backwards before you can take 5 steps forward”? In the overall scheme of things, following that plan, you will be making forward progress even though at times you will be going backward. This is the same relative premise as downtrends having uptrends in them…and vice versa.

Take a look at the chart below for a visual…

The overriding trend on this 4 hour chart, for example, is represented by the red downtrend line. Within that trend there are numerous black lines that represent uptrends (moves against the dominant trend) but, nevertheless, the downtrend prevails.

This is also an example of why we can oftentimes look at a shorter time frame chart and see a different trend or “look” than we do on a longer time frame chart. Ultimately, it is the longer time frame chart that represents the direction that will provide trades with a greater probability of success.

rita5669 · #**213** (**permalink**) 05-20-2009, 10:22 PM

Well, I know little of this downtrends and uptrends in these complicated currencies.....But there is a saying: You went down in order to jump higher. So if you wants your uptrends goes higher, sometimes a downtrend is inevitable or even welcome.

Richard Krivo · #**214** (**permalink**) 05-26-2009, 04:05 PM

Quote:

Originally Posted by rita5669

Well, I know little of this downtrends and uptrends in these complicated currencies.....But there is a saying: You went down in order to jump higher. So if you wants your uptrends goes higher, sometimes a downtrend is inevitable or even welcome.

Nicely stated and thanks for your post, Rita.

Yes...in an uptrend, a retracement is welcome as it allows a trader to enter at a lower price and a more favorable risk reward ratio. Another way of saying it would be "buying on dips". The converse would also be true...in a downtrend we would "sell on rallies".

See the chart below for a visual on selling after the pair rallies up in a downtrend...

Richard Krivo · #**215** (**permalink**) 05-26-2009, 06:58 PM

Student’s Question:

Would you elaborate using a chart (if possible) on how to use an indicator (RSI preferably) to time an entry when using a Range Trading strategy?

Thanks.

Power Course Instructor’s Response:

Certainly…

Remember that when trading a range, we want to buy (go long) at support and sell (go short) at resistance. So, when the pair is trading at resistance, the top of the range, we know that we plan to short the pair. To time the entry, we would look for the RSI, ideally, to be above 70. When the RSI breaks below 70 and closes below 70, that would be our opportunity to short the pair.

Take a look at the chart below for a visual on this plan…

Richard Krivo · #**216** (**permalink**) 05-27-2009, 08:34 PM

Student’s Question:

When using MACD, should I pay more attention to what the MACD indicator is showing or to what the chart is showing. Like when the MACD cross shows a sell should I sell and then when it shows a buy should I buy…just follow those signals? Confused.

Power Course Instructor’s Response:

Good question…

Many traders become overly focused on the indicator at the expense of what the chart is telling them. The chart graphically shows price action and price is indicator #1, our prime indicator.

As traders we should first focus on what the chart is showing us…is the pair trending up or down? If the trend is down (as it is on the chart below) we should pay attention to the chart and only take trades in that direction as those will be the higher probability trades.

When the above determination is made, we THEN turn to the indicator as a tool time our entry in that direction.

So, trade the chart first and the indicator second.

Richard Krivo · #**217** (**permalink**) 05-28-2009, 10:19 PM

Student’s Question:
I found this double bottom when looking at the GBP/USD Daily Chart. I found the first bottom at 1.4556 and then setup an entry point at 1.4576 for the second bottom. The stop was set 50 pips below the first bottom at 1.4505 and the limit was set using 1:2 ratio at 1.4676 (100 pips). It wasn't until I finished drawing the lines that I noticed that this trade may have been stopped out because the second bottom dips to 1.4468.

Power Course Instructor’s Response:

Yes...we would need to wait until both bottoms (or tops) are in place so our stop placement can be accurate.

Keep in mind that we want double tops/bottoms to be relatively close in price level where both "touches" occur...the closer to the same level of support or resistance the two tops/bottoms are, the more valid the pattern will be. Also, keep in mind that we want to see a good number of candles between the first top/bottom and the second top/bottom. Two candles right next to each other will not qualify as a valid pattern.

See the chart below for a visual...note how the price action (large black arrows) in this double top will form the capital letter "M". For a double bottom we would be able to identify the capital letter "W".

Richard Krivo · #**218** (**permalink**) 06-01-2009, 08:07 PM

Student’s Question:

How would one interpret a Hammer candlestick when it appears on a chart? Thanks.

Power Course Instructor’s Response:

A hammer candlestick appearing at the bottom of a bearish move (see the chart below) will indicate the potential for a move to the upside.

The long wicks at the base of the hammer indicate that during the time frame of the candle, the pair traded quite a bit below its opening but that the lower price could not be sustained. So, when a lower price is tested but cannot be held, it indicates that the bulls are in control and, as traders, we should be on the lookout for a move to the upside.

Note that in the hammer examples on the chart below (framed in yellow), we see a strong upward move after each hammer.

Richard Krivo · #**219** (**permalink**) 06-02-2009, 08:03 PM

Student’s Question:

Price tested support and support held. What does that mean? Thanks.

Power Course Instructor’s Response:

Take a look at the chart below…

You will see that a support level is noted. Within the green box, there are six complete candles. Five of those six candles traded down to the labeled support level but did not close below it. In one case we can see that price traded below it as is evidenced by the wick below, but it did not close below support and that is the key. In each of these tests of support, since price respected that level by not closing below it, we would say that support held.

Based on that information, we know that this is a fairly strong level of support. We could use that in our trading in a couple of ways…

1) Once we have identified the support level, a long position could be taken with a stop placed just beneath the lowest level that price has traded below that level. In this case it would be the bottom of the wick.

2) Once we see a bullish candle or candle pattern appear, there is a strong potential that the pair will now begin a move to the upside. In this case, it is the “bullish engulfing” candle that is the last one on the right in the green box.

Aeron · #**220** (**permalink**) 06-03-2009, 09:08 PM

Quote:

Originally Posted by Richard Krivo

Student's Question:

I took the advice from Daily FX Plus - Trading signals, as well as used a 1 year graph to find the support line.

There are two mistakes that I feel I made on this trade. First I didn't wait for the currency to reach my support line before I entered a trade. And second I left the trade way too early on fear that it might come back down, missing out on a large chunk of profit. See chart below.

Power Course Instructor's Response:

You make some good points here.

Beginning the analysis with a Daily chart to determine trend is the right way to go. Also, your trendline is quite valid as it has been tested several times.

Take a look at the chart below. There was a level of resistance that was broken through on about August 1. Based on that, there is a new level of support which appears to have been the base for this most recent bullish move. Being aware of that level would have assisted in looking for a potential long entry.

As far as staying in a trade to capture more profit, a trailing stop can be used or, if trading multiple lots, a portion of the trade can be closed out at a predetermined level of profit and then move the stop to breakeven on the remainder of the position. If the trade continues to profit, adjust the stop accordingly. If the trade reverses, the worst that can happen is a breakeven on the second portion of the trade but you have the profit locked in from the first portion.

In relation to the chart which was forming a triangle shape. What is a the rule of thumb for predicting the direction the price is likely to break out of the pattern. In this case it broke to the upside is that what you would have expected? Your help will be appreciated.

Richard Krivo · #**221** (**permalink**) 06-04-2009, 04:09 PM

Quote:

Originally Posted by Aeron

In relation to the chart which was forming a triangle shape. What is a the rule of thumb for predicting the direction the price is likely to break out of the pattern. In this case it broke to the upside is that what you would have expected? Your help will be appreciated.

Good question...

Since the trend on the Daily chart on this AUDCHF pair is to the upside (see the chart below), yes, that is the direction that I would expect it to breakout.

That being said, that "rule of thumb" is certainly not an absolute. This is one of the ways that being aware of the Daily trend on a pair can assist a trader in making the right assessment. As traders we do not want to predict what might happen but rather react to what is happening.

Richard Krivo · #**222** (**permalink**) 06-04-2009, 10:19 PM

Student’s Question:

Hi.

I am trying to learn to use the SSI (Speculative Sentiment Indicator) in my trading but I am still not clear.

Could you explain it with a graph?

It will be great if you explain to us the complete steps that you follow, for example: The SSI said ... and I entered to market when ...

Thank you. I'm learning so much.

Power Course Instructor’s Response:

Sure…here’s how a trader could make use of it.

On May 14th, the SSI report on DailyFX showed that the USD/CHF ratio had moved above +2.00 which means that we should be bearish and look for sells. We recommend waiting for a reading of above +2 before looking for sells or below -2 before looking for buys. Extreme readings of +3 or -3 are even better. So we call up a 4-hour chart of the USD/CHF on May 14th to look for sells setups. We can see two instances where the MACD line (green line) crossed below the Signal line (black line) which signals a sell. The first one was on May 19th and the second one was on May 28th. Both events were as the USD/CHF SSI reading was above +2. The second signal was as the SSI was above +3. In each case there was additional selling pressure which could have led to profitable trades. Remember that the SSI should be treated as a tool to identify the direction and strength of the trend. We still need to use a strategy to time our entry.
Attached Images

Richard Krivo · #**223** (**permalink**) 06-08-2009, 10:10 PM

Student’s Question:
I would enter the trade around the 15-16 as I was waiting for the indicator to turn below the 70 mark. I also noticed there was a doji or the other name i forgot, that's similar to a doji, that indicated a reversal. I am not too sure about my stop as placing it at the last high is alot. I would have to be going for double in pips and I see not indication for where I should put limit. Can you assist.

Power Course Instructor’s Response:

You have the right idea about using the RSI and waiting for it to move below 70 to short a pair is correct.

More importantly, however, is that at the time of the trade (mid September, 2008) the pair was in an uptrend. Under that scenario, we would only be looking for buying opportunities as those would have the higher probability of success. Rather than a short, the prudent trader would wait until price action "bottoms out" on about the 21st on the chart and then take a long position (in the direction of the overriding trend) with a stop below the lowest level of price action at the time. See the chart below....

Remember that we want to trade the trend first and foremost. We use the indicator, the RSI in this case, to fine tune our entry in that direction.

In the short trade that you mention, you are correct that the entry would be a fair distance from the stop which would equate to more risk. As far as placing a limit goes, one way to do it is to simply double the distance of your stop. A 100 pip stop would require a 200 pip limit for a 1:2 Risk Reward Ratio.

The candlestick pattern that you referenced is an Evening Star.

Richard Krivo · #**224** (**permalink**) 06-09-2009, 07:42 PM

Student’s Question:

I am confused as to whether the lines should or should not cross the wicks of the candlesticks. I thought they should link the highs and lows without cutting through the wicks.

Power Course Instructor’s Response:

Keep in mind that the reading and interpretation of candlestick charts has often been referred to as being “more art than science”.

The lines can go through the wicks but not through the bodies of candles themselves. Once a candle body closes below support or above resistance, those S/R levels would be negated.

The same will hold true with channel lines and trendlines.

Take a look at the chart below for a visual…

Note how in some instances the wicks do not go below the trendline and in others they do. Either is fine as long as the body of a candle does not close below the trendline in this instance.

JForex · #**225** (**permalink**) 06-10-2009, 10:33 AM

Hi,

I am facing a problem with position sizes.

My winning trades have over 200 pips at times, and losing trades only lose a few pips like 30 pips. Still, my losing trades lose equal or more money than my winning trades due to position size.

I risk 3% of my equity on all trades. If thats $300, and my stop is 30 pips, the position size is 1 lot. If this trade loses, I lose $300. Now some trades have wider stops. With the same $300 Risk, the position size is smaller, lets say 0.2. Now this 0.2 lot trade wins 200 pips and makes $400, but is almost a waste because only 30 pips have lost $300.

Does anyone else have similar problems? How do you guys handle this?

Is it wrong to allocate equal dollar risk to all trades?