Post of the Day - Page 19

sivamarkandu · #**271** (**permalink**) 07-20-2009, 10:11 PM

Quote:

Originally Posted by Richard Krivo

Hello Siva...

A trader should always have, at minimum, a 1:2 Risk Reward Ratio in place on each trade. Implementing that discipline, a trader need only be correct in 50% of their trades to be profitable.

When analyzing the trade, however, and the trader notes that the pair has quite a bit of "room to move" after their entry before the next level of significant support/resistance, then a 1:3 or greater Risk Reward Ratio can be put in place.

You may find the response below to be relevant as well...

Richard,
Please advise how we decide on the size of the stop. For example, when I buy breakouts, I place a stop 50 pips at the support/resistance. But the pair moves 25 pips against my entry before moving in my favor. In such case, should I take profit at 50 pips?

thanks a lot.

Siva

Richard Krivo · #**272** (**permalink**) 07-21-2009, 08:07 PM

Quote:

Originally Posted by sivamarkandu

Richard,
Please advise how we decide on the size of the stop. For example, when I buy breakouts, I place a stop 50 pips at the support/resistance. But the pair moves 25 pips against my entry before moving in my favor. In such case, should I take profit at 50 pips?

thanks a lot.

Siva

Hello Siva...

There is not just one answer to that question...it is not a "cut and dried" issue.

Ideally, we want to place our stop where the pair is least likely to trade without putting more than 5% of our account at risk. We also need to consider the pair that we are trading. More volatile pairs, like the GBPJPY for example, will benefit from deeper stops while less volatile pairs will require a stop that is not quite so deep. Also, the time frame of the chart will come into play. Larger time frame charts will require deeper stops than will shorter time frame charts.

On a Daily chart, a trader can look to the low/high of the previous day or the previous 3 day low/high for stop setting purposes.

This approach could then be modified for use in other chart time frames.

On profit taking, the 1:2 Risk Reward Ratio is still a solid approach.

sivamarkandu · #**273** (**permalink**) 07-21-2009, 08:25 PM

Quote:

Originally Posted by Richard Krivo

Hello Siva...

There is not just one answer to that question...it is not a "cut and dried" issue.

Ideally, we want to place our stop where the pair is least likely to trade without putting more than 5% of our account at risk. We also need to consider the pair that we are trading. More volatile pairs, like the GBPJPY for example, will benefit from deeper stops while less volatile pairs will require a stop that is not quite so deep. Also, the time frame of the chart will come into play. Larger time frame charts will require deeper stops than will shorter time frame charts.

On a Daily chart, a trader can look to the low/high of the previous day or the previous 3 day low/high for stop setting purposes.

This approach could then be modified for use in other chart time frames.

On profit taking, the 1:2 Risk Reward Ratio is still a solid approach.

Richard,
thanks a lot for the clarification.
Siva

Richard Krivo · #**274** (**permalink**) 07-21-2009, 08:29 PM

Student’s Question:

Can you tell me how pivot points are calculated? Thanks.

Power Course Instructor’s Response:

In this instance, we would look at the previous day’s candle and add the high plus the low plus the close and then divide that total by three. That will provide us with the Pivot Point for the current day.

The above being said, take a look at the chart below for how they are actually calculated on a Daily chart.

When price action is trading below the Pivot Point, the bias would be bearish. Conversely, when price is above the Pivot Point, the bias would be bullish.

Something to keep in mind…many charting packages will have Pivot Points built into them and they can be placed on the charts with relative ease.

Richard Krivo · #**275** (**permalink**) 07-21-2009, 08:29 PM

Quote:

Originally Posted by sivamarkandu

Richard,
thanks a lot for the clarification.
Siva

My pleasure, Siva.

Richard Krivo · #**276** (**permalink**) 07-23-2009, 10:16 PM

Student’s Question:

In the Range Trading Webinar Slow Stochastics was mentioned. I am still not clear on it. Thanks.

Power Course Instructor’s Response:

Take a look at the chart below for a visual…

Slow Stochastics is essentially two moving averages moving between two levels: 80 (the upper level) and 20 (the lower) both denoted below the chart with the red dotted liines.

The way a trader would employ it in trading is to first determine the direction that they want to trade the pair. Ideally that will be in the direction of the trend on the Daily chart.

Once that has been decided, then the trader can use Stochastics to time their entry in that direction. Assume the pair has a bullish trend so we would only be looking for buying opportunities. The strongest buying signal that Stochastics will generate is after the lines have been below 20, crossed over one another, and then close above 20, that indicates that bullish (upside) momentum is in place. The trader can then take a long position having “fine tuned” their entry by using Stochastics.

For a short position, it would be the same exercise only we would wait for Stochastics to close below 80 after having been above 80.

On the chart below, you can see how the yellow boxes on the Stochastics indicator match up with the yellow boxes on the candlestick chart above.

Richard Krivo · #**277** (**permalink**) 07-27-2009, 07:43 PM

Student’s Question:

In what kind of a market will Bollinger Bands work best…trending or ranging? Thanks.

Power Course Instructor's Response:

The answer to this will best be served by an example chart…see below.

Inasmuch as a trader using Bollinger Bands wants to see price action moving between the upper and lower band, a ranging market best facilitates that.

On the chart below, we can see how trading decisions can be made as price action moves between the bands and provides buy and sell signals.

When this EURAUD pair is in a strong downtrend, however, we can see how the upper band does not even come into play. The lower band can be used minimally to determine when a retracement might occur but not too much beyond that.

Bottom Line: Bollinger Bands function best as a currency pair is trading in more of a sideways fashion than in a trend.

Richard Krivo · #**278** (**permalink**) 07-29-2009, 07:15 PM

Student’s Question:

I am studying candlesticks. What is the significance of a “Hammer” candlestick? Thanks.

Power Course Instructor’s Response:

Since a chart is worth a thousand words, I will refer you to the chart below.

Richard Krivo · #**279** (**permalink**) 07-30-2009, 08:01 PM

Student’s Question:

Could you provide a visual example of what might indicate that a pair could be changing direction…retracing? Thanks a lot.

Power Course Instructor’s Response:

While there can be numerous indications that a change of direction might be imminent, let’s take a look at those on the chart below.

Taking a look at the green trendline, we would be looking for a candle to close below that line as a primary tool to make this determination.

Also, take a look at the two candles to the left of the open candle…we see two dojis The dojis indicate indecision and the potential for a change of direction. Some compelling data is beginning to take form.

Looking at the MACD indicator at the bottom, we also see some signs of a potential reversal. We see that the MACD line is “hooking” to the downside but the signal will not be complete until the MACD line actually crosses over the Signal Line and a candle closes to confirm it. (Keep in mind that in trading, “nothing happens until it happens”…don’t jump the gun and anticipate an entry.)

Lastly on this chart we can look at the MACD histogram bars. We note that divergence is present when comparing the bars to price action. Price is going up while the histogram bars are going down indicating that bullish, upside momentum is waning.

Richard Krivo · #**280** (**permalink**) 08-03-2009, 09:59 PM

Student’s Question:

I have heard the expression “Market Noise” but do not know what it means. Thanks!

Power Course Instructor’s Response:

“Market Noise” refers to the very random price action that occurs on lower time frame charts.

Take a look at the 5 minute chart below…

Each 5 minute candle reflects the all the trades that were made during that 5 minute period. Since the time frame is so short, oftentimes, no discernable trading pattern can be identified. As a trader moves to larger and larger time frames, the price action will be less random and, therefore, “Market Noise” will be less and less a factor.

VINCY BALBOA · #**281** (**permalink**) 08-03-2009, 10:35 PM

Quote:

Originally Posted by Richard Krivo

Student’s Question:

I have heard the expression “Market Noise” but do not know what it means. Thanks!

Power Course Instructor’s Response:

“Market Noise” refers to the very random price action that occurs on lower time frame charts.

Take a look at the 5 minute chart below…

Each 5 minute candle reflects the all the trades that were made during that 5 minute period. Since the time frame is so short, oftentimes, no discernable trading pattern can be identified. As a trader moves to larger and larger time frames, the price action will be less random and, therefore, “Market Noise” will be less and less a factor.

Hello Mr Richard

Okay I already knows About The market Noise , but Could U tell me How To take a new Direction when The Market Noise Accruing!!!

Richard Krivo · #**282** (**permalink**) 08-04-2009, 02:02 PM

Quote:

Originally Posted by VINCY BALBOA

Hello Mr Richard

Okay I already knows About The market Noise , but Could U tell me How To take a new Direction when The Market Noise Accruing!!!

Hello Vincy...

When Market Noise is occurring, that is an excellent time to sit on the sidelines. Market Noise is so totally random that discernable trading patterns are not identifiable. Entering during that time would most likely result in taking trades based on false entry signals.

This is one of the reasons that we recommend not using charts below 1 hour in time frame. The smaller the time frame, the more random the price action will be.

VINCY BALBOA · #**283** (**permalink**) 08-04-2009, 03:02 PM

Quote:

Originally Posted by Richard Krivo

Hello Vincy...

When Market Noise is occurring, that is an excellent time to sit on the sidelines. Market Noise is so totally random that discernable trading patterns are not identifiable. Entering during that time would most likely result in taking trades based on false entry signals.

This is one of the reasons that we recommend not using charts below 1 hour in time frame. The smaller the time frame, the more random the price action will be.

MY GOOD MAN Richard!!!

if U Will See some Like Eur/Usd and Gbp/jpy And Some time Other Currency Gave very much Time The Market Noise And this also Just Hazzle The All Other Indicator Like MACD Stochastic and Aroon etc.

So it is not My Point about market Noise I just want that Does market Noise gave a New Way ,,UP OR DOWN side?

Richard Krivo · #**284** (**permalink**) 08-04-2009, 07:49 PM

Quote:

Originally Posted by VINCY BALBOA

MY GOOD MAN Richard!!!

if U Will See some Like Eur/Usd and Gbp/jpy And Some time Other Currency Gave very much Time The Market Noise And this also Just Hazzle The All Other Indicator Like MACD Stochastic and Aroon etc.

So it is not My Point about market Noise I just want that Does market Noise gave a New Way ,,UP OR DOWN side?

In my opinion, no.

Market noise is simply too random to use in making any trading decisions.

Richard Krivo · #**285** (**permalink**) 08-04-2009, 07:53 PM

Student’s Question:

Can you give an example of some of things (signals) you look for in what you refer to as a higher probability entry? Thanks.

Power Course Instructor’s Response:

Sure...

Take a look at the historical chart of the USDCAD below…

First off, at the time of this chart, the Daily trend on this pair was to the upside.

Our first “filter” in determining a higher probability entry is one that is in the direction of the Daily trend.

Next, we see that price action has broken above resistance. When a candle closes above a resistance level, that in an indication that a continued bullish move may ensue.

We could then check other indicators…the MACD in this instance. When the MACD line is above the zero line (the mid point of the histogram bars) bullish positions are favored. Also, we see that the MACD line (green) has crossed over the Signal line (black) to the upside. Moreover, the angle and the separation between the two lines is increasing…another bullish signal. Lastly, in this instance, we see the histogram bars building in the direction of the overall move…to the upside.

In this trading scenario we have several signals that are confirming the uptrend that we have noted on the chart.

The reverse of all of the above would be signals that we look for if the trend were to the short side…a selling opportunity as opposed to a buying opportunity.