Post of the Day - Page 2 - DailyFX Forex Forum

Richard Krivo · #16 (**permalink**) 09-28-2008, 07:04 PM

Student's Question:

How should I determine the timeframe for support and resistance? In order to encompass the full range of value, I suppose I could reach farther back in time... Within reason, I find it difficult to place resistance lines extremely high, simply to encompass the full range of values. Shouldn't we be placing support and resistance lines in as narrow a range as possible? Wouldn't this (hopefully) increase our chance of accuracy and limit exposure to extreme volatility?

In my attached chart, I placed the support and resistance lines at 1.3990 and 1.4910- this still seems like an enormous range... Where would you have placed the lines?

Power Course Instructor's Response:

Good points...

You are correct that using a Daily chart to set S/R levels can result in some pretty deep stops...too much for many accounts as well as the emotional well-being of the trader.

In my opinion, check out 3 charts: Daily, 4 hour and 1 Hour. The strongest and most significant support and resistance levels will be found on the Daily chart. Any of the levels that appear on the Daily along with the 4 hour and the 1 hour charts should be given much respect as they are, as mentioned, quite strong. Determine the trend from the Daily chart and then use the 1 hour to time your entry in the direction of the trend as well as to determine the S/R levels. That should result in levels that are much more tolerable.

On the chart that you posted, the Support and Resistance levels you indicate are good but I would like to see each of them (especially support) tested a few more times. The greater the number of times levels are tested, the greater their reliability.

Richard Krivo · #17 (**permalink**) 09-29-2008, 07:25 PM

Student's Question:

I see this indicator give a lot of correct signals in the range bound area of EUR/USD, used in conjunction with the candlesticks. I'm not sure that I would have placed all of these trades, but I circled all of the signals that turned out correct...would you agree?

Powercourse Instructor's Response:

Nice job on using a Daily chart for your analysis.

Yes. There were definitely a good number of correct "calls" provided by the Bollinger Bands. The general rule of thumb in trading with Bollinger Bands is to go short when the upper band is pierced and go long when the lower band is pierced. Given how this EURUSD pair traded in a range for several months accounts for the numerous signals on the posted chart.

Keep in mind that the highest probability trades will be those in the direction of the trend on the Daily chart.

Richard Krivo · #18 (**permalink**) 09-30-2008, 06:54 PM

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.

Richard Krivo · #19 (**permalink**) 10-01-2008, 06:39 PM

Student's Question:

Here is a chart on showing the direction in range-bound trade. Where would I place an entry for future trade.

Power Course Instructor's Response:

You have the right idea about trading in a range. Wait for the price action to trade down to support and, should the price action bounce to the upside, take a long position with a stop just below the support line.

The above being said, I would like to recommend that charts not be expanded so that just a few candles are showing...the overall perspective on the pair is lost. A rule of thumb is not to use a chart will less than 50 candles showing.

Below I have posted the Daily chart of the GBPJPY in a full view format. Note how much more can be told about the how the pair has been moving.

Another thing that can be told from this chart is that the overall trend is to the downside. So, the higher probability trades will be short positions.

Therefore, in this instance, the higher probability range trade on this pair would be to wait until the price action moves back up to resistance level on a lower time frame chart, say the 1 hour, and then short it at that point with a stop just above the resistance level.

Richard Krivo · #20 (**permalink**) 10-02-2008, 07:13 PM

Student's Question:

Here's my assisgnment .. I would have been bullish on the $/yen but it turned on me and stopped me out. I would have waited as stated on chart and went bearish.

First Bullish enter trade @ 106.60 limit 106.90 stop 106.30

second trade bearish enter @ 105.10 ( if I had caught it) limit 105.40
stop 106.80...what do you think?

Power Course Instructor's Response:

Always keep in mind that the first step in alalyzing a trade is to look at a Daily chart to determine the direction of the trend on that chart. Take a look at the chart below for a visual.

Since the overall trend on that chart is to the downside, the higher probability trades will be to short the pair. It is always better to trade in the direction of the trend on the Daily chart...it is like running with the wind at your back. It can never work against you.

Bottom Line: Look for the pair with the strongest trend in either direction and then trade that pair in the direction of the trend.

Richard Krivo · #21 (**permalink**) 10-05-2008, 07:07 PM

Student's Question:

I placed a trade based on SMA 10&20 crossover which was confirmed with previous bearish engulfing pattern signal. Stop loss placed above SMA. Any thouhgts?

Power Course Instructor's Response:

That is an accurate example of how to execute a trade using Moving Averages. Once the faster MAs crossover the slower MAs, a trade can be taken in the direction of the crossover...in this case, to the downside. The bearish engulfing candle that you rightly point out, provides confirmation for the Moving Average signal.

As the angle of the MAs increase and the MAs begin to fan out away from each other, it indicates that the move strengthening.

Good work...

Richard Krivo · #22 (**permalink**) 10-06-2008, 07:05 PM

Student’s Question:

Retracement to break the 38.2 Fibonacci at 197.00. Resistance at that level adds further confirmation of short trade entry. Stop placed just above resistance level and 38.2 fib. Order entry at breakout bellow 38.2 Fibonacci. Is that the correct way to use Fibonacci’s?

Power Course Instructor’s Response:

Well done...

This shows you have an understanding of how to trade utilizing Fib levels to enter trades.

The GBPJPY pair is in an overall downtrend on the Daily chart and has retraced to this 38.2% Fib level. Executing a short position with a stop just above that level (as you did) is the higher probability way to enter this trade.

Richard Krivo · #23 (**permalink**) 10-07-2008, 06:17 PM

Student’s Question:

The question is how would one indentify a precise point of entry and stop loss.

Power Course Instructor’s Response:

You definitely have the right idea here.

Once the red candle noted closes and the MACD has crossed below the Signal line and stayed there in the time frame of that candle, that is the signal to take a short position. Potentially, a trader might be able to "fine tune" the entry by looking at a 1 hour chart on the pair to identify a pullback and then a renewed bearish move for entry.

In this case the stop would be placed 5-10 pips above the doji.

Good work...

Richard Krivo · #24 (**permalink**) 10-08-2008, 06:36 PM

Student’s Question:

Here's my sample chart with a downtrending portion of USD/JPY daily chart. On the downtrend, I'll look for an opportunity to sell around the trendline that was acting as resistance. On the reversal side, it's possible to trade the short-term uptrend after it has dip below the 20d MA and 50d MA depending on outlook and other technical indicators.

QUESTION. Is it good to take advantage of the counter trend during the small swings? As in the downtrending portion of this pair, can I buy at the lows and sell at the highs below the downtrend line? Or shall we just stick and follow the general trend for trading opportunities? tnx.

Power Course Instructor’s Response:

Nicely analyzed and well documented on the chart.

To answer your question...

The temptation to take advantage of counter trends is always present as there are definitely pips to be made. The problem is that these countertrend pips have a much higher rate of risk associated with them.

We strongly recommend only taking trades in the direction of the overall trend as shown on a Daily chart. The higher probability trades will always be those in direction of that trend. We would wait for the price action in the case of this USDJPY pair to cycle back up (sell rallies) and then sell the pair once again into the bearish trend...see the chart below for a visual.

Richard Krivo · #25 (**permalink**) 10-09-2008, 07:06 PM

Student’s Question:

Pair is in up trend and looking to buy…is this a break out opportunity?
Are my Target price and Stop loss ok?
If so where should I set limit order. As my loss could be 70 pips should I look for 1.1290 (140 pips 2:1) or 1.1360 (210 pips 3:1)

Power Course Instructor’s Response:

You are correct that this UASCAD pair is in an uptrend so we should only be looking for opportunities to buy.

A breakout is when price action breaks above or below a trading range that has been established over a bit of time...as marked on the chart below.

Since the pair has been in a strong uptrend for several days, it might be prudent to wait until it retraces (perhaps to the level of the second breakout as that is now support) and then take a long position. Should the pair, however, break above the channel line (the green line which you have marked), then a long position could be taken after a candle closes above that level and a stop would be placed just below the upper channel line.

Yes. A good way to estimate a limit is simply multiply your stop by 2. As the position moves in your favor, the stop can always be trailed up to lock in profit as you go.

Richard Krivo · #26 (**permalink**) 10-12-2008, 05:52 PM

Student’s Question:

Is this trade ok? It looks like the price reached a new high at a triple top resistance level, yet the MACD did not reach a new high. This would indicate a reversal in the market.

Power Course Instructor’s Response:

Yes. This would be a good example of divergence but not a triple top.

Price is making a new high and MACD is not. Given this divergent indication, we would expect that price action would begin to become bearish. And, based on the chart you posted, it does. Good work...

This would not be a triple top however. For that to occur, we would want to see price hit the same level three times after distinctly pulling away from that same level each time.

Richard Krivo · #27 (**permalink**) 10-13-2008, 06:48 PM

Student’s Question:

Ok, here's a try. The EUR/USD looks totally crazy right now but if I drew the support line right, there's room for it to go lower before it hits the support line. Then should I buy?

Power Course Instructor’s Response:

In a strong downtrend, such as the one represented here, we would wait for the pair to "stall out", retrace, pullback or consolidate, prior to taking a short (sell) position. A trader can make an approximation as to the degree of the retracement by using Fibonacci Retracement Levels, for example. Once price action stalls and then renews its move to downside (IF it renews its move to the downside), that would be a more prudent way to enter the trade.

If we were to short the pair now, we may be shorting it just prior to a major retracement. By waiting, we avert the likelihood of that occurrence.

Given the trend represented on the Daily chart, we would only be looking for opportunities to short the pair.

Richard Krivo · #28 (**permalink**) 10-14-2008, 07:34 PM

Student’s Question:
I would be shorting this pair. My stop loss would be set 15 pips above my support line. Would you agree?

Power Course Instructor’s Response:

You are correct that shorting this pair would be the preferred direction since the EURUSD has been in a downtrend since approximately the middle of July. However, we would strongly recommend against using a 1 minute chart for any type of trade analysis.

The best procedure to look for a pair to trade is by first checking the Daily chart to find a pair that shows a strong trend in either direction. Once you find a pair having a strong trend on the Daily chart, look at a 4 Hour chart on the same pair. On this chart you want to locate an entry into the trade in the direction of the trend that you identified on the Daily chart. To further "fine tune" this strategy, a 1 Hour chart can be consulted for your entry in the direction of the trend on the Daily chart.

On minute charts you will find more "market noise" than actual tradable data. The longer the time frame, the more data points that will be on the chart and, therefore, the more accurate the information will be.

Richard Krivo · #29 (**permalink**) 10-15-2008, 06:41 PM

Student’s Question:

I have a question on this chart that I did attach. I can see the resistance line but in the last few weeks the resistance was broken so this line is no longer working. And it is hard now to know which way the currency pair is going.

Power Course Instructor's Response:

Yes. The Resistance Trendline that you were using experienced a breakout to the upside. This is a trading opportunity. Once the trendline is broken, and a candle closes above the trendline, a long position can be taken with a stop just below former resistance which is now new support.

The red line on the example chart below can be used for support as long as price action respects it.

Richard Krivo · #30 (**permalink**) 10-16-2008, 07:16 PM

Student’s Question:

Here is my trade for GBPJPY using RSI. I entered when the RSI went above the 30 and a Doji formed to confirm the trade. The trade is still going and waiting to see if there is any divergence and have a close stop. Does that seem right?

Power Course Instructor’s Response:

Yes. You give a good example of using the RSI indicator for a trade on this GBPJPY pair...good job. Essentially, we want this indicator to have been below 30 and then come above 30 signaling that momentum is becoming bullish and long positions will have the benefit of this momentum.

Keep in mind, however, that since the trend on the Daily chart is very bearish (see chart below), the higher probability trades will be those taken to the downside.