Post of the Day - Page 23 - DailyFX Forex Forum

Richard Krivo · #**331** (**permalink**) 11-09-2009, 04:54 PM

Student's Question:

Is this the correct way to use Moving Averages?

Instructor's Response:

Yes, well done...

In your example chart, the 10, 20 and 50 EMAs (Exponential Moving Averages) were used. The "faster" the moving average, the more sensitive to price movement they will be. In the case of these three, the 10 period EMA is the fastest, the 20 is the second fastest as so forth.

As the faster Moving Averages begin to cross the slower MAs to the upside that would indicate a higher probability buying (long) opportunity.

As the Moving Averages crossover each other and then begin to fan out (move away from each other), the indicates that the move is strengthening and gaining in momentum...see the area on the chart below.

Should the Moving Averages crossover each other to the downside, that would signal that momentum favors a short (sell) postition.

Richard Krivo · #**332** (**permalink**) 11-10-2009, 05:38 PM

Student's Question:

Could you please explain how the broker (FXCM for example) can make the money from our transactions? And how much do we have to pay for transaction fees?

Thanks,

Instructor's Response:

Sure...

While I cannot speak for other brokers, FXCM makes money on the spread, the difference between the Buy and the Sell when the trade is executed. Other than that, there are no fees.

For example, let's say the spread on the EURUSD is 3 pips when the trade is executed. In a standard account, for example, a pip on the EURUSD pair is worth exactly $1. So a three pip spread on a 1 minilot trade would cost the trader $3 to execute the trade. If the trade was placed was for 5 minilots the cost to execute the trade would be $15 and so forth. In a micro account, the values would be roughly 1/10th the size mentioned above.

The spread on any pair at any given time can be determined by looking at the pair in the Dealing Rates window...see below.

Richard Krivo · #**333** (**permalink**) 11-16-2009, 05:11 PM

Student's Comment:

This is an EURUSD 5min for 12 hours. It isin an uptrend. I believe the top line is resistance and the bottom is support for the trend.

Instructor's Response:

You are correct. Based on this 5 minute chart, the pair is in an uptrend and those would be valid support and resistance lines.

That being said, we would advise using longer time frame charts...such as Daily, 4 hour or a 1 hour chart for the trading analysis. A 5 minute chart, as posted, will produce some very random moves that can and will generate many false entry signals.

The longer time frames will be much less random and the smoother movement cycles will be more readily traded as a result.

Richard Krivo · #**334** (**permalink**) 11-18-2009, 04:59 PM

Student's Commment:

Previously we were told to wait until the RSI crosses back down below the 70 line to enter short. In this chart it appears quite possible that the price will go back up to 70, and maybe above it, before heading down to the 30 line.
Your comments?

Instructor's Comment:

Good observation...

Keep in mind that nothing in trading will be an absolute. Simply because the RSI closes below 70, does not mean it will not go back above 70 without making the move down to the 30 level.

As traders we simply react to the signals that the charts provide and exercise good money management principles.

On this particular chart, if the trader went short when the RSI closed below 70 and placed the appropriate stop (see chart below), they would still be in the trade. The trade may ultimately go on to be stopped out or go on to be profitable. By using a higher probability entry on each and every trade however, and practicing good money management skills, we put the likelihood of success over time in our favor.
Attached Images

Richard Krivo · #**335** (**permalink**) 11-19-2009, 06:19 PM

Student's Comment:

Here is a morning star formation on the EUR/USD

Entry: 1.45718 (at open of next candle)
Stop: 1.44831 (at low of the wick)

Instructor's Response:

That is a good plan...

The Morning Star pattern is often used by traders as an early determinant that the direction of the pair may be changing. Since the pattern is comprised of three candlesticks (an elongated red candle with a defined downtrend, a second smaller bodied candle that can be either color that closes below the first red candle in the pattern and a large bullish candle that opens above the second candle and closes near the center of the first candles body) it is important not to make a trading decision based on the pattern until the third canlde closes. The long entry would then be made at the open of the next candle after the pattern completes itself. See the chart below.

Also, When placing a stop, it is avisable not to place it exactly at the low of the wick. Conceivable, price could trade down to that same level again and, if so, there would be a stop out...potentially before the trade moves back in the direction of your intended trade. The pairs need to have a bit of "breathing room" in instances such as these.

ComethMoney · #**336** (**permalink**) 11-20-2009, 04:36 PM

Richard Krivo,

My goodness, how did you produce such a great looking graph. It's really detailed. Where are all of free instructional videos located?

Richard Krivo · #**337** (**permalink**) 11-23-2009, 06:17 PM

Quote:

Originally Posted by ComethMoney

Richard Krivo,

My goodness, how did you produce such a great looking graph. It's really detailed. Where are all of free instructional videos located?

Glad that you liked the chart...

I either use M/S Paint or the drawing tools that are built into whichever charting package I am using.

To access the Webinar Archive, simply click on the link below...

Webinars - DailyFX Forum

Richard Krivo · #**338** (**permalink**) 11-23-2009, 06:19 PM

Student's Comment:

In the webinar in the lesson, it is stated that a long wick gives us a specific price point to work around. I'm not sure how to apply that. Can you elaborate?

Instructor's Response:

Sure...

Take a look at the chart below...

This USDJPY pair is in a downtrend on the Daily chart so we would be looking for opportunities to short the pair on this 1 hour chart. That being said, note the two long wicked candles above which I have placed stops.

A long wick indicates that price traded up to that level (the top of the wick) but the move could not be sustained. Potentially, that will indicate that a move to the downside may take place since the bulls/buyer could not sustain that move to the upside and the bears/sellers won out. The wick provides an excellent spot to place a stop as price tested that level and could not trade above it recently.

Richard Krivo · #**339** (**permalink**) 11-24-2009, 06:10 PM

Student's Question:

Is it true for all of the currency pairs that the 5th place is a tenth of a pip? If not, where can I find out which place is a whole pip for each pair? Thanks for the clarification.

Instructor's Response:

You are welcome...

The only exception would be on the JPY pairs. On each of those pairs the third place to the right of the decimal is the fractional pip. In all other pairs, the fractional pip occupies the fifth place to the right of the decimal. Check the graphic below for an example of each type of pair. The fractional pip in each example is inside of the red box.

Also, you may find the link below to be helpful as it will take you to Daily FX for Beginners and a more detailed overall explanation of Pips.

DailyFX - What is a Pip?

Richard Krivo · #**340** (**permalink**) 11-30-2009, 06:40 PM

Student's Comment:

So I have started a trade as shown, where I entered short at 1.5021, I would appreciate your opinion.

Instructor's Response:

You have done a nice job analyzing the 1 hour chart on this EURUSD pair.

That being said, the trades with the greater likelihood of success will be those that are in the direction of the trend on the Daily chart. For this pair, the uptrend is still in place.

So, waiting for the pair to trade down to the bottom of the descending trading channel the you have in place and, if price action does not close below it, a long position at that point would be the higher probability trade. Or, should the pair continue to trade up and close above the upper channel line, along position could be taken at that point. In either scenario, we want to be looking for opportunities to trade in the direction of the Daily trend.

Richard Krivo · #**341** (**permalink**) 12-02-2009, 04:36 PM

Student's Comment:

Trade would be entry short position at 93.0000, stop limit at 93.5000, with limit at 89.0000. Might not hit that level given trend, but this is a extremely interesting tool!

Instructor's Response:

Yes...it is an excellent tool and you have the right idea regarding its application. That being, planning to enter the trade short in the direction of the Daily trend after a retracment to a Fib level occurs.

Since the pair is trading at roughly the 87.00 level at this time, you are correct that waiting for a retracement of around 600 pips would be a ways down the road.

On the second chart below, the Fib line that was drawn went back to a move that began in early August.

We would recommend "fine tuning" where you are placing the Fibonacci tool. By placing a Fib line on a more recent move and/or using a shorter chart time frame, you will find that the retracement needed to enter a position will not be near as great. Take a look at the first chart below for the "fine tuned" version.

Note on this 4 hour chart how USDJPY pair, at this point, has retraced to the 61.8%. If that Fib level holds, a trader could take a short position with a stop above the 61.8% Fib level.

Richard Krivo · #**342** (**permalink**) 12-07-2009, 06:00 PM

Student's Comment:

Would you post an example of a double top? I am not grasping the concept...thanks.

Instructor's Response:

Sure...

A textbook example of a double top will take place at the top of an uptrend...take a look at the Daily chart posted below for a visual on this.

Price action (the black arrows) moves up to test resistance and when it cannot penetrate that level, it retraces thereby forming the first top. After many days of retracing, price action begins to move up toward the resistance level to test it for a second time. If price action cannot penetrate the resistance level for a second time, the second top is formed.

This pattern can be traded by taking a short position after the test of the second top. A short position can be taken at that point with a stop just above the resistance level formed by the double top.

One of the strong points of trading this pattern is the excellent Risk Reward Ratio that will be in place. We can see on the chart that with a stop just above resistance the amount of risk on the trade, the distance from our short entry to our stop, is very small when compared to the amount of downside potential (profit) that this trade holds.

One more thing...

Note on the chart how black arrows representing price action form the letter "M". We want that configuration: up to test resistance, a retracement down and away from resistance, up to test resistance again and then a final move away from resistance. In the case of a double bottom, we would look for a formation resembling the letter "W" and all would be reversed.

WillItWork4Me · #**343** (**permalink**) 12-08-2009, 02:42 AM

Do you think it is a good idea to do a Long trade if prices go beneath the grey line (79.43) and remain above the red line (76.33). Thanks.

Richard Krivo · #**344** (**permalink**) 12-09-2009, 05:20 PM

Quote:

Originally Posted by WillItWork4Me

Do you think it is a good idea to do a Long trade if prices go beneath the grey line (79.43) and remain above the red line (76.33). Thanks.

Recently the pair has been trading in a descending trading channel...making lower highs and lower lows.

Should a candle close above the upper channel line the inclination would be to take a long position being mindful however of the two levels of resistance above.

Should the pair trade below the support line around the 76.30 area, that would open the door to downside potential.

See the chart below for a visual...

Richard Krivo · #**345** (**permalink**) 12-09-2009, 05:23 PM

Student's Comment:

I was looking for another opportunity, and on looking at the AUS/USD I stretched it out to a weekly chart.
Do you think that it has peaked out and is about to fall, creating a short opportunity in the medium to long term?
I am asking this to see if I am coming to the right decision from the information I see.

Instructor's Response:

While what you suggest could indeed happen, rather than trying to predict a top, the higher probability trade would be to wait for the retracement to occur and then take a long position back in the direction of the Daily trend that has been in place since early March. While pips can be made trading counter trend, they will come with a greater amount of risk. The question often arises at to why there is greater risk trading against the trend.

To answer that, let's take a little more in depth look at this AUDUSD Weekly chart with an eye toward trading trends vs trading retracements...

We can see that beginning with the most recent bullish uptrend, three major upside moves (those noted in green) have taken place. During that same time frame, six retracements (those noted in red) have occurred. Just at a glance we can see the moves with the direction of the trend are much smoother and of a longer duration. The moves against the trend, on the other hand, are much shorter and not at all smooth.

The total pips gained going with the trend during this time are approximately 2870 while those gained going against the trend are roughly 2025...a difference of 845 pips. As mentioned earlier, no one ever said pips cannot be made in counter trend trading, just that they come with more risk associated with them.

So, the question before the trader is would they rather be in fewer trades that are of a longer duration and have smoother movment cycles with greater pip potential, or take the risks that are presented by taking a greater number of trades that are of shorter duration with ragged movement cycles and less pip potential?