Post of the Day - Page 3

Richard Krivo · #31 (**permalink**) 10-19-2008, 04:54 PM

Student’s Question:

How do we find out interest rate on particular currency and who decides it? If I buy EUR/USD than I am earning interest on EUR and paying on USD right!!

Power Course Instructor’s Answer:

The interest rates on the major currencies can be found on the homepage of Forex News | Forex Trading News | Currency Trading News.

The rates are set by the Central Banks (the Fed in the US) of the country issuing the currency.

On any of the pairs, if a trader goes long the currency in the pair with the higher interest rate, they will earn the difference between the two interest rates.

Richard Krivo · #32 (**permalink**) 10-20-2008, 07:14 PM

Student’s Question:

On this chart I have a cross up, and no divergence in either RSI or MACD, and we are not oversold in RSI.

The longer term trend is the right direction, but I am not sure if this is enough to go long, and at what exact point to go long... (above the blue bar that caused the cross over?) if so, the stop would be just under the most recent low (large red bar)

Maybe buy based on a break through resistance after that cross up?

Power Course Instructor’s Response:

Divergence would be present in this case since when price made a new high neither MACD nor RSI reflected that move. Based on this, we would look for the bullish momentum to fade. There is a cross to the upside to be sure, but after that bullish move, price action levels off.

On the Daily chart, we would wait for a break above resistance (thin red line) or below trendline support. Since the most recent trend is to the upside, a buy would be the more likely scenario. Given divergence, however, we would keep our eyes open for a retracement as we might be able to execute our buy at a better price.

When looking at a Daily chart and facing indecision, a good plan is to drill down to a 4 hour and/or a 1 hour chart to see how the pair is behaving in a shorter time frame. Lower time frames will provide insight as to how and in what direction a move is building.

Richard Krivo · #33 (**permalink**) 10-21-2008, 07:44 PM

Student’s Question:

I am not sure how to interpret the chart correctly, but with the sharp declining support line, would it be an opportunity to buy NZD?

Power Course Instructor’s Response:
Congratulations on using a Daily chart for your analysis...that is the preferred way to go.

In a dramatic and accelerating downtrend, however, (see the chart below) we would only be looking for opportunities to sell (short) this pair...trading in the direction of the trend on the Daily chart. Using this chart alone, we would wait for price action to trade up to resistance and then short the pair at that point with a stop just above the resistance line.

Fibonacci Retracement Levels, as seen on the chart below, could be used to determine how far price will retrace. Once price begins to move down from one of the Fib levels, we would sell the pair at that point with a stop just above the highest wick that penetrated the Fib level.

In a downtrend, we would draw a resistance line above price action...as on the chart below. In an uptrend we would draw a support line below the price action.

The best procedure to look for a pair to trade is by first checking the Daily 1 Year 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 40 Day 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, look at a 1 Hour 10 Day chart for your entry in the direction of the trend on the Daily chart.

We do not recommend using any chart with less than an Hour time frame to make trading decisions. On minute charts you will find more "market noise" than actual tradable data. The longer the time frame, the more data points on the chart the more accurate the information will be.

Richard Krivo · #34 (**permalink**) 10-22-2008, 07:35 PM

Student’s Question:

Here is my trade.

I'm preparing to buy after the price hits the support line.
Stop : 87.90

Please let me know if it makes sense.

Thank you.

Power Course Instructor’s Response:

Since the pair is in a dramatic downtrend (see the chart posted below), we would only be looking for opportunities to short (sell) the pair…trade in the direction of the trend on the Daily chart. By following that rule, you will find yourself in trades that have a higher probability of success.

While there are pips to be made going against the trend, those pips would have a much higher level of risk associated with them.

Richard Krivo · #35 (**permalink**) 10-23-2008, 07:28 PM

Student’s Question:

Here's the support line. But I am still confused as to when should I enter the trade and when should I exit the trade according to the chart I posted?

Power Course Instructor’s Response:

In a downtrend you want to sell at resistance. In an uptrend you want to buy at support. This way, you have the daily trend helping to 'push' your trade.

So in a downtrend, the trendline (resistance) would be drawn above the price action while in an uptrend the trendline (support) would be drawn below the price action.

In this case, you are looking for an opportunity to sell at resistance and profit can be taken at the next level of support and/or resistance.

Richard Krivo · #36 (**permalink**) 10-27-2008, 09:11 PM

Student’s Question:

Is this a good support and resistance chart with just waiting for the third touch before an entry.

Power Course Instructor’s Response:

Yes...the third touch is the one that validates.

Based on the Daily chart on the pair, we would only want to take short positions as this pair is trending strongly to the downside.

Based on the 1 hour chart you posted, there are three things that can be used to analyze the trade: 1) if the pair trades up to the black trendline, a short position can be taken as long as the candle does not close above the trendline; 2) put a Fib line (red line) as shown and from the Fib levels a trader can determine the potential level of retracement…once that level is hit, a short position can be taken; and, 3) if the pair closes below support (green line) a short position can be taken at that point.

The idea here is that there is more than one way to analyze a chart depending on what is going on with the pair.

Richard Krivo · #37 (**permalink**) 10-28-2008, 07:21 PM

Student’s Question:

This is a down trend so I started my line from the top and going down. Now if I understand correctly I would wait for the market to retrace to 38.2% level and show some resistance or should I say to test that level and l am looking for a reversal candlestick pattern. If I'm right so far I would then go short @ 1.3683, stop @ 1.3759

Power Course Instructor’s Response:

You have the right idea here.

The Fibonacci Tool is designed to measure retracement potential after a strong move in one direction or the other. A trader would wait until a retracement level is reached and the price action indicates a “bottoming out or topping out” around that level. Then, in this case since the trend is to the downside, a short position could be taken with a stop just above the highest wick at the Fib level where the price action topped/bottomed.

You have correctly used it. However, two swings to the upside have occurred since your original "top" presented itself. Since the 38.2% level is quite a distance (about 1200 pips) away, it may not make it back to that level. Try drawing the Fib line using more recent Swing Highs as represented with the Red and Black line on the chart.

Richard Krivo · #38 (**permalink**) 10-29-2008, 07:37 PM

Student’s Question:

I have attached support and resistance lines for daily and hourly EUR/USD. The daily and hourly charts appear to show conflicting trends. In this case I would pay more attention to the daily, and look for a reversal of the rally or break-out. At this point I would not make any trades but would monitor this closely for possible developing trades. Would that be the best way to proceed?

Power Course Instructor’s Response:

Very nice job using multiple time frames (the Daily and the 1 hour chart in this instance) to analyze a trade.

You are correct paying more attention to the Daily chart...the longer the time frame the more accurate the feedback will be.

Since we know we want to take this trade short based on the bearish trend on the Daily chart, we can use the 1 hour chart to "fine tune" our entry. Although the trend is to the downside on the Daily chart, the uptrend on the 1 hour chart merely reflects the normal retracement that currency pairs experience after a move to the downside.

The trading plan will be to wait until the price action on the 1 hour chart begins to make a move to the downside. When this begins to occur, it will bring the 1 hour chart in sync with the Daily chart...both will be giving bearish signals and providing a higher probability entry. Identifying this move on the 1 hour chart can be enhanced by placing a MACD, RSI or Stochastics indicator on that chart...any one of those would suffice. That will show us when the momentum is in our favor for an optimum entry.

Sidelight: Notice on the Daily chart how the price action is at the top of the resistance channel line that you drew. That is another good indicator that price action is about to reassert itself to the downside.

Richard Krivo · #39 (**permalink**) 10-30-2008, 07:12 PM

Student’s Question:

This is a 4hour chart of the GBP USD over the past few weeks. Is this correct? Is the lower support line valid even though it has only 2 points?
How do you know when Support/Resistance is breached and no longer valid?

Power Course Instructor’s Response:

This is what I would call a fair example of a triangle pattern.

Ideally one would want to see more "touches" at support (the more touches the more valid the line) but some traders might accept this as valid. Personally, I would look for a stronger example to trade. Also, if price action is building a “coiling” movement, kind of going back and forth on itself and becoming tighter and tighter as it winds down to the tip of the triangle, that is a very good sign in a triangle pattern.

See the example charts that I have posted below for a visual…

On the support or resistance question: it will no longer be valid when a candle...the body, not just the wick alone...closes beyond that support or resistance level.

Richard Krivo · #40 (**permalink**) 10-31-2008, 02:43 PM

Student’s Question:

Here are my support/resistance lines. Are they OK?

Power Course Instructor’s Response:

The support line is fine but the resistance line cannot “pretend’ that all those candles that are piercing it do not exist. We can't "force" the lines to fit… otherwise we will be dealing with faulty trading information and, therefore, put on poor trades.

As a general rule, Support and Resistance lines can be drawn through the wicks of candles but not through the bodies of the candles themselves.

See the chart below for an example of support and resistance...

Richard Krivo · #41 (**permalink**) 11-03-2008, 08:13 PM

Student’s Question:

I placed a Buy trade on the NZD/USD, entering at .5825. Looking at the two day low, I set the Stop Loss at .5740. The limit was placed at .6030. With a risk of 85 PIPs compared to a potential gain of 205, the reward to risk ratio is 2.4. Correct?

FX Power Course Instructor’s Response:

Congratulations on the Money Management aspect of your trade. Being aware of the proper Risk Reward Ratio will be critical to your success as a trader...well done.

I would however, encourage you to make two adjustments: do not use minute charts for your trades and trade only in the direction of the trend on the Daily chart.

The longer the time frame a chart encompasses, the more accurate the feedback will be. Minute charts will not have as many data points, for example, as an hourly chart and therefore will be that much less accurate. We recommend using nothing less than a 1 hour chart for purpose of analysis and executing trades.

The overall trend on this NZDUSD pair is to the downside...see the chart below. As such, the higher probability trade will be in that direction...to the downside...and we would only be looking for opportunities to sell the pair.

Our trading strategy is first to check the Daily 1 Year charts on the currency pairs to find the one(s) with the strongest trend in either direction. Once that is determined, check out the Hourly charts (4 Hour 40 Day and 1 Hour 10 Day) on the same pair to fine tune an entry into the trade in the direction of the trend.

Richard Krivo · #42 (**permalink**) 11-04-2008, 08:30 PM

Student’s Question:

This is my Support and resistance for a 12 hour period. I guess I would be looking at selling at the resistance line and buying at the support line correct?

Power Course Instructor’s Response:

You have the right idea here. You identified ascending channel lines...the upper one representing resistance and the lower representing support. If a trader were trading a range, yes, the trader would sell at resistance and buy at support.

Inasmuch as this is a 5 minute chart, remember that each candle represents price action within a 5 minute period looking back over the last 12 hours. It represents a very short time frame from which to analyze a pair.

I would suggest that you try two things: for a trading analysis, do not use anything lower than a 1 hour chart; and, only take trades in the direction of the trend of the Daily chart on the pair.

In the case of the GBPJPY, the pair is in a strong downtrend (see the chart below) so we would only be looking for opportunities to short the pair.

Richard Krivo · #43 (**permalink**) 11-05-2008, 08:22 PM

Student’s Question:

Hi, below is a chart i have attached and I just want to make sure I'm on the right track here. I looked through a few pairs looking for a strong trend and found the EUR/CHF I then drew a support and resistance line on the chart below. My question is: Is this how it’s done and is this a good example? My theory would be to monitor this over the next couple of days and buy if it touched the support setting a stop just below or selling just below the resistance.

Looking around, a lot of pairs are on the start of a steep rise, I guess it’s too early to say if they are strong enough trends to follow as yet?

FX Power Course Instructor’s Response:

You definitely have the right idea here.

The only change I would make is to do the search for a strong trend on a Daily chart. Once you have found that, then look for an entry in the direction of the trend on the Daily chart on either a 1 hour (as you have here) or a 4 hour chart.

In an ascending channel such as the one on your chart, as you suggest, you would buy at support with a stop perhaps 10-15 pips below the bottom channel line which is acting as support.

The best procedure to look for a pair to trade is by first checking the Daily 1 Year 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 40 Day 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, look at a 1 Hour 10 Day chart for your entry in the direction of the trend on the Daily chart.

We do not recommend using any chart with less than an Hour time frame to make trading decisions. On minute charts you will find more "market noise" than actual tradable data. The longer the time frame, the more data points on the chart the more accurate the information will be.

Richard Krivo · #44 (**permalink**) 11-06-2008, 08:14 PM

Student’s Question:

Here is my trade plan. It is USD/CHF, buying on the dip. Do you agree?

Power Course Instructor’s Response:

Well done...

Buying at support in an uptrend....good work.

This is exactly the kind of straight forward trading set up for which we would be looking. We take note of the trend on the chart which is definitely to the upside on this USDCHF Daily chart.

Next, we draw support and resistance lines to determine the range in which the pair is trading. Since we would only want to take long positions in an uptrend, we would wait for price action to come down to support...this is where patience is critical. Once the candle respects support and closes above it, we would take a long position at the opening of the next candle and place our protective stop about 10-15 below the lowest wick that penetrated our support line.

Richard Krivo · #45 (**permalink**) 11-07-2008, 03:30 PM

Student’s Question:

I placed a trade based on this today but then had second thoughts.
The MACD has crossed the Signal line to the upside. Also the resistance/support channel has trended up since July, and there were new highs in October in November. However, after I placed the trade, I wondered if divergence of the MACD to price would indicate downward pressure and a turnaround to come.
I got in at 1.17615 with a stop at 1.1165 and a limit at 1.2376. A 1:2 ratio…your thoughts?

Power Course Instructor’s Response:

Good job on recognizing the divergence.

In this case, with price making new highs and MACD not reflecting that and going in the opposite direction, it is negative divergence and reflects the likelihood of selling pressure strengthening.

You are correct that there is a crossover to the upside on MACD but it is lacking in commitment. Given the uptrend and where price action is in the channel you have on the chart, one could wait for price to reach channel line support and, assuming it does not break through, take a long position at that point with a stop just below.

Also, good work on trading in the direction of the trend and having a 1:2 Risk Reward Ratio in place on the trade...these are two critical pieces to successful trading.