Post of the Day - Page 5

Richard Krivo · #61 (**permalink**) 11-21-2008, 03:53 PM

Student’s Question:

I will enter in sell mode here only after the candle comes below the 38.2% fib for the fourth time. Would that be a good way to go?

Power Course Instructor's Response:

That would be one way to handle the trading scenario presented by your chart.

Also consider the plan outlined on the chart below...

By taking a short position after the second candle that breached the 38.2% level closes, puts a trader into the trade earlier (more potential profit) and allows a stop placement that will provide a stronger Risk Reward Ratio.

Richard Krivo · #62 (**permalink**) 11-24-2008, 08:34 PM

Student’s Question:

This is an hourly chart EUR/USD.

I would go long on yellow line which is about 1.2400 with a 100 pips stop.
If you look at daily chart you can easily see that this is the third time when the price is trying to go below1.2400 vainly. I would even risk that the main trend might be reversing as it hits the lowest point 3rd time since 18/07/2006. What do you think?

Power Course Instructor’s Response:

Well done on using a Daily and a 1 hour chart in your analysis...multiple time frames will always provide more insight as to how the currency pair is moving.

While all of what you say might be accurate as we look back on this, given the fact that the pair is still in a strong downtrend, the higher probability trades definitely will be to the short side. Trying to call a bottom can be a very risky indeed. Before a trend reversal is confirmed, the price action would have to start building higher highs and higher lows (kind of a stair step action on the charts) and begin to take out some of the resistance that is now in place at 1.3000, 1.3500 and the 1.4000 areas.

Take a look at the Daily chart below...

Richard Krivo · #63 (**permalink**) 11-25-2008, 07:09 PM

Student’s Question:

I would get ready to go short once this tested the 50% level.

Power Course Instructor’s Response:

Yes. That is the way that the Fibonacci tool would be used in a downtrend. Keep in mind, however, that price can retrace beyond the 50.0% level. Wait until at least two wicks break above the 50% level before making the determination to take a short position. A stop can be placed a bit above the highest wick in the formation.

Also, for the most accurate usage of the tool, be certain that the line is drawn from the top of the wick on your Swing High to the bottom of the wick on your Swing Low in a downtrend. The reverse would be true in an uptrend.

See the chart below for an example...

Richard Krivo · #64 (**permalink**) 11-26-2008, 08:27 PM

Student’s Question:

Here is my chart for assignment 1. It looks correct to me…how about to you?

Power Course Instructor’s Response:

Nicely done...

Buying in the direction of the trend on a Daily chart, after the third touch for confirmation, after price action pulls back to trendline support, is definitely a higher probability trade...good work.

Richard Krivo · #65 (**permalink**) 12-01-2008, 01:51 AM

Student’s Question:

Here is my chart. I have chosen the GBP/USD for 1hr 10 day and marked out a pivot/support point. Any input?

Power Course Instructor’s Response:

You have done a nice job on the 1 hour chart plotting this trade.

My concern is, that while pips can be made, anytime we go against the trend exhibited on the Daily chart we increase our risk. Being of the mind to reduce our risk as much as possible, we would be on the lookout for short positions on this GBPUSD pair based on the Daily chart. In a downtrend as steep as this one, a trader does not know when that bullish retracement is going to come to a halt.

See the Daily chart on the pair posted below...

Richard Krivo · #66 (**permalink**) 12-02-2008, 02:03 AM

Student’s Question:

Is this a long wick that would probably signal a trend change?

Within how many candles would we expect a trend change after a long wick?

Power Course Instructor’s Response:

Keep in mind that long wicks (along with other candle formations) signal the possiblity that an event might occur. A long wick might indicate a change in direction whereas an all-out trend change would not be occurring until we see the pair, if it had been in a downtrend, start to make higher highs and higher lows and begin to take out previous levels of resistance.

The most critical factor a trader can look at to determine which way a pair is likely to move is the direction of the trend on the Daily chart. Since this EURUSD pair is still in a downtrend, we would only be looking for trades in that direction.

A trader can also check a lower time frame chart...a 1 hour or 4 hour...to see how price action is behaving in a faster time frame.

Richard Krivo · #67 (**permalink**) 12-03-2008, 03:29 AM

Student’s Question:

Clear downtrend with downwards sloping support and resistance trend lines.

Power Course Instructor’s Response:

Yes. This is a fine example of a descending trading channel. Since the pair in a downtrend on this Daily chart, we would only be looking for opportunities to sell the pair. Each time price action moves up to trendline resistance, a trader could sell the pair into the downtrend...see the chart below for a visual.

Nice work...

Richard Krivo · #68 (**permalink**) 12-04-2008, 02:27 AM

Student’s Question:

Here we can see a Double Top occurring on the USD/CAD chart. The MACD indicator shows the first peak, but gets nowhere near on the second peak. This to me indicates that the trend will turn and shows a good time at which to sell. Would you agree?

Power Course Instructor’s Response:

Well done...

This is a dramatic example of divergence between price and the MACD on this USDCAD pair. Coupled with a double top, this would be a solid indication of a potentially bearish move. It may not be an all out change in the trend, but, as can be seen on the chart, a pullback of several hundred pips did occur after the double top.

Richard Krivo · #69 (**permalink**) 12-05-2008, 01:43 AM

Student’s Question:

Long wick from 5min chart to identify potential reversal i.e selling position, Can this be a valid approach?

Power Course Instructor’s Response:

I like that you said "potential" reversal...nothing is for sure.

Yes long wicks, especially several of them in succession, can show that potential for reversal. The reason is that price spiked up or down dramatically but the buying or selling pressure was not strong enough to sustain that level. Hence, the potential for a turn in price action is present. Take a look at the chart below for a visual on this.

Try looking for long wicked candles on a chart of at least a time frame of one hour or better. Minute charts, especially one as small as five minutes, can reflect quite a bit of "market noise" and provide signals that are not as reliable as one would like. As always, if the signal takes the trade in the direction of the trend on a Daily chart, that trade will have a higher probability of success.

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 · #70 (**permalink**) 12-08-2008, 03:30 AM

Student’s Question:

Ok so there are a few times here where the price falls near the 50day EMA and then form candle patterns such as hammers or some that kind of look like a hammer/doji. These high probably candle buy signals, forming near the important support level (the EMA), during an uptrend, would all have been good trades. The strategy would be to buy near the EMA and place a stop below either the dojis or the EMA.

Power Course Instructor’s Response:

Precisely…

In an uptrend we want to buy "dips" back down to the Moving Average and in a downtrend we want to sell "rallies" back up to a Moving Average…well done.

Several MAs can also be put on a chart and as the faster MAs cross over the slower MAs, those can be entry signals as well.

See the chart below for an example of the latter....

Each time the 10 MA crosses over or bounces off of the 20 MA, that is a buying opportunity.

Richard Krivo · #71 (**permalink**) 12-09-2008, 03:31 AM

Student’s Question:

There are many opportunities here where the price bounced off the fib levels. I would go to the hourly charts and look for buy signals at these fib levels.

Power Course Instructor’s Response:

You clearly have a good understanding of the Fibonacci tool. Your thought about going to an hourly chart to look for entries is sound as well.

Keep in mind, however, the we do not want to lose sight of the overall trend. Since the pair is in a downtrend, we would want to look for a continuation of that bearish tendency that it has been showing...see the chart below.

Think about drawing the Fib line as it is on the chart below. That way we can look for a continuation in the direction of the prevailing trend.

None of the above is to say the pair might not begin to build higher highs and higher lows and begin a bullish move at some point. But right now the higher probability trades will be short.

Richard Krivo · #72 (**permalink**) 12-10-2008, 08:31 PM

Student’s Question:

Looking at this chart, the mid section seems to be ranging nicely, giving plenty of opportunities to go long/short. However, I focused on the outside-range indicators, where the candlesticks have broken through the Bollinger Bands. I think the encircled area is particularly interesting as the bands seem to contract, just before the downtrend. However, it may be more difficult to see this in real-time, rather than retrospectively! Do you run into that?

Power Course Instructor’s Response:

Yes...hindsight is always 20:20 as they say.

Generally, you will see the bands contract prior to a move or breakout in either direction. Price action tends to become more compressed before a breakout from the range it had been trading within.

Also, keep in mind that we want to use the Bollinger Bands (or any indicator for that matter) to assist with taking trades in the direction of the trend on the Daily chart. Keep in mind that we always want to trade the trend and not the indicator. So, on roughly the first half of the chart, we would be looking for buying opportunities while on the second half we would be looking for opportunities to sell.

See the chart below for a visual...

Richard Krivo · #73 (**permalink**) 12-11-2008, 07:21 PM

Student’s Question:

Please find attached the chart for 2days-1hour having the support line and the resistance line. If I would have decided to buy I would have bought when the market fell a little low, the third time and would have done a short trade and closed the position by attaining a marginal profit. Please correct me if I am wrong and give me more ideas about using the support and resistance lines. And do let me know whether I'm right in drawing lines.

Power Course Instructor’s Response:

It is clear that you have the right idea about support and resistance lines. What we need to be sure of, however, is in what direction should we be taking the trade...long or short.

Take a look at charts below for a visual on using them to trade this pair.

We want to get the direction that we should take the trade from the Daily chart. On that chart we can see that the trend is down so we know we only want to take short positions since they will be the higher probability trade. Next we can drill down to a 4 hour chart (which I did) or a 1 hour chart to "fine tune" our entry in the direction of the trend. The second chart provides two options as to how to trade this pair.

Richard Krivo · #74 (**permalink**) 12-12-2008, 04:18 PM

Student’s Question:
See the attached the chart. Could you please also answer the question posted on the chart. Thanks.

Power Course Instructor’s Response:

The overall trend on this Daily chart is still to the downside...it has been on a strong bearish move that has been going on since the middle of July.

That being said, there is some intriguing price action that is taking place in the form of higher lows and higher highs that are beginning to build themselves out. To have a full-blown trend change, however, this will have to continue to occur and levels of resistance will have to be taken out as price action advances…see the chart below. A trend change is not something that we would commit to calling at this point.

To answer the question on the chart, this could be the beginning of such a journey...it would be a Step 1 in the process. See the resistance levels labeled on the chart. We would want to see a candle close roughly above R1 to take out another level of resistance and then continue making bullish moves to the upside.

hardelly · #75 (**permalink**) 12-17-2008, 07:38 AM

Can I consider this a double top & shorting based on downtrend daily chart?