Post of the Day - Page 7

JForex · #91 (**permalink**) 01-09-2009, 07:24 PM

Some questions:

1. What is a legitimate break of a Resistance (or Support) level? Should the Whole candle draw Below (or Above) the Level, or it just has to Close Below (or Above) the level?

2. Whats the Entry strategy once a trend has been identified? Should we always wait for a Pullback, or can we even enter along the trend hoping to take some profit?

3. Whats the Exit Strategy? 38,50 or 61?

Richard Krivo · #92 (**permalink**) 01-12-2009, 01:03 PM

Quote:

Originally Posted by JForex

Some questions:

1. What is a legitimate break of a Resistance (or Support) level? Should the Whole candle draw Below (or Above) the Level, or it just has to Close Below (or Above) the level?

2. Whats the Entry strategy once a trend has been identified? Should we always wait for a Pullback, or can we even enter along the trend hoping to take some profit?

3. Whats the Exit Strategy? 38,50 or 61?

1) A candle closing above/below would be considered a break.

2) Either way would be a valid entry and can be used depending on a trader's comfort level.

3) There is no hard and fast answer to that...much will depend on the strength of the move and the trend. A rule of thumb is that if a pair retraces 61.8% from the point of entry and closes beyond that, exiting the position could be considered.

Richard Krivo · #93 (**permalink**) 01-12-2009, 07:27 PM

Student’s Question:

In the below chart I have highlighted a point where there is crossover on the MACD which would be an indication to take a short position however, although that would be trading in the direction of the trend. I would not enter there because I think that the MACD is too slow an indicator on this occasion. It is giving the signal 4 days late and the market is now way below the resistance line.

Power Course Instructor’s Response:

Nice job on identifying the USDJPY as one of the stronger trends out there right now on the Daily chart.

Yes. All indicators are lagging based on the fact that they are computed on trading data that has already taken place and then factored in with what is occurring. Even tough the initial part of the move has taken place, this still is a valid trading signal…the next level of significant support is over 200 pips away. One can wait for a pullback to a new resistance level and then enter in the direction of the trend.

Two things to consider in a situation like this...

Since this pair is in a strong downtrend on the Daily chart, the trader knows what direction they will be trading. So, consulting a 4 hour or a 1 hour chart to look for a short entry will be beneficial as it will get the trader into the trade sooner than relying on the Daily chart alone.

When using the MACD, do not forget about the Histogram as a trading tool. Note on the chart below how the Histogram bars will move more quickly in the direction of the trade than will the MACD and the Signal Line.

BolsaGT · #94 (**permalink**) 01-13-2009, 02:19 PM

Mr. Krivo could you post again this link. It seems that page is not working.

Thx.

http://www.learncurrencytrading.com/...ost-day-4.html

Richard Krivo · #95 (**permalink**) 01-13-2009, 06:03 PM

Quote:

Originally Posted by BolsaGT

Mr. Krivo could you post again this link. It seems that page is not working.

Thx.

http://www.learncurrencytrading.com/...ost-day-4.html

Thanks for calling that to my attention. I just accessed the topic with the link below...

http://www.learncurrencytrading.com/...ost-day-4.html

sincon · #96 (**permalink**) 01-13-2009, 06:04 PM

hi Richard how reliable is to enter the position after a break of support or resistance in a graph is 1 hr. 4 hr for the daily trend

Richard Krivo · #97 (**permalink**) 01-13-2009, 07:51 PM

Quote:

Originally Posted by sincon

hi Richard how reliable is to enter the position after a break of support or resistance in a graph is 1 hr. 4 hr for the daily trend

Thanks for the question...

In a trending market, when a trader is basing a trading decision on the overall Daily trend and then using a 1 hour or 4 hour chart to "fine tune" the entry in that direction, that, in my opinion, would be a higher probability trade. As far as fine tuning the entry goes, a trader can use either RSI, MACD or Stochastics, for example, to insure that when the break occurs, momentum is behind the entry.

While there are no hard numbers that can be put up as to reliability, as traders, what we try to do on a consistant, day in day out basis, is to only take trades that offer us a greater likelihood of success. Trading in the direction of the Daily trend off of Support and Resistance breaks on hourly charts will do that.

Couple the above with good Money Management (such as trading with at least a 1:2 Risk Reward Ratio), will only enhance one's trading capabilities.

Richard Krivo · #98 (**permalink**) 01-13-2009, 07:55 PM

Student’s Question:

In the chart below I've decided to go long on AUD/USD. Todays candle wick is just penetration the lower bollinger band. I will wait to see if tomorrows candle confirms the reversal and moves up. I'll place a stop just below the bottom of today’s wick.

Power Course Instructor’s Response:

While I can see your rationale, keep in mind that the primary tool in determining the direction to take a trade is the overall trend on the Daily chart.

Taking a look at the Daily chart below, the prevailing trend is still to the downside. There has been a strong retracement recently but that trendline has been broken.

While what you indicate could occur, at this point, the higher probability trades will be opportunities to short the pair.

Richard Krivo · #99 (**permalink**) 01-14-2009, 08:28 PM

Student’s Question:

Should I believe the candles? Waiting for a crossover of the 20/50 SMAs to come down would has cost dearly … waiting for the last SMA crossover would have cost several hundreds of pips. Afterwards, we can say that it was not too late to jump in; staying in and sliding a stop along with 50 day SMA would have been an extremely good deal anyway. However, in a short term down trend waiting for the ‘too much’ lagging SMA could have caused … well, frustration?

Power Course Instructor’s Response:

Your point is well-taken and anyone who has traded for a while can identify with it.

All indicators are "lagging" by definition since, in some form or another, they are based on an average of price action that has previously occurred.

In the case of Moving Averages, the faster moving average will provide more trading signals and give them earlier. That being said, they will be less valid than the longer Moving Averages since the longer ones are based on a greater number of data points. This is the primary reason that we recommend the use of longer term charts (at least one hour in length) since the signals provided will be more reliable than those generated from "minute" charts.

Based on the chart posted, had the trade been taken at the #3 crossover, roughly 250 pips would have been left on the table from the very beginning of the move. However, had the trader stayed with that trade until the exit crossover of the 10 and 20 SMAs which occurred in late September, the gain would have been about 1500 pips. Had a trader stayed in the trade until the 50 SMA was crossed over to the upside in mid-December, the gain would have been about 2750 pips. These pip totals have netted out the pips left on the table at both the opening and closing of the trade.

Trying to enter a trade right at the beginning of a move and exit right at the end, will be, as you say, frustrating. And, as can be seen on the chart, it is not necessary to be successful in the long run.

JForex · #**100** (**permalink**) 01-14-2009, 10:50 PM

Quote:

Originally Posted by Richard Krivo

Student’s Question:

Had a trader stayed in the trade until the 50 SMA was crossed over to the upside in mid-December, the gain would have been about 2750 pips. These pip totals have netted out the pips left on the table at both the opening and closing of the trade.

Hi Richard,

Thanks for the technique. Sounds like traders can simply trade the cross of 10-20-50 SMAs on Daily chart. No?

Thanks,
JForex.

JForex · #**101** (**permalink**) 01-14-2009, 11:43 PM

Quote:

Originally Posted by Richard Krivo

Student's Question:

Had a trader gone long based on merely the Daily chart, they might find themselves in the middle of a 50, 100, 200 pip retracement. But, by checking the other time frames, they learn how the entry into this trade needs to be "fine tuned" by waiting for the charts to be in alignment.

Hi Richard,

I find it difficult to be at the computer when the H1 indicators match the Daily trend. So I depend upon Support / Resistance break to Enter orders even when I am away.

But as you mentioned, when these levels are broken, indicators might be against the direction, and I get stopped out even on Stops as wide as 200 pips. So, very frustrating.

Do you have any suggestions on timing the Entries given these problems?

Richard Krivo · #**102** (**permalink**) 01-15-2009, 02:07 PM

Quote:

Originally Posted by JForex

Hi Richard,

Thanks for the technique. Sounds like traders can simply trade the cross of 10-20-50 SMAs on Daily chart. No?

Thanks,
JForex.

In a trending market, which the posted chart exemplified, MAs work quite well. In a ranging market, Moving Averages generally will not produce results quite as dramatic and, many would argue, are not advisable.

If you identify that a pair is in a strong trend, Moving Averages are an excellent way to indentify a trade. Some of the more widely used MAs are 10, 20, 50, 100 and/or 200. The key with MAs is to take the trade in the direction of the crossover which is hopefully in the direction of the Daily trend as well. As the MAs begin to fan out and move away from one another, that is an indication of a strengthening move.

JForex · #**103** (**permalink**) 01-15-2009, 03:03 PM

Hi Richard, the question is on Stops.

With our approach of identifying Daily trend, and then finding entries on H4 and H1, I am not clear if we should put stops above/below the H4/H1 , or the Daily charts, so that we dont get stopped out on simple retracements.

For example, we were expecting both GBPCHF and EURCHF to move down, but now we are seeing retracements.

Where should we put our Stop to allow these retracements?

In GBPCHF, we can put a Stop on Daily at 1.7000, or 500 pips below on H4 at 1.6500. If we go to H1, we will see yet another lower level, but it might not be enough to allow for retracement.

Similar example with EURCHF Daily and H1.

Richard Krivo · #**104** (**permalink**) 01-15-2009, 07:18 PM

Student’s Question:

As shown on the chart below, stochastic seems to generate a lot of signals between 80 and 20. I would not consider them strong trading signals.

MACD also generates a lot of crosses in this chart. One advantage of stochastic, perhaps, is that it provides clearer over-bought/over-sold boundaries, and hence more guidance as to the significance of a cross (?)

Power Course Instructor’s Response:

With Stochastics, the strongest signals will occur when there is a cross above 80 or below 20. As far as MACD vs Stochastics goes, much will depend on the trader in question. Based on the length of time used, comfort level achieved and pips put in their account (perhaps the strongest reason of all), some will prefer one over the other while some will put both to use.

Also, take a look at the chart posted below for some additional information…

Oftentimes overlooked, it is wise to consult the Histogram Bars within MACD since they will offer insights as to the direction of a move as well.

Richard Krivo · #**105** (**permalink**) 01-19-2009, 03:43 PM

Quote:

Originally Posted by JForex

Hi Richard,

Thanks for the technique. Sounds like traders can simply trade the cross of 10-20-50 SMAs on Daily chart. No?

Thanks,
JForex.

Moving Averages will function best in a trending scenario...as was the case on that particular chart posted by the student. In a trend the crossovers are much more pronounced and easiliy interpreted. In a range, however, the crossovers will almost appear like woven strands of a rope and not provide near as much tradeable data.