Category Archives: Technical Analysis

What is Forex Swing Trading & How to Find Good Setups

Swing trading is perhaps the trading style that is most relevant to beginning Forex traders. At the same time it is also being widely used by big professional traders. Many swing traders use this approach in combination with day trading or other Forex strategies, in order to have different trading styles for different timeframes.

A swing trader attempts to predict the typical “wave moves” you can see in stocks, indices, commodities or Forex pairs. Investopedia defines swing trading with a holding period of 1 to 4 days. In the Forex market, a typical swing trade happens within the trading week between Monday morning and Friday night. The reason is that many traders prefer to hedge the risk of having open positions during closed market in weekends.

What is a Swing in Forex

The market price of a currency is always the equilibrium between supply and demand. This means that buyers and sellers have agreed on the price and conducted a trade.

Forex Market Equilibrium

Prices can over time move in uptrends and downtrend, or move sideways within a trading range. Markets usually move in a pattern of “range contraction” or consolidation. This is followed by “range expansion,” where price breaks out from the trading range and moves to a new level on the chart.

Compare range contraction to a compressed spring. The expansion happens through a motion up or down in the time of the energy released from the spring. This is the movement in price that we often refer to as a swing, and it can often happen very quickly. If the move follows a pattern with higher highs and higher lows, this is an uptrend. The downtrend has the opposite pattern.

Swing traders look to catch the fastest part of this movement. Some choose to hold positions through several swings, as long as the underlying trend is not broken. Others prefer a shorter timeframe. Compared with other Forex trading styles, swing trading is neither considered a long-term style nor a short-term style. It is simply trading on the medium term timeframe. It is ideal for beginners who want to experience the thrill of the markets without the mental stress of day trading. However, many traders still choose to combine these trading styles with each other.

How Can You Find Good Price Swings?

Most of the time, prices in the Forex market moves within some sort of a trading range, perhaps as much as 70-80% of trading days.

Forex Market Range

You can use a daily chart to quickly browse through different Forex pairs in order to find situations that look promising. Once you have narrowed down your list, you can use a lower timeframe. For example the 1-hour chart could be used to look for your specific entries.

In general, there are three important factors to consider when taking a position in the market as a swing trader.

  • Swings often happen in the same direction as the general direction of the market.
  • Look for momentum in other currencies that share similar characteristics as the one you are approaching. For example, if you want to trade the Australian Dollar you should also check the Canadian Dollar. The reason is that both currencies depend on commodities and energy prices.
  • Evaluate the trend. Is the current trend strengthening or weakening? Weakening trends indicate that a change in the direction is about to occur. At the same time, strengthening trend may still be in its early stage.

Swing Trading Timing and Success Rate

An ideal situation may be to find for example the strongest among “commodity-related” currencies. Then, you can place your trade on that currency. If you know that the oil price rises, you may want to compare the performance of the Norwegian Krone, the Canadian Dollar, and the Brazilian Real. These three currencies are all heavily dependent on oil prices. Place your trade on the one that shows the strongest performance.

As a swing trader, it is important to be aggressive when you spot opportunities like this. Make sure you earn enough money on the easy trades to make up for your inevitable losses when times get tough. Also, it is important to adjust your trading strategies to the market conditions. A bullish swing trading strategy with 80% success rate and 5% average move in the price of the asset under good market conditions may have a 30% success rate and 2% average movement under bad conditions. Then you will lose money.

Just as it is important for a trader to be aggressive in the good times to make the most of them, it is equally important to reduce exposure or even refrain from trading in the bad times.

The famous American stock trader Jesse Livermore once said: “There is a time to go long, a time to go short, and a time to go fishing”. There is a lot of truth to this.

Contrarian Trading Strategies in the Forex Market

When we look at some of the most popular sayings in the financial markets, one is the suggestion that it is generally wise to buy low, and sell high.  In many contexts, this can be quite difficult because the saying assumes that traders will be able to identify exact turning points in major trends in order to spot maximum value.  In some cases, this might be true. But it is always a good idea to understand the idea of contrarian trading strategies and ride the trade to profit.

Harmonic Forex Trading

Harmonic Contrary Trading Strategies

One of the most advanced techniques for those looking to implement contrarian trading strategies is the harmonic pattern trading. This approach is able to pinpoint strong price reversals in very small trading zones.  These patterns unfold in M-shapes in bullish scenarios and as W-shapes in bearish scenarios.  The main characteristic of these shapes is the fact that they come in at the end of extreme price moves. This creates incredible opportunities for traders that look to buy low and sell high.

Additionally, harmonic patterns allow for extremely small reversal areas a.k.a Potential Reversal Zones (or PRZs).  This gives traders the ability to limit risk substantially by placing stop losses just outside the small reversal zones.  Harmonic positions require an online trading account from a broker that offers advanced charting platforms.

Fibonacci Retracement

Fibonacci Contrarian Trading

A more commonly used technique if the Fibonacci Retracement. It is excellent for identifying smaller reversal points within a larger trend framework.  These types of trades need more active management and supervision. However, given the fact that the broader trend is still operating in the opposite direction.

Common retracement levels are the 38.2%, the 50%, the 61.8%, and the 78.6% Fibonacci levels.  This is a relatively basic approach that is well-suited for Forex newbies who use contrarian trading strategies. Also, it needs clear levels of reversal in order to place shorter term Forex positioning stances.

Elliott Wave Analysis

Elliott Waves Forex Trading

Elliott Wave analysis is another commonly heard but less commonly used technique for identifying trend exhaustion points.  This technique views trends in terms of 5/3 wave structures. 5 waves mark the dominant trend and 3 waves mark the corrective trend.  When using EW analysis to place active Forex trades, investors will generally look for situations where an entire trend has run its course. You can open trades in the opposite direction in this case.

Why Contrarian Trading Strategies?

In all, Forex traders can use these techniques to find value in extended markets.  This is one of the best ways of maximizing profits and reducing losses. Each of these techniques should be considered using a Forex demo account so that you can master the approach before any real money is on the line.

Channel Chart Pattern in Forex Trading

Chart patterns are one of the bases of technical analysis in Forex trading. Today we will discuss one of the first patterns that you need to learn before proceeding with your career in currency exchange – the Channel chart pattern. In this article we will discuss Forex channels and the way you can take advantage of them in trading.

What is Channel Chart Pattern

We have a channel pattern when the price is increasing/decreasing with the same intensity based on tops and bottoms. In this relation, two parallel lines could be drawn through the tops and the bottoms of the price action, which creates the channel.

Forex channels are an upgraded version of Trend Lines. The difference is that channels also suggest for how long an impulse could continue.

For this reason, channel patterns give you the opportunity to trade the trend impulse, as well as the correction. The reason for this is that the channel indicator suggests the end of the impulse and the beginning of the correction creating a fresh entry point on the chart.

Types of Channel Patterns

There are two types of chart patterns in Forex based on the direction of the trend: bullish channel and bearish channel.

The bullish channel represents price increase where the tops and bottoms are increasing with the same intensity.

The bearish channel chart pattern illustrates a price decrease where the tops and bottoms are decreasing with the same intensity.

Forex Channel Pattern Example

Now that you are familiar with the structure of the channel pattern, we will meet you with a real one on the EUR/USD chart. Take a look at the image below:Forex Channel Pattern

The two parallel blue lines illustrate a bearish channel pattern. The upper channel level acts as a resistance where the lower level acts as a support. Each time the price bounces from the upper or the lower level represents a tradable trading opportunity.

Forex Channel Breakout

Yes, but that’s not all about Forex channels. There is another lucrative trading opportunity that appears during channeling price moves. This is the channel breakout in Forex.

Every trading channel comes to its end at some point. This usually appears by a visual breakout on the chart as shown on the image above. Since the channel is broken, we have an indication that the price is eventually willing to change its direction.

So, a bearish channel broken through the upper level is an indication for an upcoming bullish move.

Opposite to this, a bullish channel that is broken through the lower level hints that the price might eventually start a decrease.

In both cases, this is an opportunity to enter the market against the previous trend and to try to hop in the beginning of a potential reversal.

3 Advanced Price Action Tricks Forex Traders Should Know

Forex traders who are aware of the secrets behind the advanced price action Forex trading can significantly increase their earnings. Knowing how to read price action is one of the most important trading concepts in the Forex market. Therefore, we have prepared this advanced price action tricks article, explaining price action Forex trading for dummies.

The advanced price action knowledge can improve the trading efficiency and the ability of the Forex trader to analyze trading charts. The problem is that there are a lot of action price rumors and misconceptions that confuse newbie traders and lead them to big failures. This article is going to share 3 of the most important price action tricks that will help you read price action. Now let’s see how to use the price action without losing in trades.

Resistance and Support Zones in Price Action Tricks

These two concepts pertain to the Forex charts and are the most popular price action concepts. The truth is that not many traders know the Resistance and Support secrets, and this interferes with making money in Forex. Many traders make use of single lines when looking for the resistance and support, which is wrong. They fail to catch the actual resistance or support zone during the live trade. This is because single lines are not as effective as referring to a zone/area when performing advanced price action analysis.

daily price action resistance and support

The above graph shows clearly a resistance and support zone as a whole area. The area is marked with gray on the chart. See that in the first half of the chart this area acts as a support, while at the second part of the chart it acts as resistance.

There are multiple ranges for which traders can target profitable deals here. A single line becomes too narrow and unrealistic in this case. For this reason, there is a great chance that you miss many good trades or open many losing trades by only relying on single lines when trading price action resistance and support.

Focus on Price Action High and Low Points

This is a very important point of the price action Forex trading because the high and low points tell us the strength of trends and the direction of the market. In many cases, daily price action highs and lows foretell trend reversals by signalizing about ending trends in advance.

The high/low analysis should be performed in combination with other price action trading methods like the resistance and support rules. The more you commensurate the information, the more reliable the results will be.

Another very powerful price action trick is when traders analyze the highs and lows with a trendline indicator. Below you will find three price action tricks which will help you understand the highs and lows beyond the normal Forex trading knowledge:

  • Identify long price action impulse coupled by small pullbacks. In most of the cases, this appears to be a strong trend.
  • Is the price trend hardly making any higher high and lower low? Maybe the market is telling you about fading momentum. This very often ends up with a trend reversal.
  • Look for the trend where the daily price action is making new highs and lows. This is a sign of volatility, and volatility is one of the strongest turning points in Forex.

Advanced Price Action Chart Patterns and Daily Price Action Setups

I will now meet you with a couple of the most famous daily price action chart patterns in Forex trading. These are the well-known Double Top and Double Bottom chart patterns.

We have a Double Top pattern when the price action creates two tops in the same resistance zone. The Double Top Chart Pattern comes after bullish trends and tends to reverse the price action. This creates bearish potential on the chart, which signalizes that you need to sell.

The Double Bottom pattern is opposite to the Double Top. We have a Double Bottom figure when the price creates two bottoms in the same support zone. The Double Bottom Chart Pattern comes after bearish trends and is known to cause reversals. Here, the created potential on the chart is bullish, which gives you a signal that you need to buy.

The Double Top/Double Bottom chart pattern is one of the most popular daily price action setups in Forex.

Correct Market Selection for Advanced Price Action Forex Trading

Many traders misunderstand the concept of the market selection and do not build a watch list before entering the markets. An effective market selection is highly advisable for the beginner and also the advanced price action traders. It is also highly advisable to look into the markets for crystal clear price action Forex trading figures. At the same time, make sure you avoid trading in markets where the price action is too unpredictable and noisy.

These advanced price action tricks will help many newbie traders to enhance their trading quality. If you have paid attention to these price action Forex trading tips, you will be able to pick markets that provide many trading opportunities.


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MW Patterns in Forex: Double Top and Double Bottom

Today we will talk about Double Top and Double Bottom a.k.a. MW Patterns – old fashioned patterns that are constantly drawn on trading charts in Forex. Double Tops and Bottoms happen on a regular basis on low time frames like (M30 & H1). M&W Patterns on higher timeframes (H4 & D1) are more reliable, but it does not happen that much. Switch to the next paragraph if you want to know more details about the Double Top Double Bottom MT4 Indicator.

MW Patterns – Double Top and Bottom

Double Top and Bottom MW Patterns are repetitive structures which the price creates during the cycle moves. Therefore, we divide the MW Patterns into two types: M pattern, which is also known as Double Top chart pattern, and W Pattern, which is also known as Double Bottom chart pattern.

M Pattern – Double Top Pattern

An M Pattern is the way the market is producing a Double Top pattern, creating a resistance zone on the chart. The price creates two tops on the same level and starts a decrease. The pattern appears after a bullish price trend and can reverse the tendency. A short trading opportunity opens with the Double Top pattern.

M Pattern Double Top Chart Pattern

This is a Double Top Chart example – the M chart pattern. The two tops of the M pattern are marked with the black spots on the chart. In the time of the second bounce from the yellow resistance area, we get a Hanging Man candle pattern, which has reversal functions. This confirms that the price will probably start a decrease. See that the second bounce from the resistance level leads to a price drop, which could be traded short.



At the same time, there is a second opportunity on the chart. The level indicating the bottom between the two tops is called a Double Top Neck Line. If the price action breaks the Neck Line, then we can pursue a further target downwards. The minimum expected move after a Double Top Breakout would then be equal to the distance between the resistance level of the Double Top and the bottom between the two tops. As you see, the price action completes this move afterward.

W Pattern – Double Bottom Pattern

On the opposite side, when the chart draws a W Pattern we have a Double Bottom pattern, where the price action creates couple bottoms in the same support zone. The Double Bottom pattern appears after bearish trends and is known to reverse the price action. In this relation, the Double Bottom chat pattern often leads to increase in the price action. When a bullish price bounce appears after the creation of the second bottom, this is likely to bring the price increase. This is the case when Forex traders have the opportunity to go long on the Double Bottom chart pattern.

W Pattern Double Bottom Chart Pattern

As you see, the W formation is the same as the M chart pattern, but upside down. The W pattern is a two bottoms one top figure in the time of the consolidation, in comparison to the M pattern, which has two tops and one bottom. In this relation, the Double Bottom rules are also opposite to the rules of the Double Top chart pattern.

The two black spots on the chart mark the two bottoms in the support zone of the Double Bottom chart pattern. In the time of the second bounce, we see the formation of Double Engulfing candle pattern, which consists of 3 candles – a small candle, a bigger candle that engulfs the first one, and a third candle, which engulfs the first two candles. This pattern is known to have a strong reversal potential. Therefore, it could be used to buy the Forex pair on the second bottom of the W pattern.

When the price bounces are upward creating the second W bottom, we have a nice long opportunity on the chart. If the level at the top between the two W bottoms breaks afterward (Double Bottom Neck Line), then you can trade the Double Bottom breakout for a further price move equal to the size of the W pattern. This is shown with the couple pink arrows on the Double Bottom Chart.

Double Tops and Bottoms Trading

The Double Tops and Bottoms trading are one of the most common approaches to profit from chart patterns in Forex. Experts in Forex trading have determined a Double Tops and Bottoms success rate of around 70%. This means that in about 70% of the cases the price action will bounce from the support/resistance area, breaking the M&W pattern Neck Line and creating a further move equal to the size of the MW pattern. Therefore, if you trade properly the Double Top and Double Bottom chart patterns, you will have the opportunity to profit from the currency value of Forex pairs.

W Pattern Example – Double Top Chart Pattern

In the video, we demonstrate an M pattern on a MetaTrader chart. We entered a short trade on the M top.

Since we are interested in these patterns, we notice a particular point where the market could react. It’s, in fact, the key level to watch for further direction confirmation or time to reverse the initial position. I called it “CP” Center Point. It’s the middle price level of the structure of Double Top chart pattern. I placed a Take Profit on that “CP” level.

Another great thing about our M pattern strategy is the Risk/Reward potential of the Double Top. Our Stop Loss order is always tight as we are supposed to enter on the bounce from the resistance level at the top of the M pattern. If the market goes opposite to the trade and breaks through the Double Top resistance, it is pointless to keep the position alive.

The Double Bottom Chart Pattern a.k.a. W pattern works the same way, but in the opposite direction. In this relation, you should use the bounce from the second W bottom to enter a long trade and to buy the Forex pair. Then you can pursue the Center Point of the Double Bottom. If then the price action breaks the top between the two bottoms, you can also shoot for additional bullish price move equal to the size of the W formation.

M&W Patterns Indicator for Double Top and Double Bottom

Below you will find a link to an M&W Patterns indicator for the famous Meta4 trading platform (MT4). This Double Top Double Bottom MT4 indicator draws the patterns automatically on the chart, so you can recognize them easy. You can download the M&W Patterns Indicator for free until the end of December 2016.

Conclusion

  1. MW Patterns refer to Double Top and Double Bottom figures in Forex.
  2. M&W Patterns are among the most commonly used in trading.
  3. The M Pattern responds to Double Top Chart Pattern:
    • The price creates two tops approximately in the same resistance area.
    • After the second top, the price action starts a down run.
    • If the level at the Double Top Neck Line breaks, this creates further bearish potential equal to the size of the Double Top pattern.
  4. The W pattern refers to Double Bottom Chart Pattern:
    • The price creates two bottoms approximately in the same support area.
    • After the second bottom, the price action starts an up run.
    • If the Double Bottom Neck Line at the top between the two bottoms breaks, this creates further bullish potential equal to the size of the Double Bottom Pattern.
  5. Double Tops and Bottoms provide a success rate of about 70%.
  6. Double Tops and Bottoms give the opportunity to place tight Stop Loss orders, which reduces the risk taken, compared to the potential of the MW pattern.
  7. Trading MW Patterns in Forex can make you a successful trader.

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Understanding Price Action Basics: What is Price Action

We have discussed many trading indicators and tools at the time. However, the today’s material will be a bit different. This time we will involve no trading indicators. This article will approach the important Price Action basics. Today we will spend time talking about what is Price Action as well as the importance of understanding Price Action in Forex.

What is Price Action in Forex

You probably have heard many times the term “Price Action” in trading. This probably made you think “What is Price Action for god’s sake?”

Price Action definition: Pure Price Action relies on the analysis performed on naked trading charts without additional tools. This means that the Price Action method excludes all the moving averages, oscillators, indicators, etc. The Price Action analysis involves recognizing different Price Action chart patterns. These are Price Action candlesticks, group of candlesticks forming figures, support and resistance levels, as well as trendline Forex indicators, channels, etc.

Price Action Chart Example

Now that you are familiar with the Action Price of the Forex pairs, we will now give you an example. Below you will see some patterns known to affect the Forex rate of currencies:

price action chart example - what is price action

The image above is a Price Action chart example on the H1 graph of the GBP/USD Forex pair (Nov 10-15, 2016).

The chart starts with a Bullish Pennant chart pattern. This pattern is known to have strong bullish potential. As you see, the price of the GBP/USD increases after the Action Price breaks through the upper level of the pattern.

Then we see a reversing attitude on the chart. The price on the chart starts creating lower tops and lower bottoms. This is an indication that the Action Price direction might be reversing. Then we see the appearance of the orange bearish trend line indicator, which causes the price to create many bearish impulses (decreases).

Importance of Understanding Price Action

Both new and expert Forex traders are always seeking ways of looking at the market in a more objective fashion. One of the ways to do Forex forecasts is by understanding Price Action. This can be helpful in situations where you are looking to either open or close a given position. In many cases, traders become overly committed to a position. and this can cloud some of the judgment skills that are really required to establish a constantly profitable trading strategy. This, of course, is the ultimate goal, so these are all factors that should be considered by Forex Price Action traders.

Identifying Trends

Another important advantage of using Price Action setups in Forex is the fact that it becomes much easier to identify trends and directions of Forex pairs. Reading price action helps you determine when those trends might be beginning or ending. Generally speaking, an uptrend is a series of highs whereas a downtrend is a series of lows. Price Action signals that are based on trends will generally place trades in the direction of the dominant movement. This is another way the Price Action method is used in Forex trading.

Developing Automated Trading Strategies

Once you start understanding Price Action basics and you are comfortably able to use terms like support and resistance, you can then take the next step and start developing automated trading strategy. When dealing with automated Forex approaches, you will be setting technical Price Action signals to define situations where trading orders will be executed. The efficiency of these strategies will determine the overall profit and loss from the automated Price Action system that you are running.

You will need to regularly assess your Price Action techniques to prove that they are actually meeting your original expectations. If this is not the case, it might be a good idea to stop the live automated trading and do backtesting of your Price Action system. This is necessary to determine whether or not you are using an appropriate Price Action method. There are countless numbers of automated trading strategies. In this regard, there will always be more options available if you are still looking for something that can generate preferable results.

All in all, there are some significant advantages for those that are looking to use Price Action chart analysis in establishing an automated trading system. By applying Price Action techniques, you can maximize gains over the long term. Isn’t that another tool for your Forex trading arsenal?

Conclusion

Understanding Price Action is an integral part of every Forex trading strategy. Price Action setups are another way to generate profit from the Forex market. Therefore, you should spend the time to understand what is Price Action in trading. The implementation of a pure Price Action analysis will improve your judgment about the Forex market and will definitely make you a better Forex trader. Thus, we strongly advise you to learn some Price Action techniques before investing in currency.


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Trading Charts: Currency Exchange Chart Rules

Learning to handle trading charts is definitely not optional for the modern Forex trader. There is no way around Forex markets without analysis and strategies, all of which rest on – you guessed it, Forex trading charts. Forex charts analysis involves searching various currency exchange chart types for Forex chart patterns that will help traders predict future price action. Therefore, in this article we will discuss the rules of the currency exchange chart.

Not only do traders need to be able to perform accurate Forex chart analysis, but they also need to know how and where to procure the latest and most accurate live Forex charts. It does not really matter which type of foreign exchange rate chart they prefer. As long as they are accurate, the only major difference is in the presentation on the exchange rate chart.

Forex Trading Charts Types

We will now discuss the different types of Forex trading charts. First, we should say that there are three major foreign exchange charts used in trading. These are the Line currency chart, the Bar currency chart, and the Japanese Candlestick currency chart.

Line Currency Chart

For instance, a Line currency chart features all of the closing prices connected in a line so that you can follow the general direction of the price action.

This is how the Line Forex chart looks like:

Line trading charts

Above you see the Line USD currency chart versus the Euro (EUR/USD). As you see, the Line currency exchange chart is pretty basic, and the information it gives is not that much. This is why the Line trading chart is not widely used among the Forex traders.

Bar Currency Chart

The Bar Forex chart will compress all the relevant information in a bar, with some hashes on the side, and each one will be a story for itself. Whether they are hollow or filled, long or short, and where their hashes are – all of these things can tell you something, provided you know where to look.

Bar currency exchange chart

This is absolutely the same time frame as the previous image. However, this time we use Bars for our exchange rate chart instead of Line.

Generally, each bar on a Bar trading chart represents the size of the price move during the respective period.

Bar currency chart

This is an example of a single bar, which is bullish. There are couple dashes on each side of the bar. The left dash of the bar is the opening price of the period. The right dash is the closing price of the period.

Since the bar is bullish, it is green, and the opening price is below the closing price. If the bar was bearish, it was going to be red, where the opening price is above the closing price.

Japanese Candlestick Currency Chart

Finally, the most widely used type of trading charts is the well known Japanese Candlestick currency exchange rate chart. These will provide all the relevant data, only in a form that resembles a candlestick rather than a bar – hence their name. One look at a candlestick trading chart and a trader will be able to read the general direction of a trendline Forex indicator, provided there is one.

Japanese Candlestick USD currency chart

Notice that the Japanese Candlestick Forex chart is pretty much the same as the Bar currency exchange chart. The reason for this is that it visualizes absolutely the same information – Open, Close, High and Low during the respective period.

Exchange Rate Chart Japanese Candlestick

We approach a bullish Japanese Candlestick. Same as the bar, the candle is green, and the opening price is below the closing price. If the candle was bearish, it was going to be red, and the opening price was going to be above the closing price.

How Can I Find Foreign Exchange Carts

The most detailed foreign exchange charts are located inside the innovative Forex trading platforms. These platform could be reached either in the net, or by downloading an external software. After getting access to a trading platform like MetaTrader 4 for example, you will be able to implement detailed currency rate chart analysis, as well as different kind of trade automation.

Currency Exchange Chart Essentials

Modern foreign exchange charts are very appealing, albeit some of them are more popular than the others. Historical currency charts can be found online, and there is never a shortage of reliable sources. They are more than just a visual aid for traders. In combination with market indicators and Forex software, they can be put to lucrative effect. Just remember, these things are only as good as the trader interpreting them. There is no way to predict the future, and the only way to make an educated guess is with the help of live foreign exchange charts, at least when trading currencies.

Having said that, plenty of traders got burned over the years, and this created a lot of unnecessary tension, not to mention distrust. After all, getting an accurate exchange rate chart analysis and putting it to good use is nothing short of a form of art. But do not despair! Most brokers offer various reports and articles from analysts and experts, plus various educational materials, so learning a few useful strategies in combination with some solid trading charts know-how can and will get some real results.

Experience with Currency Exchange Charts

However, in order get results, you need to learn the basics of the trading charts available, including how to find, open and read them – and that is only the beginning. Next are various charting packages, tools, and accessories, some of which could prove disastrous if not handled with care. This is where the plot thickens.

The truth is there is no consensus on how a currency exchange rate chart should be interpreted, just like there is no consensus on a single, perfect Forex strategy. It all depends on a trader’s personal preferences, goals, and the overall trading style.

In fact, you could make an argument that there are as many ways of interpreting and using trading charts as there are Forex traders, as each of them has his or her own way of doing business, at least after they have learned the ropes.

Some prefer to base their trades on the feeling in their gut, although this is not recommendable to anyone whose instincts do not border on supernatural abilities. Statistically, most rookies go about with what little knowledge they possess on currencies and use trading charts only to gauge the general price direction. By the way, did we mention that these guys are probably behind the majority of complaints on Forex brokers and trading in general? Yes, because soon or later these newbie traders end up broke for not understanding the currency exchange rate chart.

A notch above is news traders, who base their major moves on large events and their outcomes, using foreign exchange charts mostly to confirm their suspicions. They rest their faith on various reports and trusted news outlets, although they seem to be forgetting one important fact. A lot of people also like to watch the news, and any information they learn had likely passed through several hands long before it was released. And even if they score an “exclusive,” chances are this outcome has already been factored in by the true masters of this game.

Hardcore professionals do not base their trades on hunches and rumors, but merely factor them into their own equations. This is where the currency exchange chart would really earn its keep, as the potency of its mixture with trading signals comes to light. True masters of this game do not use trading charts to predict trends. Rather, they try to predict actions of their competitors, instead – a far more lucrative and direct approach.

Summary

Being able to predict how the people will react to a certain development is far easier, not to mention more reliable than trying to predict said outcome. This approach is by far the hardest, but the rewards it offers cannot be ignored. All things being said, your foreign exchange rate chart has its purpose and that has been the entire point all along.


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What is Automated Trading System and Trade Automation

Forex traders that are focused on technical analysis techniques will often set up a trading station in ways that allow for automated trading.  To some, trade automation might seem to be risky.  But when certain money management techniques are used, it is definitely possible for traders to account for regular profits using Forex automated trading system on the markets.

What is Automated Trading System

I bet you have heard the term automated trading many times recently. You probably ask yourself “What is automated trading system?” Here it is:

The automated trading involves the programming set of rules into your trading platform. Your platform implements these rules automatically by activating different trading processes. An automated trading system involves setting clear entry levels and targets on the chart, as well as Stop Loss rules.

Nowadays, the automated trading strategies are among the most used when investing in currency.

Forex Automated Trading Strategies

Generally speaking, there are two basic automated trading strategies that work. They are broadly used when Forex traders are looking to establish trade automation.  Automated trading in Forex can be separated into two basic trading techniques. The first are the ones that rely on momentum automated Forex trading strategies. The second are trading techniques that rely on contrarian automated trading strategies.  Here, we will look at some of the differences that exist for each of these automated trade techniques.

Momentum Automated Forex Trading Strategies

First, we look at momentum automated trading strategies which require a certain level of trend activity in order to generate significant trading ideas.  Trends are usually viewed as a series of higher highs or a series of lower lows.  When this is apparent, Forex automated traders can place their positions in the direction of the trendline in order to capitalize on the underlying momentum that can be found in the market.

In these cases, expert automated traders are generally looking to pair a strong currency with a weak currency, as this tends to be the scenario that creates the strongest trends and momentum activity.  So it should also be understood that these are the types of scenarios that are capable of generating the biggest profits for those using momentum automated trading system.  But at the same time, it will need to be understood that few opportunities might be present when markets are not caught in a major trend.

Contrarian Automated Trading Systems

On the other side of the coin, we have the traders that prefer contrarian automated currency trading.  This opposes what happens with momentum automated trading strategies. This is so because in these cases automated traders are actually looking to place positions in the direction opposite the trend.  To some, this might seem like a losing battle.  But if the major trend is about to end, then it will start to make more sense to place automated trading orders in the other direction.

Contrarian automated trading systems allow Forex traders to “buy low and sell high.” Therefore, it can be very profitable when used successfully.  There is risk involved when the dominant trend is not assessed correctly. But money management strategies in trade automation allow for tight stop losses in many cases.

Automated Trading Platform: MT4 Automated Trading

One of the most used automated trading software is the well-known MetaTrader 4 platform. This platform allows full customization and modification through a special coding language called MQL 4, which is the base of the MT4 Indicators.

Automated Trading Platform: MT4 Automated Trading

The MT4 automated trading allows you to set special trading rules that the platform will implement for you. This way the MT4 automated trading platform reduces the human factor when trading, which increases the profit potential in case of a successful automated trading strategy. This is why the automated trading MT4 platform remains among the best Forex software and automated trading platforms.


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Trendline Forex Indicator: How to Draw Trendline in Forex

The trendline Forex indicator is an integral tool of the price action in Forex. This material will teach you how to properly apply and trade the Forex trendline.

Trendline Forex Indicator Explained

The Forex trendline is a single line, which outlines one directional price move from one point to another. When the price is following a trendline, this means it is changing its price following a general direction.

Understanding the concept of trends is integral in your ability to make money from the Forex portfolio management. Forex traders attempt to catch trend in order to buy when price is low and to sell when it is high, or the opposite. For this reason, the trendline Forex indicator is one of the crucial tools for boosting your Forex success rate.

Below you will see an example of a trendline Forex instrument:

trendline forex indicator explained

This is a 5-munte chart of the EUR/USD. The blue line indicates a Forex trendline indicator, which measures a price increase. The black arrows point the moments when the price tests the trend as a support (from below). Every time the price meets the trendline indicator we see an increase in the Forex rate.

We see 11 increases after interaction with the trendline. If you buy the EUR/USD Forex pair in every one of these moments, you will be able to sell on a higher price later. This is how the trendline Forex traders manage to generate profit from currency trends.

How to Draw Trendline in Forex

How draw to trendline in Forex depends on the points you have on the trading chart. Simply take a ray from your Forex trading platform, click on the first edge you see on the chart and then stretch it through the others.

how to draw trendline in forex

Every two bottoms could be connected with a single line. However, if three bottoms could be connected with a single line, then you have a bullish trend (inclined upwards). So you need three bottoms lying on the same line in order to confirm and draw a trend line. The first two bottoms just hint that the trend might be occurring on the chart. If the price creates another bottom on the same line, then you confirm the presence of a real bullish trendline Forex indicator.

Types of Forex Trendline Indicator

There are two types of trendline Forex indicator depending on the direction of the price.

Bullish Trendline Indicator

If the Forex tendency on the chart is bullish, you should use a bullish trendline indicator. You should take the first bottom on the chart, and then you should stretch the line through the other bottoms. The bullish trendline indicator should contain the zones around each of the bigger bottoms.

The two images above are example of bullish trends. If the Forex rate accounts for higher tops and higher bottoms you are looking at a bullish trend.

Bearish Trendline Indicator

If the Forex tendency on the chart is bearish, then you should use a bearish trendline indicator. Take the first top on the chart and stretch the trendline Forex indicator through the other tops. The bearish trendline Forex indicator should contain the zones around each of the bigger tops.

bearish trendline indicator

This is a real example of a bearish trendline indicator. The chart covered is 5-minute of the EUR/USD Forex pair. As you see, the EUR/USD Forex rate on the image above creates lower tops and lower bottoms.

How to Trade Forex Trendline Indicator

The key to making profits from Forex trendline indicator is to find a pre-existing trend and place a trade in the same direction. If the Forex rate has been moving lower for a significant amount of time the odds of it continuing to move lower in the near future are high. Opposite is applicable as well. If the Forex rate has been increasing recently, then the chances that the price will keep increasing are high.

Predicting when a trend is going to begin is one of the main challenges of Forex trading. The earlier you ride a trend the more money you are likely to make.

Due to this, people have devised complex methods to take advantage of trends. When trends are beginning, some use indicators and others use economics in order to support their trading decisions.

It is far easier to jump into a pre existing trend than it is to try and figure out when a new trend may begin. Trying to find the beginning of a trend may lose you a lot of money.

By jumping into a trend after it has already begun your sacrificing a little bit of potential profit for a higher probability trade. Opposite to this, by jumping into potential trend, you increase the potential profit of the trade for a lower probability trade.

Forex Trendline Trading Example

Now that you know how to draw trendline in Forex and how to trade Forex trendline, we will switch to a real Forex trend example.

forex trendline trading example

This is the 5-minute chart of the EUR/USD for Sep 8-9, 2016. The three points on the chart should be used to build the bullish trendline indicator. You should stretch the trendline through the three bottoms. Then you should buy the EUR/USD in the moment when the price bounces from the trend line.

Always use a Stop Loss order when you trade Forex trendlines. You should put it below the bottom created in the moment of the third bounce as shown on the image. Then if the Forex rate goes against you, the trade will be protected. Conversely, if you trade a bullish trend, the stop should be above the top you use to open your short trade.

The price increases afterwards. There are four bullish impulses created after the creation of the third top. Every one of these three impulses brings profit to your long trade.

In the red circle you see the moment when the EUR/USD Forex rate breaks the bullish trendline. This is a signal that the bulls are exhausted and the trend is probably finished. Therefore, you should close your long trade in the moment of the trendline breakout. The price difference between the third bounce and the breakout is your profit.

Conclusion

  1. The Forex trendline is an indicator which outlines the price direction of a Forex pair.
  2. Understanding the concept of the Forex trendlines will definitely improve your Forex trading routine.
    • If you enter early into a trend you have the potential to make more money, but this is riskier.
    • If you ride an already existing trend it is safer, but you will make less money.
  3. There are two types of Forex trendlines depending on the currency rate direction.
    • Bullish Forex trendline – takes into consideration the bottoms of the Forex pair
    • Bearish Forex trendline – takes into consideration the tops of the Forex pair
  4. You should use a ray to draw a valid Forex trendline indicator:
    • Bullish Forex trendline – Take the fist bottom and stretch a ray through the other bottoms. The trendline will be inclined upwards.
    • Bearish Forex trendline – Take the first top and stretch a ray through the other tops. The trendline should be inclined downwards.
  5.  You should remember two things trade profitably the Forex trendline:
    • Buy low, sell high.
    • Sell high, buy low.

Author: Christopher Webb
ForexMentorOnline


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Expanding Triangle Chart Pattern in Technical Analysis

Triangles are among the popular chart patterns in Forex trading. They are all related with specific potential that could be traded. Today we will pay attention to a triangle pattern that is more special than others – the Expanding Triangle chart pattern.

What is Expanding Triangle Chart Pattern

The different in the Expanding Triangle chart pattern is that it is a mirror image of the standard triangle. In this relation, the Expanding Triangle pattern starts narrower and ends wider. Otherwise, the pattern could be taken pretty much the same way as a standard triangle.

Expanding Triangle Pattern Rules

There are three types of Expanding Triangle in Forex based on the potential of the pattern.

The bullish Expanding Triangle is inclined downward and it represents a slowdown of the previous bearish trend. The expansion of the tops and the bottoms of the triangle represent the increase of the price volatility, which suggests that the pattern will break. As a result, the price is expected to break through the lower level of the pattern and to decrease.

The expected drop is likely to reach a minimum equal at least to the vertical distance between the upper and the lower level of the Expanding Triangle in its widest part.

Take a look at this example:

Expanding Triangle Chart Pattern Example

This is a real Expanding Triangle pattern on the EUR/USD chart. The blue lines on the chart outline an Expanding Triangle that is inclined upward. This means that the pattern has bearish character.

Notice that the Expanding Triangle on the image looks like a gradual slow down of the previous Forex trend because its bullish intensity is lower compared to the prior price action. This is why the pattern above hints that the bullish activity might be to its end.

In the red circle we see a breakout through the lower level of the pattern. This is the confirmation that is needed to confirm its potential.

The pink arrows on the chart measure the size of the pattern and apply it downward as a minimum target starting from the moment of the breakout.

In the green circle you see the moment when the price completed the potential of the pattern.

Expanding Triangle Types in Forex

Above we discussed the bearish version of the Expanding Triangle. However, there are two more types known in Forex trading.

The Expanding Triangle pattern has a bullish version as well. It looks absolutely the same as the bearish pattern, but upside down. In this relation, the pattern has decreasing tops and bottoms that start narrower and gradually get wider. The bullish Expanding Triangle is expected to break through the upper level, creating bullish potential equal to the vertical distance between the two levels of the pattern in its widest part. Then again, you take that distance and apply it  upward as a new target starting from the moment of the breakout.

The third version of the pattern is the neutral Expanding Triangle. This type has tops that are increasing and bottoms that are decreasing. This makes the pattern look more horizontal. You cannot tell where the pattern will break through and what potential it will create, which makes it neutral. However, whenever you discover a breakout through the upper or the lower level, then there is a big chance that the price continues in the same direction. Then you can simply apply the size of the pattern as a minimum target starting from the moment of the breakout.

Forex Trading: Australian Dollar Presses Higher

With all the news about Brexit, Italy, and Spain many anticipated the Euro to fade and it has for the past couple of months. This pair has been ranging between 1.4 and 1.6 price levels since August last year.  Fundamentally, earlier in the Asian session we saw the Melbourne Institute Inflation expectation recorded at 3.7% in June against 3.5% rise of inflation recorded in May.

This monthly inflation hint gives us a bird’s eye view of what is to come when it comes to matter inflation — which most central bankers are trying to boost by cutting rates to near zero or even negative. We also saw unemployment rate data increasing to 5.8% last month from 5.7% in May with the economy churning out 7.9K jobs against the expected 10.1K jobs.

This reading was less than half of what the economy created in May. Despite the bad news, the Aussie gained momentarily before losing ground against its European currency counterpart.

Forex Daily Chart Analysis:  Euro vs. Australian Dollar

EURAUD Daily chart-14.07.2016.jpg

Forex Trading Chart Source: Easy Markets

Technically, from the daily chart, price action is trending in the 1.4 price level which is our 12-month support and with news like this, I expect the Aussie to cede ground and boost Australia’s Trade balance in the coming months. We expect the price to turn anywhere within the 1.46 and 1.43 price range and confirmed by the stochastics.

If this does turn out to be the case, the price will reverse from the 23.6 Fibonacci level and go by the rule of thumb price might rise back to highs of 1.6. At the moment, we should not look to buy because of that banding of the lower BB which means momentum is still high and there is no reversal or buy signal yet.  Traders are likely to remain neutral for now.

Forex Head and Shoulders Pattern Trading

Chart figures are an essential part of technical analysis in Forex trading. One of the most commons figures in trading is the Head and Shoulders chart pattern, which frequently appears on the currency charts. Once you learn how to recognize it, the Head and Shoulders pattern will be a good addition to your Forex toolbox.

What is Head and Shoulders Pattern

The Head and Shoulders is a specific chart formation that has reversal character. The name of the pattern comes from its shape – it really looks like two shoulders with a head in between. The figure starts with a top, a second top that is higher, and a third top that is approximately at the same height as the first top.

The pattern usually appear during bullish trends and it symbolizes the slowdown of the price increase. As a result, in most of the cases the Head and Shoulders chart pattern is expected to reverse the bullish trend leading to a price drop. This drop is actually what worth trading.

Head and Shoulders Chart Pattern Rules

The Head and Shoulders pattern rules suggest that the figure is likely to cause a price decrease equal to the size of the pattern. To measure the size of the pattern you should first draw a line between the two bottoms that are located in the base of the head. This line is called a Neck Line. Then, you should measure the vertical distance between the tip of the head and the Neck Line. This is the size of the pattern.

Your trading signal on the chart appears in the moment when the price breaks the neck line in bearish direction. If this happens, you can take the previously measured size of the pattern and apply it downward starting from the moment of the breakout through the Neck Line.

Head and Shoulders Chart Pattern

The image above shows a bullish trend marked with green. The blue lines on the image show a Head and Shoulders pattern, which appears during a trend breakout. Notice that after the trend break, the Trend Line turns from a support into a resistance. This gives additional strength to the pattern potential.

The size of the pattern, the target, and the Neck Line are marked with pink. The green circle shows the moment when the pattern is fully completed.

Type of Head and Shoulders in Forex

There are two types of the Forex Head and Shoulders. The example above shows a real and successful Head and Shoulders pattern on the EUR/USD chart. As you saw, it has strong bearish potential.

However, the pattern has its reversed equivalent – the Inverted Head and Shoulders pattern also known as Inverse Head and Shoulders. It looks absolutely the same as Head and Shoulders, but upside down.

In this relation, the Inverted Head and Shoulders pattern appears during bearish trends. It starts with a bottom, a second bottom that is lower, and a third bottom that goes approximately at the same height as the first bottom.

Same trading rules apply as with the Head and Shoulders, but in bullish direction.

Falling Wedge Pattern in Forex Trading

The Falling Wedge pattern is a chart figure with triangular shape. However, it is specific with its inclination and potential. Therefore, it deserves special attention when analyzed technically in Forex trading.

This material will help you understand the Falling Wedge pattern as well as its twin brother the Rising Wedge.

What is Falling Wedge Pattern in Forex

The Falling Wedge is a bullish pattern with a triangular structure. The pattern consists of decreasing tops, and bottoms that are decreasing with lower intensity. In this relation, the figure really looks like a wedge that is falling.

The pattern usually appears during bearish trends and it represents the slowdown of the bearish activity. However, the Falling Wedge chart pattern could also appear during bullish trends, where it is called a Pennant. In each of these two cases the pattern has bullish potential.

Falling Wedge Trading Rules

As we said, the potential of the Falling Wedge pattern is bullish. But the best thing is that the pattern suggests exactly for how long the increase could continue.

First, we should say that the confirmation of the pattern comes when the price action breaks the upper level of the Falling Wedge. This hints that the price is probably reversing. If the confirmation breakout occurs, you have sufficient reason to believe that the pattern is valid and to trade its potential.

The potential of the pattern itself suggests that the price could increase to a distance equal to the vertical size of the pattern in its widest (leftmost) part.

See the example below:

Falling Wedge Chart Pattern

The image above shows a real Falling Wedge on the EUR/USD chart. See that the image begins with  a bearish trend that gradually grows into a Falling Wedge.

In the red circle you see the breakout through the upper level of the pattern, which confirms its identity.

The pink arrows measure the size of the pattern and apply it upward starting from the moment of the breakout as a minimum target.

In the green circle you can see that the pattern is successfully completed.

Types of Wedges in Forex

There are two types of wedges in Forex trading technical analysis. The one you saw above is the Falling Wedge pattern. However, there is another wedge – the Rising Wedge.

The Rising Wedge a mirror image of the Falling Wedge. It consists of increasing tops and bottoms, where the bottoms increase with higher intensity. In this relation, the pattern looks like a wedge that is rising.

The potential of the Rising Wedge is bearish and it is measured the same as with the Falling Wedge pattern. Its minimum target equals to the size of the pattern in its widest (leftmost) part. This target is applied downward starting from the moment of the breakout through the lower level of the Rising Wedge.