Posts Tagged ‘commodities’

The most common amount of reversal threshold is three boxes or three points. A new column is only added when a reversal in an existing column exceeds the reversal threshold.

The reversal amount in pips is 30 pips if the box size is set at 10 pips and the reversal amount is set at three boxes. So in case of a rising X column, price would need to turn back by at least 30 pips before a new O column would be added.

By only focusing on the pure price action, a point and figure chart reduces the unrelated noise in the price action. These two variables the box size and the reversal threshold make the point and figure chart so effective at representing only the most major market moves disregarding all minor fluctuations known as noise. The significance of these two variables, the box size and the reversal threshold should be clearly understood.

The point and figure charts are excellent indicators of both trend and support/resistance. Since point and figure charts outline support and resistance so well, one of the best trading strategies in most common use with the point and figure charts is breakout trading.

In bar and candlestick charts, a double top is a potential bearish reversal signal. Now there is a notable distinction between the bar and candlestick charts and the point and figure charts in the interpretation of double and triple tops and bottoms.

However, on the point and figure charts, a double top is a resistance point where traders should be looking for a bullish break to the upside. The same difference holds for the double bottoms as well as triple tops and bottoms.

Charts patterns like triangles are prevalent as well. Like the horizontal support and resistances levels on these charts, the main method of trading trendlines and pattern on the point and figure charts is through breakouts. Point and figure charts also have their own versions of diagonal trend lines which are drawn at 45 degrees.

Point and figure charts give a very clear view of the market movements. Price action is the most important aspect of technical trading. The point and figure charts focus exclusively on the price action.

It is because of this clarity in viewing and interpreting the price movements that the point and figure charts have withstood the test of time and are still popular with traders today as an increasingly relevant analytical tool for forex traders. Point and figure charts had originated in the 19th century.

Without the extraneous elements to clutter the picture, point and figure charts excel at representing clear evidence of such important technical characteristics as trend, support/resistance and breakout.

What makes the point and figure charts so special? Other data that is readily available on the bar and candlestick charts like time, period opens/closes are generally excluded on the point and figure charts. This leaves only the uncluttered purity of price action. Some may characterize point and figure trading as based upon pure price action.

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Candlesticks have become popular in the Western trading community especially the United States in the past decade. However, candlestick charting methods had been developed by Japanese rice traders hundreds of years back.

The advent of internet has leveled the playing field for traders whether they trade stocks, futures, options, commodities, precious metals or currencies. Access to the market is now only one mouse click away.

Market information is now in most cases freely available online. Internet has made commission rates dramatically lower. The result is that a whole generation of new traders and investors want to try their luck beating the market.

I am a great fan of candlesticks charting and I have seen many traders both new and professionals becoming die hard fans of candlestick charting. Why? Because candlestick charting is the best tool available. Can you beat the market? It depends if you are using the right tools.

On your trading platform provided by most of the online brokers you will find various types of charts. There are many forms of charting techniques that have been developed over time. Why candlestick charting is superior to other forms of charting like the line charts, bar charts or point and figure charts? One of the best features of candlestick charting is its visual appeal and readability. You can glance at a candlestick chart and quickly gain an understanding of whats going on with the price action in the market.

Opening and closing price levels can be a very important area of support and resistance from day to day. You can easily spot and opening and closing price of a security or currency on a candlestick chart.

This information can be extremely useful for short term traders like day traders and swing traders. There are certain specific candlestick patterns that can help you identify when is the best time to buy, sell or wait on a trade or investment.

These candlestick patterns can be a real boon to your trading and you can combine them with other technical indicators for even more reliable results. Now in order to trade and invest effectively using candlestick charts you need to understand these candlestick patterns.

Many different types of candlestick patterns can tell you what may lie ahead in the market. Patterns appear on the candlestick charts as simple, single stick occurrences or complex multi stick formations.

Entry and exit are the two most important things in any trade. You may use the information provided by candlestick patterns to decide when to get into a trade, when to get out of a trade or even when to hang unto a trade you are already in. This information can be highly valuable in knowing that the prevailing trend might reverse or continue.

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EUR/USD is the most liquid currency pair in the currency markets. There are four currency pairs that are known as the major currency pairs namely EUR/USD, GBP/USD, CHF/USD and JPY/USD that are heavily traded in the global currency markets. The rest of the currency pairs dont have the liquidity to trade big volumes as these four pairs do. Almost like 90% of the global currency exchange is in these pairs. Out of these four pairs, EUR/USD has the most liquidity and is the most popular among the currency traders all over the world. EUR/USD is the most heavily traded currency pair in the global currency markets at the moment. Most of the currency traders are in fact speculators. Trading currencies can be exciting and lucrative. Its a great market because of the way politics affect the trends. Elections, strikes, and sudden developments, both good and bad, can lead to significant trading profits if you stand ready to trade the EUR/USD is a convenient currency pair because it encompasses the policies and the economic activity and political environment of a volatile but predictable part of the world: Europe.

In the United States, where the free-market approach and a usually vigilant Federal Reserve make more frequent adjustments on interest rates. France, Italy, and Germany, the largest members of the European Union (EU), normally operate under high budget deficits and tend to keep their interest rates more stable.

The general tendency of the Fed is to make the dollar trend for very long periods of time in one general direction. Here are some general tendencies of the euro on which you need to keep tabs aside from the technical analysis:

- The European Central Bank is almost fanatical about inflation, given Germanys history of hyperinflation in the first half of the 20th century and the repercussions of that period, namely the rise of Hitler. That means that the European Central Bank raises interest rates more easily than it lowers them.

2) EUR/USD pair is affected by what is happening politically and economically both in Europe and the US. The European Central Banks actions become important when all other factors are equal, meaning politics are equally stable or unstable in the United States and Europe, and the two economies are growing. For example, if the U.S. economy is slowing down, money slowly starts to drift away from the dollar. In the past that meant money would move toward the Japanese yen; however, because the market knows that Japans central bank will sell yen, the default currency when the dollar weakens is often now the euro.

3) EUR/USD currency pair is heavily influenced by the political developments in the Eurozone. Especially when the European economy is slowing The flip side is that the market becomes jittery and often sells the euro during political problems in the region.

As a word of caution, its okay to form an opinion and have some expectations, but the final and only truth that should make you trade is what the charts are showing you. Candlestick charting is one way to read the markets. There are many candlestick patterns that are used to signal trend reversals or change in the market behavior. The more proficient you become in reading candlestick charts the more profitable your trades would be. As usual, you want to closely monitor major currencies and the cross rates. The direction that counts is the one in which the market is heading. Candlestick charts are a good way to read the direction in which the markets are heading.

Combining fundamental analysis with the technical analysis can give you the edge as a forex trader. Fundamental analysis can help you determine the strong/weak currency pair. Use fundamental analysis to determine if USD is expected to lose value and EUR is expected to gain more strength that means that the currency pair EUR/USD is perfectly timed for swing trading. Use technical analysis to make the entry and exit decision.

An interesting thing has happened in the last 6-8 weeks.There appears to be very little sellers present.  Literally.  The market has made a massive push and it really struggles to sell or stay down.It seems almost funny now how difficult it is to short anything for more than maybe 20 minutes or more.   Obviously you cannot fight the market - its doing what it wants how it wants.  But it sure makes trading hard - the buy and hold guys have it locked down.

One thing I know is that no matter what these guys do that are chasing and then bidding the market so it does not sell - it will sell eventually.  The only way you actualy make money, whether day trading or longer term investing, is to  lock in profits.Until then, its not reality.At some point they will turn the tide from chasing in, to wanting out to lock in profits (or avoid losses).

A key pattern lately has been to break below support and then out of nowhere a massive burst of buying jams the market back to the highs.This sort of thing happens so often now, its completely expected.Most of the time this results in a new low being made, followed shortly by new daily highs as the buyers chase like crazy.

Even in the height of the bull market, we would repeatedly have 10-15+% corrections in the market that would last a month or so.And this was what happened when everything was good.  So I am not sure what is going on now.  Several theories are in play that I think about:

1. Shorts are completely or mostly out of the market.  The SEC messing with the short rules before caused a panic, and now there are many proposals again in regard to uptick rule and shorting.  Rather than get caught, they are staying away from day trading and longer term positioning.
2. The level of manipulation appears high.  There is a group of large banks or funds that are pushing the market higher at the Fed's and Treasuries request to try to turn the economy out of the recession by making it appear as if the stock market has it figured out.The way the market always rescues itself from the brink of disaster, the ramps into the close every friday, and other odd trading action gives this one some credibility.  Would be easy for the government to just give these guys money to push the market up.
3. Traders all gone, algo's take over.  This one can happen as well - computers have taken over more of the futures trading which drives the market.  Since there is no real force to fight them and they are all doing the same thing it just keeps going.  This one I like too because the actual variance of price during the rally pushes is actually uncharacteristically low most of the time.I have seen the DJIA futures push up almost 100pts in 20 minutes with hardly a retrace at all, even at the high.  Sure this happens - but not this often as it does now.

Whether any of these are true, or a combination, I have no idea and we may never.  All I know is the trading action is very odd and I expect at least half if not more of this gain to be gone when this is done.  Note - I am not predicting a top, I am saying that when this is done, these idiots will undo this much faster than it actually ran up as everyone heads for the exits.The market could hit 9.000 or 10,000 etc.  I really dont think 10k is possible, with GM dust, C is dust and a few others they just dont have the fuel for the DJIA to actually push up that high in the short term.

Maybe everyone just needs to learn to trade again – this is the new market to stay!

A funny thing happens when you put up a price chart and ask people to define what the trend is.Even when it seems completely obvious without question, you still will get many different answers to the same chart which should not happen.  This stems from many people not knowing the proper method to actually find the trend on a chart.  It is actually quite simple, and is a key thing to know if you want to learn to trade.

The first thing to do is to size the chart properly.  There is no point of putting up 5 years of data if you are looking for a daytrade to hold for 5 minutes – that is completely pointless.  So here is a guide for what you need as far as time loaded on a chart:

Daytrade:

1. 1 min chart:  Have at least 2 hours of data (120 bars) on the screen but no more than 6 hours (1 full day).
2. 2-5 min chart: Have at least 3 hours of data, but no more than 2 days up.
3. 10-15 min chart:  Have at least 3 days of data up, but no more than 1 week.

For swing trades, which are a longer term hold, you will want a 10 to 30 minute chart on your screen, and additionally about 10 days of data.

Once you have the data up on the screen, make sure you are looking at a "bar chart" and not a "candlestick chart".  This is easier to see the trend.Start by looking for every V bottom area.  Anytime there is a low with a V bounce, make note of it.  In addition, look for / top areas where it spikes up then sells off.  Concentrate on the major ones (meaning it makes a significant move away from that area in a short time).Next you will want to get your charting draw tool and connect the V to each other V you see.  Connect the / to each other /.Connect the low areas on the V, and then the highs of the /.  Again, this is a key to learn how to trade.

Lines that slope from the lower left up to the right means the stock is in an uptrend.  Lines that slope from the upper left down to the right means the stock is in a downtrend.  Another easy way:  Find the first bar on the chart to the left and the last price on the right.  Draw a line between the two.  If the line is sloping up – its an uptrend.  If the line is sloping down, its a downtrend.  The other key thing to look at is the oscillations around this trendline.Does it go up and down 2pts, up and down 1pt, up and down .50 etc - remember, all that is needed is a rough average, not an exact number.  This gives you a general sense of the strength of the trend.  The lower the oscillation, the stronger the trend.The thinking here is that the price hardly oscillates because the buyers in an uptrend chase is up and bid, and the sellers in a downtrend chase it down and offer so it does not really counter move much.

Another thing to keep in mind the more you practice, the faster it gets – the lines are no longer necessary.  I can look at any chart and in a matter of seconds know the trend and the strength.Additionally, you really need to know the trend direction and strength on the next higher timeframe than you are trading on.  For example, on a 5 minute chart the trend might be up, but on a 15 minute chart it is still down.  This needs to be paid attention to, because the longer term trend can push the shorter term trend back into a downtrend.  In general, you want a higher term chart to be a multiple of 3 vs the chart you are trading.So the way it works is if on a 1 min chart, you also want to look at a 3 minute chart - if you are using a 5 minute chart, you want to look at a 15 min chart also.  Once you can easily tell the trend of any chart, other aspects of learning to trade become much easier.

Anyone who is in the day trading business for sometime now would readily agree that sticking with two to three day trading styles that work is advantageous. This is among the beneficial practices that ought to be implemented by those preferring simpler trading yet with ideal returns. Let’s be honest – don’t we all wish we just had some type of trading robot to do all the work for us? The sad fact is that most traders do everything manually. Being able to master one single technique that has historically worked for the trader seems to be practical.

It is advantageous for traders to focus on the ongoing trade as well as the style. Jacks of all trades do not have a good place in this kind of business. These people who frequently shift from one trading style to another normally face lots of losses due to untimely decisions that are brought by the lack of proficiency in the styles. A market that is erratic doesn’t show mercy to people who commit unwarranted mistakes and people who do not have specific systems are more likely to get victimized by such mistakes. People who are experts or specialized in some fields get a better pay in comparison to the people who know all the systems but are unable to make them work.

If a trader would only dedicate his learning on a certain style of trading, he will learn all the necessary principles that he needs. This way, the system and the trader will become parallel in development. Don’t just go out there and always try to get the best penny stocks you see. If you do that you are not better than folks hunting for discounts at the supermarket. Style comes in favour of the businessman, as he constantly concentrates on the business. If one is only using the style he is familiar with he no longer has to bother on dividing attention between the fast-paced changes in the trade and the decisions on what move to take next. Developing specific styles will also give room for developing other crucial aspects of trading like money management and risk management. This business is not just about being able to build up a style or two and earning money along the process but also optimizing the power to earn more or to lessen the unnecessary risks encountered. The most successful traders have learned all the aspects of the trade without necessarily having to spend a lot of their time learning the factors that don’t count that much.

Knowing money management for example will help the trader allocate his accounts to those shares that are most lucrative after quickly evaluating the profits against the risks involved. In order for a trader to achieve a good balance between winning and losing, risk management must be utilized. A number of matters ought to be instructed in day trading, and one is selecting an approach. Have a look at my trading robot review if you want to know how to automate your trading using software tools.