This simple chart pattern forms the basis for a simple “system” for recognizing trend initiation – system is probably too strong, more a rule-of-thumb….

Bearish - a chart pattern that consists of a small open/white candlestick with short shadows is followed by a large black candlestick that engulfs the previous, open and close are greater/lower than the total body of the previous candlestick – (and the converse for a bullish engulfing pattern) – see also harami crosses for the opposite of this pattern.
Continue reading »

Hungary has gone to the IMF – bad news in the long run for the forint, and another example of an emerging currency (patronizing phrase) running into problems with local derivatives and other instruments now struggling due to the collapse of the local currency.
Warren Buffet described derivatives as “financial weapons of mass destruction,” as I recall back in 2003 – not wrong…
Continue reading »

Inside Day = the entire price range for a period is contained within the previous period’s range.

(Referring to days as the time period, but the principle is universal.)

- So, 2 days when the price range hasn’t shifted implies indecision in the market.
If at the end of a pronounced trend, that trend would appear to be complete…
Continue reading »

Colinear indicators = indicators originating from identical market indices

So look at RSI and MACD (moving average convergence/divergence) and let’s say they give the same signal – so what? These have both been derived from closing prices, without any other data input.
What they can’t do is truly confirm each other.
If they do produce different signals, then it’s largely entropy and inherent imperfection of the indicators themselves.
Continue reading »

They’re the end of the trend – and the beginning of reversal, perhaps… The hammer and hanging man look very similar, with long lower shadows, short upper shadows and small bodies (open or filled). They look similar, but:-

A Hammer occurs in a downtrend = bullish reversal, the market’s going up again
A Hanging Man occurs in a uptrend = bearish reversal, the market’s going down…
Continue reading »

Having looked at parabolic sar, and ADX – what about the two forex indicators together? Some people rate it highly as a sufficient system to produce trustworthy signals in itself – I’m not convinced – for the reason that these are both lagging indicators, and just don’t seem to give the more robust signals that, say RSI on its own, can give.

Parabolic SAR default settings (0.02, 0.2)
ADX 50 (with +DI, -DI lines)

Entry rules:
Sell: +DI line is below the -DI line, and Parabolic SAR produces sell signal.
Buy: +DI line is above the -DI line, and Parabolic SAR produces buy signal.

Exit rule: when +DI and -DI lines have re-crossed.

Here’s an example that doesn’t help much:-

Continue reading »

A lot of us are perfectionists, some of us are forex perfectionists – yep, probably fall into that category myself.
And where does our perfectionism get us? – we tend to be the ones slow into a trend. We don’t lose so often, we don’t get close to maximizing our trades.

So what to do?
There’s no point in going wild and completely throwing away all the caution that has kept us in the game up to now, that would be even sillier. It’s not simply a matter of a bit more courage and everything comes right – I’d rather have a bit of discipline than courage any day.
Continue reading »

Forex Scalping = holding a position for a very short time, constantly monitoring the price movements and taking quick pips as soon as they appear.

(That is, we’re not discussing the illegitimate methods of scalping in, say, securities – buying, talking up a stock, selling…)

A price doesn’t move 20 pips every minute – so, by necessity, the forex scalper is operating on a scale where profits of ~10 pips are there to be, and have to be, taken.
Continue reading »

Having had a look at speed resistance lines in forex charts – their purpose as an indicator being to provide information on possible levels of support/resistance in a retracement following a trend and also the rate of retracement – we probably ought to check out Fibonacci fans, similar method, looking to supply a similar answer, given an initial trend….

A picture being worth a 1000 words etc. here’s the deal on a real chart.

Continue reading »

A significant area of crisis at present is in the state of the so-called emerging currencies. The Mexican peso and Brazilian real are now shedding value rapidly, leading to real economic problems in those countries. Since 1st August, the peso, for example, has dropped 25% against the US dollar.

Companies in these countries have been making extensive use of derivatives – it’s that word again – in recent years, essentially betting on the value of their home currency.
Continue reading »