Following on from a previous post, where we ran through the basic math of the Fibonacci series and the golden ratio… here’s how it’s all supposed to fit together with an actual forex (or any market price) chart.

There are various garbled – and sometimes totally inaccurate – explanations to be found, for example, here

Let’s take Fibonacci retracement – which is supposed to indicate support/resistance.

First, locate the high and low of the chart. Then 5 lines are drawn:- the first at the high = 100%, a 2nd at 61.8%, 3rd at 50%, the 4th at 38.2%, and the fifth at 0% (the low, giving you the scale). Most likely, you’ll have charting software that’ll do this bit.

Following a trend, bull or bear, new support and resistance levels are close to the Fibonacci retracement levels – that’s the claim… Take a look at the chart below, which illustrates some retracements:

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In a well-defined downtrend, you will (sometimes) see the characteristic pattern of the Morning Star appearing:-

Three candles

1. A relatively large falling candlestick – (filled or red in color)
2. A small candle (either rising or falling).
3. A large rising candlestick, closing around the center of the first bar.

The morning star is taken as an indicator that the previous downtrend is going to at least come to an end or may reverse.
To which you may say: well, I’m going to suspect the trend might have changed because it’s already reversed over at least one time-period – and you’d be right in that…

There are a lot of wise words out there – don’t even think about it for 3 months, 6 months – well, most people’s patience doesn’t last that long.

If, and only if, you’ve put in the work to understand what’s going on with a practice account and you have that $250-500 that really can afford to kiss goodbye to, instantly if necessary, then go for it.
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It’s often said – and this time, I’m sure there’s a lot in it – that one of the main factors in not showing a yield on your investment is that you’re in the wrong chart.

The newbies rush into the violent world of the 1-minute or 5-minute chart – with these you’re getting apparent signals coming at you constantly, and it does take a pro to sort out the gold from the trash (if it can be done at all).
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The absolute best? Simple…

Always remember that you are using real money to invest in an essentially unregulated market.

Yes, we see ‘regulated by’ in all the fine print – this does mean may be regulated on a retroactive basis – something goes very wrong? Apologies will be made previous oversights, won’t happen again, we assure you, and the the long litigation will begin. You might see a 15cent in the dollar check after 6 years waiting.
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A nice simple one for the end of the week – or would be, except that definitions of the Marubozu can vary…

The majority view seems to be that marubozu = a candlestick with no upper or lower shadows.

Some will use the term to describe a candlestick with one shadow, usually trailing the trend direction, so that an open (bullish) candle will have a lower shadow and conversely a bearish has an upper shadow.
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Parabolic SAR was developed by J. Welles Wilder. (Yet another indicator, he was nothing if not busy with a pencil and paper in the ’70’s)

Parabolic SAR is designed to indicate exit points – both long and short – such that more unpredictable fluctuations at the beginning of the movement are smoothed, but accelerates upwards (long positions) or downwards (short positions) as the trend comes towards completion.
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Measured between 0 and 100, the ADX is a measure of the strength of a prevailing trend. Values below 20 indicate a weak trend, over 40 indicates a strong trend.

ADX doesn’t give you information on the direction of any particular trend, only the strength of that trend.

A move above 20 is a signal of a new trend starting, while the ADX dropping below 40 suggests that the current trend may be ending.
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Or ‘hunting for stops‘ – it can happen in any form of market, not just forex, and as usual can be a legitimate trading tactic or not, depending on who’s doing it and with what information.

Stop-hunting = moving the market to set off competitors’ stop-loss orders to your own advantage.

As I say, it’s legitimate if carried out without inside knowledge, on an ‘open’ market – there’s a discussion of the fair deal here.

However, since an internet forex ‘broker’ can quote their own internal prices, they have the opportunity to move prices substantially from the normal interbank rates to trigger their own customers’ stops.
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