Tuesday, November 20, 2012

GBP/USD Today November 20 2012

GBP / USD is consolidating in the area of ​​1.5880 - 1.5920, we are waiting for clear signals for entry today. Expected in the U.S. session there will be a more definite movement.
1.5920 price level should be examined carefully because this is a fairly strong resistance today.
Above 1.5920 likely prices will continue to the next resistance at 1.5975 area, while below 1.5880 price will retest support at 1.5830 area.

EUR/USD Today Outlook November 20 2012

We have resistance at 1.2820 after bouncing and forming a 4H candle bearish CPR (Closing Price Reversal) to retest 1.2700.
If Resistance 1.2820 broke, the price is likely to try to survive in the area of  next resistance around 1.2880

Monday, November 19, 2012

Closing Price Reversal

A closing price reversal is one of the easiest patterns to spot. Price makes a new high/low but gets pushed back strongly and reverses, closing beyond the previous candle’s close.

In the chart below, of the EURUSD H4 chart, I indicated all CPR’s with an arrow.

If you traded in the direction of the overall trend, you would have made some nice money, as you can see. But even when taking ALL trade setups, out of 9, 7 setups would have reached at least 1:1, following the trading and money management techniques.

Just to show you these patterns work on all timeframes, take a look at the EURUSD 5M chart.

I bet you like what you see….. If you now understand you really don't need a whole lot of fancy flashing indicators in order to make an INSANE amount of money in the market, the goal of this strategy has been reached.

Saturday, November 17, 2012

Naked Reversal

A naked reversal is based on nothing more than a trend line break.
It is a 2-step technique:

You first want to draw in a proper trend line. To do so, let me give you a proper definition:

From the lowest low to the highest low before the highest high, without cutting through any candle bodies.

From the highest high to the lowest high before the lowest low, without cutting through any candle bodies.

Also, you would want price action to touch your trend line at least twice, preferably 3 times, in order for it to be a valid trend line.
Once your trend line is on your chart, you wait for a candle to BREAK through that trend line. When this break occurs, you will look at the last candle high, higher than the high of the candle that broke through the trend line. That high will be your entry point.

Vice Versa for short.

  • Wait for a trend line break to the downside
  • Look for the last low, lower than the low of the candle that broke the trend line
  • Place a sell order when that low gets broken.

Reversed Pivot Top / Bottom

Pivots are a common pattern used in several trading systems. A pivot bottom shows that price has found a level of support. A pivot top on the other hand shows that price has found a level of resistance.
Let’s have a closer look.

The easiest way of trading pivots is assuming the support/resistance level they indicate will hold, and therefore the prices will reverse.
A common way of trading this would be to enter the trade at the close of the pivot confirmation candle (the third candle of the pivot pattern), with your stop at the pivot high/low.
Let’s have a look at the following EURUSD H1 Chart. It is an average Chart from last week, not cherry picked.

Every Green line represents a trade entry, stop loss would go at the pivot low/high indicated by the arrow. Depending on your money management, out of 15 trades, in the picture below at least 12 trades (I circled the arrows) would turn out to be winners. Not bad for 2 days worth of trading….

Friday, November 16, 2012

Failure Swing Top / Bottom

Failure swings are my favorite pattern. They are a clear sign of the inability of price to reaffirm a new high in an uptrend or a new low in a downtrend, which gives us the opportunity to spot a trend reversal before most do.
This is what they look like:

As you can see, this pattern is as simple as 1 - 2 – 3, but VERY powerful. A very common way of trading failure swings is trading the breakout of Point 2, with your stop loss above Point 3 when going short, and below point 3 when going long.

2 Bar Reversal

The 2 bar Reversal identifies a possible trend reversal.
The first two bars must trade in the same direction and be trending bars. The third bar reverses the trend direction by taking out the low of the second bar (for short) or the high of the second bar (for long).

The Bearish 2 Bar Reversal
1. Bar 1 has a higher high, higher low and a higher close.
2. Bar 2 has a higher high, higher low and a higher close than bar 1.
3. Bar 3 reverses the trend by trading below the low of bar 2.

The Bullish 2 Bar Reversal
1. Bar 1 has a lower high, lower low and a lower close.
2. Bar 2 has a lower high, lower low and a lower close than bar 1.
3. Bar 3 reverses the trend by trading above the high of bar 2.

How To Trade the 2 Bar reversal
Bullish 2 Bar Reversal:

  •  Buy 1 pip above the high of bar 2
  •  Place your stop loss at the low of the breakout bar 3.

Bearish 2 Bar Reversal:

  •  Sell 1 pip below the low of bar 2
  •  Place the stop loss at the high of bar 3.

Below is a EURUSD Daily chart. It is obvious this system has the possibility to get you into swing trades at the best possible level.

Inside Bars

An inside bar is a bar which is completely inside of the preceding bar. In other words, the high and low of the bar is completely inside of the bar to the left.
An inside bar indicates indecision or consolidation. The market is not sure which way to go. The buyers do not have the strength to push the market higher, and the sellers do not have the strength to push the market lower. Inside bars generally occur at market tops and bottoms, and often provide a low-risk entry and exit point.
There are two types of inside bars: Bullish and Bearish. Most systems simply trade the breakout of inside bars (or the breakout of the bar “containing” the inside bar), and do not take into account whether the inside bar is bullish or bearish.
There is however a more effective way of trading them: When a bullish inside bar occurs after a bearish trend, or vice versa, a bearish inside bar occurs after a bullish trend. These two situations give a clear indication that the previously established trend is getting exhausted.
Let’s look at a few examples:

How To Trade Inside Bars

Thursday, November 15, 2012

Pin Bars

The Pin is a reversal pattern that indicates a change of trend.
The term “Pin Bar” is an abbreviation for the term “Pinocchio Bar”. It is a 3 bar pattern with the high of the middle bar towering over the highs of the bars on both the left and the right. The middle bar should look like a pin, standing out like the proverbial sore thumb. The pin bar will signal both bullish and bearish trends.

 Examples of the Pin Bar Formation in Action:

Please notice how the middle bar for both the bullish and bearish pin bars stand out between both the candles on the left and the right.

How to Trade a Pin Bar Formation
To effectively trade the pin bar formation, you need to first make sure it is well-defined, (see above characteristics). Do not trade just any bar with a large wick. You want the nose of the bar to really stick out and preferably, you want to be trading in the direction of the overall trend.

For a Bearish pin bar:
  • sell on a break of the pin bar low, and
  • place a stop loss 1 pip above the pin bar high.

For a Bullish pin bar:
  •  buy the break of the pin bar high
  •  set the stop loss 1 pip below the pin bar low.

Tuesday, November 6, 2012

Tom DeMark Trend Line

Technicians use trendlines to identify trends and determine when they end or reverse. The only problem with traditional trendlines is they are subjective — 10 traders could look at a chart and draw 10 different trendlines. Proper trendline application and analysis require consistent, objective rules. The TD-Line technique was developed by Tom DeMark and is detailed in his books The New Science of Technical Analysis (John Wiley & Sons, 1994) and DeMark on Day Trading Options (McGraw-Hill, 1999). The complete methodology includes objective rules for plotting these trendlines, rules for validating them, and rules to determine whether to trade or fade a trendline break

To accomplish this, TD Lines require a trendline to connect “TD Points” (which are more commonly called “pivot” highs or lows, or “swing” highs or lows). A TD Point high is a high preceded and followed by an equal number of lower highs. A TD Point low is the opposite — a low surrounded by an equal number of higher lows. For example, a “Level One” TD Point low has one higher low before and after it; a Level Two TD Point low has two higher lows before it and two higher lows after it, and so on.

TD Lines of different degrees of significance are constructed by connecting TD Point highs or lows of the same degree — i.e., connecting Level Two TD Point lows or connecting Level Three TD Point highs.

For example, to plot a Level One TD Demand Line (Figure 1), which is used to identify support, start from the rightside of the chart and connect the two most recent Level One TD Price Point lows. (Starting from the right side of the chart insures that the most recent price history is being used to identify the trend.) If the TD Demand Line is sloping upward, the current trend is up. A horizontal TD Demand Line reflects a sideways market.
(Figure 1)

A TD Supply Line is plotted using the same procedures. Start from the right side of the chart and look for the two most recent Level One TD Price Point highs. Draw the supply line along these two highs.

Saturday, November 3, 2012

Conventional Trend Line

A conventional trend line is also known as a common sense trend line. The conventional
trend line consists of 3 types of lines mainly.

- Long Term Trend Line (BLACK)

The long term trend line is drawn over a longer period of time. Due to the higher weightage of

each swing high or low, the long term trend line will usually have more power than the
medium and short term trend line. This means that the price will most probably bounce off
the long term trend line for the first few times before it can break through it.

- Medium Term Trend Line (BLUE)

The medium term trend line is simply part of the long term trend line. From the last point of
contact of the long term trend line with the price, you can draw a medium term trend line. As
compared with the long term trend line, the medium term trend line passes through lesser
candles and thus has lesser weightage.

- Short Term Trend Line (RED)

The short term trend line is the most recent trend line and you will be using it to trade most of
the time.

Some of you may think that the long term trend line must be drawn from a higher time frame
and short term trend line is drawn on a lower time frame. In fact, all the long to short term
trend lines are drawn on the same chart

The difference between the various types of trend lines lies in the number of candlesticks or
period that the line passes through. For long term trend line, it has to be drawn over a longer
period of time while the short term trend line is usually drawn over a shorter period of time.
As for the period to draw, there is no specific guideline you should follow.

Rules for Conventional Trend Line:

  • The Best Trend Line Is One That Connects The Most Swing Highs or Lows
  • Once The Support Trend Line Is Broken, It Will Turn Into Resistance Trend Line
  • Once The Resistance Trend Line Is Broken, It Will Turn Into Support Trend Line

Steps to Drawing Your 3 Types of Conventional Trend Line:
Step 1: Shrink your selected time frame to a smaller size until you see the start of your current trend.
If the currency pair you are trading is currently in an up trend, you simply have to shrink your chart
until you can see the beginning of the up trend.

Step 2: If you are in a down trend, look for major swing highs and if you are in an up trend, you should
look at the major swing lows. (To draw a strong trend line, you need to have at least 3 points of
contacts which means that you need at least 3 swing highs or lows)

Step 4: Expand your selected time frame and look for major swing high or low after the last point of
contact for the long term trend line.

Step 5: Connect those swing highs and lows that you have found in step 4 and you will get your
medium term trend line

Step 6: Look at your recent candlesticks and draw the necessary trend line and that will be your short
term trend line

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