The Art of Forex

Learn Fibonacci

2010-11-15T23:34:00.002+07:00

We will often use Fibonacci ratios in our trading, so should you learn Fibonacci and loved it. Fibonacci is a very broad subject and there is so much to be learned from Fibonacci with weird names, but we will only study the two, there are: retracement and extension.

First let us know the Fibonacci maker: Leonard Fibonacci. Leonard Fibonacci was an Italian mathematician. He found a simple series of numbers that make up the ratio describing the natural proportions of a thing in this world.

This ratio is derived from the sequence of a series numbers: 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144 ... The sequence of a series numbers comes from the number 1 followed by 2 and then the sum of 1+2 to get 3, the third numer. Then add 2+3 to get 5, the fourth number, and so on.

After some initial sequence of series number, if you calculate the ratio of any number with the next higher number it will get 0.618. For example, 34 divided by 55 equal to 0.618. If you calculate the ratio between some number with the two next higher number, it will get 0.382. For example, 34 divided by 89 equal to 0.382 and so on.

This ratio is called the "golden mean". And we just need to know the following ratios:

Fibonacci retracement Levels

0.236, 0.382, 0.500, 0.618, 0.764

Fibonacci Extension Levels

0, 0.382, 0.618, 1.000, 1.382, 1.618

You do not need to know how to get these numbers. Chart in trading software will do it for you. But it never hurts to know the basics of the calculation, for additional knowledge.

Many traders use the Fibonacci retracement levels as support and resistance levels. Since there are many traders who use the same support and resistance levels and make buy and sell orders at that level to enter trade position or place stop, so support and resistance levels become an expectation.

Traders use the Fibonacci extension levels as profit taking levels. And once again, since many traders pay attention to this level and open buy and sell for a profit, then it will also become an expectation.

Many charting software that includes Fibonacci retracement level and extension level tool. To use the Fibonacci levels to your charts, you need to identify Swing High and Swing Low point. Swing High is a candlestick with a minimum of two lower high both on the left and right.

Determine Take Profit & Stop Loss (Support and Resistance)

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There are 3 Main Points to consider

1. Let the chart/graphic that shows us where we should place the stop loss

Optimal Stop loss should be placed under the support (in long position) or above the resistance (in the short position).

The most important thing when we are trading is realized when we should exit from market when our position as opposed to the actual market direction, it mean we have to stay put a stop loss and change it when the market friendly to us. The best place to put the stop loss is above resistance or below support, and change to levels that may form later.

Determination of support or resistance can be performed after measuring the range of price movement and taken an extreme high level (Resistance) or extreme low level (Support) on the chart.

In a trending market conditions "Trend is your Friend" usakan trading just follow the trend form. If in the bullish trend condition it is preferred to only take long positions only and ignore the short position. In a bearish trend, the preferred conditions only take a short position.

2. Make sure that each entry position has a higher ratio of reward than risk.

On each trading make sure reward that we will receive greater than the risk. The greater chance of reward, and the smaller chance of risks that might happen, psychologically and reviewed from the risk management standpoint it is very helpful.

Always place the limit of profit as obejective price where we will exit the market in the profit.

3. Notice Time Frame to be used (1 minute, 5 minutes, Daily, weekly, etc)

- Each time frame has a profile of risk/reward and determine trading method that will be used.

There are other things also to be considered in the placement of stop loss:

Watch another confirmation of the technical indicators, chart patterns or candlestick patterns.
Do not make entry buy just because prices have touched the support but also note other indications that support a reversal signal when price touches the support.
Take the profit should be placed before the price touched the resistance (for long position) and before touching the support (for short position). so the probability of take profit will be even greater.

How Do We Know Support or Resistance is truly Break-Out?

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There is no absolute answer to that question. There are some arguments that say that the level of support or resistance break-out when the closing price has passed that level. But in reality not always so. Let's look at an example below and see what happens when the price closed through the resistance level 2500.

In this case, the price had closed twice above resistance level 2500 but they always end with prices that falling back below the resistance level. If you really believe in what you see and say that this is an actual breakout, and then take action to buy, then you will feel very sad. Let's look at the chart now, you can see and make a conclusion that the actual resistance level has not really break-out, and the level is now even stronger than before.

To help you filter out what is called false breakout, you should think that support and resistance as "zones" rather than exact number. One way to help you find these zones is to plot support and resistance on the line chart not in the candlestick chart. The reason is that the line chart only gives you the closing price, while candlestick adding high and low in the chart. High and low can be a misleading because it is often just a temporary reaction from the market.

When you create a boundary support and resistance, of course you do not want a reflex movement of the market. You just want to restrict the intentional movement.

See line chart below, you will limit the support and resistance line around the area where you can see the price forming several peaks and valleys.

If support break means that the seller more dominant, or many people take sell position on the support price. Most market players believe that the proper price is below the level of support.

If the price touches the support and then bounce up and up, it meaning the majority of market players do not want the price dropped below support level. Since the number of buyers who have the purchase price in the support price.

If resistance is break it means that the buyer is more dominant, or many people take buy position on the resistance price. Most market players agree and dare to buy at higher price.

If the price touches the resistance and then bounced down and down, it means that the majority of market players don't want price to rise further. Since the number of buyers who take profit on this resistance price.

Method to Determine Support and Resistance Point

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After explain an understanding of what is supports and resistance in last post before, in this post will explained how the basic method to determine support and resistance.

common methods used in determining the level of support and resistance are Simple Visual Method and Trading Range Method.

Simple visual method in determining support and resistance levels are method that relatively easy to implement. To establish support visually is simply draw a line or area of the previous candlestick. To determine support visually, the support line set at the points where reversal is occur on the candlestick.

Simple visual method

Trading Range Method (making the trading range, or band method) can provide an important role in determining the position of support and resistance. In this method of support or resistance can serve as a critical point which can serve as turning point or continuous pattern.

Trading range is a period which prices tend to move tightly, or in consolidation phase. It gives a signal about the pressures of supply and demand sides. In the event of a break-out out of the trading range either above or below, it shows the pressure of which side is stronger. If the break out is up means that the pressure from the demand side is superior and if the break out is down, it mean the pressure from the supply side is superior.

Trading Range Method

Other interesting things about the support and resistance:

Support and Resistance is not the absolute numbers, but is very useful as rational limitations in your entry.
When the market has gone through resistance, the resistance becomes support and otherwise when market passing through the support, the support becomes resistance.
More often the price to test the resistance or support level without through it, this indicate stronger of resistance or support areas.

One thing to remember, support and resistance levels are not Exact number. You'll often see support and resistance levels that successfully penetrated, but actually market only doing a test against support and resistance and tests that conducted on the support and resistance is usually described by candlestick shadow.

Support and Resistance Location

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Location of Support

Usually the range or line of support established under a running price (the price that happen at this time). Traders generally dont take a position when prices are near the support line or with the support range, because the tendency of price movement has a higher uncertainty.

Location of Resistance

The range of resistance is usually located above the running price (the price that happen at this time). Same with support, generally in this range traders and investors tend to hold themselves to take positions becuase the increase level of uncertainty. And besides that, same, as support, in determining the range of resitance, analysts, traders or investors prefer a resistance zone.

Support and Resistance

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Basic Technical Support & Resistance

When we make investments in stocks, indices, forex and commodities, analysts and traders expected the ability to read the direction of price movement. For the purposes of these various analysis techniques have been developed and applied, and one important part in the process of this analysis is technical analysis. One of the most useful tools of technical analysis is support and resistance analysis. This is relatively easy to analysis using support and resistance because can improve the accuracy of the analysis of price movements.

Support & Resistance Basics Definition

Support and resistance describes the estimates where the price movements both from the supply and demand reaches equlibrium point. At that range if supply is more excessive then prices will tend to come down from that range and if demand is excessive then prices will tend to increase from that range, and if the forces of supply and demand are relatively balanced, then the price will tend to survive, consolidation or sideways on that range. On other way, excessive supply cause bearish and excessive demand cause bullish.

Support Definition

Support is the price range where in this level or range is estimated that demand is strong enough to hold the price fall down further. Simple logical is that when prices fall closer to the range of support, causing the increased willingness of investors to buy stock, index or a particular currency, and when prices are touching or near the range then demand is estimated will exceed supply so the markdown is hold .However, keep in mind that the range of support does not mean prices will definitely stuck in range, always open the possibility that the range of support can be penetrated or bypassed, which it indicates the increasing supply greater than demand, in this case support is break, so we need to made other support under the previous support.

Resistance Definition

Resistance is a price level where the trend is expected to sell in that range are strong enough to hold the rate of price mark-up. Basic logical is that if the price mark-up is close to the range of resistance, then the trend of trader or investor to sell is increasing. And on the other hand when the price is perceived too high then the tend to buy will be relatively decreased. So when the price touched resitance range, it is estimated that the supply will exceed demand so that would hold price to increase.

Elliot Wave Theory (continued)

2010-10-30T00:37:00.001+07:00

Impulse waves

A variation known as an "extension" can be seen in parts of one impulse waves. Extension is a movement that exceed or longer movements and it is completely out of scale when compared with other impulse wave (in each Wave 1, wave 3 or wave 5). Most Extension occurs in wave 3. Extension may also occur in Extending wave itself.

Another variation in the impulse wave is a diagonal triangle, a pattern or shape that wedged by two covergence lines. This Shape/pattern occurs in wave 5. Usually after wave 3 is works and then proceed with further movement in the short term. Usually subwave wedged in a sub part of the "threes" instead of "Fives". Pass each other between a series of wave 1 and wave 4 often occur, although not compulsory. This is known as an exception in Elliot rule , stating that "wave 4 does not exceed/pass high of wave 1". For example see picture 9.

Diagonal triangles also found in the position of wave C during the "lettered phase" or phase of the wave that marked with the letter or called "corrective waves", which is also found wedged in the position of wave 5, this formation indicates the end of the movement at a higher level.

Elliot Wave Theory

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Fundamental Concept

The most popular pattern of Elliot Wave are :

Picture 1

1. Main movement in Forex market surely will form pattern in five wave, then after formed a whole series wave there will be “correction” which is formed by three wave that move reversal. (See picture above)

2. Amount from this phases called “cardinal waves” by Elliot, also knowing as “impulse wave”, this condition popularized again by Pretcher and Frost. The Phases that marked by alphabet known as “corrective waves” or in general called as “threes”.

3. Wave 2 is the correction from wave 1 then wave 4 is the correction from wave 3. A whole series wave from 1 to 5 have correction a-b-c series.

4. In macro illustration, series wave from wave 1 to wave 5 completed if peak from the wave that formed is more higher than before or alson known as “simply put”. This, series wave from wave to wave 5 is accomplished if wave 1, 3, 5 is formed, meanwhile a-b-c series completed if wave 2 and wave 4 is formed. (see picture 2)

Picture 2

5. In micro illustration, each wave can elaborated in small Elliot wave series which is note the concept that described before (no. 3), i.e. : wave 2 is the correction for wave 1; wave 4 is the correction for wave 3; then a-b-c series is the correction for a whole series wave from wave 1 to wave 5. (See picture 3)

Picture 3

6. Basic movement from “5 (wave)” and have “three (wave)” correction, is same with a few rule and instruction from the principal about:”everything will always move constantly not depend with time as reference. The Pattern from hourly chart calculated same with the way we calculate weekly, daily and even yearly chart pattern.

7. Time as reference is not important in wave, but give more attention to the shape of wave. Wave can be widen or decline however the shape (pattern) will always fixed.

8. There are 3 rules that can not be denied in determining wave. Namely:

· Wave 2 won’t corrects more than starting point wave 1, if the direction of impulse wave is up, then wave 2 is imposible under original (start point) wave 1. (see picture 4). If impulse wave is down, then wave 2 is not more than the wave 1 start point.

· Length of wave 3 is not less short than length of wave 1 impulse. (See picture 5)

· If wave is up, then wave 4 is never pass through wave 1. If the wave is down, then wave 4 never move more than the bottom of wave 1. So if series wave have combination of this rule, then its not a true wave.

Forex Chart Type

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There are three most popular Forex chart types:

Line Chart
Bar Chart
Candlestick chart

Line Charts

Line chart is a simple chart which is illustrates a line from one closing price to the next closing price. When line was formed, we can see the price movement of a currency pair in general at any given time.

Example for line chart in Daily GBP/USD:

Bar Charts

The bar chart shows the closing price, also simultaneously show opening price, high and low price. The bottom of the vertical bar indicates the lowest traded price for a certain time, while the top bar indicates the highest price. So the vertical bars indicate the range of currency pairs being traded. The horizontal line on the left bar is the opening price, and on the right bar shows the closing price.

Examples for Daily GBP/USD bar chart :

Bar charts are also called "OHLC" charts, because it indicates Open, High, Low, and Close price for a currency. Here is an example of the price bar:

Open: small horizontal line on the left is the opening price

High: The top of the vertical line is the highest price at a certain time.

Low: The bottom of the vertical line is the lowest price at certain time.

Close: small horizontal line on the right is the closing price.

Candlestick Charts

Candlestick charts show the same information with a bar chart, but more nice views.

Candlestick bars still indicate the range from high-to-low with a vertical line. In candlestick charts, the largest body in the middle indicates range between opening and closing price. Generally, if body have a color, its indicate that the currency closed price lower than open price.

In the following example, the body is filled with black. Body is filled, the top is the opening price, and the lower part of the body is the closing price. If the closing price is higher than the opening price, the body will be white or blank, or colorless. Its mean the price being strength.

The picture below is example for candlestick in daily GBP/USD, its nice to view

The purpose of the candlestick chart is to provide nice views. The advantage of a candlestick chart is:

Candlestick is very easy to interpret, and is an excellent media for beginners to learn analyze the chart.
Candlestick is very easy to use. Your eyes will quickly adapt to the information on the bar notation.
Candlestick and candlestick pattern has a cool name like shooting star, doji, hammer, which helps you to remember what is the meaning of a pattern that occurs.
Candlestick is very useful to identify Market turning points - a reversal from an uptrend to downtrend or into an uptrend or a downtrend.

Some Open Position (OP) Example with Weighted Method - KG's Technical Analysis

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MA_MODE created by Goen and approved by KG

0 = Simple Moving Average (SMA)

1 = Exponential Moving Average (EMA)

2 = Smoothed Moving Average (SSMA)

3 = Linear Weighted Moving Average (LWMA)

For download this indicator please click here ==>

http://www.forexindo.com/forum/attac...-kg-ma-1.3.mq4

USD/JPY Case on Maret 2008

Let Observe in M15 TF , Daily and Weekly MA tend to start moving flat, its meaning that if they fall trying to give more attention to the Daily Lower BB (dashed Lime) and weekly (dashed magenta), follow the small trend 8 hours, 4 hours or 1 hours to take exit decisions. And now price was in the area of Lower BB weekly, for these conditions as described in the beginning, it is best to OP buy at lower BB and OP sell on the Upper BB with observe over the small movements trend.

USD/JPY Case

From the picture seen that KG take buy position, from M15 chart analyze seen that daily and weekly LWMA tend to be flat, and from price movement prove that price reverse back and rise after touch weekly lower BB.

OP's Target can be done by following the small trends, if the price is able to pass through daily WMA, Upper daily BB or around the weekly WMA will be the first target, if not should close position.

USD/CHF Case

This case is similar with UJ Case, where the OP do is BUY. Daily WMA96 movement began Flat and the price is almost touching the lower BB 96, then prices seen moving up or "bounce", which became the target is the Upper BB 96, but also observe the price movement around the WMA 96, if not able to pass through WMA 96 should close the position.

EUR/USD Case

WMA 96 Position has shown Flat, but the price has not reached the Upper BB 96, but KG did OP SELL, by observing the movement of WMA 4 (houry : red color), the first target is the Lower BB 96, but if the price does not successfully pass WMA 96 should close the position.

GBP/USD Case

In this case KG choose OP Sell, daily look is toward a flat condition, and it is also quite dangerous, but see 1 hour and 4 hours WMA an already crossing, then the price was in the BB 96 and there is enough space from price running into the WMA 96.

Flat condition is very important to note, do not use MA trend that is in the Flat condition as the main criterion, MA that in a flat condition is used to set limits using BB.

Use the higher MA as the benchmark and more small MA as a director, but focus on the MA which is smaller, because MA that is flat is finally going to follow movement of a smaller MA, trying to observe if the upper or Lower BB from the breakout of Flat MA then MA or Middle BB will follow the direction of the small MA.

According to KG, Flat conditions are ideal conditions for entry, although other sources may be at odds with this, for KG Flat condition is the sought conditions. Then also keep in mind that go in trending conditions were very dangerous (this is also contradicted by other sources), because after all unknown, "Is this trending will end or continue?"

For OP at the trending time can be done in the following manner:For example, the daily movement in a state trending, See the movement of 8 hours, 4 hours and 1-an-hour, wait or look for three points among these smaller movements that are in the Flat condition, make BB from it and go through there with BB rules.

For download indicator that match with LWMA click here ==>

http://www.forexindo.com/forum/attac...kg-bands-q.mq4

Trend that given by KG MA indicators can be different in some of the TF, but it must be recognized that the indicators do not lie or wrong, because the indicator is only doing the calculations and logic programmed in it. So anything that is produced by this indicator is TRUE condition based on the programmed conditions.

What causes these differences is that the data used to calculate the average value is also different. On the M15 to calculate the average value of mean daily movement, it mean indicator will calculate the price that selected (Close, Open, High, Low, HL / 2, HLC / 3 or HLCC / 4) in 96 previous candle and then calculate the mean value. While in H1 indicator will calculate the price value contained in 24 candles before then calculate the mean value.

According to KG, mathematically and statistically the average calculation using more data better reflect the real situation, then give more attention to the smaller TF.

KG advice: "Eliminate the LATE term from your mind, replace it with Is there still a chance or not?"

It should be noted that not only the upper / lower BB are its boundaries, lines of the MA that is used can also serve as the boundaries of movement.

Then should have to know the average value of daily, weekly and monthly static movements, this is used to compare and know the price range that formed at this time with an average value of daily, weekly and monthly periods ago.

For the indicator about the above, download it from this link ==>

Forexindo.com - Forum Trader Forex Indonesia

Then, "Bar Indicator" for calculate close-open value of a given MA period =>

Forexindo.com - Forum Trader Forex Indonesia

The previously average value that used as a comparison is actually have a important information, for example: "If the price is currently engaged and exceeds the previously average values and then followed by curently daily moving average which also exceeded the previous daily average, this indicates that the movement that happening today is pretty strong". It is also seen in the image below:

On GBP/JPY pair, flat lime line is the previous daily average value taken from SMA 1 on D1 and flat magenta line is the previous weekly average value taken from SMA 1 in W1. OP look contrary to what has been presented before, but this can be explained by the following analysis:

"Judging from Weekly MA (magenta line) actually price looks flat, the taken action should sell in Upper BB and Buy in Lower BB, but when price seen bouncing on the previous daily average (lime line), most likely this is the limit of current GJ retrace. After a while the daily SMA moves through and past the previous weekly average (magenta line) and even continues to penetrate the previously average price (lime line)".

And as it is known that:

If the price is currently move and exceed the previous daily average then followed by the value of curent daily average movement which also exceeded the previous daily average movement, this indicates that the movement is happening today is pretty strong.

So the right decision is OP Buy.

Index of Forex Technical Analysis :

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When Market is Trending - KG's Technical Analysis

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1. Example from H1 Time Frame EUR/USD case

Look at the picture below, from this picture SMA 480 (Magenta), SMA 120 (Lime) and SMA 24 not in flat condition, thus we add SMA 8 and SMA 4 to see EU movement during 4 and 8 hour, and open buy is taken if SMA 4 is above SMA 8, so that its follow the SMA 24, SMA 120 and SMA 480 trend.

2. Example from M15 Time Frame GBP/JPY case

Sell is taken if price have been reach BB 96, then followed by SMA 4 position still below of SMA 96, for more ensure that GJ will up or down again, see SMA 4 open and close next candle.

Because of SMA 4 open/close still up in the next candle, so buy is taken then minimum target is upper line BB 96

3. Example from H1 Time Frame AUD/JPY case

Look at M 15 chart below, SMA 1920 (Magenta) which is describe monthly movement being in flat condition, see also Upper and Lower Line BB 1920 position (dashed magenta).

SMA 96 (daily) and SMA 480 (weekly) in sharply pointing down, but based on knowledege before about flay position, so buy is taken with assumtion that the price will move in upper - lower BB 1920 area. Certainty next movement direction can be observed with open/close SMA 16.

But if the price move down (SMA 16 open/close is crossed down) in reality dan price reach through lower BB1920 and then not reversal so sell is taken, but if the price is reversal, sell position then close and open buy in new position.

Now, we should be able to understand how the observed price movements based on the average movement was observed on the basis of reference points that have been determined. Average calculation method recently in fact been highly developed, the objective is to seek a more cautious approach to the movement of a group of data.

Actually KG tend to choose Weighted Moving Average methode for analyze movement of a group of data that observed. Because this methode is use weighting technique in calculation.

When we have home and wanted to sell it of course we will be more inclined to see the price of houses around us in the nearest time and use it as a reference, we may not see the price ten years ago and use it as reference to determine the home price that you will sell.

Next, i will post LWMA methode for analyze.

Boillinger Bands (BB) - KG's Technical Analysis

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This picture below shown 1H chart that have been zoom out, to observe what happen in SMA 480.

After chart is zoom out, seen that SMA 480 being consolidation, after the trend is down sharply before (See yellow line).

There are 3 movement patern Up, Down, and Flat. The most important thing to observe is Flat movement patern, because from this patern price will starting to move Up or down. Then at flat movement patern in mathematically and statistically the boundary movement is easy to predict.
as mention before, from analysis that have did there are two important information:

price movement prediction
limit of price movement prediction

For price movement prediction, it just follow the movement from SMA 24, SMA 120 and SMA 480. Then for predict the limit or bound of price movement when it moving flat we will use boillinger bands. Boillinger Bands (BB) that used is BB with same period as SMA period which moving flat.

For example : in the case of GBP/USD that is being analyzed, because from 3 point reference that used just SMA 480 which is in flat condition, thus we will use Boillinger Band (BB) with 480 period, deviation 2 (standard) and apply price to Weighted (HLCC/4). Let try use BB in H1 GBP/USD chart, for easier use the same color as SMA 480 that is yellow but the type of line we use dashed.

Its look like :

For more detail, this is GBP/USD picture from H4 Time frame,

The picture above is not different with H1 time frame chart, but it use different period, there are:

Red line represent daily movement with SMA period is 6.
State Blue line represent weekly movement with SMA period is 30.
Yellow line represent monthly movement with SMA period is 120.
Blue line represent yearly movement with SMA period is 1440.
Yellow dash line is Boillinger Bands 120.
Blue dashed line is Boillinger Bands 1440.

Boillinger Bands calculate Standard Deviation from SMA with certain period. Standard deviation is degree or boundary where the values of a group of data is located.

Standard Deviation that generally used is 2, because from statistical calculation result against a group of data known that 96.5% values of a group of data which is observed will locate in range calculation with standard deviation is 2.

Therefore can be concluded that when price touch upper line BB Level or lower line BB, its mean that (possibility) price movement will reverse. But, keep in mind this is occur for the data that with static movement not dynamically, hence BB period that used adjusted with reference point price movement period in flat condition.

From BB 480 that plotted in GBP/USD chart with H1 Time frame (see the picture no. 2) can be seen that since January 22nd, GBP/USD only move in certain range (the term that used by KG is "only playing") in BB 480 area. And price condition at this moment GBP/USD have touched upper line BB 480, meanwhile SMA 480 is still in flat condition. From the theory about standard deviation above, can be concluded that the price have reached 96.5% of GBP/USD price that may be achieved based on SMA 480.

Based on this condition we have predicted that price will move down if the price at that time have been stand in upper line BB 480, but based on KG suggestion, we shouldn't act based price position but always use reference points to take action. Thus, the price can be predict down if SMA 24 which is represent daily movement move down too or SMA line is pointing down.

In order to know that the price would not turn up or back up, it can be observed from SMA 24 line, it can be predicted that prices will move higher if SMA 24 line reach and pass through the Upper Line BB 480. Notice when the price moves in the range of BB 480, seen that SMA 24 line have never through the Upper or Lower BB 480 and always remember the daily movement is described by the SMA 24.

If the prediction is right and the price goes down, then the first target is the SMA 480, but it can only be ascertained if the price is below SMA 120 and SMA 24 is also under the SMA 120.

In summary, this has been got information about the direction and the limits of price movement, and this is consistent with the purposes of analysis. Then for right open position (OP) from GBP/USD example in this condition is BUY if the price is above the Upper line BB 480 and SMA 24 reach or pass through the upper line BB 480, and SELL if the price go back in below upper line BB 480 and SMA 24 is pointing down, and maybe we can add SMA 8 (8 hour price movement) in chart. Noticed the crossing from SMA 8 and SMA 24 to Open Position (it will explain in next post).

To determine SL (Stop Loss) we can use the Upper / Lower line BB which is also used as the basis for determining the limits of price movement. So if OP Sell then use the Upper Line BB as limit of SL plus spread + 1 points. And first TP (Take Profit) was used is middle BB.

Simple Moving Average (SMA) - KG's Technical Analysis

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Observing Charts Trend

Look at this chart below :

If point C seen from point B, trend is down. But if seen from point A, trend is up. Thus, each different reference point have different result, and it represent different information that obtained just seeing a point from different observation.

Point A and B is sighting point which is distinguished by time, so when observe point C from point B, actually we observe the price in point C and compare it with the price at the time point B is formed.

Forex is Business world that driven by human as the main actors, which it work with time as reference, therefore time reference that will use adapted with business time reference, that is yearly, monthly, weekly, daily, 8 Hour, 4 Hour, 1 Hour, even 5 minutes.

Applying SMA

To observe mean of price movement GBP/USD for 1 Day ago, we can use 1 Day SMA indicator, it mean we use 1 day reference point to observe price changes, Because Charts time frame that we use now is H1 (Hourly) so to see the value of 1 day SMA we will calculate mean value of 24 candle in H1 Time frame.

In the Metatrader, applying Moving average indicator and set the period to 24, Moving Average method is simple and apply Price Weighted Closed (HLCC/4), GBP/USD chart will look like the picture below.

Let see moving pattern of SMA from point 1 to point 2, seen here SMA 24 is up trend. And from point 2 to 3 seen that SMA 24 pattern is flat. Then from point 3 to point 4 SMA 24 is up trend, From point 4 to 5 SMA 24 down trend, Point 5 to Point 6 SMA 24 up trend, and from point 6 to close market SMA 24 down trend.

From SMA 24 that have plotted in H1 GBP/USD Chart above, we have get information about daily moving chart in GBP/USD. But, to get further information we not only use information that got from one reference point, thus we need many reference point to see and get further information.

Let see the GBP/USD movement from weekly and monthly reference point.

Weekly reference point is SMA with 120 period in Hourly time frame, because 1 day = 24 Hour, and 1 week is 5 bussines Day and it means 1 week = 120 hour.
Monthly reference point is SMA with 480 period in hourly time frame. because 1 month = 4 week, and 1 week = 120 hour, thus 1 month = 480 hour.

For more details, see the picture below. Weekly movement described by SMA 120 line which is colored State Blue, and monthly movement described by SMA 480 line which is colored yellow.

From Daily Movement seen that GBP/USD from Wednesday until Friday actually move only in certain range.

Let observe SMA 24 line from point 4 to point 5 and from point 5 to point 6, to the far right candle, it is seen from line that formed by SMA 24, GBP/USD only move up and down only in one range.

Then, let observe SMA 24 line from point 3 to point 4, it seen that after move sharply from point 3 to 4, GBP/USD then move to stabilize rhythmic movement or it can call consolidation .

Then in SMA 120 line day 22th until the most right candle, SMA 12o movement tend rise sharply (Up trend). Meanwhile, SMA 480 movement that describe monthly movement is flat.

NEXT.......

KG's Technical Analysis

2010-10-14T18:46:00.016+07:00

There are many way for analyze chart in Forex, both fundamental or technical way, where the result will use to open transactions, i.e. open sell, buy, or just watch it first. I get this Technical from http://www.forexindo.com/, with indonesian language and i want share in English to this blog.

There are two kind of data that need to obtained from the analysis.

First: a prediction of where prices will move (up or down).

Second : It has a prediction to which prices will move.

These prediction are not generated in-consequent, but through mathematical and statistical calculation. For example, from the data that has been formed can be calculated and analyzed, then predict next price movement.

The most frequently asked questions by general traders is "Where the price trend or the trend will move?." Trend "by KG is defined as the tendency of price movements based on units of time, because time is one of the basic analysis in KG's techniques.

One of the easiest ways to determine the direction of the trend is to look at a chart, which is to see the value "price" in the leftmost candle and value "price" in the last candle at the time. Then compare the results, if the "price" in the left is lower than the "price" in the latest trend is said to rise, and if the "price" in the left is higher than the "price" in the latest trend is said to down.

KG's Technical see the trend by using existing data on the chart that is used, i.e. price and time data. For example in the H1 Time Frame (Hourly time frame), every candle describe the range of price movement for an hour, and price movements that occur during an hour is only represented by four values, namely:

High Price Value : represents the highest price.
Low Price Value : represents the lowest price.
Open Price Value : represents the open price, the initial value when H1 time frame candle start.
Close Price value : represent the closed price, the final value when H1 time frame candle end.

From this we will get a grouping data, so the price data in the form of candle that seen in any Time Frame Chart is represents of price data which have been grouped, and each data group is only represented by 4 (four) price value during a certain time period .

An understanding of Time Frame and the data on each candle is extremely useful for select periods of time frame that will be used to analyze the chart. Lack of understanding about this can often cause errors in analysis.

From 4 Value Price mentioned above, can be obtained many data such as:

Median ((H + L) / 2),
Typical Data ((H + L + C) / 3)
Weighted data ((H + L + C + C) / 4)
And many others.

In KG's Technical, we will analyze data use Simple Moving Average (SMA) which is take from Weighted data in every candle to see the price movement.

Simple Moving Average (SMA) calculate the mean values within general way, for example : we have many value like : 4, 7, 6, 9, 8 and 2, so the value of SMA is (4+7+6+9+8+2)/6 and the result is 6. Where the divider 6 is the amount of data.

Next...

Level Trader ( level 4 and 5)

2010-10-13T00:01:00.006+07:00

Level 4 Conscious Competence

In this level, they only trading if the system give signal to open position. They easy to cut loss same as take profit. because they know that their system will give more profit than loss, and their cut loss that they do is the risk of bussiness i.e. max 2% from their acount balance.

In this level they begin trade with target profit is 20 point/day, and after do that constantly and consistently for several week, they raise target until 40 point/day. And they do it like before, can maintain their target.

They must work harder to reach in this level, fix their system, controll the emotion, and always use money management. This level eventually go on 6 month. From this level, only 3% trader reach to next level.

and finally the last level is:

Level 5 Unconscious Competence

This is level that every trader in the world desire to reach, in this level they can trade naturally, they are master now, they can dance with market wherever market go, they've opened position in rigth direction, so they will see the profit going from 2 digit become 3 digit.

This is higher level from trader, an utopia level, they've controlled emotion and now they trading with acount that growth everyday from kumulatif profit everyday. They become superstar in trading chat room, dan every people always believe every word that you say, they understand with every question because they have in this position long years ago. They will give and advice, but they admit that majority of people ignore it because still in level 1.

They dont have financial problems again, they can buy anything because their income is like superstar, they can make book by their self, can trade with unlimited margin and their acount get very bigger than begining acount. But Only 3% trader can reach this level. Now they can say proudly, "I AM TRADER".

So, from level 1 to level 5, where are you now??

Level Trader ( level 3)

2010-10-12T11:59:00.005+07:00

Level 3 The EUREKA Moment

In the end of 2nd level, they realize the main problem is not in system. They realize that we can get profit even only use simple sistem like moving average without other indicator if they can exploit their brain and right money management.

They started read psycologichal trading book, and identified with the carachter that explain in this book, finally the enlightenment is come.

They realize one important thing, that we cant predict what happen in market in 30 second later acurately. They are have one system now then moidify this system , so it can appropiate with their character and can give more profit than the original system.

They only started trade if probability to profit is greater than to loss, they only trade if they get signal from their system, they use stoploss,because they know this is risk in trade and they know it can prevent loss become margin call.

When the position get stoploss, they dont be emotional because nobody cant predict it, and this is not their foult. In the next trade they believe the probability to profit is much greater because they know that their system is profitable.

The already realize that in trading, the important thing i.e. consistency in system, psycologichal trading and their money monegement. And their discipline to follow their signal system to trade, whatever happen in chart.

They begin understand about money mangement, 2% risk, and the other thing. And it remind 1 year ago when someone give advice about the same thing and yhey prefer to ignored it. It because they havent ready, but now they are ready. But only 5% trader from this level succesfully go up to next level (level 4).

Level Trader ( level 2)

2010-10-12T08:58:00.006+07:00

Trader Level 2

Level 2 Conscious Incompetence

In This Level they realize that they cant trade properly, don't have ability to obtain profit consistently. And they know the solution, realize that in level 1 their mind are controlled by emotion so cant trade properly.

In this level they will find a holy grail (100% Profit system and never loss), they started to bought system from Internet, browse and read website about forex around the world, read every e-book, they apply all system that they acquire, they always want to know all about forex like a wanderer in the desert who is thirsty to drinking water.

In this level they will read detail about indicator, test all indicator, even maybe will make indicator by their self. They will play with moving average, Fibonacci lines, pivot point, camarilla pivot, deMark, Fractals, Divergence, DMI, ADX, Boillinger Bands, and many other.

They know and realize that market is very complicated to prediction if use only 1 indicator, They know the ideal combination from each indicator, and also know about advantage and disadvantage each indicator.
They will try to guess the Top and the bottom of market with its indicator. They will joined in chat room trader and ask unimportant question to senior trader. Because they know if they don't ask now then they will never know anything about trading forever.

Finally in this level they will get 5-10 completed system and try to find the best system that match with their personality. From this level only 7% trader step up to level 3.

Level Trader (Level 1)

2010-10-11T23:57:00.010+07:00

Before We enter in the forex trader world, we must know about level trader. Everyone who advance in forex must pass every level before they become a master or advance in forex. This is the first level :

Level 1 Unconscious Incompetence

This is the first level when a trader only play in forex. They always believe that forex can make someone rich very fast. They always play, not analyze market very well. They use instinct to open every position and they become a beginner luck. But unfortunely market will defeat them. They hold loss position, and hope market will comeback and make their position become profit, but this hope can't be reality because their margin now is gone, so they have nothing.

They never trust the reality that they cant trading, otherwise they believe that they can trade and they feel that they are spesial people who can get glory in trading. 90% trader never realize this, they dont have complete system to trade, they alawys use their emotion, use averaging position bcause they anger with market. They alway take profit in small amount, but let the loss too long and never stop it. They let profit change become loss because they feel greedy, and they become fear to trade.

90% people who reach this level usually give up, stop to trading and assume that this is a nightmare. Some of them maybe still trade but actually they are executor, find investor to add their margin then loss and find again. Then some of them again, claim to be trader but never trade. If someone ask him they will explain that they still trade but in their mind they alway blame herself.

Then only 10% trader realize their mistake and move to level 2