Technical Indicators - Momentum

The Momentum indicator compares where the current price is in relation to where the price was in the past. How far in the past the comparison is made is up to the technical analysis trader. The calculation of Momentum is quite simple (n is the number of periods the technical trader selects):

• The current price minus the price n-periods ago

Hence, if the current price is higher than the price in the past, then the Momentum indicator is positive. In contrast, when the current price is lower than the price in the past, then the Momentum indicator is negative.

1. Momentum Buy and Sell Signals
2. Momentum Divergences

Technical Indicators - Momentum Divergences

Identifying divergences between price and technical indicators is important aspect of technical analysis trading. Bullish divergences can signal a trader to exit their short position; similarly, bearish divergences warn that prices could correct and it is advisable to exit any longs.
In the chart below of the S&P 500 exchange traded fund (SPY), Momentum divergences can be seen:

Technical Indicators - Momentum, Buy and Sell Signals

An example of the Momentum indicator is shown below in the chart of the E-mini Nasdaq 100 Future:

Potential buy or shortsell entries are shown above in the chart.

The 25 Point Discipline For Day Trader - #15 And #16

I continue my post about The 25 Point Discipline For Day Trader. And below is the 15th and 16th point.
 
#15 LOVE TO LOSE MONEY.
This rule is the one that I get the most questions and feedback on by traders from all over the world. Traders ask, "What do you mean, love to lose money. Are you crazy?"
No, I'm not crazy. What I mean is to accept the fact that you are going to have losing trades throughout the trading session. Get out of your losers quickly. Love to get out of your losers quickly. It will save you a lot of trading capital and will make you a much better trader.

Today's Forex Prediction - July 30, 2010

PAIR	TODAY'S PREDICTION
	MAX	MIN
EUR/USD	1.3120	1.2992

See : How To Applying My Prediction

Yesterday Prediction Rate : ACCURATE (Average Error < 50pips)

Technical Indicators - Relative Strength Index (RSI)

One of the most popular technical analysis indicators, the Relative Strength Index (RSI) is an oscillator that measures current price strength in relation to previous prices. The RSI is a versatile tool, it can be used to:

• Generate buy and sell signals
• Show overbought and oversold conditions
• Confirm price movement
• Warn of potential price reversals through divergences

1. RSI Buy ad Sell Signals
2. RSI Alternative Buy and Sell Signals and Divergences

Technical Indicators - RSI Alternative Buy and Sell Signals and Divergences

An alternative way that the Relative Strength Index (RSI) gives buy and sell signals is given below:

• Buy when price and the Relative Strength Index are both rising and the RSI crosses above the 50 Line.
• Sell when the price and the RSI are both falling and the RSI crosses below the 50 Line.

An example of this methodology for buying and selling based on 50 Line crosses is given below in the chart of Wal-Mart (WMT):

Technical Indicators - RSI Buy and Sell Signals

The chart below of eBay (EBAY) shows how the RSI can generate easy to follow buy and sell signals:

Today's Forex Prediction - July 29, 2010

PAIR	TODAY'S PREDICTION
	MAX	MIN
EUR/USD	1.3090	1.2946

See : How To Applying My Prediction

Yesterday Prediction Rate : ACCURATE (Average Error < 50pips)

The 25 Point Discipline For Day Trader - #12, #13 And #14

I continue my post about The 25 Point Discipline For Day Trader. And below is the 12nd, 13th and 14th point
 
#12 DON’T HOPE AND PRAY. IF YOU DO, YOU WILL LOSE.
When I was a new and undisciplined trader, I can't tell you how many times that I prayed to the "Bond god". My prayers were a plea to help me out of a less-than-pleasant trade position. I would pray for some sort of divine intervention that, by the way, never materialized. I soon realized that praying to the "Bond god" or any other "futures god" was a wasted exercise. Just get out!

Technical Indicators - Pivot Points

Pivot Points are used to project potential support and resistance levels. The main time periods used are daily, weekly, and monthly pivots. The formula for the daily pivot point, support, and resistance is shown below:

• Pivot Point = [Yesterday's High + Yesterday's Low + Yesterday's Close] / 3 

A 15-minute chart of the mini-Dow futures contract and the corresponding floor trader pivots are shown below:

1. Pivot Points, Support, & Resistance
2. Pivot Point Trade Examples

Technical Indicators - Pivot Point Trade Examples

In addition to giving buy and sell signals, pivot points give traders a good time to get out of their trade. To illustrate, during a rally some traders will set their sell orders right below the next resistance line. Thus, pivot point resistance and support lines can generate ready made profit targets.
A 5-minute chart of the Nasdaq 100 ETF (QQQQ) is shown next:

Technical Indicators - Pivot Points, Support, and Resistance

Pivot Point = [Yesterday's High + Yesterday's Low + Yesterday's Close] / 3 A 15-minute chart of the mini-Dow futures contract and the corresponding floor trader pivots are shown below:

Today's Forex Prediction - July 28, 2010

PAIR	TODAY'S PREDICTION
	MAX	MIN
EUR/USD	1.3096	1.2949

See : How To Applying My Prediction

Yesterday Prediction Rate : ACCURATE (Average Error < 50pips)

Technical Indicators - Bollinger Bands

Bollinger Bands is a versatile tool combining moving averages and standard deviations and is one of the most popular technical analysis tools available for traders. There are three components to the Bollinger Band indicator:

1. Moving Average: By default, a 20-period simple moving average is used.
2. Upper Band: The upper band is usually 2 standard deviations (calculated from 20-periods of closing data) above the moving average.
3. Lower Band: The lower band is usually 2 standard deviations below the moving average.

Bollinger Bands (in blue) are shown below in the chart of the E-mini S&P 500 Futures contract:

There are three main methodologies for using Bollinger Bands, discussed in the following sections:

1. Playing the Bands
2. Bollinger Band Breakouts
3. Option Volatility Strategies

Technical Indicators - Option Volatility Strategies

There are two basic ways to trade volatility:

1. Buy options with low volatility in hopes that volatility will increase and then sell back those options at a higher price.
2. Sell options with high volatility in hopes that volatility will decrease and then buy back those same options at a cheaper price.

Since Bollinger Bands adapt to volatility, Bollinger Bands give options traders a good idea of when options are relatively expensive (high volatility) or when options are relatively cheap (low volatility). The chart below of Wal-Mart stock illustrates how Bollinger Bands can be used to trade volatility:

Technical Indicators - Bollinger Band Breakouts

Basically the opposite of "Playing the Bands" and betting on reversion to the mean is playing Bollinger Band breakouts. Breakouts occur after a period of consolidation, when price closes outside of the Bollinger Bands. Other indicators such as support and resistance lines can prove beneficial when deciding whether or not to buy or sell in the direction of the breakout.
The chart of Wal-Mart (WMT) below shows two such Bollinger Band breakouts:

Technical Indicators - Playing the Bands

Playing the bands is based on the premise that the vast majority of all closing prices should be between the Bollinger Bands. That stated, then a stock's price going outside the Bollinger Bands, which occurs very rarely, should not last and should "revert back to the mean", which generally means the 20-period simple moving average. A version of this strategy is discussed in the book Trade Like a Hedge Fund by James Altucher.

Technical Indicators - Elliott Wave

Elliott Wave theory states that prices move in waves. These waves occur in a repeating pattern of a (1) move up, (2) then a partial retracement down, (3) another move up, (4) a retracement, (5) then finally a last move up. Then, there is a (A) full retracement, followed by a (B) partial retracement upward, then (C) a full move downward. This repeats on a macro and micro time frame. A visual illustration of the basic pattern of the Elliott Wave is given below. A real life example of Elliott Wave in action is given further down:

Today's Forex Prediction - July 27, 2010

PAIR	TODAY'S PREDICTION
	MAX	MIN
EUR/USD	1.3069	1.2897

See : How To Applying My Prediction

Yesterday Prediction Rate : ACCURATE (Error < 50pips)

Technical Indicators - Fibonacci

Fibonacci tools utilize special ratios that naturally occur in nature to help predict points of support or resistance. Fibonacci numbers are 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, etc. The sequence occurs by adding the previous two numbers (i.e. 1+1=2, 2+3=5) The main ratio used is .618, this is found by dividing one Fibonacci number into the next in sequence Fibonacci number (55/89=0.618). The logic most often used by Fibonacci based traders is that since Fibonacci numbers occur in nature and the stock, futures, and currency markets are creations of nature - humans.

Technical Indicators - Fibonacci Time Extensions

Fibonacci Time Extensions are used to predict periods of price change (i.e. lows or highs). For example, after a downtrend, a reversal would be expected at a significant Fibonacci Time Extension line. Similarly, after an uptrend, a reversal warning could occur if a Fibonacci Time Extension was soon approaching.
The Fibonacci Time Extension tool is created by locating a significant high (low) and finding a significant retracement or extension low (high). The major Fibonacci ratios are then calculated and plotted by charting software.

Technical Indicators - Fibonacci Fans

Fibonacci Fans use Fibonacci ratios based on time and price to construct support and resistance trendlines; also, Fibonacci Fans are used to measure the speed of a trend's movement, higher or lower.

• If prices move below a Fibonacci Fan trendline, then price is usually expected to fall further until the next Fibonacci Fan trendline level; therefore, Fibonacci Fan trendlines are expected to serve as support for uptrending markets.

• Likewise, in a downtrend, if price rises to a Fibonacci Fan trendline, then that trendline is expected to act as resistance; if that price is pierced, then the next Fibonacci Fan trendline higher is expected to act as resistance.

Technical Indicators - Fibonacci Arcs

Fibonacci Arcs are percentage arcs based on the distance between major price highs and price lows. Therefore, with a major high, major low distance of 100 units, the 31.8% Fibonacci Arc would be a 31.8 unit semi-circle.
The chart below of the S&P 500 exchange traded fund (SPY) shows an example of a Fibonacci Arc:

Technical Indicators - Fibonacci Retracement

Arguably the most heavily used Fibonacci tool is the Fibonacci Retracement. To calculate the Fibonacci Retracement levels, a significant low to a significant high should be found. From there, prices should retrace the initial difference (low to high or high to low) by a ratio of the Fibonacci sequence, generally the 23.6%, 38.2%, 50%, 61.8%, or the 76.4% retracement.

The 25 Point Discipline For Day Trader - #9, #10 And #11

I continue my post about The 25 Point Discipline For Day Trader. And below is the 9th, 10th and 11st point
 
#9 EARN THE RIGHT TO TRADE BIGGER.
Too many new traders think that because they have $25,000 equity in their trading account that they somehow have the right to trade five or ten e-Mini S&P contracts. This cannot be further from the truth. If you can't trade a one lot successfully, what makes you think that you have the right to trade a 10 lot?
I demand that my students show me a trading profit over the course of ten consecutive trading days trading a one lot only. When they have achieved a profitable ten-day period, in my eyes, they have earned the right to trade a two lot for the next ten trading sessions.
Remember: if you are trading poorly with two lots you must lower your trade size down to a one lot.

Today's Forex Prediction - July 26, 2010

PAIR	TODAY'S PREDICTION
	MAX	MIN
EUR/USD	1.2990	1.2836

See : How To Applying My Prediction

Yesterday Prediction Rate : ACCURATE (Error < 50pips)

The 25 Point Discipline For Day Trader - #7 And #8

I continue my post about The 25 Point Discipline For Day Trader. And below is the 7th and 8th point
 
#7 BE YOURSELF. DON’T TRY TO BE SOMEONE ELSE.
In all of my years as a trader I never traded more than a 50 lot on any individual trade. Sure, I would have liked to be able to trade like colleagues in the pit who were regularly trading 100 or 200 lots per trade. However, I didn't possess the emotional or psychological skill set necessary to trade such big size. That's OK. I knew that my comfort zone was somewhere between 10 and 20 lots per trade. Typically, if I traded more than 20 lots, I would "butcher" the trade. Emotionally I could not handle that size. The trade would inevitably turn into a loser because I could not trade with the same talent level that I possessed with a 10 lot.
Learn to accept your comfort zone as it relates to trade size. You are who you are.

Technical Indicators - Moving Average

1. Simple Moving Average (SMA)
2. Moving Average Crossover (MAC)
3. Exponential Moving Average (EMA)
4. Weighted Moving Average (WMA)
5. Adaptive Moving Average
6. Typical Price Moving Avergae (Pivot Point)
7. Triangular Moving Average

Triangular Moving Average

The Triangular Moving Average is a Simple Moving Average that has been averaged again (i.e. averaging the average); this creates an extra smooth Moving Average line.
The chart below of the E-mini Nasdaq 100 Futures contract shows the relation between a 10-day Simple Moving Average and a 10-day Triangular Moving Average:

Generally, simple moving averages are smooth, but the re-averaging makes the Triangular Moving Average even smoother and more wavelike.

Typical Price Moving Average (Pivot Point)

The Typical Price Moving Average combines the Pivot Point concept and the Simple Moving Average. The Pivot Point calculation is shown below:

• Pivot Point = (High + Low + Close) / 3

The calculated Pivot Point number is then inputed into the regular Simple Moving Average equation; rather than the input of the closing price, the Pivot Point calculation is used.
The chart below of the mini-Dow Jones Industrial Average Futures contract shows the slight difference between a 10-day Simple Moving Average and a 10-day Typical Price Moving Average:

The Typical Price attempts to give a more real representation of where price has been by incorporating the high and low price into the most often used closing price. The Typical Price is consequently seen as a more pure Simple Moving Average; nevertheless, as can be referenced by the chart above of the mini-Dow Future, there is not much difference between either Moving Average.

Adaptive Moving Average

Adaptive Moving Averages changes its sensitivity to price fluctuations. The Adaptive Moving Average becomes more sensitive during periods when price is moving in a certain direction and becomes less sensitive to price movement when price is volatile.
The chart below of the E-mini Nasdaq 100 Futures contract shows the difference between an Exponential Moving Average which weights current prices more heavily than past prices and the Adaptive Moving Average which changes sensitivity based on price volatility:

 The advantage of the Adaptive Moving Average is show above in the e-mini chart in the center where price became directionless and choppy. During that period the Adaptive Moving Average maintained a straight line appearance; whereas, the Exponential Moving Average moved with the choppiness of prices. However, when price trended, like on the far right of the e-mini chart above, the Adaptive Moving Average kept up with the Exponential Moving Average.
The Adaptive Moving Average is definitely an unique technical indicator that is worth further investigation.

Weighted Moving Average

The Weighted Moving Average places more importance on recent price moves; therefore, the Weighted Moving Average reacts more quickly to price changes than the regular Simple Moving Average. A basic example (3-period) of how the Weighted Moving Average is calculated is presented below:

• Prices for the past 3 days have been $5, $4, and $8.
• Since there are 3 periods, the most recent day ($8) gets a weight of 3, the second recent day ($4) receives a weight of 2, and the last day of the 3-periods ($5) receives a weight of just one.
• The calculation is as follows: [(3 x $8) + (2 x $4) + (1 x $5)] / 6 = $6.17

The Weighted Moving Average value of 6.17 compares to the Simple Moving Average calculation of 5.67. Note how the large price increase of 8 that occured on the most recent day was better reflected in the Weighted Moving Average calculation.
The chart below of Wal-Mart stock illustrates the visual difference between a 10-day Weighted Moving Average and a 10-day Simple Moving Average:

Exponential Moving Average

The Exponential Moving Average (EMA) weighs current prices more heavily than past prices. This gives the Exponential Moving Average the advantage of being quicker to respond to price fluctuations than a Simple Moving Average; however, that can also be viewed as a disadvantage because the EMA is more prone to whipsaws (i.e. false signals).
The chart below of eBay (EBAY) stock shows the difference between a 10-day Exponential Moving Average (EMA) and the 10-day regular Simple Moving Average (SMA):

 
The main thing to notice is how much quicker the EMA responds to price reversals; whereas the SMA lags during periods of reversal.
The chart below of the Nasdaq 100 exchange traded fund (QQQQ) shows the difference between moving average crossovers buy and sell signals with a EMA and a SMA:

As the chart above of the QQQQ's illustrates, even though EMA's are quicker to respond to price movement, EMA's are not necessarily faster to give buy and sell signals when using moving average crossovers.
Also note that the concept illustrated in the chart above with Exponential Moving Average crossovers is the concept behind the wildly popular Moving Average Convergence Divergence (MACD) indicator.
Since Exponential Moving Averages weigh current prices more heavily than past prices, the EMA is viewed by many traders as quite superior to the Simple Moving Average; however, every trader should weigh the pros and the cons of the EMA and decide in which manner they will be using moving averages.
Nevertheless, Moving Averages remain the most popular and arguably the most effective technical analysis indicator out on the market today.

Moving Average Crossovers

Moving average crossovers are a common way traders use Moving Averages. A crossover occurs when a faster Moving Average (i.e. a shorter period Moving Average) crosses either above a slower Moving Average (i.e. a longer period Moving Average) which is considered a bullish crossover or below which is considered a bearish crossover.
The chart below of the S&P Depository Receipts Exchange Traded Fund (SPY) shows the 50-day Simple Moving Average and the 200-day Simple Moving Average; this Moving Average pair is often looked at by big financial institutions as a long range indicator of market direction:

Note how the long-term 200-day Simple Moving Average is in an uptrend; this is a signal that the market is quite strong. Generally, a buy signal is established when the shorter-term 50-day SMA crosses above the 200-day SMA and contrastly, a sell signal is indicated when the 50-day SMA crosses below the 200-day SMA.
In the chart above of the S&P 500, both buy signals would have been extremely profitable, but the one sell signal would have caused a small loss. Keep in mind, that the 50-day, 200-day Simple Moving Average crossover is a very long-term strategy.
For those traders that want more confirmation when they use Moving Average crossovers, the 3 Simple Moving Average crossover technique could be used. An example of this is shown in the chart below of Wal-Mart (WMT) stock:

The 3 Simple Moving Average method is usually interpreted as follows:

1. The first crossover of the quickest SMA (in the example above, the 10-day SMA) across the next quickest SMA (20-day SMA) acts as a warning that prices are reversing trend; however, usually a buy or sell order is not placed yet.
2. The second crossover of the quickest SMA (10-day) and the slowest SMA (50-day) finally triggers the buy or sell signal.

There are numerous variants and methodologies for using the 3 Simple Moving Average crossover method, some are provided below:

• A more conservative approach is to wait until the middle SMA (20-day) crosses over the slower SMA (50-day); but this is basically a two SMA crossover technique, not a three SMA technique.
• A money management technique of buying a half size when the quick SMA crosses over the next quickest SMA and then the other half when the quick SMA crosses over the slower SMA.
• Instead of halves, buy or sell one-third of a position when the quick SMA crosses over the next quickest SMA, another third when the quick SMA crosses over the slow SMA, and the last third when the second quickest SMA crosses over the slow SMA.

A Moving Average crossover technique that uses 8+ Moving Averages (exponential) is the Moving Average Exponential Ribbon Indicator. Moving Average crossovers are important tools in a traders toolbox. In fact crossovers are included in the most popular technical indicators including the Moving Average Convergence Divergence (MACD) indicator.

Simple Moving Average

The Simple Moving Average is arguably the most popular technical analysis tool used by traders. The Simple Moving Average (SMA) is used mainly to identify trend direction, but is commonly used to generate buy and sell signals. The SMA is an average, or in statistical speak - the mean. An example of a Simple Moving Average is presented below:

• The prices for the last 5 days were 25, 28, 26, 24, 25. The average would be (25+28+26+26+27)/5 = 25.6. Therefore, the SMA line below the last days price of 27 would be 26.4. In this case, since prices are generally moving higher, the SMA line of 26.4 would be acting as support.

The chart below of the Dow Jones Industrial Average exchange traded fund (DIA) shows a 20-day Simple Moving Average acting as support for prices.

When price is in an uptrend and subsequently, the moving average is in an uptrend, and the moving average has been tested by price and price has bounced off the moving average a few times (i.e. the moving average is serving as a support line), then buy on the next pullbacks back to the Simple Moving Average.
A Simple Moving Average can serve as a line of resistance as the chart of the DIA shows:

At times when price is in a downtrend and the moving average is in a downtrend as well, and price tests the SMA above and is rejected a few consecutive times (i.e. the moving average is serving as a resistance line), then buy on the next rally up to the Simple Moving Average.

The 25 Point Discipline For Day Trader - #5 And #6

I continue my post about The 25 Point Discipline For Day Trader. And below is the 5th and 6th point
 
#5 YOUR BIGGEST LOSER CAN’T EXCEED YOUR BIGGEST WINNER.
Keep a trade log of all your trades throughout the session. If, for example, you know that, so far, your biggest winner on the day is five e-Mini S&P points, then do not allow a losing trade to exceed those five points. If you do allow a loss to exceed your biggest gain then, effectively, what you have when you net out the biggest winner and biggest loss is a net loss on the two trades. Not good.

Today's Forex Prediction - July 23, 2010

PAIR	TODAY'S PREDICTION
	MAX	MIN
EUR/USD	1.2923	1.2788

The 25 Point Discipline For Day Trader - #3 And #4

I continue my post about The 25 Point Discipline For Day Trader. And below is the 3rd and 4th point
 
#3 ALWAYS LOWER YOUR TRADE SIZE WHEN YOU’RE TRADING POORLY.
All good traders follow this rule. Why continue to lose on five lots (contracts) per trade when you could save yourself a lot of money by lowering your trade size down to a one lot on your next trade? If I have two losing trades in a row, I always lower my trade size down to a one lot. If my next two trades are profitable, then I move my trade size back up to my original lot size.

Today's Forex Prediction - July 22, 2010

Today's EUR/USD :

• MAX : 1.2758
• MIN  : 1.2671

Yesterday Prediction (July 21, 2010): 

• MAX : 1.2957
• MIN : 1.2833

Yesterday Actual (July 21, 2010):

• MAX : 1.2914
• MIN : 1.2728

Yesterday Error :

• MAX : 0.33 % (+43 pips)
• MIN : 0.82 % (+105 pips)

Average Error (Until July 21, 2010):

• MAX : 0.21 % (16 pips)
• MIN : 0.42 % (54 pips)

Use with your own risk!!!
Predicted for July 22, 2010 at 00:01- 23.59 GMT

The 25 Point Discipline For Day Trader - #1 And #2

I continue my post about The 25 Point Discipline For Day Trader. And below is the first and second point
 
#1 THE MARKET PAYS YOU  TO BE DISCIPLINED.
Trading with discipline will put more money in your pocket and take less money out. The one constant truth concerning the markets is that discipline = increased profits.

Today's Forex Prediction - July 21, 2010

Today's EUR/USD :

• MAX : 1.2957
• MIN  : 1.2833

Yesterday Prediction (July 20, 2010): 

• MAX : 1.3040
• MIN : 1.2837

Yesterday Actual (July 20, 2010):

• MAX : 1.3029
• MIN : 1.2839

Yesterday Error :

• MAX : 0.08 % (-11 pips)
• MIN : 0.02 % (+2 pips)

Average Error (Until July 20, 2010):

• MAX : 0.08 % (11 pips)
• MIN : 0 % (2 pips)

Use with your own risk!!!
Predicted for July 21, 2010 at 00:01- 23.59 GMT

The 25 Point Discipline For Day Trader - The Wheel of Succes

There are three spokes that make up, what I call the Wheel of Success as it relates to trading. The first spoke is content.  Content consists of all the external and internal market information that traders utilize to make their trading decisions. All traders must purchase value-added content that provides utility in making their trading decisions.

Today's Forex Prediction - July 20, 2010

EUR/USD

• MAX : 1.3040
• MIN  : 1.2837

Yesterday Prediction : NA

Use with your own risk!!!

Technical Strategy - EMA 5/13/62 Strategy

They are the core element of this strategy.  From the beginning you should understand that I didn’t invent the 5/13/62 strategy. At least I don’t think I did. There are some extras that I add in, but essentially, all of this information is available elsewhere. That said, I believe that most of the people that write about forex have a way of putting you and I to sleep.

So maybe this is the first time you’ve heard about it, but in any event, I’ll try to keep it interesting. Here’s where we start. With a chart:

1. Exponential Moving Average - EMA 5 (Red)
2. Exponential Moving Average - EMA 13 (Blue)
3. Exponential Moving Average - EMA 62 (Green)

You can easily see that when the 13 crosses below the 62, it seems like we are in a downward trending situation. The inverse is also true (although we cannot see it in the chart above): if the 13 crosses above the 62, it seems like we are in an upward moving trend.
That’s not quite everything, so we need to move on and do some more investigation.

Today's Forex Prediction Begin

Welcome first to this blog. Starting tomorrow, i will try to give prediction information about today's forex trading. For starting, I just share MAX and MIN for EUR/USD pair. See U Tomorrow :)