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Learning to Read the Right Forex Signals

October 27, 2011 By Raj 2 Comments

This article was written by John from Forex Trading Finder.

Forex trading, on the outface, may seem quite simple, but it is much more strategical than you would initially believe. If you want to make a profit in this highly liquid trading market, you can’t go walking in blindly; you must learn to read the forex signals in order to make the best decisions for your portfolio. Furthermore, you must be aware of the high potential for losses, as forex trading is one of the most volatile investment markets out there today. This can mean both huge profits or huge losses, so a risk assessment ought to be necessary before getting started.

There are many forex trading software companies that provide top of the line forex trading signal readers for traders to help make improve their chances of big wins in the markets. This software will allow you as the forex trader to be able to more accurately predict the direction of many different currency markets, as well as determine which currencies are best for your portfolio given your financial circumstances. Having this knowledge in your investing arsenal is immensely beneficial, as it will help you to minimize losses while improving your chances of large profits in forex trading.

Aside from software, learning to read the indicators yourself or receiving updates on your mobile phone or email from trusted forex trading sources is also quite useful to have. If you don’t know when to buy or when to sell, you could be potentially digging yourself into a hole of debt or missing out on chances to turn around a big profit on your currency pairs. Learning to read and interpret graphs may not seem too exciting, but when it means more money for you then possibly you’ll be willing to change your mind. Of course, software available takes all the guesswork and frustration out for you, but learning to read the indicators yourself is still a useful skill to have when involved in forex trading.

Furthermore, it is important to pay attention to the news, as this could be a major indicator of where the value of currencies are headed. Especially while in the midst of a global financial crisis, seeing what each country is doing to shore up their economies and protect the value of their currency is crucial to predicting the direction of forex trading markets. Watch interest rates. What are the central banks up to? How do investors in those countries feel about their own currency?

As with any type of investing, you can’t just plug your money somewhere and hope for the best. You shouldn’t even be just dumping your money into an investment recommended by an “expert” because even these guys can be wrong. Learning to read forex trading signals on your own is an important skill to have if you’re looking for long term success in this always-changing market.

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SWAP IN FOREX TRADING : REQUIRED FOR ALL REAL INVESTORS

October 22, 2011 By Raj 2 Comments

Author’s Bio: This is a guest post contributed by V. Allison from getforex.

What exactly is Forex swap?

Swap is a forex trading (a transaction which consists the decision to make the sale of a stated amount of currency and the acceptance of another currency of a different country) term which means a real-time buying and selling of the same amount of a particular currency for two different rates for the selling and purchasing of another currency.

Forex swap is a type of borrowing mechanism in which an investor can buy or sell a base currency at present and can sell or buy in future. It takes place when a trader and a broker trades one currency for another at a decided rate and then convert those currencies back at a particular date in the future, at the previously decided exchange rate. It is also referred as the FX swap.

It involves:

  1. A spot transaction: It can be described as a two-day delivery transaction that can be said as a direct exchange between two currencies within a short span of time that involves cash transaction but it does not include interest. It also does not include trades between US or Canadian Dollar, Turkish Lira, Euro and Russian Ruble, which settle the next business day.
  2. A forward transaction: It can be described as a one way dealing with the foreign exchange risk. This transaction occurs at any future date at a pre-decided exchange rate in spite�of the present market rate. The duration for this transaction is decided by the broker and the trader that may be for few days, months or years.

Relation between spot and forward transaction is:

 

relation between spot and forward transaction

Where:

  • F – forward rate
  • S – spot rate
  • r1 – term currency’s simple interest rate
  • r2 – base currency’s simple interest rate
  • T – tenor ( it is calculated as per the day count convention)

Difference between Forward and Spot = Forward points or Spot points.

Difference Between Forward and Spot

Where:

      r1 and r2 are small.

When the interest rate difference get larger or smaller, the absolute value of swap points increases.

Pricing of FX Swaps:

The price or cost of an FX swap can be determined by the difference of interest rate between the two swapped currencies. It can be measured by the swap points or the equivalent foreign exchange.

Uses of Forex swap:

  1. It is used to hedge against exchange or currency risk.
  2. It is used to speculate on a change in interest rate differentials.
  3. It is used to borrow money for a short span of time.
  4. It is used to extend or rollover an existing forward contract.
  5. It is used to take a view on future interest rate
  6. It provides a way of using the foreign exchange markets as a funding instrument and an alternative to lending and borrowing in the Eurodollar.

Real investors hedge or secure their trades or investment in the Forex market against substantial losses. They can achieve hedging or insurance against loss in the forex market only by using the strategy of Forex swap.

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Parabolic SAR Dot Breakout Strategy

May 26, 2011 By Raj 5 Comments

The strategy is very simple and works very well. You can find a lot of trading opportunities using this strategy. This strategy involves only parabolic SAR indicator with default settings.

Indicators:

Parabolic SAR with default settings (Step: 0.02, Maximum: 0.2)

Time Frame: Hourly

But you need to observe the parabolic SAR on the higher time frame of daily chart.

Markets Sessions Suitable:

Do not use this method during Asian market session. Normally this set up works before the beginning of UK market where breakouts occur.

Long Trade:

Parabolic SAR dots must be below the daily time frame candlesticks.

Parabolic SAR dots must be above the hourly candlestick and a strong bullish candlestick should cross the last Parabolic SAR dot in the upward direction.

Stop Loss:

Use a stop loss of 5 pips below the entry candlestick.

Take Profit:

Use a take profit of two times the body of the candlestick that passed through the parabolic dot.

Example:

The following is a NZDUSD daily chart and I have drawn two blue lines and highlighted the area where all the parabolic dots are below the daily candlesticks.

NZDUSD Daily Trend

Now go to the one hour chart. The following is the one hour chart for the same and since this is a long picture I divided into two parts. The following is the first part. You can see the trading opportunities and we have two trading opportunities in the first part.

NZDUSD Hourly Chart Opportunities 1 and 2

The following is the second part of the picture. You can see two more trading opportunities but one is a lost trade.

NZDUSD Hourly Chart Opportunities 3 and 4

So in total, you can see four trading opportunities out of which three are winning trades and one is a losing trade.

Short Trade:

Parabolic SAR dots must be above the daily time frame candlesticks.

Parabolic SAR dots must be below the hourly candlestick and a strong bearish candlestick should cross the last Parabolic SAR dot in the downward direction.

Stop Loss:

Use a stop loss of 5 pips above the entry candlestick.

Take Profit:

Use a take profit of two times the body of the candlestick that passed through the parabolic dot.

Example:

The following is a EURCHF daily chart and I have drawn two blue lines and highlighted the area where all the parabolic dots are above the daily candlesticks.

EURCHF Daily Trend

Now go to the hourly chart. Here I am showing only part of the hourly picture as there are a lot of trading opportunities and there will be a lot of pictures. You can see the trading opportunities in the following picture.

EURCHF Hourly Chart Opportunities 1 and 2 and 3

Note: Always move your stop loss to your entry when you are in some profit.

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Forex Aroon Indciator

May 26, 2011 By Raj Leave a Comment

What is Aroon Indicator?

Aroon indicator is a technical analysis indicator used by many forex traders to find

  • Whether the price is trending
  • Whether the price is moving sideways
  • The strength of the trend, if the price is trending

Aroon indicator mainly consists of two lines.

  • Aroon Up Line
  • Aroon Down Line

This indicator ranges between 0 and 100 like a stochastic oscillator.

Aroon indicator is used to find the changes in the trend and whether the trend will continue or not.

The following picture shows you the Aroon indicator. The blue line represents the Aroon Up line and the red line represents the Aroon Down line.

Aroon Indicator

Aroon Indicator Formula:

Since Aroon indicator is made up of two lines, Aroon Up and Aroon Down, each line has its own formula.

Aroon Up Formula:

(No. of Periods – No. of Periods since the Highest High during that time)

—————————————————————————————————— X 100

No. of Periods

Aroon Down Formula:

(No. of Periods – No. of Periods since the Lowest Low during that time)

———————————- ——————————————————————- X 100

No. of Periods

For calculating the Aroon Up and Aroon Down Lines, a specific number of periods is used. The default is 14 periods.

Trading Arron Indicator:

Aroon indicator is used to find the trend in the following ways. Normally levels of 30, 50 and 70 are used by many traders for this.

  • If the Aroon Up line is above the 70 line, it indicates a strong uptrend.
  • If the Aroon Down line is above the 70 line, it indicates a strong downtrend.
  • If the Aroon Up and Down lines move parallel to each other, it indicates that the price is consolidating.
  • If the Aroon Up is below the 50 line, it indicates that the uptrend is weakening.
  • If the Aroon Down is below the 50 line, it indicates that the downtrend is weakening.
  • If the Aroon Up crosses the Aroon Down line upwards, it signals that an uptrend is forming. (You may need other indicators to confirm this.)
  • If the Aroon Down crosses the Aroon Up line upwards, it signals that a downtrend is forming. (You may need other indicators to confirm this.)

Aroon Up line above 70 line:

When the Aroon Up line is above the 70 line, it indicates a strong up trend. Check the following picture. This is a AUDCAD hourly chart and you can see that the Aroon Up line, which is the blue line, is above the 70 line and there is a strong uptrend.

Aroon Up Above 70 Line

Aroon Down Line Above the 70 Line:

When the Aroon Down is above the 70 line, it indicates a strong down trend. Check the following picture. It is again AUDCAD hourly chart. You can see the highlighted area where the Arron Down line, which is the red line is above the 70 line and there is a strong down trend.

Aroon Down Above 70 Line

Aroon Up and Down moving parallel to each other:

When the Aroon Up and Down lines move parallel to each other, it indicates that the price is consolidating. Check the following picture. It is a chart. You can see the highlighted area where the Aroon Up and Down lines are moving parallel to each other. You can see the price consolidation here.

Aroon Up and Down Parallel to Each Other

Aroon Up below the 50 Line:

When the Aroon up crossed below the 50 after a long uptrend and it is below 50 line, it means that the uptrend is weakening. Check the following picture. It is a NZDUSD daily chart and you can see that the Aroon up is above the 70 for quite some time and at one point it crossed the 50 line downwards and stayed below the 50 line for some time. You can see that the uptrend became weak.

Aroon Up Below the 50 Line

Aroon Down below the 50 Line:

When the Aroon down crossed below the 50 after a long downtrend and it is below 50 line, it means that the downtrend is weakening. Check the following picture. It is a EURJPY hourly chart and you can see that the Aroon Down is above the 70 for some time and at one point it crossed the 50 line downwards and stayed below the 50 line for some time. You can see that the downtrend became weak.

Aroon Down Below the 50 Line

Aroon Up Crosses Aroon Down Line Upwards:

When the Aroon Up Crosses the Aroon Down Line it indicates that an uptrend might be forming. This may not be true always, but you have to use additional indicators to confirm this. Check the following picture. It is a EURJPY daily chart and you can see that the Aroon Up indicator crossed the Aroon Down indicator upwards and it formed an uptrend.

Aroon Up Crosses the Aroon Down Line Upwards

Aroon Down Crosses the Aroon Up line Upwards:

When the Aroon Down line crosses the Aroon Up Line upwards, it indicates that a downtrend might be forming. This may not be true always so you may have to use additional indicators to confirm this. Check the following picture. It is a EURJPY daily chart and you can see that the Aroon Down line crossed the Aroon Up line upwards and it formed a down trend.

Aroon Down Crosses the Aroon Up Line Upwards

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Metatrader Pivot Point Indicators

May 24, 2011 By Raj 2 Comments

Drawing pivot points in metatrader:

If you use metatrader and want to draw pivot points, you can manually calculate the pivot points and draw them on the charts. But it takes a lot of time to do it for different currency pairs. There are already a lot of custom indicators available on the net where you can download and use them for calculating the different pivot points. The following will give you the resource links where you can download different indicators for drawing the pivots on your metatrader platform charts.

Installation of the custom indicators:

Download the indicators and save them under the indicators folder under the experts folder in your metatrader folder. Restart your metatrader application and you will be able see the indicators and use them.

ZMFX all pivot levels Indicator:

ZMFX all pivot leves indicator draws the daily, weekly and monthly pivot points, support and resistance lines on the same chart. You can change the properties to display only the daily pivots or only the weekly pivots or only the monthly pivots or a combination of any two or all the three.

You can download this indicator at

http://codebase.mql4.com/7421

ZMFX All Pivot Levels Indicator

DeMarker Pivots Indicator:

This indicator is based on the Tom DeMarks pivot formula. This indicator draws the daily pivot point, support and resistance lines.

You can download this indicator at

http://codebase.mql4.com/486

DeMarker Pivots Indicator

Fibonacci Pivots Indicator:

This indicator is based on the Fibonacci pivots formula. This indicator draws the daily pivots, support and resistance lines.

You can download the indicator at

http://codebase.mql4.com/1985

Fibonacci Pivots Indicator

Fibo Pivot Lines GMT Indicator:

This is another Fibonacci Pivot indicator. This also draws the daily pivots, support and resistance lines.

You can download this indicator at

http://codebase.mql4.com/588

Fibo Pivot Lines GMT Indicator

Daily Pivot Points Indicator:

This indicator drwas the daily pivot, resistance 1, 1.5, 2, 2.5, 3 and support 1, 1.5, 2, 2.5, 3 lines on the chart.

You can download this indicator at

http://codebase.mql4.com/307

Daily Pivot Points Indicator

Waddah Attar Pivot Indicator:

This indicator shows only the pivot points but not the support and resistance lines. It shows the daily pivot point, weekly pivot point and the monthly pivot point.

You can download this indicator at

http://codebase.mql4.com/3862#22515

Waddah Attar Pivot Indicator

Pivot Points in Forex Trading
Calculating Pivot Points
Methods to Calculate Pivot Points
Trading Pivot Points
Metatrader Pivot Point Indicators

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Trading Pivot Points

May 24, 2011 By Raj Leave a Comment

Trading Pivot Points:

Pivot points are mainly used for range trading and break out trading.

Breakout Trading:

Put a daily pivot on a 15 min. chart. If the price opens above the pivot line at the beginning of the day, identify any channels or trend lines. Once the trend line is broken, trade in the direction of breakout until the price reaches the pivot line or the first resistance line. The same is for break outs below the pivot line.

Check the following picture. The following is a USDCAD 15 min. chart on which a daily pivots are placed. The price is open above the pivot line and after sometime a channel is formed. The channel is broken at some particular point and this is entry. Exit the trade once it reaches the first resistance line.

Pivot Points Breakout Trading

Support or Resistance Lines Breakouts:

When the price breaks the first resistance or support line with a strong candlestick enter the trade in the direction of price break. Trade until the second support or resistance line. Check the following picture. In the following picture the price has broken the first resistance line with a strong candlestick and moved until the second resistance line.

Pivot Points Resistance Line Breakout Trading

Price reversal at the support or resistance lines:

When the price reverses at the support or resistance lines enter a trade and trade until the pivot line or until the previous support or resistance line. Check the following picture. In the following picture the price is reversed two times. First reversal occurred at the first support line and the second reversal occurred at the first resistance line.

Price Reversals at Support or Resistance Lines

The above are some of the methods how pivot points are used in forex trading. Sometimes these may not work so always use additional indicators for confirmation.

Pivot Points in Forex Trading
Calculating Pivot Points
Methods to Calculate Pivot Points
Trading Pivot Points
Metatrader Pivot Point Indicators

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Methods to Calculate Pivot Points

May 24, 2011 By Raj 2 Comments

Other Methods to Calculate Pivot Points:

There are different methods available to calculate pivot points. The following are some of them.

  • Camarilla Pivot Points
  • Tom DeMark Pivot Points
  • Woodies Pivot Points
  • Fibonacci Pivot Point System
  • 5 point pivot system (Most common method)

Camarilla Pivot Points:

The following formula is used to calculate the camarilla pivot points.

R4 = CLOSE + RANGE * 1.1/2

R3 = CLOSE + RANGE * 1.1/4

R2 = CLOSE + RANGE * 1.1/6

R1 = CLOSE + RANGE * 1.1/12

PP = (HIGH + LOW + CLOSE) / 3

S1 = CLOSE – RANGE * 1.1/12

S2 = CLOSE – RANGE * 1.1/6

S3 = CLOSE – RANGE * 1.1/4

S4 = CLOSE – RANGE * 1.1/2

Where PP is the pivot point, R1, R2, R3 and R4 are the resistance lines and S1, S2, S3 and S4 are support lines.

For example if you want to calculate the daily camarilla pivot points,

HIGH – Previous day’s high

LOW – Previous day’s low

CLOSE – Previous day’s close

RANGE – Previous day’s HIGH – LOW

Tom DeMark’s Pivot Points:

If Close < Open then X = (H + (L * 2) + C)

If Close > Open then X = ((H * 2) + L + C)

If Close = Open then X = (H + L + (C * 2))

R1 = X / 2 – L

PP = X / 4

S1 = X / 2 – H

Woodies Pivot Points:

R4 = R3 + RANGE

R3 = H + 2 * (PP – L) (same as: R1 + RANGE)

R2 = PP + RANGE

R1 = (2 * PP) – LOW

PP = (HIGH + LOW + (TODAY’S OPEN * 2)) / 4

S1 = (2 * PP) – HIGH

S2 = PP – RANGE

S3 = L – 2 * (H – PP) (same as: S1 – RANGE)

S4 = S3 – RANGE

Fibonacci Pivot Points:

R3 = PP + ((High – Low) x 1.000)

R2 = PP + ((High – Low) x .618)

R1 = PP + ((High – Low) x .382)

PP = (H + L + C) / 3

S1 = PP – ((High – Low) x .382)

S2 = PP – ((High – Low) x .618)

S3 = PP – ((High – Low) x 1.000)

C – Closing Price, H – High, L – Low

Pivot Points in Forex Trading
Calculating Pivot Points
Methods to Calculate Pivot Points
Trading Pivot Points
Metatrader Pivot Point Indicators

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Calculating Pivot Points

May 24, 2011 By Raj Leave a Comment

Calculating Pivot Points:

The most common method in calculating pivot points is the 5 point pivot system. The following are the formulas to calculate the pivot points.

RESISTANCE2 = PIVOT + (RESISTANCE1 – SUPPORT1)

RESISTANCE1 = (PIVOT*2) – LOW

PIVOT = (HIGH + LOW + CLOSE)/3

SUPPORT1 = (PIVOT*2)-HIGH

SUPOORT2 = PIVOT – (RESISTANCE1 – SUPPORT1)

Let’s calculate the daily pivot points for the day 5/20/2011. For this we need the High, Low and Close of the previous day which is 5/19/2011. The following are the High, Low and Close of the previous day.

High – 1.43363

Low – 1.42053

Close – 1.43224

Daily Pivots for 5/20/2011:

Pivot = (HIGH + LOW + CLOSE)/3 = (1.43363 + 1.42053 + 1.43224)/3 = 1.4288

Resistance 1 = (PIVOT*2) – LOW = (1.4288*2)-1.42053 = 1.43707

Support1 = (PIVOT*2)-HIGH = (1.4288*2)- 1.43363 = 1.42397

Resistance 2 = PIVOT + (RESISTANCE1 – SUPPORT1) = 1.4288 + (1.43707-1.42397) = 1.4419

Support2 = PIVOT – (RESISTANCE1 – SUPPORT1) = 1.4288 – (1.43707 – 1.42397) = 1.4157

Once we draw pivot points on the hourly chart it looks like the following and you can see the price range in that.

Pivot Points Calculation

Pivot Points in Forex Trading
Calculating Pivot Points
Methods to Calculate Pivot Points
Trading Pivot Points
Metatrader Pivot Point Indicators

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Pivot Points in Forex Trading

May 24, 2011 By Raj 3 Comments

What are pivot points in forex trading?

Pivot points are support and resistance lines calculated using the previous period’s low, high and close values. These values give you the current period’s support and resistance lines which can be used to enter or exit forex trading. The period can be hourly period or daily period or weekly period or monthly period.

What does pivot points consists of?

Pivot points consist of mainly three things.

  • Pivot line
  • Support lines
  • Resistance lines

Pivot Points Support and Resistance Lines

For drawing the pivot points mainly previous periods trading ranges are used.  For example previous day’s range is used for drawing the daily pivot lines. Previous week’s range is used for drawing the weekly pivot lines. Previous month’s range is used for drawing the monthly pivot lines.

Example: EURUSD Daily Pivot Points

Check the following picture. The following is the EURUSD hourly chart on which daily pivot points are drawn. You can see the pivot point, support and resistance lines.

Daily Pivots on Hourly Chart - EURUSD Example

Example: GBPUSD Weekly Pivot Points

The following is the daily chart of GBPUSD currency pair on which weekly pivot lines are drawn. You can see the weekly pivot point, support and resistance lines.

Weekly Pivots on Daily Chart - GBPUSD Example

Why to use pivot points in forex trading?

To determine the support and resistance levels: Pivot points mainly give you the support and resistance lines which can be used to enter or exit trades.

Leading Indicator: Most of the indicators are lagging indicators that mean they give trading signals when the price action is already happened. One of the examples is moving averages. Most of the traders use moving averages crossovers but the crossovers occur after the price already started reversing.

But pivot points is a leading indicator. It gives the price range for the current period. It gives you an idea of where the price can trade up to, which give traders an immense help in setting up the trades and exiting trades.

Easy to calculate: Pivot points are very easy to calculate. It just uses the previous period’s high, low and close prices. For examples to calculate the daily pivot points previous day’s high, low and close prices are used. To calculate the weekly pivot points previous week’s high, low and close prices are used. To calculate the monthly pivot points previous month’s high, low and close prices are used.

Pivot Points in Forex Trading
Calculating Pivot Points
Methods to Calculate Pivot Points
Trading Pivot Points
Metatrader Pivot Point Indicators

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Parabolic SAR 123 Strategy

May 21, 2011 By Raj 1 Comment

Parabolic SAR 123 strategy is a similar to the 123 pattern trading but it looks for the 123 patterns based on the parabolic SAR dots. It occurs very rarely but when it occur it works very good and you can make good number of pips.

Time Fame:

Hourly and Daily Charts. Observe for the pattern in the daily chart and enter trades in hourly charts.

Currency Pairs:

All currency pairs.

Indicators:

Parabolic SAR with default settings.

Other indicators of your choice to enter trades in hourly charts.

Description:

Observe the parabolic dots on the daily chart. When a 123 pattern is formed by the parabolic SAR dots shift to hourly chart. Use other indicators to enter the trades accordingly.

Short Trade:

Put the parabolic SAR indicator on the daily chart. Check that the the trend is downwards and the parabolic SAR dots are above the candlesticks. Now one dot forms below the current candlestick. The next dot forms above the candlestick. Now move to the hourly chart. Use other indicators like stochastic oscillator, CCI etc. For example if you use stochastic oscillator wait for the price to come to the overbought region and when the stochastic oscillator moving averages cross each other you can enter a short trade.

Stop Loss: Use a stop loss of 5 pips above the recent high.

Take profit: It really depends on you. If you use stochastic oscillator you can wait for the price to reach the oversold region and close the trade.

Example:

The following is the daily chart of USDJPY. You can see that the trend is downwards and a 123 pattern is formed. 123 pattern here is, the parabolic SAR dots are above the candlesticks. One dot formed below the candlestick and the next dot formed above the candlestick.

USDJPY daily chart parabolic sar 123 pattern

Now move to the hourly chart. The following the hourly chart of USDJPY. I am using a stochastic oscillator to enter the trades in hourly chart. Wait for the stochastic oscillator to reach the overbought region. And once the stochastic oscillator moving averages cross each other, enter short trades. Here you can see two short trade opportunities.

USDJPY Hourly Chart

In the above hourly chart at the vertical line drawn, the 123 pattern is formed in the daily chart. Now wait for the stochastic oscillator to reach the overbought region and enter short trades.

Long Trade:

Check that the trend is upwards. The parabolic SAR dots are below the candlesticks. One dot forms above the current candlestick. The next dot forms below the candlestick. Now move to the hourly chart. Use your favorite indicators to enter long trades. For example use a stochastic oscillator to enter long trades when it reaches the oversold region and the moving averages of the stochastic oscillator cross each other.

Stop Loss: Use a stop loss of 5 pips below the recent high.

Take profit: It really depends on you. If you use stochastic oscillator you can wait for the price to reach the overbought region and close the trade.

Example:

The following the daily chart of AUDCAD. You can see that the 123 pattern is highlighted.

AUDCAD daily chart parabolic sar 123 pattern

Now go to the hourly chart. Here you can see that the stochastic oscillator didn’t really reach the oversold region but there is a strong resistance line which was broken by the price candlestick. This can be used to enter the trade long trade.

AUDCAD Hourly Chart

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