Part-time Trading - Part 4.3

Continuation to Candlestick Formation:
As I told you before we are only interested in the candlestick formation that happen in the support or resistance line. So it is very important to draw the support / resistance line in correct place. Please click here to read again about Support / Resistance and here to know how to draw them. Please remember these support and resistance lines are decision taking levels are very import. As traders we just cannot ignore them at all. Traders around the world are looking at these support / resistance and accept the price to re-test the level for continuation or breakout. So any signal we get around that support / resistance is very significant. The direction of the trade is also important here. Remember the direction of trade doesn't depend on us. We must wait for the market reaction to trade and we are going to trade only on the direction of the market.

I again repeat, we are going to trade in the directing of market, depending on the price patterns around the support / resistance either to continuation or reversal .


Reversal Candlestick Formation:

As discussed before we are going to look for reversal opportunities only around Support / Resistance. Now look at the above picture carefully and these are the candlestick patters we are going to look before we place our trades. For the learning purpose we consider the line I have drawn as the resistance line drawn in monthly time frame (Please remember that this line can be a horizontal line/ diagonal line (trend line)/ Fibonacci lines / support or resistance line and we can use daily or weekly time frame also). So here if the price moves around the S/R levels and if we see any (not all) of the above candle stick formations (railway tracks / hammer / doji / outside bar / inside bar) then we are going to look for a bounce (reversal).


Here we are going to wait the candle to close before we place our trades. By taking the above trading example, if we get one of the formations, we are going to place a sell order. Here we took the example of monthly chart, so we are going to wait for the monthly candle to close at the end of the month and then we place entry order. Say for example we get a hammer on our S/R level, then when the candle closes, we take a sell order at 5 pips below the low of the hammer and the stop loss will be at the 5 pips above the highest point of the candle (hammer). The profit taking will depend on the upcoming bar (we are going to close our trade at the end of the next candle stick). We are going to see this with example in the coming post (I know it is a bit confusing).


Railway Tracks:
Railway tracks which are also called as tweezers consisting of two candlesticks of almost same length but different colours. Sometimes they may even break the line move little upwards / downwards (also called fake breakouts). Some times they may not touch the line but come as near as possible to the line. 


Hammer/ pin bar:
Hammer is a candlestick pattern made up of single candle with long wick and short body. We must remember that these hammers or pin bars or inverted hammers doesn't always touch the S/R line. Sometimes they may even break the line move little upwards / downwards (also called fake breakouts). Some times they may not touch the line but come as near as possible to the line. Also note that the longer the wick the better and the colour of the hammer doesn't matter. It may be green or red.)


Outside Bar / Inside bar:
This is the candlestick formation consisting of two (rarely 3) candlesticks where one candlestick will be smaller than the other and the hight of the candlestick will be inside or outside the other candle (look at the picture). In the outside bar, the second candlestick will be close higher (total length will be bigger) than the previous candle and in inside bar, the second candle will be smaller than the previous candle.


Doji Spinning top:
Spinning top is a candlestick formation where the body and the wicks are very small in size and Doji just looks like a plus sign.


In the future post we are going to see some examples of these reversal formations. For the older posts if you have missed any please click here or go to PipBase
Good luck.

Part-time Trading - Part 4.2

We are learning about Price Patters. Yesterday we learnt about Candlesticks. Now let us go through about Candlestick Formations.

What are Candlestick Formations:
By definition, Candlestick formation is a formation of different consecutive candlesticks that shape up in one particular way. This formation (as a whole) is called Candlestick Formation. These combination of Candlesticks or Candlestick formation gives us the PRICE PATTERS to trade. Some of these patters give us continuation or reversal patters. Here you must note one thing. This patters are formed by one to three Candlesticks. Most important thing is we are going to look only for the candlestick formations around the support/resistance levels (ONLY AROUND THE SUPPORT / RESISTANCE LEVELS).
Market is not about PREDICTION it's about REACTION. As Forex trades,r our job is not to foresee the next market moves but to react as soon as possible to the market swings / move that's is happening on our charts. It's just not possible to see the next market moves. So our job is to wait for the market moves to react (trade).

The Conclusion is, we are going to trade in the directing of market, depending on the price patterns around the support / resistance either to continuation or reversal .

In the next post I am going to write about the different types of Candlestick formations that we are going to consider for our trading.

Part-time Trading - Part 4.1

As promised before we are going to learn about Price Patterns. We are going to place our trades on the support / resistance with the help of these price patterns. These Price Patters are nothing but the Candle-stick formation.

What are Candlesticks?
Candlesticks are used to describe the price action during the given time frame.
Candlesticks are formed using the open, high, low, and close of the chosen time period.

• If the close is above the open, then a green candlestick (usually displayed as green or white) is drawn.
• If the close is below the open, then a red candlestick (usually displayed as red or black) is drawn.
• The red or green section of the candlestick is called the "real body" or body.
• The thin lines poking above and below the body display the high/low range and are called shadows or wicks.
• The top of the upper shadow is the "high".
• The bottom of the lower shadow is the "low".

That's all for now. Let us continue about the Price patters in the next post.

Part-time Trading - Part 4

I promised you I will write about the price action in this post. But before going there, let us talk about something else.


What we do in the weekends when there is no trading? 
In the weekend we prepare ourselves for the coming week by doing some research on all the pairs that we are going to trade. This may take around half an hour to one hour if you choose to trade 28 pair (the best for trading). This is the best time to do your research as the markets are close, there is time for you to go through each currency pair personally. You can choose any day of the weekends (Saturday or Sunday) and any time. In this time you are going to check the currency pairs on different time frames (M, W, D) and most important thing is, you will be getting ready for the coming week. This is important because, this will minimise the time you are going to spend on the week days for trading.


Currency Pairs:
There are different currency pairs to trade. But you must choice the ones which suits you in different ways. The main currencies which are most heavily traded are - USD, EUR, GBP, JPY, CAD, AUD, NZD & CHF. So you are going to concentrate on theses heavily traded currencies in pairs (EUR/USD, GBP/USD, USD/CAD, USD/JPY, AUD/USD, NZD/USD, USD/CHF, EUR/GBP, EUR/JPY, GBP/JPY etc. You can get 28 pairs.) But for some of you, you will not get all the pairs you want to trade. So you can select the ones with  lower spread (The spread is the amount of pips between the bidding price and the asking price is called the spread. The spread is what forex brokers use to make money on every forex trade placed through their network. For example, the forex broker may be paying a price of 1.3600 for buying or selling. The broker will then allow you to buy the currency for 1.3601 or sell it for 1.3599. The spread always stays around the actual price that the forex broker is paying. So when you buy, you get one end of the spread and when you sell you get the other end of it, and vice versa. By the time you close your trade, you will have always paid the spread.), more conservative pairs.


What we actually do on the weekends is go through the charts of each currency pair we want to trade (usually 28 pairs). First we remove all the lines we drew before. We start with EUR/USD monthly chart.

In the above picture what we see is EUR/USD on monthly time frame. What we see there?

What we see in the above picture is there are few support and resistance lines. I know there is one more in the extreme bottom - I didn't mark it because it is very far at the moment from the current price and I don't want to make my chart too crowded. You can see that the price is nowhere near the S/R. So let us move to weekly chart for the same pair.



In the above picture, you can see a beautiful Trend-line, Few Support and Resistance. Can can see a trade forming around 1.334 with the trend line. But there is also a resistance which was broken up-side before. As you already know, Horizontal line give better quality signal than trend-lines, Let us watch and see the price pattern (I will write regarding price action in my next post) and accordingly we will place the trade. Now let us go to daily chart.

In the above chart what we see is EUR/USD on daily chart we have our trend line, S/R also. But look closely. the price is not very near any of them. So what we do is, wait for the right opportunity either the price has to move up near the resistance/trendline or near the support  so that we get a valid trade set-up.


So the same thing we do with all the other currency pairs we want to trade. We start from monthly time frame, weekly then daily and draw out lines. Some times, we may not have any trades at all. 


Important thing is we maintain a trading dairy. We must note down what we observed on our weekend research. We must note down if we are waiting for any future trades on particular currency pair. This will be helpful for us in the week days and save us a lot of time. (For example: in the above research on EUR/USD, we observed that, there are no trades on monthly time frame. But on weekly there is an opportunity. On daily time frame, well not right now. But there is more movement in daily. So we may get in future as the price is not very far from support/resistance.).

I hope this was helpful.

Part-time Trading - Part 3.3

Basic Principles of Support and Resistance Trading:

1. You need a clear Market Direction
2. Avoid Alien Zone
3. Search for highways
4. Follow the Trend
5. Always remember Long-term trading is better than Short-term trading.
6. Use proper time frame
7. Horizontal S/R is better than Diagonal lines (trend lines)
8. Don't try hard to find a trade. If you don't find it, it is not there.

You need a clear Market Direction:
Please make sure the direction of the market before taking any trade. Always remember there are only 2 possibilities. {For example: If you have an up-trend you can search for either continuation moves (up) or breakout (down)}.The same thing goes with range boundaries.

Avoid Alien Zone:
The Alien Zone what I call is when the price is very far from the S/R levels. If the price is nowhere near the support or resistance, stay out of it as there is no clear direction.

Search for Highways:
Search for highways free of traffic. Here traffic jam represent the support / resistance. If you are driving in a highway with plenty of cars (horizontal & diagonal lines of support / resistance) it is just painful to drive (take trade on those charts) as there is lot of confusion. Likewise wait for the price to show you a clear direction and trade where there is more room for your trades.

Follow the Trend:
This is very important. Buy of support and sell of resistance. {For example: if you have an up-trend and has a resistance line drawn before, if the prices breaks upwards and follows the trend, wait for the price to retest the support (former resistance) then buy of support line or if the price breaks below the support (former resistance will be stronger and again acts as resistance) then sell of the resistance}.Don't sell of support and buy of resistance. Specially you must not sell against long term support or buy against long term resistance.

Long-term trading is better than Short-term trading:
If you get two trading signals on different time frames, always remember long time frames are better and safer to trade than the short term time frame charts. This is very effective for your win/loss ratio.

 Use proper time frame:
You have to search for the price patterns (you will know about this in next post) in the same time frame where you drew your Support/Resistance. If you have your S/R on Monthly time frame, don't try to enter your trade based on Daily or weekly time frame just to sharpen your entries. That is called micro-managing your trades, which are most of the times, fake entries end up in losses. Wait for the proper time entry point on proper time frames. The sharper the S/R the better.

Horizontal S/R is better than Diagonal lines (trend lines):
As a trading set-up, the signal you get from horizontal lines of S/R is of higher quality than that you get from diagonal lines (trend lines). But it doesn't mean that you can consider diagonal lines as bad set-ups. If you get two signals on one pair, one each from horizontal line and diagonal line, you better go for horizontal line S/R as the quality is better.

Don't try hard to find a trade. If you don't find it, it is not there:
Be Selective of your trading set-ups. If you don't find it, it is not there. Don't try too hard to find a trade just for the sake you want to trade. Wait for a good quality set-ups and pick the proper charts to place the trades for better win/loss ratio.

That's all for now. In the next post we will talk about price patters which you want to trade on the Support or Resistance.

Part-time Trading - Part 3.2

Hello,

Yesterday we discussed about how to draw support / resistance, trend-line, range boundaries & Fibonacci retracements. Few of you who checked the post through email, didn't get the chance to go through the video regarding Fibonacci retracements. Please click here to check the same.

In the mean time, let us have a look at an example of support lines and trend-line in real time charts.

In the above picture you can see GBP/USD daily chart, on a up-trend. The diagonal line I have drawn in blue is the trend line. The green horizontal lines are the support lines. The red horizontal lines are resistance lines. You can also see that I have marked some circles. The blue circles (you will not draw them on your actual chart, it is only for information purpose) shows exactly where the trend line have been marked. The red circle shows the previous swing low where the trend line was marked before. I know I have drawn lot of lines there, they are only for Information purpose. In the real trading, I will not draw so many lines because as I said earlier I don't like my charts look ugly and confusing.

We will see one example of Fibonacci retracements:

In the above picture you can see AUD/USD monthly chart. You can also see that the price was in a good up-trend and it went down to 38% Fibonacci and bounced back upwards.

 

The above picture, you can see the same pair on the same time frame. But here we have to wait for the price to move downwards between 38% to 61% to bounce back so that we can have a valid trade.

Let us look one example of Range Boundaries:

In the above picture you can see USD/CAD on daily time frame. It was a beautiful Range boundary formation there.

I hope you will do your own exercise to understand how to draw these important lines.

That's all for now.
Have a nice day.

Part-time Trading - Part 3

Hello

Yesterday we learnt the the important factor for successful part-time trading is long term support / resistance and price action around that that support and resistance.

Today we are going to learn how to draw those key levels of support / resistance in the long term charts (daily, weekly & monthly time frames)

The trades we are going to look for are, bounce trades, continuation trades or breakout trades.

Support / Resistance (S/R): when you look into the charts, you will see many swings (zig- zag patterns), but you are not going to draw lines for all those highs and lows of the charts but only to the significant highs and lows. Please note not to make the mistake of drawing too many lines as the chart looks ugly (*_*).

If you have two swing points to join together to draw a line then it is a stronger support / resistance (also known as double tops or double bottoms).

Trend-lines: You can only draw trend line (diagonal line) only if you get two swing points in the direction of the trend. If the trend line is below the price then it is up-trend line and if the trend line is above the price then it is the down-trend line. But always keep in mind the trend lines should begin from the very beginning of the new trend. Also you can draw only outer trend lines of a trend.

In both the cases (trend line or simple horizontal S/R line) wait for the price to move towards the lines and based on the price pattern (You will know about it in future posts) you are going to place your trades (entries).

Range Boundaries: Now let us talk about the Range Boundaries. Range Boundaries or Ranges are the price conjunction between the two boundaries or support or resistance. These Ranges can take horizontal levels of support or resistance or triangular shape (One S/R and the other trend-line). But the good quality ranges are horizontal ranges.

Fibonacci Retracements: One more type of drawing the lines are Fibonacci Retracements. There are plenty of videos who show you how to draw Fibonacci Retracements on your charts. But please remember we concentrate only on 38% to 61% area of this Fibonacci Retracements for the REVERSAL so that we can trade in the direction of the trend. Please note that Fibonacci Retracements are only valid on trending in one single direction. If there is no clear trend or swing in the direction of the trend, then there is no valid trade. Please go through the video.



That's all for now.

Good night.