24 MAR 17:29
Getting started with Bullish Candlesticks
Uncover more information about stock markets by learning how to see bullish candlestick patterns, and put them to work within your technical analysis.
10 MAR 12:37
Understanding Pivot Points
Learn Forex Trading Pivot points are extremely popular with traders, they are used to spot direction, probable reversal points and potential support and resistance levels. It’s a well-known tool that is of particular interest to novice traders, due to the simplicity of the mathematical formulas it incorporates. In the past, pivot point calculations were used on daily, weekly and monthly timeframes. These days, new technology means we can calculate pivot points on smaller timeframes too. Pivot points use the previous period’s open, close, high and low prices to calculate the current period’s direction and future support and resistance levels. Formula To identify possible turning points on current candlesticks, a pivot point calculation uses the formula below: Resistance 3 = High + 2*(PP – Low) Resistance 2 = PP + High – Low Resistance 1 = 2*PP – LowPivot Point(PP) = (High + Low + Close) / 3 Support 1 = 2*PP – High Support 2 = PP – (High – Low) Support 3 = Low – 2*(High-PP) After the main pivot point is calculated; using the most recent candlestick’s typical price ((High + Low + Close) / 3), you can proceed with calculating possible support and resistance levels. The pivot point, in combination with the support and resistance levels, is an intraday trader’s ‘guide’ to the financial markets. The concept states that, when prices float above the defined pivot point, the market is moving in a bullish direction and is likely to continue moving in an upwards direction, and vice versa. When the prices go below the pivot point, then the market is bearish and prices will probably move towards a downward direction. Trading Pivot Points Long positions opened above the pivot point can potentially meet resistance (R1-resistance level 1), which opens an opportunity for day-traders to lock in potential profits. A strong upwards surge above R1, could potentially open the path to more profit opportunities at higher resistance levels (R2 and R3). A protective stop-loss below the pivot point is recommended to avoid losses in case of unexpected volatility. In the same way, short positions opened below the pivot point can potentially meet support (S1 – support level 1), opening the path for day traders to lock in potential profits. A strong downwards surge below S1 could can potentially lead to additional profit opportunities at lower support levels (S2 and S3). A protective stop-loss above the pivot point is recommended to avoid additional loses, in case of unexpected volatility. Sideways movements are confined between the pivot point and R1, which are potential buying and selling opportunities for range traders, when prices bounce off the pivot point and rebound back from R1. In case of a breakout above R1, prices could potentially be driven towards R2, and the pivot point will serve as support and vice versa. If a breakout below the pivot point occurs, then prises can potentially drop further towards S1 and the pivot point will act as resistance. Additionally, if prices are under the pivot point they may meet support at S1 and bounce back up towards the pivot point. When prices are confined between the pivot point and S1, also known as a range, potential trading opportunities can occur for buyers when prices bounce off S1 and for sellers when prices bounce back from the pivot point. Techniques In total, there are five pivot point techniques used for calculation – including the Standard technique which is the most popular. 1. Standard. 2. Fibonacci. 3. DeMark’s. 4. Woodie’s. 5. Camarilla. All techniques, apart from the DeMark formula, use the previous period’s high, low and close prices to calculate the pivot point. The DeMark formula uses the relationship between the open and close price, to define one of the three formulas that will be used to calculate X in the appropriate pivot point calculation. In addition, Camarilla uses the current period’s open price in the pivot point calculation. Pivot point calculation techniques vary in terms of the weight assigned to each pivot point level, these are - pivot point, support and resistance, and the distance between each pivot point. Conclusion The reason pivot points are still some of the most valuable tools in forex trading, is because they provide a simple way of understanding which direction the market is heading in. Markets are bullish when prices are above the pivot point and bearish when prices are below. This tool allows the trader to easily calculate potential support and resistance levels, where prices may halt before continuing to trade sideways, or break above or below a range depending on the supply or demand. However, just like with any technical analysis tool, in order to give your trading strategy the best potential, pivot points should be combined with other indicators/oscillators and candlestick reversal patterns for extra confirmation. Return to Articles Ebooks Glossary Videos Disclaimer: This written/visual material is comprised of personal opinions and ideas. The content should not be construed as containing any type of investment advice and/or a solicitation for any transactions. It does not imply an obligation to purchase investment services, nor does it guarantee or predict future performance. FXTM, its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness of any information or data made available and assume no liability for any loss arising from any investment based on the same. Risk Warning: There is a high level of risk involved with trading leveraged products such as forex and CFDs. You should not risk more than you can afford to lose, it is possible that you may lose more than your initial investment. You should not trade unless you fully understand the true extent of your exposure to the risk of loss. When trading, you must always take into consideration your level of experience. If the risks involved seem unclear to you, please seek independent financial advice.
10 MAR 12:29
Gann Swing Charts
Learn Forex Trading One of the core principles of technical analysis is that prices move in trends. Subsequently, the goal of technical analysts is to identify the trend in its very early stages of development. While experienced traders may nod their head in agreement, often beginners face difficulties identifying the trend on the price chart. Lack of experience and practice is to blame, of course. Trend is identified once the turning points of the market are spotted. The technique of spotting the tops and the bottoms on the chart is not clear to everyone and the procedure can become an unpleasant process of trial and error for newbies. This article intends to shed some light into just that. W.D. Gann William Delbert Gann is considered by some to be one of the greatest traders of stocks and commodities of all time. He correctly forecasted that the 1909 September wheat price would reach $1.20, Black Friday of 1929 and the 1930s Great Depression, just to name a few of his calls. Gann was fond of mathematics and as a result he spent many years studying the subject in England, India and Egypt. He believed that the markets follow the laws of mathematics and that there is a relationship between price and time. He later formulated his theory into what is known as the squaring of price and time. Even though he went on to develop many complicated concepts and theories, the Gann Swing Charts remains perhaps one of the easiest to understand. Gann Swing Charts The main goal of using Gann’s charts is to remove the “noise” from the price charts, which is not only unnecessary but also obscures the interpretation of the price action. Gann put in place an objective, a mechanical procedure – free from emotions and subjectivity – to identify the swings on the price chart. Four Basic Elements of Gann Swing Charts Up Day – Higher High, Higher Low Down Day – Lower High, Lower Low Inside Day – Lower High, Higher Low Outside Day – Higher High, Lower Low Construction of Gann Swing Charts The rules for constructing Gann Swing Charts are as follows: Identify the turning points on the price chart. A series of Up Days followed by a Down Day marks the end of the uptrend and the beginning of a new trend in the opposite direction: downtrend. A series of Down Days followed by an Up Day marks the end of the downtrend and the beginning of a new trend in the opposite direction: uptrend. Ignore Inside Days as they are neutral. Outside Days are treated as “wait and see”. Up Day – Green Turning Point Down Day – Red Inside Day – Black Outside Day - Blue Time Factor The next step is to remove the time factor by deleting all the candlesticks/bars that are not turning points. After all, what we are really interested in is the direction of the market. Turning Point Trading the Swing Charts Many find trading the Gann Swing Charts easier as the entry and the stop loss are clearly identified on the price chart. The potential profit levels can be spotted using different theories. You can use the Fibonacci price extension levels (for example, 1.618, 2.618 and 4.236), altering the Fibonacci levels according to your trading profile. Additionally, one may choose to keep a trade open, trailing the stop loss at subsequent swings until a swing in the opposite direction is identified. This is common practice in trading the financial markets. Caution should be taken; while the trailing stop may safeguard potential profits, at the same time it may prematurely exit a profitable trade. On the other hand, keeping a fixed stop loss expecting a swing in the opposite direction to book potential profits may result in more profits, but equally it might turn a winning trade into a losing one. The choice is yours! Conclusion Gann Swing Charts remove unnecessary price action, displaying only the important turning points that make decision-making a more objective and straightforward process. This not only makes chart analysis easier, but it also “preserves” one of the most important factors in trading the financial markets: discipline. Learn to trade with FXTM Discover how to make the right trading decisions for your style and goals with our comprehensive range of educational resources. Learn from home when and how it suits you with our educational videos or sign up for a remote webinar. We also host on-location, interactive forex seminars and workshops around the world – there might be one coming to your area soon! Return to Articles Ebooks Glossary Videos Disclaimer: This written/visual material is comprised of personal opinions and ideas. The content should not be construed as containing any type of investment advice and/or a solicitation for any transactions. It does not imply an obligation to purchase investment services, nor does it guarantee or predict future performance. FXTM, its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness of any information or data made available and assume no liability for any loss arising from any investment based on the same. Risk Warning: There is a high level of risk involved with trading leveraged products such as forex and CFDs. You should not risk more than you can afford to lose, it is possible that you may lose more than your initial investment. You should not trade unless you fully understand the true extent of your exposure to the risk of loss. When trading, you must always take into consideration your level of experience. If the risks involved seem unclear to you, please seek independent financial advice.