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Category: Forex Trading Strategies (page 1 of 4)

Momentum Forex Trading Strategy

The momentum indicator is classified as an oscillator. It is designed to identify the strength of price movement; it helps traders to assess the extent of price fluctuations for a certain period as well as determine critical conditions that can be used for the position opening. The momentum indicator includes a single curve fluctuating within the borders of the additional window.

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Forex Trading Strategies By Mark Shawzin

Let’s start this week’s analysis with a weekly chart of the US Dollar Index. If you’re a regular reader, you’ll know I’ve been predicting the demise of the U.S. dollar for quite some time. That’s entirely due to the combination of a reverse triangle or megaphone top price pattern and the descending wedge price pattern I’m showing you here.

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Top 32 Candlestick Patterns Every Forex Trader Should Know

Abandoned Baby: A rare reversal pattern characterized by a gap followed by a Doji, which is then followed by another gap in the opposite direction. The shadows on the Doji must completely gap below or above the shadows of the first and third day.

Dark Cloud Cover: A bearish reversal pattern that continues the uptrend with a long white body. The next day opens at a new high then closes below the midpoint of the body of the first day.

Doji: Doji form when a security’s open and close are virtually equal. The length of the upper and lower shadows can vary, and the resulting candlestick looks like, either, a cross, inverted cross, or plus sign. Doji convey a sense of indecision or tug-of-war between buyers and sellers. Prices move above and below the opening level during the session, but close at or near the opening level.

Downside Tasuki Gap: A continuation pattern with a long, black body followed by another black body that has gapped below the first one. The third day is white and opens within the body of the second day, then closes in the gap between the first two days, but does not close the gap.

Dragonfly Doji: A Doji where the open and close price are at the high of the day. Like other Doji days, this one normally appears at market turning points.

Engulfing Pattern: A reversal pattern that can be bearish or bullish, depending upon whether it appears at the end of an uptrend (bearish engulfing pattern) or a downtrend (bullish engulfing pattern). The first day is characterized by a small body, followed by a day whose body completely engulfs the previous day’s body.

Evening Doji Star: A three-day bearish reversal pattern similar to the Evening Star. The uptrend continues with a large white body. The next day opens higher, trades in a small range, then closes at its open (Doji). The next day closes below the midpoint of the body of the first day.

Evening Star: A bearish reversal pattern that continues an uptrend with a long white body day followed by a gapped up small body day, then a down close with the close below the midpoint of the first day.

Falling Three Methods: A bearish continuation pattern. A long black body is followed by three small body days, each fully contained within the range of the high and low of the first day. The fifth day closes at a new low.

Gravestone Doji: A doji line that develops when the Doji is at, or very near, the low of the day.

Hammer: Hammer candlesticks form when a security moves significantly lower after the open, but rallies to close well above the intraday low. The resulting candlestick looks like a square lollipop with a long stick. If this candlestick forms during a decline, then it is called a Hammer.

Hanging Man: Hanging Man candlesticks form when a security moves significantly lower after the open, but rallies to close well above the intraday low. The resulting candlestick looks like a square lollipop with a long stick. If this candlestick forms during an advance, then it is called a Hanging Man.

Harami: A two-day pattern that has a small body day completely contained within the range of the previous body, and is the opposite color.

Harami Cross: A two-day pattern similar to the Harami. The difference is that the last day is a Doji.

Inverted Hammer: A one-day bullish reversal pattern. In a downtrend, the open is lower, then it trades higher, but closes near its open, therefore looking like an inverted lollipop.

Long Day: A long day represents a large price move from open to close, where the length of the candle body is long.

Long-Legged Doji: This candlestick has long upper and lower shadows with the Doji in the middle of the day’s trading range, clearly reflecting the indecision of traders.

Long Shadows: Candlesticks with a long upper shadow and short lower shadow indicate that buyers dominated during the first part of the session, bidding prices higher. Conversely, candlesticks with long lower shadows and short upper shadows indicate that sellers dominated during the first part of the session, driving prices lower.

Marubozu: A candlestick with no shadow extending from the body at either the open, the close or at both. The name means close-cropped or close-cut in Japanese, though other interpretations refer to it as Bald or Shaven Head.

Morning Doji Star: A three-day bullish reversal pattern that is very similar to the Morning Star. The first day is in a downtrend with a long black body. The next day opens lower with a Doji that has a small trading range. The last day closes above the midpoint of the first day.

Morning Star: A three-day bullish reversal pattern consisting of three candlesticks – a long-bodied black candle extending the current downtrend, a short middle candle that gapped down on the open, and a long-bodied white candle that gapped up on the open and closed above the midpoint of the body of the first day.

Piercing Line: A bullish two-day reversal pattern. The first day, in a downtrend, is a long black day. The next day opens at a new low, then closes above the midpoint of the body of the first day.

Rising Three Methods: A bullish continuation pattern in which a long white body is followed by three small body days, each fully contained within the range of the high and low of the first day. The fifth day closes at a new high.

Shooting Star: A single day pattern that can appear in an uptrend. It opens higher, trades much higher, then closes near its open. It looks just like the Inverted Hammer except that it is bearish.

Short Day: A short day represents a small price move from open to close, where the length of the candle body is short.

Spinning Top: Candlestick lines that have small bodies with upper and lower shadows that exceed the length of the body. Spinning tops signal indecision.

Stars: A candlestick that gaps away from the previous candlestick is said to be in star position. Depending on the previous candlestick, the star position candlestick gaps up or down and appears isolated from previous price action.

Stick Sandwich: A bullish reversal pattern with two black bodies surrounding a white body. The closing prices of the two black bodies must be equal. A support price is apparent and the opportunity for prices to reverse is quite good.

Three Black Crows: A bearish reversal pattern consisting of three consecutive long black bodies where each day closes at or near its low and opens within the body of the previous day.

Three White Soldiers: A bullish reversal pattern consisting of three consecutive long white bodies. Each should open within the previous body and the close should be near the high of the day.

Upside Gap Two Crows: A three-day bearish pattern that only happens in an uptrend. The first day is a long white body followed by a gapped open with the small black body remaining gapped above the first day. The third day is also a black day whose body is larger than the second day and engulfs it. The close of the last day is still above the first long white day.

Upside Tasuki Gap: A continuation pattern with a long white body followed by another white body that has gapped above the first one. The third day is black and opens within the body of the second day, then closes in the gap between the first two days, but does not close the gap.

Source: stockcharts.com

Open A Forex Live Account

Forex live account

Forex Live Account: How to Kick-start a Successful Career in Forex

Anyone with an aptitude for numbers and an attitude to get maximum can try a hand in forex trading. And the first hurdle they have to overcome is to open a forex live account. Opening just another account among the many opened every day is easy. But here is the catch.

“Where you start is not far from where you finish.”

So, where do you start?

Forex trading live account:

Everyone needs this to start up, to make their first trade. As I said before, anyone with a minimal amount of cash in their pockets can start a forex live account. But there are various parameters to a live account. And although there are numerous companies which provide for such live accounts, – the parameters provided in them are more often than not varied. Parameters? Yes, parameters; viz.

Balance- The amount of money or base currency the trader can or will have to invest into the account to start trading. The more you have, the more you can make. The more you have, the more you can lose too.
Forex Lot Size- Lot Size refers to the number of base currency units contained in the account. For example, a lot size of 10,000 means the lot has an amount equivalent to 10,000 of the base currency of the trade. There are three specific universally recognized lot structures or types, – Standard, Mini, and Micro lots which have 100,000, 10,000 and 1000 units of the base currency within them.
Forex Pairs- Forex pairs refer to the pairs of currency quotes which the forex trading live account caters to. Currency quote, for the sake of the explanation, are pairs of different currencies with their value coefficient attached to them, such as EUR/USD = 1.56. Often the number of pairs which an account caters to is in terms of the lot size of the account.
Risk Features- Such features are available primarily in smaller accounts or those of beginners. These accounts have a ‘Guaranteed Limited Risk’ feature, i.e., they have a built-in failsafe which makes sure they do not lose more than what they invest.
A forex trade live account more specifically refers to online accounts which the trader mostly oversees and handles himself/herself.

Is a forex trading free live account safe?

Forex trading runs on an online trading platform. Daily turnovers nowadays often touch the $3 trillion mark. So obviously it is safe. But most of the trade is made by experts. What about the beginner or the newbies? Just follow these simple instructions: –

Go for trusted companies. Ask around. Search databases.
Start small. Go for long-run profit. ($1 start-up accounts can also be availed nowadays.)
Ask your trader or representative (if you have one) whenever and whatever you want to know regarding your forex live account. Ask him/her for an explanation regarding a trade to which your trader is bound to provide an explanation.
Do not invest all you have, no matter how lucrative the proposition might sound, into a trade.
There is no offensive in opening a forex trading free live account. For any budding trader, opening an account is the first step, and it should be taken cautiously.

“Luck favors the bold.”

Be bold, not rash but just bold. Read up. Open a forex live account and start earning.

Fibonacci Arcs Trading Forex

FIBONACCI ARCS: THE HIDDEN TRADING WEAPON

INTRODUCTION TO FIBONACCI ARCS

Fibonacci Arcs are half circles that extend out from a trend line. The first and third arcs are based on the Fibonacci ratios .382 (38.2%) and .618 (61.8%), respectively. These numbers are often rounded to 38% and 62%. The middle arc is set at .50 or 50%. After an advance, Fibonacci Arcs are measured using a Base Line that extends from trough to peak. Arcs are drawn along this line with radii that measure .382, .50 and .618 of the Base Line. These arcs mark potential support or reversal zones to watch as prices pullback after the advance. After a decline, Fibonacci Arcs are used to anticipate resistance or reversal zones for the counter-trend bounce. This article will explain the Fibonacci ratios and provide examples using Fibonacci Arcs to project support and resistance.

THE SEQUENCE AND RATIOS

This article is not designed to delve too deep into the mathematical properties behind the Fibonacci sequence and Golden Ratio. There are plenty of other sources for that detail. A few basics, however, will provide the necessary background for the most popular numbers. Leonardo Pisano Bogollo (1170-1250), an Italian mathematician from Pisa, is credited with introducing the Fibonacci sequence to the West. It is as follows:

0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377, 610……

The sequence extends to infinity and contains many unique mathematical properties:

After 0 and 1, each number is the sum of the two prior numbers (1+2=3, 2+3=5, 5+8=13 8+13=21 etc…).
A number divided by the previous number approximates 1.618 (21/13=1.6153, 34/21=1.6190, 55/34=1.6176, 89/55=1.6181). The approximation nears 1.6180 as the numbers increase.
A number divided by the next highest number approximates .6180 (13/21=.6190, 21/34=.6176, 34/55=.6181, 55/89=.6179 etc….). The approximation nears .6180 as the numbers increase. This is the basis for the 61.8% retracement.
A number divided by another two places higher approximates .3820 (13/34=.382, 21/55=.3818, 34/89=.3820, 55/=144=3819 etc….). The approximation nears .3820 as the numbers increase. This is the basis for the 38.2% retracement. Also, note that 1 – .618 = .382
1.618 refers to the Golden Ratio or Golden Mean, also called Phi. The inverse of 1.618 is .618. These ratios can be found throughout nature, architecture, art and biology. In his book, Elliott Wave Principle, Robert Prechter quotes William Hoffer from the December 1975 issue of Smithsonian Magazine:

….the proportion of .618034 to 1 is the mathematical basis for the shape of playing cards and the Parthenon, sunflowers and snail shells, Greek vases and the spiral galaxies of outer space. The Greeks based much of their art and architecture upon this proportion. They called it the golden mean.

CALCULATION

Base Line: A line from point A to point B
First Arc: Radius = .382 of Base Line
Second Arc: Radius = .500 of Base Line
Third Arc: Radius = .618 of Base Line
Chart 1 – Fibonacci Arcs

The first step is to pick the peak and trough for the Base Line. Draw the line from trough to peak for an advance or from peak to trough for a decline. The example above shows Home Depot with a Base Line from trough to peak. The radius for the first Fibonacci Arc measures 38.2% of the Base Line. The radius for the second Fibonacci Arc is in the middle of the Base Line (50%). The radius for the third Fibonacci Arc measures 61.8% of the Base Line. Three half circles are drawn based on these radii. Notice how HD reversed near the third Fibonacci Arc (61.8%).

INTERPRETATION

Fibonacci Arcs add a time element to Fibonacci retracements. The Fibonacci Retracements Tool is based on a vertical line from trough to peak or from peak to trough. It is only concerned with the change in price. In contrast, a Base Line after an advance extends from trough to peak at an angle that is dependent on elapsed time (positive slope). A Base Line after a decline extends from peak to trough at an angle that is also dependent on elapsed time (negative slope). The slope and length of the line depend on changes in both price and time. A big price movement over a long period of time produces a long Base Line with wide arcs. Conversely, a small price change over a short period of time produces a short Base Line with narrow arcs.

Chart 2 shows Home Depot with the Fibonacci Retracements Tool and the Fibonacci Arcs. Both indicators extend from the July low to the September high. Notice how the Base Line slopes up and is longer than the vertical line in the Fibonacci Retracements Tool. Whereas the Fibonacci Retracements Tool shows static retracement levels, the Fibonacci Arcs show dynamic retracements that evolve over time. Fibonacci Arcs drawn after a decline slowly work their way lower, which denotes falling resistance zones. Fibonacci Arcs drawn after an advance slowly work their way higher, which denotes rising support zones. Despite these differences, Fibonacci Arcs are used the same way as the Fibonacci Retracements Tool. Both are used to anticipate support, resistance and reversals.

SUPPORT EXAMPLE

Chart 3 shows Nvdia (NVDA) with two Fibonacci Arcs marking support. The first Fibonacci Arcs extend from the February low to the May high. NVDA declined rather sharply from the early May high, but reversed course in between the 50% and 62% arcs. The second Fibonacci Arcs (pink) extend from the May low to the June high. This advance is shorter so the Fibonacci Arcs are not as wide. NVDA moved lower in late June and early July, but found support near the 62% arc and moved sharply high in mid July.

Chart 4 shows Cleveland Cliffs (CLF) with a surge from March to May and then a choppy pullback. The stock bounced off the 38% arc in mid May and then bounced off the 62% arc in early July. Even traders that missed this bounce were given a second chance with the flag pullback and breakout in early September.

RESISTANCE EXAMPLE

Chart 5 shows Darden Restaurants (DRI) with Fibonacci Arcs drawn from the April high to the May low. The stock rebounded at the end of May and hit resistance at the 62% arc in mid June. After a couple days stalling, the stock moved sharply lower with a long black candlestick. Resistance in the 44-45 area was confirmed by the May-June highs (orange box).

Chart 6 shows Paychex (PAYX) with Fibonacci Arcs drawn from the May high to the July low (2008). The stock rebounded from mid July to mid August, but the advance hit resistance at the 62% arc. Also notice that a potentially bearish rising wedge formed. Even though the stock moved outside the 62% arc, this sideways move is not considered a bullish breakout. PAYX traded flat for a few days and then broke support to signal a continuation of the May-June decline.

EXTENDING THE DATELINE

Chartists sometimes need to add extra time to see future support or resistance levels on the chart. Chart 7 shows the S&P 500 ETF (SPY) from mid March to mid July with 60 extra bars added. With these additional bars, chartists can see how the arcs evolve in the future. This can be done by going to “chart attributes” and entering the number of periods for the extension in the “extra bars” box.

CONCLUSIONS

Fibonacci Arcs are used to identify potential support, resistance or reversal points. As with the Fibonacci Retracements Tool, these reversal points assume that the move is corrective in nature. A pullback after an advance is deemed a correction that will find support above the beginning of the advance. A bounce after a decline is deemed a counter trend rally that will hit resistance below the beginning of the decline. Fibonacci Arcs allow users to anticipate the ending points for these counter-trend moves. Like all annotation tools, Fibonacci Arcs are not meant as a stand alone system. Just because prices approach an arc does not mean they will reverse. Prices move right through these arcs in many cases. No indicator is perfect. This is why chartists must use other tools to confirm support, resistance, bullish reversals and bearish reversals.

Sources:
https://en.wikipedia.org
http://stockcharts.com
http://vladimirribakov.com

Fibonacci Trading Calculator Forex

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Forex Calendar Trading Patterns

Forex Trading Profits fom Calendar Patterns

Most traders have heard of seasonal patterns, something which is mostly associated with commodities. The foreign exchange market also has calendar patterns which influence trading, and just like in commodities, traders can take advantage of them to improve their odds for success and profits.

Monthly Patterns
Nearly all currency pairs have one or more months during which they have a directional tendency. There are three pairs in particular which have traded in the same direction during a particular month at least seven years in a row. AUD/JPY has risen in January, while USD/CAD has fallen in June and USD/JPY has dropped in August. In each case, the moves have been significant. Lets take a look at USD/JPY as an example.

On average, USD/JPY has declined over 325 points each year since 1999 in the month of August, which translates to 2.80%. While the percentage does not seem extraordinary, when one takes leverage in to consideration, it is a different story. Had one shorted 100,000 USD/JPY at the start of each August and closed that position out at the end of the month, the total profit would have been in excess of $20,000 (not taking in to account interest carry). That is an outstanding return considering the margin requirement for a position like that is only $2,000. And this does not even consider compounding!

Weekday Patterns
For the short-term trader, there are also patterns of behavior which are based on weekdays. It is a little more complicated, however, than just saying buy or sell on Monday, for example. A secondary condition must be applied, which can be accomplished using the month. The result is patterns which take place on certain weekdays during a given month.

An example of this kind of pattern is GBP/USD on Mondays in December. The pound has risen 73% of the time on Monday during the last month of the year since 1999 (31 observations). The average move has been 40 pips. Assuming a 5 pip spread, a trader who entered traded this pattern over the last seven years would have booked over 1000 pips in profits, which translates to more than $10,000 if one took positions of 100,000 GBP/USD each time.

Trading the Patterns
The examples outlined above are just a couple of the patterns which can be found in the forex market. There are many worth incorporating in to ones trading. Obviously, one strategy which could be employed is a simple enter-and-hold based on the pattern for a given month or weekday. That, however, does leave one open to the both in-trade draw downs, some of which can be substantial, and the simple fact that patterns do not always repeat every time, and sometimes change.

An alternative to enter-and-hold is to use calendar patterns to bias ones trading. For example, a day trader could look for opportunities to buy in to weakness in GBP/USD on Mondays in December. Similarly, a swing trader could use short-term breakdowns to enter in to short trades in USD/JPY during August.

The trader looking to employ forex calendar patterns must utilize the same good risk procedures as are always necessary. This applies regardless of the strategy employed.

Trading a Forex Trading Demo Account

The Pros and Cons, of Trading a Forex Trading Demonstration Account

Trading is a skill that takes time to learn. Think of it like Boxing its also a skill that takes time to learn.

If you get into a professional boxing ring without any training, youll get beat up physically! If you get into the Forex ring without any training, youll get beat up financially!

The similarities are that both the examples are Skills, and both require psychological preparation. The difference is that one is physical and the other is financial.

We can get over a physical beating usually in a few days or weeks, BUT a financial beating can be devastating and easily affect us for the rest of our lives, not only does it hurt our hip pocket but it can cause problems with our relationships and family. So when we get into the Forex ring we have to be prepared.

The Professional Boxer

When a professional boxer gets in the ring he has already been practicing in a safe environment usually for years, this safe environment is where he can make mistakes without having medical treatment. He can also spar with other opponents that have more skills and experience then he does and he learns from them. He also has someone there to watch him and give advice and guidance.

Then when he is ready, he gets into the ring and boxes for real, hes accepted the risk and KNOWS that he can get hurt, but hes also studied his opponent and done his home work, so he KNOWS he has a good chance. He can still lose this round but if he wins most of them he will take the money home.

BUT! What about the psychological side? Does he fear getting into the ring? Sometimes! But hes aware of it and he can control how it affects him in a way that is beneficial. Will he be thinking about the money hell make? Or will he be thinking about the fight as is happens and planning his next moves during the breaks? Hell be analyzing the results from the previous rounds and making changes in his strategy for the next round.

The professional Trader

Can you see whats coming next? If so than, youve learnt to analyze what you read and form a projection into the future. (A very valuable skill for the FOREX Trader) A forex trader, like the professional boxer, will not get into the Forex trading ring without being prepared first. He might not spend years practicing in the Demonstration Account, but he will at least have spent a month or two or three, sparing with the Forex Market in a safe environment that he wont get beat up in.

Hell practice trading forex against all the other traders and learn from them, and hell also have someone watching him and giving advice, and guidance.
Then when he is ready, hell get into the Forex trading ring and trade forex for real, hes accepted the risk and KNOWS that he can get hurt, but hes also studied the Forex market and done his home work, so he KNOWS he has a good chance. He can still lose on this trade but if he wins most of the trades he will take the money home.

BUT! What about the psychological side? Does he fear getting into the forex trading ring? Sometimes! But hes aware of this fear, but he can control how it affects him, in a way that is beneficial to his forex trading. Will he be thinking about the money hell make? Or will he be thinking about the things that are influencing the market as is happens and planning his next trades while he waits for the results? Hell be analyzing the results from the previous trades and making changes in his strategy or continuing with the one thats working, and planning for the next Forex Trade.

So it’s easy to see that trading with a Forex Trading Demonstration account is something everyone should do before getting into a live Forex Trading account.

The practice account will give the trader MOST of the skills necessary, to be able to trade profitably, giving them the training ring to spar in.

BUT A BIG WARNING!!!

Like the Boxer the Forex trader has learnt to manage his emotions, this is often overlooked by new Forex Traders. BUT is probably what separates the successful investor from the ones that keep getting beat up!

If you are considering getting into the Forex trading Ring, then be sure to practice first, and find all the information you can about controlling your emotions.

Fear, greed, impatience, are the main culprits of financial bashings, so keep an eye out for them, and learn how to beat them before you get in the ring with them.

Understanding these emotions will enable you to use them to your advantage in understanding the market, the market is influence by these emotions and if you understand them you can have them on your side, thus giving you an advantage.

Forex strategies to become a successful investor

Helpful Forex strategies to become a successful investor

As currency trading has become one of the most recent ways of earning money, a large chunk of people take this option just as a hobby. This type of trading is performed by exchanging currency of one country with that of another. Currency trading, Forex trading signal, Forex trading strategy, and Forex alerts have made this industry the largest one if one is to consider its trading volume. To understand it better, let us take an example of an inter-bank trading. Bank X will take the quote from Bank Y of its currency, and Bank Y will provide the present rate of its currency. A deal will be finalized if Bank X will like the rate of Bank Y. and if the currency of Bank X rises against the currency of Bank Y, the former will enjoy the difference as its gain. Likewise individuals deal in the exchange of currencies in the Forex market and act according to the market position.

The Foreign Exchange market is popularly known as Forex, which has become the largest and frequently rising market in the whole world. It is also called as the transnational market as any person from any part of the world can enter into this market through the use of World Wide Web. Forex trading signal, Forex trading strategy and Forex alerts are carried out in the faith that the prices of the currency will change over a period of time, and the Forex traders will earn a profit if there is a rise in the value of bought currency and that of the selling currency.

There are various Forex trading strategies that should be followed by every Forex trader in order to gain a large number of profits. This Forex strategy system includes:

Ability to read or know the Forex trading strategies
Adopting reliable and effective Forex trading strategies
Implementing Forex trading strategies without involving costly software
Taking the option of simple moving
Deriving resistance and support levels

The Forex traders should not indulge themselves in adopting complex strategies but should focus on easy and simple strategies in order to implement them as soon as possible and enjoy the results. Moreover, there are various companies that offer the services of working on behalf of the traders and providing them with simple Forex trading strategy. Online Forex alerts are also a helpful for people trading in the Currency trading market as up-to-date position of the market is revealed.

Consistent and efficient strategies should be employed so that even if the market is facing small changes, it should not hit or affect the plan of the Forex strategy system. The best part about entering this field is that this profession can be taken by any person regardless of his or her educational background. But while Forex trading strategy proves to be a successful profession, it carries high level risks as well. So, while entering the field of currency trading, it is advisable that the traders should consider their objectives with great care so as to eliminate the possibility of facing losses. Also, one should take advice regarding the risks involved in the Forex trading strategy from financial advisors to gain heavy profits.

Trading Forex With Pivot Points

Forex Pivot Point Trading are used today by Forex Traders and are calculated on the previous days move and trades are entered when the market hits a support or resistance line of the pivot point providing your OB/OS indicator is in agreement. All the support and resist lines are put in place 1st thing in the morning. then you wait for the market to hit those entry Points.

Contrary to what some might believe, trading Forex with Pivot Points are probably the most popular method used in trading the financial markets today. Long before the invention of computers this was the method used by the traders in the pits to determine hidden support and resistance levels.

The Pivot Point is still used by experienced floor traders and technical analysts alike. The major advantage now is that we now have computers and can calculate our points well in advance. Many charting packages can calculate them for you automatically, thus enhancing the use of Pivot Points.

Whilst there is a lot more to Pivot Point Trading in Forex Trading than we will be mentioned in this article, the purpose of this exercise is to introduce you to the concept of trading Forex with Pivot Points.

Remember the market can only go up, down, or sideways. It is like an elastic band that has been stretched, sooner or later it will rebound to an equilibrium point where the market is in balance, and then stretch the opposite way only to rebound and reach another balance point. Then some fundamental announcement or happening will drive the market in a new direction and so on day after day. Pivot Points can aid us in determining how far that elastic can stretch before it rebounds.

Whilst there are many time frames that can be used for calculating Pivots, for the purpose of this exercise lets concentrate on the daily time frame (i.e.: 24hr) Pivot Points are calculated using the previous days, Open, High, Low, and Close figures. There are many Pivot Point calculators available on the web so you dont have to waste your time doing the calculations manually. Also bear in mind the longer the time frame you are using the longer you must be prepared to stay in the market or wait for the next entry point.

Pivot points unlike many other indicators are an objective tool. Because they are mathematically calculated, there can only be one answer for a specific time period.

Many subjective indicators like Fibonacci retracements, (and I am a great fib fan) Elliot waves etc. can have different people trading in different directions at the same time due to individual interpretation..

The PPs can help you to predict the next days highs and lows in advance. PPs can give you anything from 4 to 8 support and resistance levels. However you still have to be able to identify the trend to be a successful PP trader. Pivot Points also work best in a trending market.

Entry and exit points

Pivot Points can give you exact entry and exit points, rather than enter markets that are in the middle of a run, or about to turn the other way. Here is where we use other indicators to assist on the entry or exit. If the market stalls at a Pivot Point level, and you have an overbought or oversold indicator that will be a good time to get in or out. Or if a Fibonacci level coincides with a Pivot Point level it can make a strong case to enter or exit a trade. If the market is bullish and your favourite indicator is not near overbought, when it hits the first resistance level then you probably have a good case to stay in the market and make your profit target the next Pivot Point resistance line. The breakout above the 1st resistance level can then become your new stop or stop reverse.

Obviously the reverse is true of the support level as well. By combining the Pivot Points with your favourite indicator you can develop your own trading system that no one else uses.

Trading for the day will probably remain between the 1st support (S1) and resistance (R1) levels as the floor traders make their markets. Once one of these levels is penetrated other traders will be attracted to the market, and should the second level be breached, the longer term traders are attracted to the market.

Knowledge of where the floor traders are expecting support or resistance can be a distinct advantage especially when there is no outside influence in the market. Provided no significant market news has occurred between yesterdays close and todays opening, the local floor traders and market makers tend to move the market between the Pivot Point (P) and the first support line (S1) and resistance (R1) If one of these levels is breached then expect the market to test the next levels (S2) and ( S3) or (R2) and (R3)

Whilst there are many other aspects to Pivot Point trading why not try this simple method first and see if you can develop your own strategy by using your existing trading techniques in conjunction with the Pivot Points.

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