First of all, let us go through once more what exactly is MACD crossover. When the MACD line cuts through its trigger line southward, you are seeing a bearish crossover. When the MACD line cuts above its trigger line, you are getting a bullish crossover.

Here are how you can make use of the crossover to trade reversal:

1) Look for Reversal Candlestick Pattern: The best way to trade a reversal is to be able to find reversal candlestick pattern on your chart. You should look out for patterns such as railway track, evening or morning star, hammer and hanging man etc.

2) Set up Oscillator Indicator: There are a few indicators that are used as an oscillator and they are Stochastic or Relative strength Indicator (RSI). If you are getting a bullish crossover, you will enter a trade if the oscillator is oversold. If you are seeing a bearish crossover, you should enter your trade if the oscillator is showing a sign of overbought. Using either the stochastic or RSI can help to increase your odds of winning.

If you are tired of entering a trade and then find yourself getting stopped out frequently, this is when the MACD crossover can be useful. It can be used as a tool to help you prevent being stopped out due to fake out which is very common in trading.

Whenever you have a breakout or just simply a trend line break, you should always look at your MACD as a way to confirm the breakout. If there is a breach of trend line but there is no crossover on your MACD indicator, you are likely to be seeing a fake out. However if you have a breach of trend line together with a crossover in your indicator, you are likely to be experiencing a valid breakout.

The above is how you can make good use of your moving average convergence divergence indicator to help you in your trading.

Hope that you find this post useful to you and look out for more useful posts that I will be writing in future.

—

Kelvin is basically a full time forex trader. Before getting into the field of forex trading, he used to work as a process engineer in a multinational company. he was introduced to this field by one of his friend who had also quit from day job to be a full time trader today.

Please visit my website for more information.

E-Mail: forexkel@forexindicator.org
Website: http://www.forexindicator.org

In this post, I will go through how I actually trade with MACD divergence and how you can make use of it to form a trading strategy for yourself. If you are not sure about what divergence is, you can look at my previous post "Forex MACD Indicator Explained" and I will now go through the steps on how you can profit from the divergence.

The MACD divergence is a very powerful phenomenon that you can trade with. However you need to understand that the divergence works well only when there is a trend as MACD divergence is an indication of a upcoming reversal.

Here are how I trade the divergence myself:

Step 1: You have to make sure that there is a trend in action for the currency pairs you are trading. The best way to identify a trend is to use several moving averages. First, you plot a 20 EMA, 50 EMA and a 100 EMA moving average and see if they are stacked nicely in a nice manner. If they are stacked nicely with good angle and separation, it is a good indication of a trending market and if the EMAs are flat and mixed, there is no trend in the market.

Step 2: Observe the MACD and the price to look for divergence.

Step 3: Look for good reversal candle patterns like railway track, hammer and hanging man.

Step 4: Draw a trend line and wait for breakout.

Some of you may think that how can it be so simple? In fact, the most profitable trading strategy is one that is simple and not sophisticated.

—

Kelvin is basically a full time forex trader. Before getting into the field of forex trading, he used to work as a process engineer in a multinational company. he was introduced to this field by one of his friend who had also quit from day job to be a full time trader today.

Please visit my website for more information.

E-Mail: forexkel@forexindicator.org
Website: http://www.forexindicator.org

Its timing is awful. Its fate is uncertain. Yet its sponsors felt it had to be done now.

While the Gulf of Mexico is being damaged by a runaway well, spewing millions of gallons of oil-like bile from hell, any energy bill has the chance that it will be amended to become an anti-energy bill and will fail when hoped-for Republican support evaporates.

At present there is fairly wide industry support for the Kerry-Lieberman bill, particularly from the electric utility industry. Leaders of the industry and its affiliated groups, like the Nuclear Energy Institute, were in on the writing of the bill. Tom Kuhn, president of the Edison Electric Institute, and Jim Rogers, president of Duke Energy, stood shoulder to shoulder with Kerry and Lieberman when they announced their bill.

The three pressure sources driving the bill are:
 

• The November elections and the desire of endangered Democrats to show that they have done something about climate change and have tackled long-term energy problems.
• The Environmental Protection Agency plans to start regulating carbon dioxide as a pollutant next year, if Congress does not act.
• The environmental disaster in the Gulf, and its effect on public attitudes to energy development and energy companies

The bill differs from the House bill, passed last June, which emphasized cap-and-trade to control carbon emissions; although both bills introduce carbon restriction by sector over time, and could be reconciled in a House-Senate conference committee, according to Chris Holly of The Energy Daily.

The carbon-reducing provisions in the Senate bill not only rely on pollution credits but also a wide range of incentives, including carbon capture, enhanced subsidies for nuclear and alternative energy.

The bill’s original intent was also to give a boost to offshore drilling, thus pleasing Republicans and the oil industry. But the Gulf disaster has changed that. The bill as introduced now contains language that will allow states to prohibit drilling off their shores-a potential killer of nearly all new leasing and exploration. And drilling is pushed 75 miles out to sea.

Just weeks ago, the bill looked as though it could pass the Senate with support from at least one Republican, Sen. Lindsey Graham of South Carolina, one of the original authors. But Graham withdrew when Senate Majority Leader Harry Reid, D-Nevada, said he would put immigration reform ahead of the energy bill.

While Sen. Mitch McConnell, R-Ky., the minority leader in the Senate, has come out against the bill, Graham still likes it but believes its chances of passage are slight. Kerry still believes Graham would vote with the bill, giving the Democrats that essential 60th vote, if the Democrats all stick together, which is unlikely with the bill’s nuclear and offshore leasing provisions.

A more likely result is that the bill will open old debates about big energy, like oil and nuclear, and pit it against alternative energy, mostly wind.

Comment on the bill has come slowly, as interest groups calculate the political alignment and realignment that the bill will bring about.

Offshore drilling gets more politically toxic as each day of failure to contain the situation in the Gulf passes. Nuclear gets more dubious as cost calculations rise. With or without legislation, the smart money is turning to natural gas for electrical generation and interstate trucking. At present, gas is cheap and plentiful.

There is a lot of money-$2 billion-in the bill for carbon-capture and sequestration, but this is ill-defined; and the idea of pumping millions and millions of tons of carbon dioxide into the earth remains a legal nightmare and a hard sell to some environmentalists. Clean coal, it seems, can never be pristine.

Here, then, is a bill for all seasons. Actually, more of a manifesto: an election manifesto.

Source: http://oilprice.com/Energy/Energy-General/Gulf-Spill-Puts-US-Energy-Bill-on-Slippery-Slope.html

By Llewellyn King in Washington DC for OilPrice.com who offer detailed analysis on Crude oil, Natural Gas, Geopolitics, Gold and most other Commodities. They also provide free political and economic intelligence to help investors gain a greater understanding of world events and the impact they have on certain regions and sectors. Visit: http://www.oilprice.com

It can tell you the current situation of the market by using its upper and lower band.

Whenever the market has low volatility, the bands will be narrow and whenever the market has high volatility, the bands will be wide.

Bollinger Bands Example

In this blog, I will not be going through the various sophisticated mathematical calculations for the individual tools as I find them totally useless as most forex platform that you are using is able to automatically help you plot them out.

Here is the structure of the Bollinger bands

1) The upper band - which is showing you the simple moving average + 2 x standard deviation

2) The lower band - which is showing you the simple moving average - 2 x standard deviation

3) The Simple Moving Average (SMA)

Bollinger Bands Explained

How to Setup Your Bollinger Bands

Personally, I always stick to the default setting for my Bollinger band which is the 20 days SMA and plus minus 2 x standard deviation for the upper and lower bands.

However you can also adjust the setting if you find the price constantly penetrating the upper or lower bands.

What Bollinger Band Can Do For You

The upper band usually indicates a resistance level while the lower band usually indicates a support level. If you take a close looks at your Bollinger band. You will find that the price usually bounce off the Bollinger band whenever it touches the upper or lower band.

With this observation, you can use the upper and lower bands as support and resistance when planning your trade.

Besides using the upper and lower bands as the support or resistance, you can also make use of Bollinger bands to help you measure the volatility of the market.

When the upper and lower bands are narrow, you are actually in a period of consolidation and when the bands are widely apart, you are in a period of strong price movement. In my next post, I will show you the various uses of forex bollinger bands in trading and how you can make full use of its feature to help you in your trading.

If you are interested to find out more about other indicators like the Forex MACD Indicator and how to trade MACD divergence, you can take a look them in this blog.

—

Kelvin is basically a full time forex trader. Before getting into the field of forex trading, he used to work as a process engineer in a multinational company. he was introduced to this field by one of his friend who had also quit from day job to be a full time trader today.

Please visit my website for more information.

E-Mail: forexkel@forexindicator.org
Website: http://www.forexindicator.org

So what is so simple about the moving average?

It is a visual tool that shows you the average historical value of the past x period. This allows you to have an understanding of the trend and the strength of the market.

When the moving averages are sloping UP, you are in an uptrend and when it is sloping DOWN, you are in a downtrend.

As for the strength of the market, you can make use of the gradient of the moving average to tell. If the MA has a steep gradient, this is usually a good indication that the current trend you are seeing is strong. However, if the gradient of the MA is very gentle, the trend you are seeing is pretty weak and there is no momentum in the trend.

Types of Moving Average

If you are serious about trading forex using the moving average, you must definitely spend sometime to learn the 2 type of moving averages that you can deplore.

Simple Moving Average: This is also known as SMA which is simply the calculating of the average value of the x candlesticks that you define. For example: if you want to plot a 20 SMA, what you are getting is in fact the average reading of the past 20 candlesticks.

Exponential Moving Average: This is also known as the EMA and the difference between this and the SMA is its consideration of the recency of the data in the calculation. For the calculating of the EMA, the more recent data will be given more weightage and this makes the EMA more dynamic and responsive to the market movement.

Comparison Between EMA & SMA

Personally, I prefer to use the EMA more than the SMA as it is more responsive which is more suitable for my trading plan. As can be seen from the figure above, you can see that the EMA moves faster than the SMA and thus it is more responsive to any price change. However, you can try them out and decide which one to use in your trading based on its performance.

In my next post, I will be going through with you how you can make use of moving average in forex trading.

If you are interested in other indicators like the forex MACD indicator or the forex bollinger bands, you can read them from my previous posts.

—

Kelvin is basically a full time forex trader. Before getting into the field of forex trading, he used to work as a process engineer in a multinational company. he was introduced to this field by one of his friend who had also quit from day job to be a full time trader today.

Please visit my website for more information.

E-Mail: forexkel@forexindicator.org

Website: http://www.forexindicator.org

In this post, I will be sharing with you some tips on how I trade forex using the moving averages.

First of all, I only use the exponential moving average (EMA) in my trading as I find it to be more dynamic and responsive to price movement compared to simple moving average (SMA).

SMA and EMA

Here are how you can make use of EMAs in your trading

1) As a Trend Identifier: The EMA is a good tool for identifying trend and I rely entirely on it to look at trend on all time frames. All you have to do is to plot 1 or 2 EMAs with setting like 100 or 200 and you will be able to look at the current trend of the market.

If your EMAs are all sloping downward, you are in a down trend and if your EMAs are all sloping upward, you are in an uptrend. (It is just that simple to use)

Up Trend

Down Trend

2) As a Strength Identifier: Other than being able to identify trend, you can make use of moving average to look at the strength of the trend.

There is no point in riding a trend that has no momentum and therefore the EMA is a good tool to check for momentum in the trend. All you have to do is to look at the gradient of the EMA, a steep gradient usually indicates a strong momentum in the trend while a gentle gradient usually indicate a lack of momentum in a trend.

Strong Momentum

Weak Momentum

3) As an Entry Signal: In order to use the EMA as an entry signal, you will need the help of either the double moving averages crossover or triple moving averages crossover.

Double Moving Averages Crossover - This is the plotting of 2 EMAs, a fast and a slow one. Whenever the faster EMA cuts above the slower EMA, it produces a BUY signal and when the faster EMA cuts below the slower EMA, it produces a SELL signal.

Bearish Crossover

Triple Moving Averages Crossover - This method is pretty similar to the double moving averages crossover except that it has 3 EMAs plotted instead of 2. I would say that this is more conservative as you need the faster EMA to cut through the other 2 EMAs to create a buy or sell signal.

Triple Moving Averages

However, I do not trade based on the crossover alone as I find them pretty risky at time.

I prefer to add some forex indicators like the MACD, Bollinger Bands and the Stochastic to confirm the signal before I enter my trade.

The above are some ways you can trade forex using the moving averages.

However it is better for you to add the use of other forex indicators to strengthen your trading strategy.

—

Kelvin is basically a full time forex trader. Before getting into the field of forex trading, he used to work as a process engineer in a multinational company. he was introduced to this field by one of his friend who had also quit from day job to be a full time trader today.

Please visit my website for more information.

E-Mail: forexkel@forexindicator.org
Website: http://www.forexindicator.org

The Islamic Revolutionary Guard Corps, known as the IRGC or Revolutionary Guard, is a military branch set up after the 1979 revolution to protect the regime and has become more ingrained in the Iranian economy particularly under President Mahmoud Ahmadinejad’s administration.

In recent weeks, the Revolutionary Guard has declared that it can assume control of the energy industry if Westerners flee under the crush of coming U.S. sanctions. Over the last two-and-a-half decades, the powerful force has gradually moved into sectors like construction, energy and telecommunications, said Alex Vatanka, a scholar at the Washington-based Middle East Institute.

Given Iran’s oil and gas reserves and the country’s reliance on revenues from crude exports, "it’s very logical for the IRGC’s economic arm" to seek an even stronger footing in the energy sector as U.S. and United Nations financial penalties against firms operating in Iran pick up steam, Vatanka told OilPrice.com.

The IRGC has the "political muscle to push political contracts" through, but it is questionable whether the group is best-suited to coordinate these efforts on a domestic level, he said. "We know their intentions in the Iranian oil industry, and [local firms are] very often hesitant when they see IRGC involvement," he noted.

Foreign companies would be "equally, if not more hesitant, to deal with the IRGC" because the organization is at the forefront of any U.S. government or U.N. attempt to apply new sanctions, he said.

"So it really just raises the stakes for any foreign participant in these projects," Vatanka said.

The overriding challenge is whether a firm, domestic or otherwise, can ever have a "fair struggle with the IRGC, if I can put it this way," Vatanka explained. "They are politically so powerful that they can nullify, change terms and take the credit for anything that’s done positively and claim it to be their own. And if you stand up to them, they would basically label you against the Islamic Revolution."

He said questions also linger about the kind of revenue-sharing the Revolutionary Guard would offer international companies.

And whether the Revolutionary Guard can even fulfill Iran’s "very big intentions" in the gas sector remains to be seen, Vatanka said, noting "there’s no evidence to suggest that they have, in any way or shape, invested technologically in energy. If it was about missiles, it would have been a totally different matter."

In March, Iranian Oil Minister Masoud Mirkazemi said the Islamic regime is seeking a $200 billion investment in oil, gas and refinery industries over the next five years.

Iran has only waning pools of oil but may become a "huge provider of natural gas on a global scale," Vatanka said.

Iran holds the world’s third-largest proven oil reserves and the world’s second-largest natural gas reserves, according to the U.S. Energy Information Administration. This includes the South Pars gas field, the "largest natural gas deposit in the world, which Iran shares with the state of Qatar," added Vatanka.

The Iranian oil industry has traditionally been aligned with "pragmatic conservatives," he added, but there has been a shift toward "principalists, the people around Ahmadinejad," particularly in "this pivotal" sector of the Iranian economy.

In April, Ahmad Ghalebani took over as head of the National Iranian Oil Co. from oil-industry veteran Seifollah Jashnsaz, according to Iranian press reports. Like the Iranian oil minister, Ghalebani does not hail from the oil industry, the reports state.

Regardless of the typical rhetoric emanating from Iran, the country has always had a "pretty well-oiled bureaucracy," but these "relatively new faces and voices" have spurred more uncertainty for foreign firms, Vatanka said.

Iran has pressured a number of firms to honor previous agreements or pull out of the country entirely. Iran recently gave a two-week ultimatum to Royal-Dutch Shell and Repsol of Spain to forge ahead with their involvement in projects related to the South Pars gas field or be replaced by local firms.

Around the same time, the regime also announced that it is awarding major gas contracts to Chinese, Malaysian and Indian firms for South Pars instead of Western firms widely regarded as frontrunners, according to Iranian news reports.

India is not likely to give up its investments in Iran "without considerable pressure" from the U.N., noted Robert Ebel, a senior adviser in the energy and national security program at the Center for Strategic and International Studies, a Washington-based think tank. Not only does India have business interests in the country, Iran provides it with "over 400,000 barrels of oil a day," Ebel told OilPrice.com.

At the moment, India has proposed resuming talks with Iran on importing gas through a pipeline passing through Pakistan, according to Indian press reports.

China, which has a big interest in Iran as an oil supplier, is unlikely to be fully supportive of the United States and the U.N., Ebel said. About 430,000 barrels of oil move from Iran to China every day, he added. China, India and Japan probably account for half of all Iranian oil exports, Ebel noted.

On the weekend, the head of Brazil’s energy regulator was reported as saying that his country could assist Iran with equipment and engineering if Iran offered drills to help Brazil in the exploration of deep-water oil.

Despite these holdouts, many firms have already caved into pressure and abandoned some of their investments as talk of sanctions builds, said Ebel.

Russia’s Lukoil has stopped gas sales to Iran, while India’s Reliance Industries will not renew a contract to import crude oil from Iran this year.

China and Japan are cutting crude-oil imports from Iran. Vitol, Glencore and Trafigura have all stopped their gas supplies to the country. And Shell also stopped selling gas to the regime.

At a congressional hearing last week, the U.S. Homeland Security and Governmental Affairs Committee issued international firms a stark warning: "Either do business with Iran’s $250 billion-a-year economy, or do business with America’s $13-trillion economy, but you cannot do business with both."

The proposed U.S. legislation is known as the Iran Refined Petroleum Sanctions Act and will be tougher on firms than its predecessor, the Iran Sanctions Act. The revised law will pursue financial institutions and firms that do business in Iran’s energy sector or help the regime build its refining capacity.

The Government Accountability Office, an arm of Congress, released a report during the hearing that found that seven of 41 companies previously identified as doing business with Iran received combined payments of nearly $880 million from the Defense Department. This includes $319 million to Repsol and $312 million to Total of France for the purchase of fuel.

Ultimately, the relationship between Iran and the international community will be tough to walk away from, Vatanka of the Middle East Institute told OilPrice.com. While Iran still needs Western technology to expand its energy industry, he said, large companies seeking growing markets will be hard-pressed to "totally look away and abandon Iran for good."

Source: http://oilprice.com/Geo-Politics/Middle-East/Growing-Revolutionary-Guard-Spells-Uncertainty-For-Oil-Investors-In-Iran.html

By Fawzia Sheikh for Oilprice.com who offer detailed analysis on Crude oil, Natural Gas, Geopolitics, Gold and most other Commodities. They also provide free political and economic intelligence to help investors gain a greater understanding of world events and the impact they have on certain regions and sectors. Visit: http://www.oilprice.com

Crude oil prices ended just above $70 a barrel on Friday after dipping below that threshold earlier in the week. The benchmark June contract for West Texas Intermediate settled at $68.01 before it expired on Thursday, after falling below $65 a barrel in intraday trading.

The decline from the $87+ a barrel reached earlier in the month is more than 20%, fitting some analysts’ definition of a bear market. Continued weakness below $70 a barrel could send prices tumbling further, into the $50 range, some analysts said.

Passage of financial regulatory reform legislation in the Senate Thursday evening ended most of the uncertainty about how severe measures might be, giving a lift to financial stocks on Friday, and other markets along with them.

The benchmark July contract settled at $70.04 a barrel on Friday, down from its $70.80 close on Thursday, compared with the benchmark price of $71.61 a barrel a week ago.

A continued slide of the euro against the dollar and persistent worries about the fiscal situation of Greece and other European countries continued to roil markets during the week.

Concern about the impact of the euro crisis on global economic growth exacerbated the situation for stocks, leading to a loss of 3% in U.S. stocks on Thursday alone. An unexpected surge in the weekly U.S. jobless claims figures - claims were up 25,000 to 471,000 when experts had forecast a decline - further spooked the equities markets.

In a global flight to safety, investors sought refuge in U.S. debt securities, pushing down Treasury yields in spite of debate about the U.S. deficit. In late Friday trading, 10-year notes were yielding about 3.2% and 30-year bonds 4.1% – both at their lowest levels since last October. The 30-year bond yield actually dipped below 4% at one point.

Oil inventories continued to rise, according to the weekly report from the U.S. Energy Information Administration, though less than forecast.

But the inexorable rise of stocks at the Cushing, Oklahoma depot where Nymex oil is delivered continued to weigh on the benchmark contract. Stocks at Cushing rose another 917,000 barrels in the week, to a new record of 38 million barrels - which may be nearing full capacity according to some estimates.

Source: http://oilprice.com/Energy/Oil-Prices/Crude-Oil-Prices-Remain-Under-Pressure-After-Dipping-Below-$70-a-Barrel-in-Week.html

By Darrell Delamaide for Oilprice.com who offer detailed analysis on Crude oil, Natural Gas, Geopolitics, Gold and most other Commodities. They also provide free political and economic intelligence to help investors gain a greater understanding of world events and the impact they have on certain regions and sectors. Visit: http://www.oilprice.com

It does not get much more exciting than what we have seen in the past 2 months with the market topping in April and the May 6th mini market crash. This Thursday we saw panic selling which pushed the market below the May 6th low washing the market of weak positions.

For those of you who have been following me closely this year I am sure you have noticed trading has been a little slower than normal. This is due to the fact that the market corrected at the beginning of the year and we went long Feb 5th and again on Feb 25th. Since then the market rallied for 2 months and never provided another low risk entry point. In April the market became choppy and toppy and we eventually took a short position to ride the market down. Now were we are looking at another possible reversal to the upside.

Only a few trades this year which I know frustrates some individuals but if you step back and look at my trading strategy you will learn that we only need to trade a few trades a year to make some solid returns. I don’t know about you but I would rather trade a few times a month and live life between trades. not trade all day every day getting bug eyed in front of the computer.

Ok enough of the boring stuff let’s get into the charts.

SP500 - Stock Market Index Trading ETFs & Futures

The pullback in the broad market was expected but the mini crash on May 6th really through a wrench into things for us technical analysts. We don’t really know the truth about what happened that day. was it just a simple error or was it a planned error for the US government to take a massive short position to move something in their favor quickly to generate MASSIVE gains? It leaves us technicians hanging wondering if that was a shift in trend from up (accumulation) to down (distribution)?

My thoughts are if the crash was truly an error then we will see months if not another year of higher prices. But if it was a planned sell off with banks moving to the sidelines then we are most likely headed into another bear market. Personally it does not matter what happens as big money will be made in either direction. Problem is if we do go into another bear market then the majority of individuals will lose capital as investor’s portfolios get smaller and smaller. That will lead to a lot of depressed people.

In short, I am neutral on the stock market for the intermediate and long term. Once we have a few more months of price action only then will I have a plan for longer term investments. But on the short term time frame the market is screaming at me with extreme sentiment levels lining up on the stock market and gold.

The daily chart of the SPY - SP500 Index shows several important points which help me time market bottoms. We have prices trading at a support zone. Buyers step back into the game here and should provide a decent bounce which started Friday Morning.

Next we have the panic selling spikes from an indicator I created. Generally the day after we see panic in the market like we did on Thursday we will see a big bounce and many times a large rally.

Down at the bottom you can see my custom market cycles which are both starting to bottom. During times like this the market has a natural tendency to move higher.

VIX - Market Volatility Daily Chart

The VIX has an old saying "When the VIX is high its time to buy, When the VIX is low, its time to go". Simple analysis clearly shows the VIX trading high and at a resistance zone.

Put/Call Ratio - Daily Trading Chart

This chart measures the amount of put and call options traded each day. When it is trading over 1.00 then we know for every 1 call option traded (wanting the market to go up) there is 1 put option traded (wanting the market to go down). Over 1.00 is extreme and when that many people are bearish and using leverage to profit from a drop in price then in my opinion it means everyone has already sold and the selling pressure is about to end.

Actually if you go back in time and review SP500 and this ratio you will notice 2-3 days after this ratio reaches 1.00 or higher the market bounces/bottoms.

NYSE Advance/Decline Line for Equities - Daily Chart

This chart shows us how many stocks are advancing or declining on any given day. When extremes are reached look for a short term bounce or bottom 1-3 days following.

How to Identify Stock Market Bottoms with Simple Analysis:

In short, I feel the market is forming a bottom here. How big of a rally will we get? I don’t know because of the mixed signals from the May 6th EXTREME heavy volume selling session. As usual I focus on trading with the trend, trading the low risk setups and I manage my money/positions scaling in and out of those positions as I see fit.

If you would like to receive my Real-Time Trading Signals & Trading Education check out my website at www.FuturesTradingSignals.com

Chris Vermeulen

—

Chris Vermeulen is Founder of the popular trading site TheGoldAndOilGuy.com. There he shares his highly successful, low-risk trading method. For 6 years Chris has been a leader in teaching others to skillfully trade in gold, oil, and silver in both bull and bear markets. Subscribers to his service depend on Chris’ uniquely consistent investment opportunities that carry exceptionally low risk and high return.

Please visit my website for more information.

http://www.TheGoldAndOilGuy.com

The SAR behind the word Parabolic refers to Stop And Reversal which can help traders to identify entry and exit position of their trading position. This indicator makes use of dots as a visual tool to help traders clearly identify the direction of the price movement. When the trend is up, the dots will be under the candlesticks and when the trend reverses to down, the dots will flip side to be formed above the candlesticks.

How To use Parabolic SAR

Basically, the parabolic SAR is a simple to use tool that can help to give forex buy sell signals to traders. When the dots are formed below the candles, it is a BUY signals and when the dots are formed above the candles, it indicates a SELL signals.

However, it is best to use this tool together with the help of trend. To be able to trade successfully with parabolic SAR, you should first identify the long and short term trend of the market and then place your trade in the direction of the trend according to the signals given by the SAR.

In addition, the parabolic SAR should always be used with other forex indicators such as MACD, RSI, Stochastic or Bollinger Bands for better results.

Advantage of Parabolic SAR Indicator

- It is a very simple to use indicator as you just have to look at the position of the dot to understand what it is conveying to you.

- You do not have to make any calculation as it is all automatically calculated by the program of your trading platform.

Disadvantage of Parabolic SAR Indicator

- It creates too many signals within a period of time as the price moves up and down.

As a whole, the PSAR is a good tool to use if it is combined properly with other indicators.

—

Kelvin is basically a full time forex trader. Before getting into the field of forex trading, he used to work as a process engineer in a multinational company. he was introduced to this field by one of his friend who had also quit from day job to be a full time trader today.

Please visit my website for more information.

E-Mail: forexkel@forexindicator.org
Website: http://www.forexindicator.org

One of the best tools that you can use to time this retracement and extension is the forex Fibonacci levels.

So What Exactly Is Fibonacci?

It is a number sequences that is named after Leonardo of Pisa and the Fibonacci number sequences goes like this

0, 1, 1, 2, 3, 5, 8, 13 and so on. (Add the first 2 numbers to get the next)

However in trading, we are not interested in the sequences, we are actually interested in the Fibonacci ratio that the sequences create.

These are the ratio that we use as a forex trader.

Below are the retracement ratios

- 0.236
- 0.382
- 0.500
- 0.618
- 0.764

Below are the extension ratios

- 1.272
- 1.382
- 1.500
- 1.618

So How Can You Use These Ratios In Trading?

The Fibonacci ratio is in fact used as a level of support and resistance. These are areas where you will SELL or BUY depending on what you see and where you are.

Although there are quite a number of ratios given above, the important ones are the 0.382, 0.500, and 0.618 as they are usually area of strong support when the price retraces down and area of strong resistance when the price retraces up.

Here Is How You Should Plot Your Fibonacci Levels In An Uptrend

Step 1: Using the tool provided by your platform, Pick a high point and a low point

Step 2: Select the levels that you want to display. (We will select 0.382, 0.500, 0.618, 1.272, 1.382, 1.500 and 1.618)

If you are in a downtrend, all you have to do is to switch the step 1 points.

Uptrend Fibonacci

Downtrend Fibonacci

In the case where you are in an uptrend, you will find that the retracement of your price will usually land on the 0.382, 0.500 or the 0.618 level as these are area of strong support and the price will then extend up to continue in its uptrend movement.

If you ever find the price moving below the 0.382 level, there is a high chance that the trend is reversing.

In the case where you are in a downtrend, the market will retrace upward and it will also find its resistance at 0.382, 0.500 and the 0.618 levels. Similar to the uptrend, if the market retraces above the 0.382 level, there is a high chance that the market is reversing.

Fibonacci Support and Resistance

In my next blog post, I will show you how to trade using Fibonacci Strategy and how you can make use of the 1.272, 1.382 and the 1.618 levels. In the meantime, you should try to plot the Fibonacci levels on your chart to see the power of it.

—

Kelvin is basically a full time forex trader. Before getting into the field of forex trading, he used to work as a process engineer in a multinational company. he was introduced to this field by one of his friend who had also quit from day job to be a full time trader today.

Please visit my website for more information.

E-Mail: forexkel@forexindicator.org
Website: http://www.forexindicator.org

Forex breakout is one of the most profitable trading strategies that even new traders are able to do. It is very simple to execute and the movement is usually very large which also translate to more profit. In order to trade breakouts more effectively, you should make use of some indicators which are sometime known as breakout indicators.

Here are a few indicators that you should use when trading this strategy:

1) MACD indicator: This is one of my favourite indicators as it provides me with reliable entry and exit signal. When you are trading breakout, the most annoying thing that can happen is to see yourself entering a trade when you see the price breaking through a trend channel or trend line but later find it reversing and stopped you out. This occurrence is known as fake out and it can be minimise by using the forex macd indicator.

2) Oscillators: These are indicators that are able to show you whether the market is currently oversold or overbought. Examples of such oscillators are relative strength index and stochastic. By using the oscillator, you will be able to further enhance your entry as you are able to tell whether the price is going to continue in its range or breakout of the trend.

Let say that you are in a trend channel and the price is moving within the range. You will not know when it will break above or below the range or whether it is going to be repelled by the range resistance and support.

This is when the oscillator comes into use as it will be able to help you in this area. If you see the price moving toward a resistance level, you should take a look at the oscillator to see if it is overbought. If it is indeed overbought, there is a high chance that the price will be repelled by the resistance level. If you want to double confirm that it will be repelled, you can check your MACD to see if a bearish crossover is going to occur and this is exactly how I check for breakout and repulsion.

3) Bollinger Bands: This is an indicator that plots a upper band and a lower band that envelopes the price. Forex breakout usually occurs best when the market is in a period of consolidation. The longer the consolidation, the stronger is the breakout.

If the Bollinger bands are very narrow, you are likely to be in a period of consolidation and you should be looking for the price to make a sudden burst of movement.

Once you see the price breakout, you will definitely find the Bollinger bands to widen and this is the best time for you to enter a trade.

The above are 3 forex breakout indicators that I use to trade breakouts and I hope that this information is useful for your trading as well.

—

Kelvin is basically a full time forex trader. Before getting into the field of forex trading, he used to work as a process engineer in a multinational company. he was introduced to this field by one of his friend who had also quit from day job to be a full time trader today.

Please visit my website for more information.

E-Mail: forexkel@forexindicator.org
Website: http://www.forexindicator.org

In 2007, the EPA, under the Bush administration, said it was powerless to stop BP from dumping more toxic waste into Lake Michigan from its expanded refinery that was processing increased amounts of heavy crude oil from Canada.

However, the EPA did urge BP to mitigate the increased pollution of solid waste and ammonia by taking other proactive steps to limit environmental damage, including financing projects for other plants along the Grand Calumet River and Lake Michigan to reduce their pollution and other clean-up and run-off water-filtering projects.

Environmental groups opposed the EPA permit to expand its Lake Michigan refining operations. BP’s position was bolstered by federal and state court decisions that shot down the suits from the environmental groups. BP also took out newspaper advertisements and paid Internet bloggers to defend the refinery’s expansion. The payment of money to bloggers by BP is also evident in the number of pro-BP postings on the web concerning the mega-oil disaster.

The Obama administration, including EPA Administrator Lisa Jackson, has permitted BP to violate the promises it made to the state and federal courts that steps would be taken to mitigate the effects of increased Lake Michigan pollution.

Informed sources in Chicago have told WMR that what is occurring in the Gulf of Mexico could very well happen to Lake Michigan when considering that BP not only continues to pollute the lake at higher rates but also has a record of safety and environmental infractions at the expanded Indiana refinery.

Source: http://oilprice.com/Energy/Energy-General/BP-Gets-Pass-From-Obama-Administration-To-Potentially-Pollute-Lake-Michigan.html

By the Wayne Madsen for Oilprice.com who offer detailed analysis on Crude oil, Natural Gas, Geopolitics, Gold and most other Commodities. They also provide free political and economic intelligence to help investors gain a greater understanding of world events and the impact they have on certain regions and sectors. Visit: http://www.oilprice.com

What I’m seeing as a possible intermediate "BULLISH VIEW" is that the Shanghai Index is completing what is known as a "3-3-5? wave pattern.  This means it’s an A B C zig zag to the downside, which works off the prior bull move from 1600-3400.   So far this correction has re-traced a bit over 50% of that bull move, which would be typical and would kick everyone off the bull.

A 3-3-5 correction unfolds in a series of wave patterns.  3 waves down, 3 waves up, and then 5 waves down to complete.  I outline this potential pattern below in the SSEC chart.  This does not mean I will be right,  merely that this is a very valid and normal corrective pattern after a massive bull wave up.  The index is extremely oversold as well on traditional indicators, which I use to overlap my Elliott Wave views.

This forecast could mean some Chinese stocks are super cheap here, and it will be fun to watch the action from here.  The index could drop to about the 2300 range and still validate this bottoming pattern.  That means there could still be another 8% or so drop from here, but aggressive investors would start scaling into long positions over a few weeks.  Indeed it was January of 2009 when I started recommending small cap indexes and mutual funds, but that index didn’t bottom until early March of course. Scaling in was wise though, as the TNA 3x ETF soared from 11 to 60 during the bull phase up.  I started buying at 28 and down to 11, so my average was around 20 or so.

Worth watching anyways.

David Banister - www.ActiveTradingPartners.com

—

Dave Banister is the Chief Investment Strategist and commentator for ActiveTradingPartners.com.  David has written numerous market forecast articles on various sites (SafeHaven.Com, 321Gold.com, Gold-Eagle.com, TheStreet.Com etc. ) that have proven to be extremely accurate at major junctures. You can read more at www.activetradingpartners.com

Gold Futures - 4 Hour Candle Stick Chart

The price of Gold is testing a key support level. I figure we will see gold try to stabilize over the next week or so as it digests the recent drop in value then start to head back up.

US Dollar Index - 60 Minute Candle Stick Chart

The US Dollar and gold have been moving together the past few weeks as more countries pop up on the radar for serious financial issues. This is helping to boost both the US Dollar and gold as investors around the world starting buying what seems to be safety. The dollar has had a sizable pullback and is now testing a key support level.

This could be the start of a possible Head & Shoulders pattern forming which means the dollar rally could be nearing maturity in the next couple weeks.

Crude Oil Futures - Daily Trading Chart

Oil has been under serious selling pressure because of the rising USD. It has now dropped to a key support level and is starting to look very interesting. If the US Dollar bounces in the next week or two it will keep downward pressure on oil. I think this bottom is going to be a process not a one day event.

SP500 - Daily Trading Chart

Stocks have been under dropping like flies the past few weeks and shorting the SP500 last week at 1170 has played out very nicely for members. The broad market is giving me mixed signals and when I am unsure of a trade I stand on the sidelines. It’s always better to sit in cash and watch things stabilize than it is to watch your hard earned money evaporate. We could see a wave of panic selling in the stock indexes testing the previous lows so be cautious.

Mid-Week Stock & Commodity Trading Report Conclusion:

In short, I feel gold and the dollar will bounce in the coming days from their support levels. This will keep pressure on oil & the SP500 holding them down near support. Once the US Dollar forms a possible right shoulder we will most likely see them pop and rally.

We are still 7 trading days away from a cycle low on the broad market making this scenario very likely to play out. At the moment I am getting a lot of mixed signals and during times like this I prefer to stay in cash because volatility will rise and it is easy to get shaken out of trades.

If you would like to get my Real-Time Trading Signals & Setups checkout my services at www.TheTechnicalTraders.com

Chris Vermeulen

—

Chris Vermeulen is Founder of the popular trading site TheGoldAndOilGuy.com. There he shares his highly successful, low-risk trading method. For 6 years Chris has been a leader in teaching others to skillfully trade in gold, oil, and silver in both bull and bear markets. Subscribers to his service depend on Chris’ uniquely consistent investment opportunities that carry exceptionally low risk and high return.

Please visit my website for more information.

http://www.TheGoldAndOilGuy.com

FEMA and Corps of Engineers employees are upset that the White House and the Pentagon remain tight-lipped and in cover-up mode about the images of the massive and fast-moving frozen coagulated oil blob that is being imaged by Navy submarines that are tracking its movement. The sources point out that BP and the White House conspired to withhold videos from BP-contracted submersibles that showed the oil geyser that was spewing oil from the chasm underneath the datum of the Deep Horizon at rates far exceeding originally reported amounts. We have learned that it was largely WMR’s scoop on the existence of the BP videos that forced the company and its White House patrons to finally agree to the release of the video footage.

The White House is officially stating that it does not know where the officially reported 10 miles long by 3 miles wide "plume" is actually located or in what direction it is heading. However, WMR’s sources claim the White House is getting real-time reports from Navy submarines as to the blob’s location. We have learned that the blob is transiting the Florida Straits between Florida and Cuba, propelled by the Gulf’s Loop Current, and that parts of it that is encountering warmer waters are breaking off into smaller tar balls that are now washing ashore in the environmentally-sensitive Florida Keys and Dry Tortugas.

Corps of Engineers and FEMA officials are also livid about the cover-up of the extent of the oil damage being promulgated by the National Oceanic and Atmospheric Administration (NOAA) and its marine research vessel in the Gulf, RV Pelican. NOAA stands accused by the aforementioned agencies of acting as a virtual public relations arm for BP. NOAA is a component of the business-oriented Department of Commerce.

Similarly, the Coast Guard, which takes its orders from the cover-up operatives at the Homeland Security Department, is denying the tar balls washing up on the Florida Keys are from the oil mass. WMR has been told the Coast Guard is lying in order to protect the Obama administration, which has thoroughly failed in its response to the disaster. The White House’s only concern is trying to limit political damage to its image in the electorally-important state of Florida while the Pentagon has spent between $25 and $30 billion on oil spill operations in the Gulf and the Atlantic to date.

WMR sources also report that the oil mass has resulted in dead zones in the Gulf of Mexico that have cut off oxygen and killed massive numbers of marine creatures and plant life. Seafood wholesalers from the Gulf Coast to New Jersey and New York have been told that the supply of shrimp, oysters, and other seafood from the Gulf is severely in short supply and that they can expect a possible total cut-off as the situation worsens. The shortage will also affect the supply of seafood, especially shrimp, to national seafood restaurant chains like Red Lobster and Long John Silver’s.

There is also evidence that BP, Halliburton, and Transocean sank a drill to a depth of 35,000 feet at the Deep Horizon site some six months ago without the required permits from the federal government. WMR has learned from U.S. government sources that the drilling at 35,000 feet caused a major catastrophic event that required the firms’ oil rig personnel to quickly pull up the drill and close the drill hole.

However, the Deep Horizon re-sank the drill some six months after the unspecified "catastrophe," resulting in another, more destructive chain of events following the explosion that destroyed the rig, killing eleven workers. When the Deep Horizon blew up, WMR has been told it also "blew down," cracking the the sub-seabed pipe that may have been re-drilled to a depth of between 25,000 to 30,000 feet, again, without a government permit.

Government sources also report that BP is intent on recovering as much oil as possible from the undersea geyser rather than simply plugging and capping the well, which would then place it off-limits to further drilling. The Corps of Engineers reports that BP is playing a game with Obama, convincing him of the feasibility of "shooting junk" into the subterranean pipe, which would stop up the pipe with a manufactured chemical compound called "MUD." However, WMR has been informed that BP actually intends to shoot cement into the pipe in an attempt to cap the well with the later intention of digging a trench for side drilling from the pipe to recover as much oil as possible. The technology that would be employed by BP is the same technology that was used by Kuwait to conduct slant drilling of Iraq’s Rumallah oil field – an event that helped trigger Iraq’s invasion of Kuwait.

Corps of Engineers and FEMA sources also give a failing grade to both Homeland Security Secretary Janet Napolitano, who stands accused of being woefully incompetent in handling the disaster, and Interior Secretary Ken Salazar. Government sources say both secretaries should immediately step down or be fired.

Source: http://oilprice.com/Environment/Oil-Spills/White-House-Covers-Up-Menacing-Oil-Blob.html

By the Wayne Madsen Report for Oilprice.com who offer detailed analysis on Crude oil, Natural Gas, Geopolitics, Gold and most other Commodities. They also provide free political and economic intelligence to help investors gain a greater understanding of world events and the impact they have on certain regions and sectors. Visit: http://www.oilprice.com

Qatar oil minister Abdullah bin Hamad Al Attiyah emerged as an unofficial spokesman for the oil cartel over the weekend in a series of news agency reports from the Gulf that signaled the group’s concern.

On Monday, as oil futures briefly dipped below $70 a barrel after settling Friday at $71.71, Al Attiyah told reporters that a price below $70 a barrel was too low for companies to maintain investment and expand capacity. Such investment is crucial to avoid a supply shortage in the future, Al Attiyah said.

He reiterated that following the lead of Saudi King Abdullah’s pronouncement about a "fair" oil price in December, OPEC officials want to see a price between $70 and $80 a barrel.

At another industry event on Saturday, Al Attiyah told news agencies that the drop in oil prices was "psychological" and not based on fundamentals. He said the crisis concerning Greece and the euro was causing the drop and speculation about "contagion" would continue to depress oil prices.

"The whole world then started to ask the question about if it will move to other countries," the Qatar minister said, according to agency reports. "We’re watching, with nervousness."

Qatar, one of the world’s leading producers of natural gas, is a relatively small oil producer, but is closely allied with the main Gulf producers - Saudi Arabia, Kuwait and United Arab Emirates.

Concern about the future of the joint European currency continued to batter financial and commodity markets on Monday, as prices fell and the euro declined further against the dollar and other currencies.

At a meeting of the Arab OPEC members earlier this month, Kuwaiti oil minister Ahmad Abdullah Al-Sabah said a price below $65 a barrel would "ring a bell" for the oil cartel and could prompt them to hold an emergency meeting ahead of the next scheduled meeting Oct. 14.

OPEC could react to a low price by cutting production, as it did in 2008 when the financial crisis lowered demand and sent oil prices plunging.

Source: http://oilprice.com/Energy/Oil-Prices/Psychological-Plunge-in-Oil-Prices-Makes-OPEC-Nervous-Official-Says.html

By. Darrell Delamaide for Oilprice.com who offer detailed analysis on Crude oil, Natural Gas, Geopolitics, Gold and most other Commodities. They also provide free political and economic intelligence to help investors gain a greater understanding of world events and the impact they have on certain regions and sectors. Visit: http://www.oilprice.com

The Only FOREX Indicator that won 127,912$ in 2009!

Absolutely NO THINKING is needed, just buy when Blue and sell when Red!

Calculation and Formula

Stochastic %K = 100 X (Close - Lowest Low) / (Highest High - Lowest Low)

Stochastic plots the position of price in relation to its low and high from several last bars - that is, its support and resistance levels. So the Lowest Close and the Highest Close of the price in last 10 bars is calculated, and the location of price in relation to these levels is calculated - as a number between 0 to 100.

Stochastic is usually smoothed (or slowed) using a Moving Average. The result of the smoothing is known as the Stochasic %D.

This calculation makes the indicator sensitive to Support and Resistance levels which are the heart of price action and reversal. Low values indicate that price is near a Support level, and high values indicate that price is near Resistance level. However, the Stochastic Oscillator does not verify that the level is indeed a strong psychological level, but merely checks for local minimummaximum. In order to increase probability of signals, one must check for Support and Resistance strength manually.

Traditional Interpretation

The premise behind the indicator is that above 80 the price is overbought, and below 20 the price is oversold. The assumption is that the level of 0 and 100 are the past Support and Resistance, and therefore price will stop at these levels and reverse.

Long Signal - When price crosses 20 level from below.
Short Signal - When price crosses 80 level from above.

This indicator is a Range indicator, that works best in periods of minimal trend. In period of trend this indicator usually gives false signals, because the Highest close or Lowest close are NOT Support nor Resistance. This is why this indicator is usually more powerful when combined with a Range filter, such as a Moving Average Slope indicator.

Another interpretation is using the %D and %K crosses. %D is the Smoothed version of the %K line, and trading signals are generated in the following way:

Long Signal - When Stochastic %K crosses %D from below.
Short Signal - When Stochastic %K crosses %D from above.

Trend-Following Interpretation

Another method of trading with the Stochastic Oscillator is using a Trend-Following approach. This method has first been described in Jake Bernstein’s Book: The Compleat Day Trader. The method’s basis is the following:

Long Signal - When price crosses 80 level from below.
Short Signal - When price crosses 20 level from above.
Exit Signal - When Stochastic %D crosses %K in direction reversed to open trade.

Researches show that in Forex the best trading results are yielded when using a 60-40 levels in the Trend-Following system, that is: Long signals are from level 60 and above, and Short is level 40 and below. This allows traders to enter trades earlier in the development of trend, and take larger profits.

Conclusion

In conclusion, the Stochastic indicator is a very good in ranging period, and weaker in trending phases. Be sure to confirm its signals with the proper market phase, for maximum profitability.

Michael
IndicatorForex.com

Deciding on a topic for this article, I reviewed the top ranked articles in T2W and found some fantastic material. I did not however find inspiration for a new article idea that readers may like. Perhaps strangely, I then looked at the lowest rated articles. I noticed that two of them discussed Fibonacci which both surprised and intrigued me. It was not necessarily that people did not like Fib, just that perhaps it had not been explained well enough for their liking. I am a huge Fibonacci fan and it plays a big part in my trading so the following will explain how I use it to trade successfully.

While this strategy can be applied to almost any market, I will focus on the Dow Jones e-mini future, with all screenshots been the mini-Dow, (symbol YM) 1 minute charts.

Fibonacci - Is it really so subjective?

No! Not once you know how to use it correctly. There is a precise place where lines should be drawn and many places where they should not be drawn. I have seen them drawn in crazy places by people who claim that Fib does not work. There are also precise retracement levels that you should look to enter at, levels that you should use as a guide only and levels that will help you place stops.

What I am teaching is not from a book and it’s not scientific (not that I know of anyway). It is simply the way that I have come to use Fibonacci retracements after many hours of screen time and it has added significantly to my trading ability after learning how to use it this way. I truly hope that it will assist you with your trading in a positive manner.

This article aims to dispel some of the myths surrounding Fib by showing how it can be used to trade the markets profitably & precisely, not subjectively as so many people seem to think.

You will learn:

• How fib is used objectively every time we draw a line

• Exactly where to draw lines from (Start point)

• Exactly where to draw lines too (End point)

• Which of the Fibonacci retracement levels should be used as entry points and which should be used as guide to direction only or a stop loss

• A trading strategy with precise entry, stop loss and targets

What is a Fibonacci retracement?

After a move up or down in the market, at some point the market will start to ‘pull back’ or ‘retrace’. As the market starts to retrace, traders draw a Fibonacci line in the direction of the trend to see where the market might retrace too. This results in a series of lines drawn horizontally across the chart that the price may be supported or resisted at if price reaches them (See Figure 1). Common retracement levels are 38.2%, 50%, 61.8% and 78.6%. This means that after a move in either direction, equalling 100%, the retracements may be 38.2% or 50% or so on, back in the opposite direction of the 100% move. I.e. If the full move reversed then this would be a 100% retracement.

Figure 1 - Fibonacci Retracement Ratios

The problem is that as the price retraces, there can be five or more retracement levels of possible support/resistance. How do you know which level the market is most likely to turn at? More importantly, where is a good place for you to enter a trade? The answer is you don’t know yet; there is no high probability trade with only this amount of analysis.

This has led a lot of people to say that Fib is subjective and they argue the point valiantly. Well the truth is, it is subjective! But only for those people who don’t have a precise strategy for how to use it. If you cannot pinpoint a trade with precision, i.e. the exact retracement level that you would like to buy or sell at, then you do not have a trading strategy. All you have is a very subjective and virtually useless (IMHO) trading tool.

So, lets cover how you can pinpoint the precise Fib retracement level that has the highest probability of the market turning. To understand the full trading strategy you must first understand trends at the basic level.

Trend Analysis

Simple trend analysis is perhaps the most straightforward, most important and yet most over-looked technical tool at our disposal. Time and time again I meet traders who skip over it because they think higher highs and higher lows it is ‘too simple’. They think the advanced stuff (such as Fibonacci) is what will make them more money. This could not be further from the truth! Without a grasp of the basics, the advanced stuff never quite makes sense either. Correct trend analysis is, in my opinion, the most important thing that a trader can ever understand. It is also necessary for drawing Fib lines correctly (no wonder so many people think Fib is subjective when so many don’t yet understand trends).

An uptrend is:

• A series of higher highs (HH) and higher lows (HL). See Figure 2. An uptrend is over when this trend reverses. I.e. The price makes either a:

• Lower high (Figure 2 Point A) and/or;

• Lower Low (Figure 2 point B)

Figure 2 - Uptrend

A downtrend is:

• A series of lower lows (LL) and lower highs (LH). See Figure 3. A downtrend is over when this trend reverses. I.e. The price makes either a:

• Higher High (Figure 3 Point A) and/or;

• Higher Low (Figure 3 point B)

Figure 3 - Downtrend

Where the Fib line should Start from

Firstly, you should only draw a Fib retracement level when there is a trend. All trends have to retrace in order for the above definitions to be true i.e. in an uptrend price has to pullback from a HH to make a HL. You are always looking for a retracement of the current trend which ensures you have momentum behind the move. If there is no clear trend then by using Fib retracements you are swimming against the tide even before you even begin. Fib does not work in ranging markets! The nature of a ranging market is that it will range between two levels, hence pulling back around 100% of each prior move.

Now that you are trading with the trend, you should start your Fib line from a HL within an uptrend or a LH within a downtrend. Refer back to Figure 2. Each HL was a possible start point for your Fib line. You should draw it upwards in the direction of the trend. Equally, in Figure 3, each LH was a place to start a line from and draw downward in the direction of the trend.

The most important place to start from is:

• The most recent low within a current up-trend.

• The most recent high within a current down-trend

Remember the above points as they are the most crucial steps in applying Fib correctly. This will ensure that you are only looking for retracements of the current trend in the timeframe you are trading. For example, look at figure 3. We have now reversed the downtrend and are uptrending (made a HH & HL) so there is no point drawing a Fib line downwards any longer. In fact, if you were to draw a line on this chart right now, the only place to do it would be with the uptrend from the last LL up to point A.

Where the Fib line should End

This is the part where people most often get it wrong. There are highs and lows all over the chart so which one do you use? The answer is in fact very simple: The line should always end at the extreme i.e.:

• The most recent HH within an uptrend or;

• The most recent LL within a downtrend

Hence, if there is no trend there is no Fib retracement to be drawn. Also, once a new high or low has been made (a new extreme) new fib lines need to be redrawn, your old ones are now completely invalidated as you would no longer be looking at a retracement of the current trend. Look at Figure 4 for an example. You MUST draw your fib line as shown from point D (the most recent high) down to point E (the most recent low or the extreme). There is no point drawing a line from C down to X2 any longer. X2 was a valid low when it was the extreme, however now a new low has been made at E and this is the ONLY point where Fib Lines should end.

Figure 4

To confirm:

To confirm: Short term move

• Within an UP trend, you MUST always draw your Fib line starting from the most recent low and finishing at the most recent high

• Within a DOWN trend, you MUST always draw your Fib line starting from the most recent high and finishing at the most recent low

• Both of the above are what I refer to as the ‘Short-term Move’

Long term move

All Fib lines must ‘end’ at the same point, you can however ’start’ from different points, drawing to the same end point. This is what I will refer to as the long-term move. This is how we locate clusters and is also how we start to build a high probability entry point.

Locating clusters of Support and resistance

Again looking at Figure 4, we know that the line has to be drawn from D down to E as this makes sure we are only trading a pullback of the current trend. This however leaves us with four potential retracement levels. To define a potential entry point, we must look to see if any Fib retracements cluster at the same level. To do this, you must use a different start point for your Fib line and finish at the same end point. See Figure 5 which shows the same chart as Figure 4, however this time we are drawing a second Fib line from a different start point, C, and finishing at the same end point, E. Note that the 38.2% for the larger move down (C to E) overlaps with the 50% of the short term move (D to E). This is what is referred to as a Fib cluster and become a much higher probability turning point if the price reaches there.

Figure 5

The same is very true in an uptrend. Refer to figure 6 which shows a cluster of the short term 50% and longer term 38.2%. See figure 7 to see what happened when this level was tested.

Figure 6

Figure 7

The retracement levels and their correct usage
While there are many more Fibonacci retracement levels, the ones that you should use are as follows:

38.2%
By nature of the fact that we are looking for clusters for an entry point, the 38.2% will only be used for the long-term move. E.g. a 38.2% move for the longer term may cluster with the shorter term 50% or 61.8% level.

50%
The buy zone - look to buy 50% pullbacks of the short term move when there is a cluster of support/resistance at the same level. Granted, 50% is not actually a Fib number to the best of my knowledge. However it works well and it works often. 50% represents the point of equilibrium between buyers and sellers within a trend.

61.8%
The buy Zone - as with the 50% level, you should look to buy 61.8% pullbacks of the short term move but only when this level clusters with other support/resistance at the same point. 61.8% is known as ‘The Golden Ratio’ and is perhaps the most powerful of all Fib retracement levels.

78.6%
This level should not be used for entry. Rather your stop loss should be placed behind the short term 78.6% retracement level. The reason for this is that the further the price pulls back, the higher the probability that it is actually a reversal as compared to a retracement. Once the price pulls back over 78.6% there is a far higher probability that it will actually retrace the full 100%. Hence, a stop behind 78.6% protects your losses by having a slightly tighter stop that using the 100% level. This also results in a more favourable reward to risk ratio.

100%
This means that the full move has reversed. Use this for stops only in a situation where you would like a slightly wider stop than the 78.6% or where the 100% adds significantly to the probability of your trade. E.g. It is a major support level.

Note that we do not use the 23.6% pullback, this is simply too small a pullback for a high probability entry point.

Trading Strategy
I use one minute charts on the mini Dow future (YM) as the short term trends are clearer but it does not really matter what you use. For example I trade the same strategy on Forex with 15m charts and regularly analyse daily charts across a range of markets using the same technique. Another reason I prefer the 1m chart on the Dow is that I predominantly trade the US open from 2:30pm GMT. While you may of course look at 2, 5 or 15 minute charts, the trends will be less clear and take longer to develop once the market opens. A 1m trend becomes clear very quickly and thus suits my timeframes.

Entry
Enter at the precise point of the cluster i.e. as the price touches it. Not before and not after. Only ever trade with the direction of the overall trend.

Your confirmation is the fact that you have a strong cluster within a strong trend. Do not wait for the price to turn around at this level, by then it is too late. If you wait for the price to do what you thought it would then you have missed the trade. We are using leading indicators here to predict the move in advance.

Stop
Your stop should be placed behind the 78.6% retracement level. More conservative traders could place their stop just behind the 100% level but do not have a stop any wider than this.

Target
Your target is the old high/low or the 0% retracement level. I.e., you expect the price to retest the extreme.

A further profit target for those who prefer to scale out of trades is to use Fibonacci extension levels.

Improvements

Other technical factors to consider:

Trend Improvements

• Look for convergence and divergence between price action and indicators to assess trend strength

• Use trend following indicators such as the ADX or DMI

• Assess trends in multiple timeframes

Cluster Improvements

• Look for proven price action support and resistance at the same levels i.e. price has tested and failed at that level before

• Pivot points - a topic for another article perhaps. In my opinion pivots are the most powerful, individual technical tool at our disposal. Find a pivot at the same point as your Fib cluster and you have a VERY high probability trade. This forms the basis of what I call my Precision Trading Strategy. It also happens far more often than you may think.

There are various ways to improve upon the success of this strategy even further. There are thousands of technical tools out there and we can’t use them all but if you have something that is working for you, keep on using it. The Precision Trader philosophy is quite simple - ‘Have as many reasons as you possibly can for every single trade that you place’. The more reasons you have occurring all at the same time, the higher the probability of the trade been a success. At the end of the day that is all you need. the confidence in your strategy that you have more chance of winning than losing. And of course the ability to execute precisely according to your rules. Happy trading and best of luck for a very prosperous 2008!

—

Nick McDonald is an independent fulltime trader as well as a mentor in foreign exchange & Dow Jones futures trading strategies.

Through his company, Precision Trader, Nick aims to cut through the nonsense and teach people real trading strategies in a practical trading environment, omitting irrelevant information that is not conducive to trading successfully. Nick was the featured trader in Traders Mag in November 2008 and is a regular author for the magazine. Nick has also worked with many major brokers and their clients worldwide, passing on his trading knowledge & skills.

Please visit my website for more information.

www.tradewithprecision.com.

At this point in the Bull market, it is common to have the crowd of investors move from a bias towards viewing all news as positive, to a negative slant on all news. Nothing has changed dramatically on the problems the world had before with Debt and currencies, but the reaction to those events turns negative. This works off the overly optimistic Elliott Wave patterns of the crowd, turning into a typical Zig Zag correction that lasts several months. There will be trading opportunities between that Mid-April topping forecast and my forecast for a bottom around mid-September. However, as recommended in April, Index investors and mutual fund investors should have been moving to the sidelines. I am looking for the SP 500 Index to drop to the 920-970 areas by mid-September before the next leg of the Bull market takes off. Now, the one caveat to that forecast is actually a lot more bullish. If the SP 500 can hold the 1100-1110 areas and pivot up strongly, we could move on to new highs. I put the likelihood of that around 20%, so be on guard. A counter-trend rally up in the next few weeks is highly probable, but the evidence continues to suggest working our way down into the 900’s in the SP 500 before the Bull resumes in earnest. We are selectively buying Gold and Biotech stocks in the Active Trading Partners service as well.

Gold has continued higher confirming my April 20th forecast on www.TheMarketTrendForecast.com a move from 1125 to 1235 in Gold. The Elliott Wave patterns remain extremely bullish for Gold to continue a 13 Fibonacci year cycle up into 2014. Gold has formed a very bullish pattern intermediately for a move to $1470-$1550 at the next major pivot top. In the interim, I expect continued consolidation in and around my $1,235 US levels before the next pivot high at $1300-$1,325 US. Fiat currencies are burning matches as foreign governments and other entities continue to attempt to put out a fire by printing more paper and covering the same fire with it. Until the analysts on CNBC stop questioning the validity of Gold and start questioning the validity of Fiat Paper, the bull will rage onwards with most of the pundits watching the caboose from the back of the tracks.

SP 500 Forecast from the Mid-May TMTF forecast service updates:

Gold Forecast is for $1570 over 6-9 months with pivot at $1300

Checkout my forecasting and trading services at www.TheTechnicalTraders.com

Chris Vermeulen