Yesterday the DOW fell over 100 points and the S&P fell 14 as the market has had its first encounter with resistance(the 1/3 retracement level and December lows) since it bottomed the other week.

Today futures are in the red as I write this, with S&P 500 futures down 5. If the market is weak in the first half of the day then its 60 minute stochastics will get oversold.I don’t see much more downside if the market falls today.Yesterday I talked about the sectors that have been leading this rally.Today I want to focus on the sectors lagging, with a close look at gold stocks.

I use TC2007 to study the market and find stocks to buy. TC2007 breaks the market up into 239 sectors so that I can track how the sectors behave relative to the rest of the market and each other. The above is a sort of the performance of the worst performing sectors, with their return, since January’s bottom.

As you can see the stocks in the bottom 9% of performance since the bottom include silver, gold, drugs, and health care stocks. Oil stocks are also lagging, posting a ranking under 30%.

The gold and health care stocks were actually leading the market in the first few weeks of January. Normally in bull markets sectors that lead towards the end of a market decline become leaders on the next rally. But in this bear rally this hasn’t been the case, as a lot of beaten down and heavily shorted sectors have been leading. This is classic for bear rallies.

I’m growing more concerned about gold stocks. Last Friday I got stopped out of my gold stock positions, as reported in WSW Power Investor, and today gold is trading under $15 an ounce. Many gold stocks are going to gap down and actually be in the negative from where they opened up at on the January bottom. At the moment gold stocks are very oversold on a 60 minute chart. They also are trading on their lower 10-day bollinger band, which is an important support area. Support on the XAU is currently at 179. If the XAU can close above this level today then gold stocks will be set to bounce over the next week. We should then see the XAU bounce back up to the 188-190 area. However, if the XAU closes below 179 then you can expect a drop to the 170-174 area.

I’m hopeful that gold stocks can bounce here, because the broad market should find a new footing today or tomorrow morning.

I’m long-term bullish on gold stocks, but it appears to me that they are eventually going to have get in trouble with the rest of the market. Once this bear rally in the broad market ends I expect gold stocks to correct hard - harder than the rest of the market. I see them falling hard in the spring, and making a new bottom in the summer. At some point gold stocks will break away from the broad market and have a massive rally, but this doesn’t look like it is going to happen over the next few months. Perhaps in the Fall or in the 4th quarter, but right now all signs point to them having a big correction in the 2nd quarter.

In the first half of January gold and silver stocks rallied sharply. However, other all other commodity stocks dropped. The CRX index, which is heavily weighted by base metal and oil stocks fell while the gold stocks went up and began to underperform the S&P 500 in January.

What this means is that in the commodity complex leadership narrowed to only gold and silver stocks. Gold was the only commodity still making new 52-week highs in January. The other commodities have looked weak for weeks and appear poised to correct over the next few months. If they do it looks like they will take gold and gold stocks down with them for a temporary 3-6 month correction.

At the moment I think the broad market can hold commodities and gold stocks together for the next 4-6 weeks. But once the broad market tops I expect to see a brutal correction in commodities and gold stocks.

The Chinese stock market also appears to have made a major top. Remember back in December how I made note of how the 150 and 200 day moving average begins to slope down when a market makes a major stage three top? Back then I told you how the major US indices were doing this and warning that they were entering bear markets. Now China is doing the same thing. For the past three weeks the Chinese stock market has been lagging the US.

Last year the market was led by commodities, Chinese stocks, and tech stocks such as Google, Yahoo, APPL, and RIMM.

In the past few weeks we have seen major breakdown in the tech stocks that led the rally last year. This month Chinese stocks and commodities stocks have broken down. The sectors that led the market last year are all breaking down and are now lagging during this bear rally. Gold stocks were also leading the market from August to just now. They appear to have lost their leadership and are poised to breakdown just as the tech stocks did.

The weakness in Chinese stocks is particularly ominous for gold stocks, because gold stocks have been more closely correlated to Chinese stocks than to the S&P 500 over the past few years. The same can be said about gold stocks and energy stocks.

When you take a look at gold stocks they also are badly lagging the metal. Even though they made new 52-week highs early in January they underperformed the metal when they did so. This is important, because usually the XAU/gold and HUI/gold ratios lead gold and gold stocks. It is bullish when gold stocks outperform gold and when they both go up and gold stocks lag that is a powerful negative divergence that usually spells some sort of top being made.

I do expect the broad market to continue to rally - and expect that rally to keep a bid under gold stocks and commodities.But once the broad market tops, and I expect this to happen in March, I think we will see a big 25-30% correction in commodities and gold stocks. The Chinese stock market is likely to fall 40-60%! If we get such a correction I look to see the XAU bottom in the 130-145 area.Right now though it has support at 179 and 175. It should put in a bottom there for the next 4-6 weeks. A rally back up to the 190 area would be a good place to lighten up on positions.I know most of you are heavily involved in gold and silver stocks. Take this posting as a warning sign and discussion of what is happening in the market right now. Maybe the underperformance of gold stocks in comparison to the S&P 500 and the gold metal is just a temporary phase. However, if they are continuing into March then you should take action on the warnings in these charts that I’m bringing to you today.

I’ll close with this graphic. Compare it with the chart of the Chinese stock market above:

by Mike Swanson
http://www.wallstreetwindow.com/

When I started to trade Forex and made my first big losses and profits I began to notice when very important thing about the whole trading process. While the right time to enter a position was rarely a problem for myself (nearly 80% of all my open positions had gone into the “green” profit zone), the problem was hidden in the determining the right exit point for that position. Not only was it important to cut my risk on the potential losses with stop-loss orders, but to limit my greediness and take profit when I can take it and make it as high as I can. There are many known guidelines and ways to enter a right position at a right time - like major economic news releases, global world events, technical indicators combinations, etc. But while the entering into a position is optional and trade can decide to miss as many good/bad entry point moments as they wish, this is untrue if we talk about exiting a position. Margin trading makes it impossible to wait too long with an open position. More than that, every open position in a certain way limits trader’s ability to trade.

Choosing the good exit points for positions could be an easy task if only the Forex market wasn’t so chaotic and volatile. In my opinion (backed by my trading experience) exit orders for every position should be toggled constantly with time and as the new market data (technical and fundamental) appear.

Let’s say, you took a short position on EUR/USD at 1.2563, at the time you are taking this position the support/resistance level is 1.2500/1.2620. You set your stop-loss order to 1.2625 and your take-profit order to 1.2505. So now, this position can be considered as an intraday or 2-3 days term position. This means that you must close it before it’s “term” is over, or it will become a very unpredictable position (because market will differ greatly from what it was at the time you have entered this position). After the position is taken and initial exit orders are set, you need to follow the market events and technical indicators to adjust your exit orders. The most important rule is to tighten the loss/profit limit as time goes by. Usually if I take a middle term position (2-4 days) I try to lower the stop and target order by 10-25 pips every day. I also monitor global events, trying to lower my stop-losses when very important news can hurt my position. If the profit is already quite high, I try to move my stop-loss the entry point, making a sure-win position. The main idea here is to find an equilibrium point between greed and caution. But as your position gets older the profit should be more limited and losses cut. Also, traders should always remember that if the market began to act unexpectedly, they need to be even more cautious with exit order, even if the position is still showing profits.

Every trader has their own trading strategy and habits. I hope this article will make its readers think about such an important aspect of trading as the exit orders and this will only improve their trading results.

by Andrey Moraru

http://www.earnforex.com
http://earnforex.blogspot.com

This lesson we are going to work out the best way to take maximum profits from a position long or short. Many traders know how to get into a position but are often uncertain when they should get out.

In our last lesson we discussed Fibonacci levels and how to use these levels for entry and stop placement. So we have a sensible place to enter the market and a sensible place to put our stop loss now we need a logical target.

Don’t worry if this sounds a little complicated it isn’t. From the last lesson you may remember that we calculated out retracement levels by measuring the distance between point A and point B. All we are going to do now is add another measurement called point C to get some fibonacci expansion ratios

We will eventually finish up with two targets. T1 and T2. We shall discuss which one to choose later. The formula for the calculations would look like this.
T1 = .618(B-A)+C
T2 = B-A+C

Let’s assume an imaginary security called ABC.PTY. Point A shall be 189, Point B shall be 278 and point C shall be 245. It’s in an up trend and the first move (A to B) is 89 (245-189). It then pulls back to point C. The distance between point B and point C is 33 (278-245). We can now calculate some numbers.
T1 = .618(278-189)+245 Target is 300
T2 = 278-189+245 Target is 334

The chart below is a 5-minute chart of the US dollar/ Canadian dollar (USD/CAD) as you can see A is 1.4900, B is 1.4837 and C is 1.4863. Therefore:
T1 = .618(1.4837-1.4900)+1.4863 Target is 1.4824
T2 = 1.4837-1.4900+1.4863 Target is 1.4800

In our next chart we have the 4 hour chart of the British Pound/ US dollar (GBP/USD) as you can see A is 1.5712, B is 1.5859 and C is 1.5782. Therefore:
T1 = .618(1.5859-1.5712)+1.5782 Target is 1.5873
T2 = 1.5859-1.5712+1.5782 Target is 1.5929

As I mentioned earlier there are other expansion ratios but these are the two I like to use. I find it very useful is to keep an eye on the first target (T1). If you are in an up trend and T1 is below resistance then I would use that as a target. If T1 is above resistance then I would probably use T2. The reverse is true for a down trend.

Good Trading

Best Regards
Mark McRae

Charting Patterns - High Probability Spikes - High Probability Spike patterns can be a very high probability trade with low risk.

Multiple Time Frame Trading - Multiple time frame trading has probably done more to increase my overall profitability than any other one thing alone.Use Multiple Time Frame.

Trading - Time Frames - Trading Time Frames - what time frame period do I trade? Multiple time frames short or long.

Double Tops and Double Bottoms - Double Tops | Double Bottoms chart patterns can help predict a trend reversal, offering a logical entry and exit point to trade.

Symmetrical Triangle Chart Patterns - Symmetrical triangle chart patterns can be found in almost any market and any time frame.See the symmetrical triangle charts.

Interbank Currency Trading - Interbank Currency Trading - Online trading in the foreign exchange market learn to trade Forex Trading.

Trading Patterns - Rectangles - Using Rectangle Trading Patterns is easyer for some traders that are better than others at identifying chart patterns.

Trading Currencies on Outside Days - Trading Currencies on Outside Days The secret of the outside day when trading forex is the bigger the better and it has more meaning if found at the end of a currenies trend.

Forex Trading Inside Days - Forex Trading Inside days can be very profitable if the forex currency is traded correctly.Forex Inside Days trading forex currencies.

Two Period Reversal Pattern - Forex Trading - Two Period Reversal Pattern is originally taken from the 2-day reversal pattern and as the name implies this particular pattern consists of two periods in Forex Trading.

Relative Strength Index - Relative Strength Index or RSI is one of the most popular technical tools around. Relative strength Index (RSI) is measured on a scale from 0-100 with a reading above 70 being overbought and a reading below 30 being oversold.

Hi Chris,

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I have traded financial markets for more than 25 years
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micro manages his position, allowing it to run as far
as it possibly can before taking his p~rofits.

The book is in depth, lacks the usual hype, instead
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Remember, these rare specials I have go like hot
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Good Trading

Mark McRae
Trading For Beginners

Over the last three decades Interbank Currency Trading, has become the world’s greatist financial market. With over $1.5 trillion USD traded daily, and by the year 2007 more than $8.0 trillion will be traded every day. Forex is part of this bank-to-bank currency market known as the 24-hour Interbank market. Interbank Currency Trading literally follows the sun around the world, moving from major banking and forex trading centers of the U.S.A to Australia, New Zealand to the Far East, to Europe then back to the U.S.A the following morning.

Up until 1995 Trading Forex or Interbank Currency Trading was only available to banks and large multinational corporations but today, thanks to the proliferation of pc’s and the internet, this market is open to everyone. The Forex Market is where worldwide traders conduct business by high-speed Internet connections with the Interbank Foreign Currency Exchange via Forex Brokerage Firms. Amd so the Forex market has become the fastest growing trading market in the world.

But 10% Of Traders Go Bankrupt

I was thinking about an article I read some time ago that 90% of traders who ever trade lose their account and that 10% actually go bankrupt. If the first number doesn’t scare you then the second definitely should.

Why is it then that there is such a large number of traders failing? It is not because they are stupid; in fact most traders have an above average IQ and are above average in most categories such as education and income. So why do they fail?

Lack of trading education!

By education I don’t just mean learning how RSI works, the trends of the Forex Market or drawing lines on a chart. I mean thoroughly educating yourself in all aspects of your chosen profession. Educating yourself on the correct psychological approach to the market! Educating yourself in the correct risk management techniques relative to your account size. Educating yourself in the correct entry and exit
methods for the trading style that suits you.

This, my friend, is where I hope to be of some help. I don’t have all the answers nor do I profess to be some kind of guru but I will do my best to point you in the right direction.

Read More on: Interbank Currency Trading

I have managed to talk Quantum Futures into giving our
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Good Trading

Mark McRae

P.S. I have to warn you though that my arrangement with Quantum
Futures is only for the next few days, so act immediately.
Collect the course at http://www.tradeology.com/p.php/quantum

What we’ve got here is failure to communicate.
Some men you just can’t reach, so you get what we had
here last week which is the way he wants it. Well, he
gets it. And I don’t like it any more than you men.
Cool Hand Luke (Movie)

Like the famous movie line from Cool Hand Luke, Trend Following has been hurt by a failure of communication. The skeptics have not been shown the facts. The evidence has not been forced upon them. Our entire web site solves that failure to communicate – for those receptive to the message.

Why has Trend Following been the best style of trading for the past 30 years? Trend Following has worked in the past, excels today and will perform into the future for the simple reason: trends exist and they can be traded up and down for profit.

The world will always face constant change and no one can forecast a trend’s beginning or end until it becomes a matter of record, just like the weather. But if you have a basic strategy that’s sound, you can take advantage of market changes to make money by capturing the bulk of a trend. Trend Following is based on good business principles. If your principles are designed to adapt, the changing world is not going to materially hurt you. It’s the ability to adapt that allows Trend Following to continually pull profits from the marketplace.

The Search for the Grail

Some people are skeptical. They come to this web site
(Turtletrader.com) seeking the magic bullet, the Holy
Grail, the secret sauce – they miss the clear point.
There are no secrets. There is only hard work.

What are wrong views of the market we hear from readers?

1. My trading style tells me when the market will follow through.
2. The markets have changed.
3. Trend Following has changed.
4. Profit targets are wise
5. Short-term technical analysis that predicts direction works well.
6. Victor Niederhoffer recently wrote that the way to forecast a market is to first compare the estimated earnings yield of the S&P 500 at year end to the rate on the 10-year T-note.

How would Trend Followers respond?

1. You can not predict a follow-through of a market trend.
2. The markets have not changed. Trend Following has not changed
   either. New? Don’t believe the hype.
3. The fact some one trader did poorly has to do with that one trader’s greed/fear profile, not Trend Following.
4. Trend Followers all trade in a similar fashion.
5. Profit targets are prediction. Set a profit target and you miss trends by exiting early.
6. Turtle trading is for stocks too.
7. There is no trading technique that can predict market direction.
8. Victor Niederhoffer’s use of fundamentals to predict is not valid. There is no evidence this works. The only evidence we have is Niederhoffer’s blowout of 1997.
9. Danger!

Big trends are like epidemics. Starting with only a few people, an epidemic can spread through a population as it multiplies again and again. Just like when a virus spreads, it doubles and doubles and doubles. It flows. It trends.

Extreme market trends can appear from out of nowhere moving either up or down. These trends often feed upon themselves and can quickly progress geometrically allowing the opportunity for huge profits if you traded the trend. However, people can have a hard time with this idea, because, like an epidemic, the end result often seems out of proportion to the cause. Instead of just riding the trend for profits, they seem more interested in understanding it. Instead of wanting to win, they want to be right.

In order to appreciate why market progressions or trends can be so
powerfully rewarding, you must not expect proportionality.
You need to prepare for the possibility that sometimes
big market changes follow small events, and that sometimes
that change can happen very quickly. Trend Following
trading is designed to find and exploit those market
trends long before they arrive on the radar screen of
the masses.

Impatience v. Wisdom

A few years back one Trend Follower decided he would start trading the S&P from a discretionary standpoint. He nearly lost it all. That’s right he put aside rules, that he knew worked, and started trading without a system. Why did he do this? Who knows. But does it say something about the individual trader’s greed/fear OR the rules? Systems don’t make up for poor personal discipline. They are only as good as the individual adhering to the principles.

The wisest man TurtleTrader knows has offered that
every 5 years some famous trader blows up and everyone
declares trend following to be dead. Then 5 years later
some famous trader blows up and everyone declares trend
following to be dead. Then 5 years later…well the
point must be clear now. The Turtle above was probably
noted in the press as one of those traders every 5 years,
but the reality of why he had problems was himself,
not Trend Following.

by
Michael Covel


http://www.turtletrader.com/

I am going to show you exactly how to pinpoint your entry price,
your exit price and where to put your stop loss..
Read More…

Stop Making the Same Mistakes and Change the way you Trade Forever.
Read this Tutorial ……

Using a bar chart you will observe that each bar has an Open, High, Low and Close. This information represents all price activity during that particular period.

In the case of the following example, we shall use a daily bar. To calculate the pivot point all you need to do is add the High, Low and Close. Once this has been done you next divide the total by three, e.g. the cash FTSE on the 2nd May 02 had a High of 5192.70, a low of 5125.50, and a close of 5174.10. If you add the three together, you get 15492.3. You then divide that total by three to get a Pivot Point of 5164.10.

OK, so far so good, but what do you do with this information? Well, one technique I like to use intra day is to use the pivot point as a trend indicator. We already know that the Pivot Point for the 2nd May was 5164.10 and we will use this the next day as an intra day trend indicator.

If the price is above 5164.10, then I would only be long and if it were below 5164.10, I would only be short.

As price can fluctuate around any given point I also add a further proviso. If I have support close to 5164.10, I will first wait for the price to pass through 5164.10 and support before entering short. If I have resistance close to 5164.10, I will first wait for the price to move through the Pivot Point and
resistance before entering long.

This method becomes even more powerful when the Pivot Point is close to the opening price. If, for example, the opening price is 5174.10, the Pivot Point is 5164.10, and I eventually go short at 5155, I can stay short the whole day as long as it does not go above the Pivot Point.

Once in a position I normally have a very tight stop to begin with and then will follow the market with a trailing stop to lock in profits.

Another way I like to add Pivot Points to my analysis is for more long-term projections. I will use the Pivot Point of a Yearly, Monthly and Weekly chart. In this case it would be the High, Low and Close of the previous Year, Month and Week.

I like to think of the weekly Pivot Point as the short-term trend, the monthly as the medium term trend and the Yearly as the long-term trend. I find this particularly useful in Spot Forex. If I am below the yearly, monthly and weekly Pivot Point, I know I am in a strong down trend and I can scale into multiple positions over time. The same holds true for long positions.

The point is there are many ways to determine trend. You can also use Pivot Point to find potential Support and Resistance, which we will cover in later lessons.

Experiment with Pivot Points and see if it suits your trading style. At the very least it is always handy to know where they are and it may help you decide which side of the market you should be trading from.

Learn more about Pivot Points

Good Trading

Best Regards
Mark McRae

At the close of the market you are following take a note of the high and low for that day (day two). For it to qualify for an inside day the high must be lower than the high of the previous day (day one) and the low of the day must be higher than that of the previous day.

In other words the bar (day 2) must be inside that of the previous day (day one). This is the set up. I like to trade this in two ways.

The first method is to place a buy order a few ticks above the high of day 2 and a sell order below the low of day 2. Once your orders have been placed it doesn’t matter which direction the market goes you will have a position.

You can place your stop loss order in one of two ways. You can use a dollar amount or if the inside day (day 2) is not too large you can place a stop loss a few ticks above the high of the inside day. If you are taken short or a stop loss a few ticks below the low of the inside day if you are taken long.

I like this trade to work on day 3 only. If it has not worked on day 3 I cancel the trade. It may still work after day 3 but in my research it tends to make the most gains if it works in day 3.

The second method is to first identify an inside day on a daily chart and then trade it intraday. If you are trading intraday you can monitor price action at the low or the high of day 2 and either enter the market as the high or low of day 2 is taken or enter on the first rally or dip as the case may be on a smaller time frame.

I am going to show you exactly how to pinpoint your entry price,
your exit price and where to put your stop loss..
Read More…

Relative Strength Index was developed by J.Welles Wilder Jr. and introduced in his book ‘New Concepts In Technical Trading Systems’. It is one of the most popular technical tools around. Relative strength Index (RSI) is measured on a scale from 0-100 with a reading above 70 being overbought and a reading below 30 being oversold. Originally he recommended a 14-day period as the setting but many other time periods have now become popular. Wilder discusses 5 uses of RSI in his book.

Tops and Bottoms
These are indicated when the readings go above 70 (top) and below 30 (bottom)
Chart Formations
The RSI may form chart formations that may or may not appear on the actual bar chart e.g. you might see a head and shoulders formation on the RSI but not on the bar chart.

Failure Swings
When the RSI goes above 70 or below 30 this is a strong indication that the market is ready for a reversal.

Support and Resistance
It is sometimes more apparent that support or resistance is forming in the RSI than can be seen on the bar chart.

Divergence
When price makes a new high or low and this is not confirmed by the RSI this can be a very strong indication that a reversal is imminent.

My Use Of RSI

My own favorite use of RSI is that of divergence. When the security you are trading makes a new high and the RSI turns down that is bearish divergence.

The same is true of bullish divergence. When price makes a new low and the RSI turns up that is bullish divergence.

I also prefer to see divergence at major tops and bottoms. That is to say, if we have been in an up trend for some time and I am already thinking this might be topping and I see divergence then I am a lot more confident that it has in fact topped and vice versa.

I don’t like to use RSI as a sole trigger for a new position but rather I like to use it in combination with other indicators to help build a picture. You will notice that in most cases of divergence the security makes a low as does the RSI, then the RSI begins to turn up but the security continues down. The same applies to highs.

Now the security makes a new low and the RSI does come down but not as low as the previous low and that is the point where action can be taken. The fact that the RSI has not dropped lower than its previous low and the price has, is the point of recognition. If I also have a break of a trend line or it has reach a projection or some other confirming analysis then I would enter a trade.

To read more join our Free Trading Course

Forex Trading Pivot Points will help maximize your gains, minimize your lossing trades and anticipate key turning points. Forex Trading Pivot Points

Relative Strength Index was developed by J.Welles Wilder Jr. and introduced in his book ‘New Concepts In Technical Trading Systems’. It is one of the most popular technical tools around. Relative strength Index (RSI) is measured on a scale from 0-100 with a reading above 70 being overbought and a reading below 30 being oversold. Originally he recommended a 14-day period as the setting but many other time periods have now become popular. Wilder discusses 5 uses of Relative Strength Index (RSI) in his book.

Tops and Bottoms
These are indicated when the readings go above 70 (top) and below 30 (bottom)
Chart Formations
The RSI may form chart formations that may or may not appear on the actual bar chart e.g. you might see a head and shoulders formation on the RSI but not on the bar chart.

Failure Swings
When the RSI goes above 70 or below 30 this is a strong indication that the market is ready for a reversal.

Support and Resistance
It is sometimes more apparent that support or resistance is forming in the RSI than can be seen on the bar chart.

Divergence
When price makes a new high or low and this is not confirmed by the RSI this can be a very strong indication that a reversal is imminent.

My Use Of RSI

My own favorite use of RSI is that of divergence. When the security you are trading makes a new high and the RSI turns down that is bearish divergence.

The same is true of bullish divergence. When price makes a new low and the RSI turns up that is bullish divergence.

I also prefer to see divergence at major tops and bottoms. That is to say, if we have been in an up trend for some time and I am already thinking this might be topping and I see divergence then I am a lot more confident that it has in fact topped and vice versa.

I don’t like to use RSI as a sole trigger for a new position but rather I like to use it in combination with other indicators to help build a picture. You will notice that in most cases of divergence the security makes a low as does the RSI, then the RSI begins to turn up but the security continues down. The same applies to highs.

Now the security makes a new low and the RSI does come down but not as low as the previous low and that is the point where action can be taken. The fact that the RSI has not dropped lower than its previous low and the price has, is the point of recognition. If I also have a break of a trend line or it has reach a projection or some other confirming analysis then I would enter a trade.

As you can see from the two charts below one is exhibiting bearish divergence and the other bullish divergence. In both cases it signified the end of a trend.

USD/CHF

USD/CHF

Good Trading

Mark McRae

Information, charts or examples contained in this lesson are for illustration and educational purposes only. It should not be considered as advice or a recommendation to buy or sell any security or financial instrument. We do not and cannot offer investment advice. For further information please read our disclaimer.

This Blog was sponsored by Mark McRae.
Visit his site here: Learn Forex Trading

George Lane was the originator of the sochastics in the 1970’s. Lane observed that as prices increase in an up trend, closing prices tend to be closer to the upper end of bars and in a down trend closing prices tend to be nearer the lower end of bars. Lane developed stochastics to discern the relationship between the closing price and the high and low of a bar.

Typically used to identify overbought and oversold conditions the indicator consists of two lines: % K and %D. These two lines fluctuate in a vertical range between 0 and 100. Readings above 80 are considered overbought and readings below 20 are considered oversold.

Stochastics can also be use to generate buy and sell signals. When the faster %K line crosses above the slower %D line and the lines are below 20, a buy signal is generated. When the %K lines crosses below the %D line and the lines are above 80 a sell signal is generated.

My Own use Of Stochastics

Well as usual just to be contrary to everyone I don’t use the stochastics to signal overbought or oversold although I do take note of the readings. I like to use them as possible buy and sell opportunities after defining a trend. If the trend is up as in the example below on the AUD (Australian Dollar) I like to only take buy signals regardless of the reading as long as the trend remains in place. I ignore the sell signals. I purposefully weaken the stochastics to give me more signals and I use 8,3,3 as my settings.

This gives more signals and shows the hand of the weaker players. The same is true of selling in a down trend. I ignore the buy signals and only take the sell signals. I don’t use stochastics on their own as trading method as all the settings I have tried ultimately resulted in to many wipsaws. Experiment with different settings and consider adding this indicator to your trading arsenal.

AUD/USD

Good Trading

Mark McRae

Information, charts or examples contained in this lesson are for illustration and educational purposes only. It should not be considered as advice or a recommendation to buy or sell any security or financial instrument. We do not and cannot offer investment advice. For further information please read our disclaimer.

This Blog was sponsored by Mark McRae.
Visit his site here: Learn Forex Trading

Those of you who have been trading for a while will be familiar with Pivot Points. During this lesson I want to go over how to find a Pivot Point and also a slightly different method of using them. First lets look at how you calculate a Pivot Point.

Using a bar chart you will observe that each bar has an Open, High, Low and Close. This information represents all price activity during that particular period. In the case of the following example we shall use a daily bar. To calculate the pivot point all you need to do is add the High, Low and Close. Once this has been done you next divide the total by three e.g. The cash FTSE on the 2nd May 02 had a High of 5192.70 a low of 5125.50 and a close of 5174.10 If you add the three together you get 15492.3. You then divide that total by three to get a Pivot Point of 5164.10.

OK, so far so good, but what do you do with this information. Well, one technique I like to use intraday is to use the pivot point as a trend indicator. We already know that the Pivot Point for the 2nd May was 5164.10 and we will use this the next day as an intraday trend indicator. If the price is above 5164.10 then I would only be long and if it were below 5164.10 I would only be short.

As price can fluctuate around any given point I also add a further proviso. If I have support close to 5164.10 I will first wait for the price to pass through 5164.10 and support before entering short. If I have resistance close to 5164.10 I will first wait for the price to move through the Pivot Point and resistance before entering long. This method becomes even more powerful when the Pivot Point is close to the opening price. If for example the opening price is 5174.10, the Pivot Point is 5164.10 and I eventually go short at 5155 I can stay short the whole day as long as it does not go above the Pivot Point. Once in a position I normally have a very tight stop to begin with and then will follow the market with a trailing stop to lock in profits.

Another way I like to add Pivot Points to my analysis is for more long-term projections. I will use the Pivot Point of a Yearly, Monthly and Weekly chart. In this case it would be the High, Low and Close of the previous Year, Month and Week. I like to think of the weekly Pivot Point as the short-term trend, the monthly as the medium term trend and the Yearly as the long-term trend. I find this particularly useful in Spot Forex. If I am below the yearly, monthly and weekly Pivot Point I know I am in a strong down trend and I can scale into multiple positions over time. The same holds true for long positions.

The point is there are many ways to determine trend. You can also use Pivot Point to find potential Support and Resistance, which we will cover in later lessons. Experiment with Pivot Points and see if it suits your trading style. At the very least it is always handy to know where they are and it may help you decide which side of the market you should be trading from.

Good Trading

Best Regards
Mark McRae

For more advanced Pivot Point instruction and a dynamic Pivot Point Calculator go to Tradejuice.com www.tradejuice.com/forex/pivot-point-trading-mm.htm