Being able to read a chart and deduce which way price will go with the highest possible accuracy can be as simple or difficult as you want to make it. Not being an overly complicated person, I prefer the simple way..
The basic tools I use in determining a trade are summarised by the following -
Trend - weekly/daily/4 hourly/hourly... sometime 30min..but rarely.
Up-Down-Sideways across all tf´s.
Candles and their various patterns
I have already gone over the basics of candles. Patterns, I tend to look at only those that appear on the daily and 4 hrly charts as they are far stronger than those that appear of charts of 60 minutes or less.
Correlation
I am consistantly looking at correlations between the differing markets looking for why the market is moving and watching for the flows of money...Those flows are your trends. Traders must be aware that the current Risk-ON Risk-OFF environment means that when Risk is perceived in the market funds will flow into USD, Yen and Treasuries as a safe haven and out of commodities, commodity currencies, Eur, Gbp and Chf to a certain although minor extent.
When you see strong correlations between markets then a strong trend is underway and you can take maximum advantage trading across various pairs, commodities and indicies.Inversely, when you see correlations begining to weaken, the trend is getting close to finishing and a period of reflection or consolidation maybe unfolding.
Indicators and Oscillators
Often an unknown fact, and one reason why new traders are continuously carded when using the hundreds of indicators and oscillators is that the fail to remember that indicators work best in a trend. Oscillators on the otherhand, work best in sideways or consolidating markets.
I use a combination of indicators and oscillators in conjunction with trend and price action..That way I can attempt to get in on a trending move earlier and enjoy the ride.
Moving Averages
Moving Averages for me are probably the strongest indicator that I use and I will continuously use them to trigger trades over various tf´s. They are also very strong points of res and sup. I use different ma´s depending on the tf and the actual pair....Problem.. Ma´s are trending ...thus when we enter a bout of consolidation, price will and does chop either side of the ma before heading off in the direction of the new trend or retracement of trend.
Slow Stochastic
I use a slightly longer setting of either 21,5,5 or 21,3,5. These settings seem to work better over the varying tf´s and are far smoother. Remember this is an oscillator and can be completely useless when a strong trend develops.
MACD
Although not the strongest indicator I use. It is used more to gauge the strength of the current trend. A crossing of the zero line confirms price direction.
Trix
The Trix I use, is the same that was devised in the Cobraforex THV system. Although not perfect , it has shown a strong capability to indicate turns in trends over the various tf´s. Used in conjuction with the other indicators and oscillators, accurate entries can be achieved... The better entries will be accompanied by the crossing of the fast and slow lines, with bullish or bearish divergence.
RSI
Though not appearing on all pairs I like to watch the RSI for divergence on 4 hrly and daily charts.
Pivot Points and Fibs
Pivot points are strong levels at which price will encounter res and support and can be used to identify take profit and stop orders. Like pivot points Fibs are possible the strongest tool that a trader can have when estimating targets for price retracements and projections.
Volume
When looking for reversals of trend it is always good to check the volume at the daily and weekly highs and lows. Spike highs and lows when not accompamied with volume indicate that a strong possibility of reversal is unfolding.
In summary, rather than being a flat out contrarian , I have found it far better and profitable to be an informed contrarian. Indicators and oscillators cannot dictate where price will go, but, if used in conjunction with the basics the odds of being profitable swing heavily in your favour.
Tuesday, 16 February 2010
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