Short-term trading Technicals for Forex

author unknown
For eight years I worked as a scalper in the stock market, I am often asked whether scalping techniques for Forex. First, it is important to first define the term "scalping". When I worked as a stock trader in 90-x years of in stock market definition of this technique was a profit in very short time periods using a combination of 1 - and 5-minute charts, as well as certain methods of reading from the tape. When in 2001-2002 I started working exclusively on Forex, I thought that this Hyper-strategy has two drawbacks:
1) It is not scalable
2) It is not suitable for Forex.
Of course, the second point can be disputed, but hardly anyone would argue that in the short-term strategies there is a certain amount of money that you can bring to market, not giving him influence.
 
In this thread I want to show how some of the techniques and indicators that are used in scalping techniques can also be used for swing trading to optimize the levels of entry and exit. As a starting point we take some assumptions:
- We choose the transaction using a combination of 60 and 240-minute charts and also daily charts. Weekly charts are used only to determine long-term levels of support and resistance.
- We will discuss several indicators, main level, stochastics, RSI, and trend lines, Fibonacci levels, wave analysis.
- Duration of the transaction for several days.
- I work not only with couples G10, but with some other crosses.
The risk for each trade and lot size is based StopLoss.
Any technical approach associated with the combination of a certain degree of freedom of choice and stringent entry rules may lead to missing transactions. However, the effectiveness and accuracy of the technician of an input usually helps us avoid costly drawdowns during a trade.
Below we see a perfect example of how you can use the "big picture" for the overall analysis, but then refer to a smaller time range to determine the entry point, to confirm our analysis.
Figure 1
In this case, I predict that a re-test of bullish trend line fails, however, the "ideal" scenario was well, if the daily stochastics is pointing down to confirm bearish momentum. But, as the graph shows, it is not. However, what if we move to a smaller time frame, it is quite possible he will give us the long-awaited signals?
 
the 240-minute chart as a perfect example of this technique
I often use to analyze daily charts, however, when making decisions about opening positions using 60 and 240 minute timeframes. An appeal to the 240-minute schedule in this case gives us a perfect example of this technique working.
Please note the following:
- A spinning top suggests that a reversal is imminent.
The stochastic crossing down indicates bearish momentum.
- Break the trend line (115.53) offers the perfect entrance.
Figure 2.
However, this entrance have one question. The fact is that on the 240-minute chart trend is bullish. The trend is determined by two parameters:
1) What is the slope 20ЕМА to the last 6 bars?
2) if the price Is above or below the EMA?
When do we take profits? In this case, given the upward trend in the temporary range, you should not afford how long to keep the position, and allow the profit to grow. In this example, logic input or a pullback to 50% Fibo level 115.12 or oscillation maximum 115.24. These levels are easily achieved.
 
a Short position in AUD/NZD.



This cross on which I am working very often. In this scenario, we have a situation where the daily chart gives a number of signals on the possibility of opening short positions, but these signals are not enough to ensure the probability in your favor.



At first glance this is not a perfect set-up to open short positions. Stochastics in the oversold area, but we see the intersection of their down, indicating bearish momentum. In addition, on the chart there is a "spinning top" on 50ЕМА.Refer to lower time frame to check their guesses.



Figure 3.



- End of wave 4 is confirmed by the intersection of lines of stochastic down or breakout of the trend line.

- Target costs are calculated using an extension method Fibonacci of wave 3 using the settings of 1.25 and 1.50. The purpose of 1.1740 or 1.1615. Stop loss 1.2015. A pullback to the .618 of wave 3.





Figure 4.



What happened next we see in figure 5. Regardless of the transaction, you should always respect the time range in which we trade. In this case, the entry made on the basis of the analysis of the 240-minute chart, thus, the exit point must be calculated in the same range.



Given that our first target 1.1740, we can give price the opportunity to move down. But here, our profit is almost 100 pips and stochastics indicates that price pressure sales excised. So I would recommend closing at least part of the position then move stop loss to break even or another level that matches your tolerantnosti to risk.





Figure 5.
 
Short position on NZD/SEK
The following graphs give us a good example of how combining the two time ranges allows you to identify a fantastic trading opportunity. In this case, on the daily chart is clearly visible bearish signals, it remains only to find the entry point, which would be optimal for you, allowing to earn maximum pips but not letting go too early, the price went against you. However, the 60-minute stochastics do not give reliable evidence. Better to wait for retracement to resistance Fibonacci 5.2450-5.2500 where probably the stochastic should give a bearish signal.
 
Short-term reversals
Mihai Nichisoiu
More and more of increasingly complex technical analysis currently is designed to solve decades ago task: to comprehend the market in its smallest details and nuances around the clock to control it.
In real relationship with the market, however, I have a different approach: I wait for the market to fulfill a certain set of conditions, almost without attracting intuition, not Vice versa. My method is in the speculation, not control.
It all starts with simple observation - that's what I do most of the time. Especially interesting to me to watch the markets that are considered overvalued, becoming from time to time parabolic experiencing more and more serious imbalance between market forces and the interests of the bulls or the bears.
However, constant monitoring does not imply continuous transactions. Only in those cases when I define 'anomalous' element in the current trend, I may decide to bet against the trend. This 'anomalous' feature might be a precursor to fast and strong changes of direction of the market - especially if supply and demand can change places with a small intervention of an 'external' triggers (economic news, for example) or even without such intervention. That is why I regard the study of these extremely specific and rare situations like technical analysis in its purest form as change is caused mainly or exclusively by emergency conditions stored directly in value.
In this just described, a paradigm of my technical perception, a reversal of type 'base 2B' can be considered 'an anomaly' that occurs within established and confirmed trend.
On the daily chart shows the reversal of type 'base 2B' as a specific formation graphics on the market moving down for a certain period of time. The market sets the initial minimum, and then grows rapidly within a few days, only again to resume the fall, re-testing the recent low. At this point, as the bears become too arrogant, there is an influx of offers for sale and the day comes when the price slightly breaks the recent low of the market, but still finds the strength to rise and closed slightly above this just tested low.
So, within quite a short period of time, speculators have the opportunity to observe specific kind of graphical model of a classic 'double bottom' (also known as the popular '1-2-3 reversal'), in which the level of the second minimum of the market begins an unexpected upward movement. The pressure of the bulls is so unexpectedly strong, that I often see how the financial media, his 'questioning' during a significant period of time, despite the positive recovery that is gradually becoming more obvious on the chart.
Remarkable reversals 'base 2B' in the Forex market was also visible in USD/CAD on may 31 (this year) or GBP/USD 20th of July last year (see following charts).
Another 'base 2B', although not as recent, occurred on the EUR/USD 4 August 2004 and was accompanied by a stunning recovery of the currency pair only 48 hours later. I remember well how this setup literally exploded to the top of the 6th August, coinciding with the us NFP data; the day a spike up in the beginning of the American session was so strong that the price jumped over my level to take profits.
Particularly noteworthy, and perhaps not only in my opinion, was the reversal of the 'base 2B' shown by USD/CHF - weekly time scale, at the end of December 2004 - the graph then showed a sudden threat to the well-established multi-year downward trend of the dollar.
 
Example of annual correction of the dollar
The 'anomaly' was followed by the annual correction of the dollar is up not only against the Swiss franc, but also against other currencies (see the following chart of USD/CHF).
There are also varieties of "base 2B", when, for example, the market begins a rapid recovery from the second minimum of the model is not on the same day and several later.
The illustration of this species can be seen on EUR/JPY in June last year (see the following chart of EUR/JPY).
It is quite interesting that the first deal on the 'base 2B' I spent the day playing inside in 2004 in USD/CAD then this setup I call the 'bear trap', not knowing that he has a common name.
Very often a sharp and rapid reversal of direction of market movement that follows the 'base 2B', caused by a powerful wave of purchases, which arises as soon as confident the bears understand that they are based on the wrong premise. Bears suddenly start to feel like 'trapped' because of the powerful layers of stop orders placed in the vicinity of the second minimum 'base 2B', the actuation of which leads to crossing of price recovery.
'Reversing' schedule and psychology 'of the base 2B', we get a reversal, called 'top-2B'.
One of the recent 'peaks 2B' happened just a few months ago on the EUR/USD 5th June, it was widely commented on in the media when the bulls tested circular level 1.30 (see the following EUR/USD chart).
'Base 2B' and '2B top' are not characteristic exclusively for the exchange dynamics. I
 
Identification of short-term market turning points
The considered pattern is an excellent tool to search for points of short-term reversals. It is based on the market facilitation index Market Facilitation Index (MFI).
The index shows the price change per tick. The absolute values of the indicator do not mean anything, meaning, only indicator changes. Bill Williams also attaches great importance to the comparison of the change in the index values and volume.
The indicator allows you to determine the effectiveness of price reversals and the ability of the market to move the price in a certain direction. This indicator was first introduced by bill Williams in his book "Trading chaos".
The indicator is calculated by the formula:
BW MFI = (HIGH - LOW) / VOLUME
Where:
HIGH - maximum price of current bar;
LOW - minimum price of current bar;
Volume - volume of the current bar.
To add the indicator to your chart information-trading terminal MetaTrader 4, select the menu command "Insert -> Indicators -> bill Williams -> Market Facilitation Index"
Offer the trading is based on comparing the index values against the value on the previous bar and volume changes.
To identify potential reversal points of greatest interest is a bar on which is recorded the decrease in MFI relative to the previous bar at the same time increase volume. In such cases, usually the price is moving quite slowly, but interest in the market is growing, resulting in increased trading volume. At turning points the pattern may be a harbinger of a powerful movement in the opposite direction. In most cases, when forming this model, we should expect short-term price reversal. Sometimes, if we use long-term time-frames, the model allows to identify medium-term reversals.
Have the following formula for identifying the signal bar:
MFI(volume) > MFI(volume)[1] and volume > volume[1].
Williams called this bar "curtsying".
There are many methods of use "squat" bars in practice. In this branch we will consider a combination of tactics based on the use of a squat bar and oscillators that determine the levels of overbought/oversold, in particular stochastics. These examples will allow you to understand the characteristic features of the "squat" bars and will help to understand the principles of their use. In the future you can use them with a variety of filters, oscillators, etc. and adapt the concept to your trading style.
 
Rules for opening a long position on the next procedure:



Stochastic is in the oversold condition.

There is a "squat" bar.

The entrance is at the next candle on the breakout of the high of a squat bar.

The first stop-loss placed below the low of the "squat" bar.



The technique can be applied in different time ranges. Trailing stop is used to lock in profits on short-term deals. Usually the position is held for several bars. For short positions the rules are deployed.



On the charts "squat" bars painted red. To determine the overbought/oversold used a fast stochastic oscillator. In the first example (figure 1), the chart of the Emini futures S&P squat bar appeared at point A, while the stochastic was in the oversold territory. The setup formed. The next day you place a buy-stop order above the high and stop loss below the low of the previous candle. The transaction is opened (marked by the blue line). The first day brought a good profit. Using a trailing stop, you can stay in position for several days.





Figure 2 displays the 1-minute chart of the futures Emini S&P. At the point In at the end of the upward movement there is a "squat" bar stochastic is in the oversold zone. The next candle the break of the low of the previous bar triggers the opening of a short position. A trailing stop allows you to hold the position over the next 3-4 bars.
 
Short-term technique in Forex



Dave Floyd



Given my eight years of experience scalper in the stock market, I am often asked whether the same techniques to the Forex market. First, it is important to determine what is scalping. In the 90s, when I was a trader directly on a stock exchange, the so-called technique whereby a trader could profit from very short-term market movements using a combination of 1 and 5-minute charts, as well as considerable flair when reading tape quotes.



When I'm in 2001-02 the years passed solely on the Forex, I knew that this type of strategy has 2 drawbacks:



1. There can not be averaged

2. The technique of scalping in the stock is not suitable for Forex



Although the second paragraph is open for discussion, one can argue that short-term strategies have a sufficient amount of capital which You can use at any time without affecting the market.



With this in mind, I decided to write an article that I want to illustrate how some of the methods and indicators used in this type of trading on the shares can be applied to the swing approach to maximize points of entry and exit. First some assumptions for the upcoming analysis:



- The choice of the transaction is conducted using one or a combination of the 60 and 240-minute charts and daily chart. Weekly chart is used only as a way to identify long-term levels of support and resistance.

- I will speak about several indicators, mostly, it's stochastics, Fibonacci levels, trend lines and RSI, Elliott wave analysis Elliott

- Duration of the transaction on average is several days

- I use not only from the big ten, but also some crosses

The risk is determined prior to each transaction, and the lot size is calculated based on stop loss



As with any technical approach that allowed some degree of subjectivity, there are limitations as immutable principles of entrance can sometimes hinder the transaction. However, the efficiency and accuracy of the methods of input will help avoid costly drawdowns.
 
an Example of using the analysis of the overall picture
Here is a perfect example of the use of the analysis of the General situation with the transition down to the smaller time scale, to pinpoint the entry point.
In this case, I was expecting re-test of rising trend line fails, however, in 'ideal' scenarios should be present daily stochastics turning down to support us downside momentum. As You can see on the daily chart above, this is not the case. However, what if we could accelerate the analysis shifted along the time scale a step or two below and, in essence, to predict the stochastic turn down this?
During transactions, I rely mainly on the 60 and 240-minute, often making the analysis of the daily schedule. As for the 240-minute chart below, it gives a perfect example of the use of a smaller time scale. Please note the following:
- A spinning top suggests that a reversal is inevitable
The stochastic crossing down says about the downward momentum
- Break the trend line (115.53) gives a perfect entrance
If there is this any doubt, only that an existing trend on the 240-minute chart trend. The trend is determined by 2 parameters:
1. What is the slope of 20-period ema over the last half a dozen bars?
2. The price is above or below the ema?
Ideally, for shorts, price bars are below a downward sloping average, and Vice versa for long positions.
Well, what now,where do we take profit? In this case, provided the upward trend on that time scale, which was used for the transaction, we can't afford to let profits run. Here, the logical exit points will be either 50% level Fibo at 115.12 or swing high at 115.24. These levels are easily achievable.
 
long AUD/JPY
1. Bearish trend-channel is broken
2. Price bounces from the swing high at 85.00 and forms the right shoulder of the inverted head and shoulders
3. The Fibonacci retracement from the move up from 5/23 offers the 'ideal' point of entry up to attempt to break the neck line
4. In the stochastic expected pullback; the bullish reversal to confirm point 3
5. All items together will confirm the attainability of targets
If all of these items work, the price will go straight to the goal at 85.60
 
Catch short-term trends in the foreign exchange market



Market trends – more rare than trading ranges. But this does not mean that they should be ignored. In this article, we consider a trading strategy based on the use of two timelines, two indicators and money management to protect your profit.



A technical trading strategy based on the assumption that markets are most of the time are in certain ranges. This assumption has a very solid Foundation. 70% of the time the price fluctuates between levels of support and resistance or we can say that we observe a random fluctuation. The remaining time the price movement is characterized by price movements or trends, which make their way to the levels of support and resistance.



Although these basic assumptions work against traders who try to use trends, the potential profit is worth the risk. It is possible to increase your chances to capitalize on the trends by placing a special trend signals, identifying entry points to the market after the formation of the trend and use techniques of money management to limit potential losses.



In subsequent posts we will explain how a trading system based on these principles operates in the markets, and especially well it works in the Forex market or foreign exchange market, particularly with "major" currencies: U.S. dollar, Euro, Japanese yen, British pound, Swiss franc, canadian dollar and Australian dollar.



More than 85% of transactions in the Forex market, which amounts to $ 1 trillion a day, is with these us majors.
 
the Tools and rules



The strategy uses 2 charts with different time periods (10-minute and hourly), as well as two technical indicators: moving average with period 200 and the slow stochastic with a period of 14.



Step 1. Identify the trend.



Compare moving averages for 10-minute and hourly chart. The presence of a trend is when the price on both charts is above or below the moving average.



Step 2. The designated entrance.



When you've identified a trend, analyze the 10-minute chart for compliance with the two conditions (they must be respected in the same time):



1) the price should be no more than 20 points above (to buy) or no more than 20 points below (to sell) the moving average.

2) the fast stochastic line must cross the slow stochastic line below 20 (to buy) or cross down line slow below the level of 80 (for sale).



These conditions indicate the following: 1) At the moment the currency is in short term uptrend or downtrend; 2) currency slowed down or rolled back a bit (reflected by a higher low on stochastics and the fact that the price is in the range of 20 pips from MA), and intends to turn in the direction of the trend (because the fast stochastic has crossed up or down the slow stochastic).



Step 3. Grab the trend.



After you log in, set a stop-loss. For a long position, place a stop-loss order 10 pips below 200 MA on 10 min chart. In the case of opening a short position, place a stop loss at 10 pips above the MA on the 10-minute chart. If the price goes in your direction raises or lowers (depending on long or short positions you hold) stop to protect your profit. For simplicity, in the following examples we use a trailing stop with a step of 25 points from each new peak or bottom. The chart in the next section, will allow you to understand how this strategy works. We will give examples for the two currency pairs.
 
Trade examples.



The first example we will look at the chart of the currency pair EUR/USD. The transaction occurred in the fourth week of July 2002. First, compare the hourly and 10-minute charts of EUR/USD. Waiting for the moment when the price is above the 200 MA on objimg charts.



On the hourly chart (figure 1) price almost all the time above the 200MA, which indicates a constant upward trend. The 10-minute chart (figure 2) price crosses above the 200MA in the last third of the graph. The next step is to determine the entry point when the market will be in the range of 20 pips from 10 MA on minute chart, and will also be the intersection of lines of stochastic indicator.







Figure 1. An hourly chart. The price is constantly above the 200MA, which indicates prevailing upward trend.







Figure 2. 10-minute chart. The price is also above the 200MA in the last third of the graph. On the input signals a stochastics crossing under 20 at about 20:00.



After 13:00 the market almost all time is in the range of 20 pips from the MA, and the stochastics crossing occurs at 20:10. It is the intersection of the fast stochastics slow stochastics up in a situation when the indicator is below level 20, serves as a signal to open a position. We open a long position at the price .9883 with a stop loss of about .9858 (10 points below the moving average with the period 200, which is at .9868). Stop then dragged up after the formation of the price of new peaks. The pair is forming around the top of .9992, so stop moved to .9967, where the position and closed with a profit of 84 pips ($840).



Figures 3 and 4 shows an example for pair dollar/yen. Hourly chart (figure 3) shows that the pair traded below the 200 hour MA since June 21. The 10-minute chart (figure 4) the price crossed the MA down after 10:00 on June 27, which gave the first alarm on the possibility of opening short positions. Also, the price was trading in the range of 20 pips from MA.







Figure 3. An hourly chart. The price is always under 200MA.





Figure 4. 10-minute chart. The stochastics crossing at about 17:00 when the price was under MA, but in the range of 20 points from her, gave the signal for opening short positions.



A short position was opened at about 17:00 price 119.57 after fast stochastic crossed below the slow stochastic when the indicator was above 80. The deal was protected with a stop loss placed near 119.86. In this case, the stop remained intact throughout the following day when the pair started to decline. After the translation stop loss profit was recorded for the price 118.58 (25 points from the low at 118.33), with a profit of 99 points.
 
Looking for further.



This short-term trading method works well in the Forex market, but it can be used in other markets. Each step of the system helps to identify areas where we can make effective transactions. If one of the criteria for a particular phase is not observed, it is not necessary to make a deal. This model gives you the freedom to experiment with different time intervals on the charts. When you are equipped with a system that will help you catch the trend, you have the opportunity to get ahead of other players.
 
Example of analysis of short-term trading techniques



In trading, the confirmation usually is considered a positive factor, but it has obvious shortcomings, especially for traders with against-the-trend approach. For example, a typical reversal pattern can consist of a sharp downward movement followed by upward movement with a higher close or a close above the high of the previous bar, which confirms the completion of the "puncture" down and returning buyers to the market.



This kind of pattern has value, but for confirmation, you automatically lose a part of price movement, which had hoped to catch. Also, there's always a chance that the confirmation is false – rollback occurred before the final turn of the market downwards. In this case, if you buy at confirmation you are buying at the top.



Assuming that the reversal occurs, not whether you want to enter the market when it is moving down, so close to the bottom as possible? Of course, however, there is the inevitable problem: this decision is very difficult psychologically, regardless of whether the market potential of the downward movement. Unfortunately, during a strong upward trend retracements/reversals, which are convenient for trade are rare, while strong downtrends you encounter them again and again, followed by a new wave of sales.



Let's take a simple pattern that is the result of the analysis of a particular type reversal patterns: a bar that closes with a strong movement in one direction followed by a bar of similar size, but closed in the opposite direction. The analysis shows that such patterns regularly seen on some of the peaks and doniach (the further the price moves in the closing direction of the second bar), but more often they occur in the middle of the strong motion. Just in the second case they masked the fact that they don't signal turns.
 
The figure below shows two examples of this type of patterns on the daily chart of the pair U.S. dollar/Swiss franc (USD/CHF). In both cases, the first bar opens near day high and moves towards the day low, followed by a bar that opens near the low and closes near the high. For the first pattern (in may) was followed by a sale, for the second pattern "expected" rally (in this case please note that the closing on the day after the pattern was negative).
Reversal pattern consisting of two bars directed against one another. In one case, the pattern worked, but not in others.
Since the second bar of this pattern represents a reversal of the first bar, why don't we try to go to the market on the first bar of the pattern and add on to their profits movement of the second pivot bar?
 
Pattern.



Of course, easier said than done, however, we identified some basic parameters and analyzed the results of 60-minute bars for pair dollar/the Swiss franc. Determination of the parameters of the pattern:



1) the Current minimum should be at least 0.0020 below the previous minimum.

2) Opening top 30% segment of the bar's range.

3) Closing in the lower 30% band segment of the bar.





The formula according to these rules:



1. L[1]-L >= .0020

2. (O-L)/(H-L) > = 0.70

3. (C-L)/(H-L) 0).



It would be superfluous to undertake an analysis to see how far the price can go down for x bars, but still generate profits for the bars. For example, maybe if the price drops more than 30 pips below the entry price (or bar low input), the probability of a profitable trade after 12 bars is drastically reduced.
 
Earn money on short-term currency trends



The trends found in the market less than the side frames, although this does not mean that they cannot be traded. In this strategy we use two time range to identify a trend indicator overbought/oversold for finding entry and a trailing stop to protect your profit in case of profitable deals.



Many technical trading strategies revolve around the assumption that the market will move within the specified range – and this is a good approach. 70% of the time the price is moving between support and resistance or moving randomly. The rest of the time, market behavior is characterized by constant price movements – trends – in which occur the breakouts of support and resistance.



Although this basic pattern plays against the traders who are trying to earn trends profit potential usually worth the risk. We can increase the probability of earnings trends, developing a valid signal of trend detection, identifying entry points within the trend and using risk management techniques to limit losses.



Here we consider an example of a trading system and its operation on the Forex market, in particular her work with the "core" currencies: U.S. dollar, Euro, Japanese yen, British pound, Swiss franc, Australian and canadian dollars, which are called the major currencies. More than 85% of transactions in the Forex market that exceeds 1 trillion dollars a day, associated with the main currencies.
 
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