forex trading price action support and resistance Updates
When you trade online FOREX markets you have a choice of using charts (technical analysis) or studying the fundamentals and news stories (fundamental analysis) but which is best?
Here we will compare the two and tell you which is best for online FOREX Trading.
1. Fundamental Analysis.
The fundamental trader will look at the supply and demand situation and try and determine which way prices are going by studying and acting upon the facts.
Of course, any currency will respond to the fundamentals, but trying to trade off news stories and the facts presents a problem.
The problem is:
Prices don?t move logically and they don?t respond to the facts alone.
A simple equation will make this clearer:
Market Fundamentals + Investor Perception = Price movement.
We all see the facts, but we make our own judgments on them.
Millions of traders do this and they ultimately as a whole determine the price.
Fundamental analysis is very difficult for a trader to do, because the facts are in our world of instant communications are discounted immediately.
The market therefore moves very much on how traders view the outlook for a currency and they look towards the future.
Consider this fact
If it were easy to trade knowing the fundamentals and listening to the news, a lot more traders would make money and the fact is they don?t.
Today the information we get in online FOREX trading is more comprehensive and is delivered quicker than ever but just as 100 years ago, the ratio of winners to losers remains the same 90% lose, 10% win.
2. Technical analysis
If you have read and understood the above, you will see that technical analysis takes into account the fundamentals as the facts immediately are discounted and show up in price action .
The big advantage of technical analysis however is it does something more:
It shows how investors perceive the fundamental supply and demand position.
As human psychology has remained constant over time, it shows up in repetitive price patterns and these can be traded for profit.
Technical analysis is a better way to trade FOREX as it shows us the whole picture:
The fundamentals and more importantly, how they are perceived by the investors.
A word of caution
Technical analysis is an art and not a science.
Its limitation is that:
Humans are not predictable all the time, so there is no sure fire way to make money on every trade.
But just like a footballer who kicks penalties, knows his skill can help him hit the target the majority of the time, so to does a good chartist.
He may not win all the time but he trades with the odds and will win more than he losses.
Which is best?
As you can gather we think technical analysis is the best way to trade online FOREX.
It consumes less time, gets the odds in your favor and gives you the overall picture, taking into account both the supply and demand situation as well as investor psychology.
The fundamentals are important, but so to is how investors perceive them and this is why technical analysis is such a powerful way to seek big profits in online FOREX trading.
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Forex Information - How To Draw DeMark Trendlines
When searching for Forex information on the internet you are likely to find articles relating to trendlines and trendline analysis.
Tom DeMark is a specialist in the field of technical market analysis and his best-selling book "The New Science of Technical Analysis" released in 1994 spells out some innovative techniques when it comes to the use of trendlines.
Much Forex information on the internet is of a general nature, and many articles are written about Forex by individuals who are not traders themselves. Tom DeMark on the other hand has had a long career with institutions trading stocks, futures, currencies and options.
His guidelines on the use of trendlines are very specific and they can be helpful to the newer trader who is searching for reliable Forex information on how to use standard indicators.
Here is a brief step-by-step description of how to draw DeMark trendlines:
Note: The term swing high and swing low (also called cycle high and cycle low) refers to the following:
In An Uptrend: A swing high is the wick of a candle that is higher than the wick of the candle to the left and right.
In A Downtrend: A swing low is the wick of a candle that is lower than the wick of the candle to the left and right.
Obviously the more candles to the left and right that are higher in a swing low or lower in a swing high makes the swing or cycle more significant.
An uptrend is where price is making higher highs and higher lows. A downtrend is where price is making lower highs and lower lows.
Drawing DeMark Trendlines
Drawing Trendlines In An Uptrend
- Examine the bottoms of the candles on your chart and identify the most recent candle wick that is lower than the candle wicks to the immediate right and left of it.
- Look left on the chart, and identify the previous low candle that has candle wicks higher to the immediate right and left of it which is lower than the current low candle.
- Now draw a line from the current lowest candle to the previous lowest candle (drawing from right to left).
- Now take the end of the newly drawn line which stops at the current low candle and extend it forward some distance (drawing from the present position to the right).
Drawing Trendlines In A Downtrend
- Examine the tops of the candles on your chart and identify the most recent candle wick that is higher than the candle wicks to the immediate right and left of it.
- Look left on the chart, and identify the previous high candle that has candle wicks lower to the immediate right and left of it which is higher than the current high candle.
- Now draw a line from the current highest candle to the previous highest candle (drawing from right to left).
- Now take the end of the newly drawn line which stops at the current high candle and extend it forward some distance (drawing from the present position to the right).
You have now drawn a Tom DeMark trendline.
This can now be a reference point for future price action. It will often be observed that price will come and check this level. If it breaks through, it can mean a change in direction, the significance of which will depend on the time frame being used.
Trendlines drawn on 5 minute or 15 minute charts have much lesser significance than trendlines drawn on higher time frames such as the 1 hour, 4 hour, or daily.
Caution Required
Much Forex information extols the virtues of trendlines as an indicator of possible future price action.
Mr. DeMark certainly has made this a science and his detailed approach to drawing trendlines is certainly more accurate than just drawing general trendlines along the bottoms and tops of trends according to the way the eye sees.
However, trendlines in themselves do not indicate where high probability trades can be taken.
It is important to use a variety of indicators before pulling the trigger. Examining previous levels of support and resistance is probably far more significant in determining where price is likely to hesitate that watching trendlines.
However, they can be useful. If you find a key support or resistance level also coincides with a Fibonacci retracement or extension level which is also at an intersection with a trendline, then you have built a reasonably solid case for a trade.
Use this Forex information on DeMark trendlines wisely, with caution, and it can be another useful addition to the Forex day trader's toolkit!
Michael A. Jones is a writer, webmaster and Forex trader. Do you want to make consistent profits and take your trading to the next level? http://www.vitalstop.com/Forex/forex-course.html For a purely mechanical strategy for the EUR/USD pair click here: http://www.vitalstop.com/Forex/Advisor/forex-trading-machine.htm For a collection of invaluable free Forex tools: |
Finding the Right Forex Broker
One of the first things you will want to look for in any broker you hire to help you with currency exchange would be queries.The whole point of having the broker is so you have an expert who is able to interact with you on what currency to buy and to sell, and when. A broker that considers their time too valuable to spend with you is not a broker that you need to do business with.
An attribute that you want to seek out is that of being a partner in a financial venture. The bottom line is that if you are not making money, then your broker is not likely to be doing all that well either. And if you eventually lose your shirt and have to drop out, then the broker has lost a client. It is in the best interests of both you and your broker to make sure you are making money and increasing your portfolio. Interestingly enough, not all brokers have this mind set. Look for the ones that are interested in seeing your assets grow over the long haul and stay away from the ones that are looking to make
a quick buck with you before moving on to the next person.
Accountability is another trait you want to look for in your broker. When making a recommendation to buy or sell a particular currency, a broker with this attribute will be able to articulate to you all the reasons why this would be a positive move for you. While "trust me" may be all you need if you are playing a board game with a friend, it is not enough when you are talking about your money. A solid reputable broker will know that and always has some very good reasons for the advice he or
she gives you.
Essentially, a great deal of what you are looking for is simply honesty, integrity, and an obvious knowledge of how currency trading works. When you are able to find someone who exhibits all these characteristics, as well as being dedicated to making money with the customer, not off the customer, then you have found a Forex broker that is worth doing business with.
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FOREX Education - Work Smart Not Hard To Succeed
I read a lot about FOREX education and how it is essential to succeed and of course this is true, but most people don?t really understand what they should learn and how to do it.
So here are some guidelines, on how to work smart and not hard to achieve FOREX trading success.
When you are looking for FOREX education you can get most of it for free on the net.
Don?t be tempted to buy e-books or ?sure fire? trading methods from guru's.
Why?
Because the FOREX education they offer is normally going to cost you and it?s not worth the money.
Most of it is written by great salesman (with great copy) or failed brokers.
In most cases, if it was that good they wouldn?t be selling it; they would keep quite and make money for themselves.
Harsh but true!
If you do want to buy from a guru on the web make sure they have a real time track record that has made money and not a simulation.
The good news is:
There is a huge resource of information on the web you can tap into and it?s all free.
As a novice trader you can learn everything about technical analysis and indicators and see how they have performed in real time.
You can also find lots of material on the traits of successful traders and how you can acquire these traits to make money.
You can then build a trading system for free from this FOREX education and even learn how to apply it.
Paid education that is worth the money.
Look no further than an online bookstore.
There are many great books you can buy from traders who have made money.
Unlike the guru?s on the net who rely on hyped sales copy these guys don?t need to:
They have made real money and lots of it.
There are many books to choose from but here are some of my favourites after reading several hundred over the last 18 years:
1. Market Wizards ? Jack Shwager ( Edit )
This book is interviews with some of the all time great traders and allows you to tap into and learn from the best.
Quite simply, inspiring and essential FOREX education.
2. Trader Vic ? Victor Sperandeo
Perhaps my favourite book of all time.
EVERYTHING you need to know about devising a plan for profit is in this book.
From the essentials of a trading plan, to money management and how to acquire discipline to stick with your plan and achieve trading success.
Again, essential FOREX education.
Other authors to check out are:
John Murphy (for his writing?s on technical analysis) Max G?nter (check him out for some un conventional money making tips!) Jake Bernstein (great insight into the mindset you need to win) and finally, William Gallagher?s excellent book Winner Takes All ? A very entertaining read.
There are many more but the above will give you some great FOREX education.
My own view in terms of FOREX education is to get all the info for free of the net to construct and implement your plan.
Then round it off with some FOREX education from traders who have been their, done it and made money.
I hope you enjoyed my thoughts on FOREX education and wish you trading success.
FREE ESSENTIAL TRADER PDF'S AND MUCH MORE On all aspects of becoming a profitable trader including features, downloads and some great FREE Trading PDF's visit our website at http://www.net-planet.org/index.html |
posted by AaronsJoslyn at 12:09 PM
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