Showing posts with label candlesticks. Show all posts
Showing posts with label candlesticks. Show all posts

Fibonacci Retracement


In finance, Fibonacci retracements is a method of technical analysis for determining support and resistance levels. They are named after their use of the Fibonacci sequence. Fibonacci retracement is based on the idea that markets will retrace a predictable portion of a move, after which they will continue to move in the original direction.

Fibonacci retracement is created by taking two extreme points on a chart and dividing the vertical distance by the key Fibonacci ratios. 0.0% is considered to be the start of the retracement, while 100.0% is a complete reversal to the original part of the move. Once these levels are identified, horizontal lines are drawn and used to identify possible support and resistance levels.
  
Fibonacci ratios

The key Fibonacci ratio of 0.618 is derived by dividing any number in the sequence by the number that immediately follows it. For example: 8/13 is approximately 0.6154, and 55/89 is approximately 0.6180.


 The 0.382 ratio is found by dividing any number in the sequence by the number that is found two places to the right. For example: 34/89 is approximately 0.3820.


The 0.236 ratio is found by dividing any number in the sequence by the number that is three places to the right. For example: 55/233 is approximately 0.2361.






Other important ratios are: 50%, 76.3%, 78.6%



* If you really want to understand the importance of fibonacci in trading read this post until the end. Fibonacci numbers and golden ratios are everywhere.

The mathematician Fibonacci

Leonardo Pisano Bigollo (c. 1170 – c. 1250) also known as Leonardo of Pisa, Leonardo Pisano, Leonardo Bonacci, Leonardo Fibonacci, or, most commonly, simply Fibonacci, was an Italian mathematician, considered by some "the most talented western mathematician of the Middle Ages."

Fibonacci is best known to the modern world for the spreading of the Hindu-Arabic numeral system in Europe, primarily through the publication in the early 13th century of his Book of Calculation, the Liber Abaci; and for a number sequence named after him known as the Fibonacci numbers, which he did not discover but used as an example in the Liber Abaci.


Fibonacci numbers

In mathematics, the Fibonacci numbers are the numbers in the following integer sequence:
 

0,\;1,\;1,\;2,\;3,\;5,\;8,\;13,\;21,\;34,\;55,\;89,\;144,\; \....\; (sequence A000045 in OEIS).

By definition, the first two numbers in the Fibonacci sequence are 0 and 1, and each subsequent number is the sum of the previous two.

 source: http://en.wikipedia.org/wiki/Fibonacci_number

 

Golden ratio

In mathematics and the arts, two quantities are in the golden ratio if the ratio of the sum of the quantities to the larger quantity is equal to the ratio of the larger quantity to the smaller one. The golden ratio is an irrational mathematical constant, approximately 1.61803398874989.[1] Other names frequently used for the golden ratio are the golden section (Latin: sectio aurea) and golden mean.[2][3][4] Other terms encountered include extreme and mean ratio,[5] medial section, divine proportion, divine section (Latin: sectio divina), golden proportion, golden cut,[6] golden number, and mean of Phidias.[7][8][9] In this article the golden ratio is denoted by the Greek lowercase letter phi (φ), while its reciprocal, \frac{1}{\varphi} or φ − 1, is denoted by the uppercase variant Phi (Φ).

The figure on the right illustrates the geometric relationship that defines this constant. Expressed algebraically:

 

 
 

 

This equation has one positive solution in the set of algebraic irrational numbers:



 

 

source: http://en.wikipedia.org/wiki/Golden_ratio

 

Fibonacci and Golden Ratio in nature, architecture and art:

 










Best Regards,

^^_Lord_Ice_^^

CFD ( Contract for difference )


In finance, a contract for difference (or CFD) is a contract between two parties, typically described as "buyer" and "seller", stipulating that the buyer will pay to the seller the difference between the current value of an asset and its value at contract time. (If the difference is negative, then the seller pays instead to the buyer.) In effect CFDs are financial derivatives that allow traders to take advantage of prices moving up (long positions) or prices moving down (short positions) on underlying financial instruments and are often used to speculate on those markets.

For example, when applied to equities, such a contract is an equity derivative that allows traders to speculate on share price movements, without the need for ownership of the underlying shares.

CFDs are currently available in the United Kingdom, Hong Kong, The Netherlands, Poland, Portugal, Germany, Switzerland, Italy, Singapore, South Africa, Australia, Canada, New Zealand, Sweden, Norway, France, Ireland, Japan and Spain. They are not permitted in the United States, due to restrictions by the U.S. Securities and Exchange Commission on over-the-counter (OTC) financial instruments.

source: http://en.wikipedia.org/wiki/Contract_for_difference



Best Regards,

^^_Lord_Ice_^^

Support and Resistance



Support and Resistance is a concept in technical analysis that the movement of the price of a security will tend to stop and reverse at certain predetermined price levels.


Support

A support level is a price level where the price tends to find support as it is going down. This means the price is more likely to "bounce" off this level rather than break through it. However, once the price has passed this level, by an amount exceeding some noise, it is likely to continue dropping until it finds another support level.

Resistance

A resistance level is the opposite of a support level. It is where the price tends to find resistance as it is going up. This means the price is more likely to "bounce" off this level rather than break through it. However, once the price has passed this level, by an amount exceeding some noise, it is likely that it will continue rising until it finds another resistance level.

Reactive vs Proactive support and resistance

Proactive support and resistance methods are 'predictive' in that they often outline areas where price has not actually been. They are based upon current price action that through analysis has been shown to be predictive of future price action. Proactive support and resistance methods include Measured Moves, Swing Ratio Projection/Confluence (Static (Square of Nine), Dynamic (Fibonacci)), Calculated Pivots, Volatility Based, Trendlines and Moving averages, VWAP, Market Profile (VAH, VAL and POC).

Reactive support and resistance are the opposite: they are formed directly as a result of price action or volume behaviour. They include Volume Profile, Price Swing lows/highs, Initial Balance, Open Gaps, certain Candle Patterns (e.g. Engulfing, Tweezers) and OHLC.

Various methods of determining support and resistance exist. Once you have the chart of entity under consideration, there are many ways to ascertain these levels. Some of the most prevalent methods are;

    Horizontal Price Levels
    Trend Lines
    Moving Averages
    Fibonacci Retracement Levels
    and sometimes Round Numbers too[1]

A price histogram is useful in showing at what price a market has spent more relative time. Psychological levels near round numbers often serve as support and resistance. More recently, volatility has been used to calculate potential support and resistance.

Both proactive and reactive support and resistance methods have merit and form a staple part of any support and resistance based trading strategy.

Identifying support and resistance levels

Support and resistance levels can be identified by trend lines. Some traders believe in using pivot point calculations.

The more often a support/resistance level is "tested" (touched and bounced off by price), the more significance given to that specific level.

If a price breaks past a support level, that support level often becomes a new resistance level. The opposite is true as well, if price breaks a resistance level, it will often find support at that level in the future.

Using support and resistance levels

This is an example of support switching roles with resistance, and vice versa:

PaychexSupportResistanceChart.JPG

If a stock price is moving between support and resistance levels, then a basic investment strategy commonly used by traders, is to buy a stock at support and sell at resistance, then short at resistance and cover the short at support as per the following example:

MicrosoftSupportResistanceTradingChannelChart.JPG

When judging entry and exit investment timing using support or resistance levels it is important to choose a chart based on a price interval period that aligns with your trading strategy timeframe. Short term traders tend to use charts based on interval periods, such as 1 minute (i.e. the price of the security is plotted on the chart every 1 minute), with longer term traders using price charts based on hourly, daily, weekly or monthly interval periods. Typically traders use shorter term interval charts when making a final decisions on when to invest, such as the following example based on 1 week of historical data with price plotted every 15 minutes. In this example the early signs that the stock was coming out of a downtrend was when it started to form support at $30.48 and then started to form higher highs and higher lows signalling a change from negative to positive trending.


BiometSupportLevelInvestmentTimingChart.JPG

Support and resistance levels can used similarly for a wide variety of securities, from positions in equities like the example above to positions in commodity futures, foreign currency, options, and virtually any other derivative.

source: www.wikipedia.com  


Best Regards,

^^_Lord_Ice_^^

Trend Line


A trend line is formed when you can draw a diagonal line between two or more price pivot points. They are commonly used to judge entry and exit investment timing when trading securities[1]. It can also be referred to a dutch line as it was first used in Holland.

A trend line is a bounding line for the price movement of a security. A support trend line is formed when a securities price decreases and then rebounds at a pivot point that aligns with at least two previous support pivot points. Similarly a resistance trend line is formed when a securities price increases and then rebounds at a pivot point that aligns with at least two previous resistance pivot points.
Trend lines on a price chart.

Trend lines are a simple and widely used technical analysis approach to judging entry and exit investment timing. To establish a trend line historical data, typically presented in the format of a chart such as the above price chart, is required. Historically, trend lines have been drawn by hand on paper charts, but it is now more common to use charting software that enables trend lines to be drawn on computer based charts. There are some charting software that will automatically generate trend lines, however most traders prefer to draw their own trend lines.

When establishing trend lines it is important to choose a chart based on a price interval period that aligns with your trading strategy. Short term traders tend to use charts based on interval periods, such as 1 minute (i.e. the price of the security is plotted on the chart every 1 minute), with longer term traders using price charts based on hourly, daily, weekly and monthly interval periods.

However, time periods can also be viewed in terms of years. For example, below is a chart of the S&P 500 since the earliest data point until April 2008. Please note that while the Oracle example above uses a linear scale of price changes, long term data is more often viewed as logarithmic: e.g. the changes are really an attempt to approximate percentage changes than pure numerical value.
Previous chart from 1950 to about 1990, showing how linear scale obscures details by compressing the data.

Trend lines are typically used with price charts, however they can also be used with a range of technical analysis charts such as MACD and RSI. Trend lines can be used to identify positive and negative trending charts, whereby a positive trending chart forms an upsloping line when the support and the resistance pivots points are aligned, and a negative trending chart forms a downsloping line when the support and resistance pivot points are aligned.

Trend lines are used in many ways by traders. If a stock price is moving between support and resistance trend lines, then a basic investment strategy commonly used by traders, is to buy a stock at support and sell at resistance, then short at resistance and cover the short at support. The logic behind this, is that when the price returns to an existing principal trend line it may be an opportunity to open new positions in the direction of the trend, in the belief that the trend line will hold and the trend will continue further. A second way is that when price action breaks through the principal trend line of an existing trend, it is evidence that the trend may be going to fail, and a trader may consider trading in the opposite direction to the existing trend, or exiting positions in the direction of the trend.

source: www.wikipedia.org



FOREX (Foreign exchange market)

The foreign exchange market (forex, FX, or currency market) is a global, worldwide-decentralized financial market for trading currencies. Financial centers around the world function as anchors of trading between a wide range of different types of buyers and sellers around the clock, with the exception of weekends. The foreign exchange market determines the relative values of different currencies.

The foreign exchange market assists international trade and investment, by enabling currency conversion. For example, it permits a business in the United States to import goods from the United Kingdom and pay pound sterling, even though its income is in United States dollars. It also supports direct speculation in the value of currencies, and the carry trade, speculation on the change in interest rates in two currencies.

In a typical foreign exchange transaction, a party purchases a quantity of one currency by paying a quantity of another currency. The modern foreign exchange market began forming during the 1970s after three decades of government restrictions on foreign exchange transactions (the Bretton Woods system of monetary management established the rules for commercial and financial relations among the world's major industrial states after World War II), when countries gradually switched to floating exchange rates from the previous exchange rate regime, which remained fixed as per the Bretton Woods system.

source: www.wikipedia.com 


More about the Forex Market you can read here :

http://en.wikipedia.org/wiki/Forex

COT (Commitments of Traders)

Even if you are a day trader of longer time investment, as swing trader, you need to know how COT  reports are. Therefore  you should check these reports, before you enter short or long trade. If COT reports "show" many short traders are in the market, you should reconsider your entry, if you wanna go long. Even if you, based on your technical analysis want otherwise. These reports tell us if buyers are in control of the market, base on there positions, or sellers. You dont wanna bet against the market. You should be "friend with the trend":

 http://www.cftc.gov


Best Regards,

^^_Lord_Ice_^^

FREE indicators data base


There is no need for fancy indicators to build a good strategy. But when you'll learn more and you will need an idicator or EA ( expert advisor ) for your trading strategy, best place to look first is here:

http://codebase.mql4.com


Best Regards,

^^_Lord_Ice_^^


Economic Calendar


One of the most useful link for trading is Economic Calendar. Why ? Only experience traders trade during news release. And for beginers is important not to trade during news:

http://www.forexfactory.com/calendar.php

For proper use of this calendar you must set your time zone:

1. Click on the "Time & Date Option":


2. Set your GMT hour and return to "Calendar":


3. Apply your "Filter" for news of the currency you want to watch :


4. Now check the weekly calendar for the currencies you want to trade or stay away until market calm down after each news release.


Best Regards,

^^_Lord_Ice_^^