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Chapter 20, Part I. Intro to Breakouts and Fakeouts Page 8

Discussion in 'Complete Trading Education- Forex Military School' started by Sive Morten, Dec 21, 2013.

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  1. Sive Morten

    Sive Morten Special Consultant to the FPA

    Aug 28, 2009
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    Here are the major rules of RPC application:

    1. The most common parameters are 5;10;21;55

    2. On trending market RPC shows stability or gradual increasing in value;

    3. On sideways consolidations RPC shows decreasing or stability at low values;

    4. Although it is not normalized, it usually holds in some range, like the DOSC indicator due to the nature of the particular market;

    5. Indicator tends to return to its previous highs and lows. They itself could give a sign that the current move is close to an end;

    6. This indicator gives quantitative parameter of true breakout – usually if RPC chances for 2-2.5 times compares to current value, it tells about future price move. As a rule this move lasts for 2/3 of difference between highest and lowest value of RPC;

    7. RPC tells what price move is not just an occasion fluctuation – it equals 0.5 of minimum value. If that indicator changes on that value it tells that trend development is possible.

    Pipruit: Well, it’s all clear except two last points…​

    Commander in Pips:
    Ok, I’ll show you on the chart:

    Chart #4 | Daily EUR/USD and RPC (21)

    The average low of RPC is about 200-250 pips. So, according to our point 7 move of indicator for 100-130 pips could not be just occasion. In the first rectangle we see that the indicator drops significantly from 1292 to 111, or for 1292-111 = 1181 pips. Multiply 1181*2/3 = 787 pips – this move we can expect from further price action in the direction of breakout. The move was almost precisely for that value – from 1.3750 to 1.29.

    History has repeated, but now in another direction. RPC has risen obviously more than just for 150 pips in the beginning of 2011, precisely speaking for 850 pips. Hence our expected move is 850*2/3=560 pips, market has shown even greater move from 1.39 (after breakout) to 1.48

    Although you can experiment with that indicator, it’s rather specific and more suitable for options trading and estimating possible changes in volatility. It is needless to say that you should not trade only based on it. Still you can try to deal with it also. But I suspect that your choice will be BB and ATR just because they exist in MT4 software. But all of these indicators mostly for reference, only as add-ons to other analysis tools. Personally, as a rule I use Historical Volatility and ATR.

    P.S. This lesson was written by Sive Morten, who has been working for a large European Bank since April of 2000, and is currently a supervisor of the bank's risk assessment department. Sive's knowledge of forex market and banking industry is vast and quite complete. If you have any specific questions about forex, banking industry, or any other financial instruments, please post them on the next page and Sive should answer soon.

    Note: FPA ranks are earned in the battles against scam, not in the classroom.
    #1 Sive Morten, Dec 21, 2013
    Lasted edited by : Apr 23, 2016
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