FOREX PRO Weekly July 18-22, 2011

[papao]

MACD, Histogram and EMA

Hello everybody. Sive, i'd like to ask you some questions about MACD and EMA:
1) what parameters do you use for macd? The "standard" 12,26,9 or 8.3896,17.5185,9.0503 suggested by Mr. DiNapoli?
2) (i might be wrong, but the macd histrogram seems to be a very useful indicator for estimating the trend, i've attached a chart (eurusd daily). In particular, the histogram react much faster, and it can give us a signal that trend is changing before the macd line cross the signal line. Of course, this leads to more signals and more fake signals), [how] do you use macd histogram? Would you suggest us to use it?
3) i've noticed that moving averages act, very often, as support/resistence. I've attached another chart (eurusd H1), with the EMA(26) and EMA(12). This happens especially when market is trending. Do you use moving averages to detect (or, at least, confirm) support and resistence areas? May be you could mention this behaviour in military school, if you think it's worth to be said.

Thank you for your attention and time you spend for us!

 

[Sive Morten]

hello Mr.Sive
I'm Indra. I interested in forex, and still learning of it.
I feel very lucky I joined the FPA. I learned many things in Forex Military School.
I have a problem because I can't find the study about butterfly shape that you used in your analysis.
can you tell me where I can find lesson about butterfly pattern you used?
thank for your help
and
sorry for my bad English

Hi Indra,
well, you have couple of choices - to wait when corresponding chapters will appear in FX Military School (they will).
Or, to read "Trade what you see" by Leslie Jouflas and Larry Pesavento.

Hello everybody. Sive, i'd like to ask you some questions about MACD and EMA:
1) what parameters do you use for macd? The "standard" 12,26,9 or 8.3896,17.5185,9.0503 suggested by Mr. DiNapoli?
2) (i might be wrong, but the macd histrogram seems to be a very useful indicator for estimating the trend, i've attached a chart (eurusd daily). In particular, the histogram react much faster, and it can give us a signal that trend is changing before the macd line cross the signal line. Of course, this leads to more signals and more fake signals), [how] do you use macd histogram? Would you suggest us to use it?
3) i've noticed that moving averages act, very often, as support/resistence. I've attached another chart (eurusd H1), with the EMA(26) and EMA(12). This happens especially when market is trending. Do you use moving averages to detect (or, at least, confirm) support and resistence areas? May be you could mention this behaviour in military school, if you think it's worth to be said.

Thank you for your attention and time you spend for us!

Hi Papao,
I use Joe's parameters for MACD.
There is no difference between MACD lines and histogram, since they are the same, if you use the same parameteres. I do not use histogram, because do not see any significant advantage over simple MACD. But if you see - use it! That's the major foundation of trading - what is suitable for somebody, not neccesary will be acceptable to other.
Yes, sometimes I look at MA's as support or resistance, but mostly on 25x5 DMA and on longer time frames.
In current chapter of School we will touch this topic.

 

[yousuf]

hi

hey sive, hope your well,

i want to start by apologising, because i have apparently hurt some of my fellow members, by kiddingly asking whether your bank passed the stress test. Im sorry and i didnt mean any harm.

secondly, coming back to the straddle option we were talking about.
You mentioned that we need to know the expiration date, and the premium. Well, i pay future straddles on usually 3 weeks in advance or sometimes 4, if i get it on a decent premium.

I set my average true range and historic volatility indicators on 15 or 20 periods, depending if my options expires in 3 weeks or 4.

thats for the expiration date, premiums and measure of volatility.

i wanted to ask you was is that all good enough of do i need to do some more research into volatility?

let me know.

thanks

yousuf.

 

[Sive Morten]

hey sive, hope your well,

i want to start by apologising, because i have apparently hurt some of my fellow members, by kiddingly asking whether your bank passed the stress test. Im sorry and i didnt mean any harm.

secondly, coming back to the straddle option we were talking about.
You mentioned that we need to know the expiration date, and the premium. Well, i pay future straddles on usually 3 weeks in advance or sometimes 4, if i get it on a decent premium.

I set my average true range and historic volatility indicators on 15 or 20 periods, depending if my options expires in 3 weeks or 4.

thats for the expiration date, premiums and measure of volatility.

i wanted to ask you was is that all good enough of do i need to do some more research into volatility?

let me know.

thanks

yousuf.

Hi, Yousuf,
well, when I try to make desicion about options, especially straddle, I like to know, what implied volatility is.
you can calculate it from Black-Scholes model, by iteration - change volatility until option price by model coincide with price that on quote board.
Then you can compare it with historical one. If it will be greater (and how much greater is also important), then market makers probably expect growth of volatility and straddle in that environment will be not best idea.
Still, it's better to use your own analysis - ATR, Hist Vol, Price Channel, DOSC indicators will help you to decide - worthy to count on some solid move or not.
Later in Military School, will be chapter, dedicated to volatility measurement ways.
Also if you will have time - pay attention to Connoly book "Trading volatility". Nice book for newbies in that question.

 

[Sive Morten]

EUR/USD Daily Update, Wed 20, July 2011

Hi there,
On daily time frame is not much new, just couple of things. First, due to recent price action we can calculate nearest target - 0.618 Fib extension at 1.4263
Second, during nearest 2 days we have to keep an eye on trend shifting on daily time frame, since MACDP comes in play.
Still I have to warn you, that 22d of July will be results of next rounding of discussion US debt ceiling. This event could shake the market significantly. THat's why current market, say, lazy a bit.

On 4-hour chart could happen some different scenarios. First, we see, that 2 different Fib targets stands above previous high - 1.4263 and 1.4271. I suppose that there are some stops above 1.4256 so, it will add fuel to upward move.
And this could turn into Butterfly "Sell" with 14328.
Now we come to major question for today - how deep the retracement down will be.

On hourly chart we see 3 levels to watch - 1.4090 (Confluence and Agreement), my prefferable 1.4050 - Agreement, 0.618 support and pivot and levels below 0.618 - 0.786 at 1.4032 and 0.88 at 1.4013

Where market will stop? I don't know, but what we do know is that market should not break 1.3980 to the downside.
It will be much better if market will stop at 1.4050 and turn to upside again, since 4-hour trend will remain bullish only till that area.
From another point of view - if it will be Butterlfy, then it's typical to see, say, 0.786 retracement.

So, in such kind of environment, you may apply different ways to enter:
1. Safest way is to wait end of retracment, first thrust from some level up, shifitng houlry trend to bullish and enter on nearest retracement from this most recent swing up. Disadvantage - you will have worse price.
2. Enter partially from levels - by adding to position;
3. Trading some patterns on 5-min charts around level, etc.

 

[papao]

Hi Indra,
Hi Papao,
I use Joe's parameters for MACD.
There is no difference between MACD lines and histogram, since they are the same, if you use the same parameteres. I do not use histogram, because do not see any significant advantage over simple MACD. But if you see - use it! That's the major foundation of trading - what is suitable for somebody, not neccesary will be acceptable to other.
Yes, sometimes I look at MA's as support or resistance, but mostly on 25x5 DMA and on longer time frames.
In current chapter of School we will touch this topic.

thank you Sive!

 

[TraderBob]

Butterfly

Hi Sive, so the price action just went straight up, did we just eliminate the butterfly pattern?

What is the likelyhood this will retrace to the levels you indicated at this point.

Thanks

 

[yousuf]

hey

hey sive, thanks for your reply,

i think you have mixed straddle with strangle.
straddle is for high volatility
strangle is for low volatility.
im sure you know this, its just because u said that if volatility increases its bad for a straddle but actually its other way around.

i have a straddle at the moment and i am waiting for macro data, for the implied volatility to increase, so i can profit from it, right now as u said the market is a bit lazy.

my expiration date is the 29th of july. and the premium is around 250 pips. so....

 

[Sive Morten]

Hi Sive, so the price action just went straight up, did we just eliminate the butterfly pattern?

What is the likelyhood this will retrace to the levels you indicated at this point.

Thanks

Hi Bob, well, we could say that Butterfly canceled if market will move above the high of initial swing down (1.4280)

hey sive, thanks for your reply,

i think you have mixed straddle with strangle.
straddle is for high volatility
strangle is for low volatility.
im sure you know this, its just because u said that if volatility increases its bad for a straddle but actually its other way around.

i have a straddle at the moment and i am waiting for macro data, for the implied volatility to increase, so i can profit from it, right now as u said the market is a bit lazy.

my expiration date is the 29th of july. and the premium is around 250 pips. so....

Hm, somehow I remember that you've said that you want to short straddle?
Or I miss something?
Straddle and strangle are the same in terms of volatility, the different just in strikes of put call options. In straddle - both have the same strike, while in strangle - strikes are different.

 

[Joshnix]

Hi there,
On daily time frame is not much new, just couple of things. First, due to recent price action we can calculate nearest target - 0.618 Fib extension at 1.4263
Second, during nearest 2 days we have to keep an eye on trend shifting on daily time frame, since MACDP comes in play.
Still I have to warn you, that 22d of July will be results of next rounding of discussion US debt ceiling. This event could shake the market significantly. THat's why current market, say, lazy a bit.

So, in such kind of environment, you may apply different ways to enter:
1. Safest way is to wait end of retracment, first thrust from some level up, shifitng houlry trend to bullish and enter on nearest retracement from this most recent swing up. Disadvantage - you will have worse price.
2. Enter partially from levels - by adding to position;
3. Trading some patterns on 5-min charts around level, etc.

Sir,
would you recommend waiting to see if today's close is above the MACDP. I have been playing the 4 hr timeframe that way as it seems to give a better chance of gaining some profit. As I type price turns to retracement, rejected by MACDP on the daily. Since the market seems to not know which direction it wants to go, until debt discussions are resolved.

As always, Thank you for sharing your tools and knowledge.