1. This site uses cookies. By continuing to use this site, you are agreeing to our use of cookies. Learn More.

Simple technical analysis

Discussion in 'Beginners Bootcamp' started by Ricex, Dec 16, 2009.

  1. Ricex

    Ricex Sergeant

    Joined:
    Jun 30, 2009
    Messages:
    358
    Likes Received:
    2
    I want to try and help newcomers to the world of forex technical analysis by putting up some very basic charts with some very basic types of analysis on them. This really is for those just starting out and trying to put the pieces together, I want to keep it really simple.

    They say when starting out trading "keep it simple", well I say don't change a good habit just because you think a chart filled with all sorts of pretty lines will somehow make you a better trader.

    I'm going to just start off with looking at cable.

    gbpusd example 1.

    Here I want to show on this hourly chart how this currency pair has moved from a downtrend into a range, and if we can identify that then we can adapt our trading accordingly.
    By using support and resistance lines we can define the range area and use this to our advantage in setting up potential buy or sell positions. Letting the market come to us we have more control over our risk, we effectively set traps on our own terms, but this does require patients. To be a good trader you must learn to be patient.
    The options we have in this particular market is to buy off the support line or sell off the resistance line. If we start trading in the middle of the range we have no clear direction and we are risking more than we need to.
    Ironically if we look at the daily time frame we find that we are in fact slap bang in the middle of a much bigger range, this makes predicting whats going to happen next a little bit more difficult but not impossible.

    Option 1 - we wait until the price comes up to the resistance line and we sell. The range is about 150pips so our potential risk to reward ratio is quite good. We could risk 20-30 pips on this trade.

    Option 2 - we could wait for the price to return to the support level and buy. This has less appeal as this range maybe just consolidation, a pause if you like in a downtrend, and when sterling has fallen it has been quite rapid.

    Option 3 - is the breakout of either of these two levels. If this happens we would look for the price to make a move outside the range and then come back and find support off the resistance line or resistance at the support line before entering a trade. Either way we would look to the smaller time frames for conformation and not rush in to quickly.

    Lets see what happens....
     
  2. Ricex

    Ricex Sergeant

    Joined:
    Jun 30, 2009
    Messages:
    358
    Likes Received:
    2
    False breakout

    .... ok so what we got was a false breakout. An attempt by sterling to move higher but unable to overcome all the dollar buyers out there.

    gbpusd example 2.

    This outcome has thrown up two interesting points, firstly this is the reason we look for that initial move up, then a little pullback onto resistance turned support, and then the move higher. In this instance sterling fell back into the range and continued to find resistance, for 4 hours sterling tested this level and couldn't move higher. Playing the probabilities you'd have to side with a short position here. We have kept out of a bad long trade just by watching price action around S&R levels, nothing more complicated than that.

    Secondly we have a very common candlestick pattern which also started to ring the alarm bells, the bearish engulfing pattern.

    gbpusd example 3.

    As you can see on the chart the red bear candle goes higher and lower than the previous green bull candle. This is a classic end of trend pattern that is easy to identify. A bullish engulfing pattern is just the opposite and works equally as well.

    So lets see where we go from here, I'm short off of that top range resistance line at around .6335 my SL I moved to .6290 this morning so I have 40 odd pips locked into this trade already.
     
  3. Ricex

    Ricex Sergeant

    Joined:
    Jun 30, 2009
    Messages:
    358
    Likes Received:
    2
    ....ok so this trade is moving along quite nicely, helped by some non festive news out of the UK. The price has broken through our lower support for the range and will hopefully continue it's previous downward trend.
    We must expect some pullback at some point but that is just the ebb and flow of the market. I will move my SL down to .6235 now and lock in 100 pips.

    gbpusd example 4.
     
  4. Ricex

    Ricex Sergeant

    Joined:
    Jun 30, 2009
    Messages:
    358
    Likes Received:
    2
    Dollar strong but overbought

    Very little development of the trade which is not really surprising, lets see what the asian session will do with the dollar...

    gbpusd example 5.
     
  5. Ricex

    Ricex Sergeant

    Joined:
    Jun 30, 2009
    Messages:
    358
    Likes Received:
    2
    End of trade

    gbpusd example 6.

    ....ok so not much action over the asian session, it was the London open that pushed Sterling up to the Stop Loss.
    Not a great trade but 100pips is $1000 profit if you trade full lots, and $100 with a mini-lot trade. Not so bad for clicking a few buttons, and you've only once paid the spread.
    Now I would wait for another potential set-up before attacking cable again, and certainly not before the new year, frankly it's Friday and everybody should be down the bar slugging tequilas.

    The point of all this is to just show how, by watching price action and using simple S/R levels you can trade calmly, simply and pretty effectively.

    A very merry xmas to the troops
     
  6. Pelmore

    Pelmore Recruit

    Joined:
    Jan 6, 2009
    Messages:
    2
    Likes Received:
    0
    Thanx ,Ricex......

    Thanx for the technical analysis,Ricex...U are simply great...God bless u...
     
  7. fredpipster

    fredpipster Private

    Joined:
    Nov 9, 2009
    Messages:
    21
    Likes Received:
    0
    Thank you for your help... trading with technical analysis looks quite promising... marry xmas
     
  8. Ricex

    Ricex Sergeant

    Joined:
    Jun 30, 2009
    Messages:
    358
    Likes Received:
    2
    Your most welcome and thanks for your kind words. This stuff can be found all over the net of course, I'm just trying to do my bit in keeping it uncomplicated and simple to follow. I also want to make it relevant to what we could be trading now so we can see in reality how these things play out rather than me picking perfect set-ups from yesteryear.
     
  9. Ricex

    Ricex Sergeant

    Joined:
    Jun 30, 2009
    Messages:
    358
    Likes Received:
    2
    Happy New Year To Everyone On Fpa

    Hi,
    having a look at the progress of cable I have to admit to feeling a little bit annoyed that I moved my SL up that quickly and then got stopped out, I normally give my longer term trades more room than that, but hey that's trading and I can use that error as a gentle reminder to keep to my discipline rules.

    In my first post I said:

    well if we zoom out and have a look at the 4hr chart we can see what has happened...

    gbpusd 4hr.

    ....a very firm refusal from sterling to go any lower than that larger range support line, it's not exactly to the pip but looking at longer term trading 10pips is nothing. We now find price back up near the previous range after that very strong move.
    Here is the hourly chart with some candlestick patterns that could have signaled a trend reversal and a very nice long trade for 300 odd pips.... shame I was on holiday :p

    gbpusd 1hr.

    Hope you all get some good trades to kick start 2010 with a bang!!
     
  10. Ricex

    Ricex Sergeant

    Joined:
    Jun 30, 2009
    Messages:
    358
    Likes Received:
    2
    Double top

    Here's a very common pattern that we see repeated again and again on all time frames, the Double top (if you imagine the chart inverted that's a double bottom).

    gbpusd dt1hr.

    Double tops are failed re-tests of previous resistance and normally result in quite a decent haul of pips if they can be identified early enough, this example has already offered 90+pips. The identification is the tricky part, I tend to wait for confirmation rather than entering at the top but this still carries quite a bit of risk.
    This DT is interesting as it may be a signal for cable to move lower and finally break out of it's lower range support, if it does then this would be an excellent entry point, we will see.
    Looking at the alternative scenario of a move higher for sterling, remembering that for the moment it is still ranging, I've used the Fibonacci tool to try and give clues as to possible retracement levels. This tool is easy to apply by just clicking and dragging from point A to point B (previous low/new high).The 38.2 matches up with a resistance zone that might provide support for a move higher, or it may retrace further.

    gbpusd fib1hr.

    Lets see what happens when the markets open and the year begins.
     

Share This Page