Ricex
Sergeant
- Messages
- 358
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.
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....
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.
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....