Tips and Strategies

Supports and resistances are points in the price of an entity (it can be a share or a currency pair or a commodity or any other entity) where the prices stall. They have got more to do with history and user sentiment. Lets say that the price of the entity is 5 to begin with. It begins to rise and it keeps rising and seeing this price, more and more people would want to jump in and they keep buying and the price rises even more. This means that the demand is more than the supply and as long as this happens, the price will rise.

The price will continue to rise until a stage is reached where people start to feel that the price has become high enough or those who bought it early feel that they have earned enough profit. Lets say that at this point, the price of the entity is 10. So, people start feeling that the price has risen too much (this is also called overbought conditions) and slowly start selling. The demand becomes less than or equal to the supply and the price slowly drops from 10. As the price continues to drop, the people who plan to make money on shorts also jump in and the buyers (even though they might have very less profits or are in loss) start getting panicky and they start selling and the price starts falling more and also at a faster rate.

So the price continues to drop from 10 and thus 10 becomes resistance as the price has not breached 10. Next time the price comes close to 10, the buyers and the sellers will look at past history and find that 10 was the place where selling started the previous time and so the buyers would want to get out at that point just to be on the safer side and so 10 becomes a even bigger resistance.

The price drop from 10 continues and at one place, the opposite to the one explained above happens ie. the users feel that the price has dropped too much (say at 2) and they start buying again and the price starts to rise again. Thus 2 becomes the support.

Remember, the greater the amount of time that a support or resistance has not been broken, the stronger it is. Even yesterdays high and low are resistance and support respectively but they are not very strong as they are quite recent prices.

So, always watch out for supports and resistances. The big banks and traders dont sit with their ema or whatever indicators and buy and sell based on that. They look out for supports and resistances and buy / sell based on that. So be careful, watch out for opportunities and get a feel of the market before jumping in.

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Hi there,

Once in a while, i get questions asking me why was a support respected when it was 1.4718 instead of 1,4719.

I would like to address this common misconception today.

Firstly, what are resistance and support lines?

When viewed on the chart, these are areas whereby the price seems to bounce off.

From a market point of view, these are areas whereby traders feel that enough is enough. ” I will not buy more at this price as it is too costly” ( Resistance Line ) or “I will not sell any further as this is too cheap” ( Support line )

For example, we note a support line at 1.4719.

However, there may be folks who are more stringent and will not sell lower than 1.4725 or perhaps we have folks who are easy going and are willing to sell as low as 1.4715.

This effectively “spreads” out the effect of the line.

This can be one of the reasons why we usually see the price slow down and consolidates when approaching an area of support or resistance as various expectations are being filled.

Another point i would like you to note is that forex being a decentralized market, will usually not have a standard price across all brokers.

If you whip up two charts from different brokers, you will probably see a difference of a few pips.

This contributes to the concepts of resistance and support lines being areas rather than a single line as what may look like 1.4719 to you, maybe 1.4721 to another.

Lets refer to the chart above. It shows the EUR/USD bouncing of a resistance at 1.4951 and later a support at 1.4910.

Notice that the price did push beyond the lines on a few occasions.

Therefore, it may not be feasible if one sets stop loses right on the line as the above example would have triggered your stop loss, just to turn back in your favor moments later.

That’s all for now and i hope i have shed light on how resistance and support lines work.

Trade safe.

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by Johan Kriek (jkriek@fxinstructor.com)

Have you ever been in a situation where your overbought/oversold indicator stays in overbought territory but the market keeps on moving higher?

I’ve seen it so many times where price is trending higher and people are calling tops due to the fact that some indicator is overbought. I’ll show you how to see when an indicator is INDEED oversold/overbought. Look at the chart below:

The chart above is a normal, straight-forward 15minute chart on the EUR/USD. For this educational purpose,  I will add a RSI with periods 9:

On the last chart you can see all the overbought and oversold conditions of this RSI

Now, if you have a closer look, you can see that the RSI REMAINED in overbough territory for a considerable amount of time and while the market was moving before coming back to oversold territory

If you decided to wait before trading EUR long because the RSI was overbought, you would have lost out on many pips

So how do we overcome this barrier? How do we know when it is truly overbought?

Look at the chart below:

I have identified a trend, a BULL trend

For as long as this bull trend remains intact (meaning price trends above the trendline support) the bullish bias will remain intact, right? So why don’t we have a look at the RSI from a BULL trend perspective as well?

Conclusion:

Indicators indicate. They are only effective when used in conjunction with some kind on trend analysis. If the trend is bullish, then the overbought signals are misleading but the oversold signals in this bull trend are just great!

So there ya go. I only look at my indicators from a probability study perspective. If the 60minute trend is bullish, I will regard oversold conditions very highly while overbought conditions will be deemed insignificant and misleading

Of course the opposite will be applicable to a bear trend

If you have any questions, please email me or come and ask me in the Live Trading Room here at FXInstructor

Happy pipdancing!

Johan Kriek

Tue, 21th of April, 2009
By Setyo Wibowo (analyst@fxinstructor.com)

EURUSD Outlook
The EURUSD had another bearish momentum yesterday. After break below key support level at 1.3000 – 1.2950, the pair bottomed at 1.2888 and closed at 1.2919. The descending triangle pattern has been giving us a valid bearish scenario so far and I am still expecting further potential bearish movement towards 1.2456 this week. The bias remains bearish in nearest term but we seem to have support around 1.2840/50 area. Break below that area could trigger further bearish momentum targeting 1.2725 area. CCI in oversold area and heading up on h4 chart so watch out for a potential upside rebound testing 1.2950/70 resistance area. Break above that area could trigger further upside correction.

EURUSD Daily Supports and Resistances:

• S1= 1.2855
• S2= 1.2792
• S3= 1.2696
• R1= 1.3014
• R2= 1.3110
• R3= 1.3173

GBPUSD Outlook
The GBPUSD continued it’s bearish momentum yesterday. After violated the trendline support on h4 to the downside, the pair bottomed at 1.4499 and closed at 1.4536. The bias is bearish in nearest term targeting 1.4420 area. However CCI in oversold area and heading up on h4 chart so watch out for a potential upside rebound testing 1.4575 resistance area. Break above that area could trigger further upside correction.

GBPUSD Daily Supports and Resistances:

• S1= 1.4420
• S2= 1.4305
• S3= 1.4111
• R1= 1.4729
• R2= 1.4923
• R3= 1.5038

USDJPY Outlook
The USDJPY had a bearish momentum yesterday. The pair bottomed at 97.65 and closed at 97.87. On h4 chart we can see that the triangle formation has been violated to the downside. The bias is bearish in nearest term targeting 97.10 area. However CCI just cross the -100 line up om hourly chart so watch out for a potential upside rebound testing 98.10 resistance area. Break above that area could trigger further upside rebound.

USDJPY Daily Supports and Resistances:

• S1= 97.88
• S2= 96.89
• S3= 96.14
• R1= 99.62
• R2= 100.37
• R3= 101.36

USDCHF Outlook
The USDCHF attempted to push higher yesterday. The pair topped at 1.1739 but closed lower at 1.1689. On daily chart below we have a shooting star candlestick pattern suggesting a potential bullish exhaustion and a warning of bearish reversal. The bias is neutral in nearest term. Immediate resistance is seen at 1.1750. Initial support at 1.1620. CCI just cross the 100 line down on h4 chart suggesting a potential downside pressure.

USDCHF Daily Supports and Resistances:

• S1= 1.1644
• S2= 1.1602
• S3= 1.1555
• R1= 1.1733
• R2= 1.1780
• R3= 1.1822

Have a great day!

Most strategies or techniques in technical analysis involve the use of indicators.

But more often than not, most traders use indicators for all kinds of situations which tend to render them quite ineffective.

Just as a carpenter’s toolbox has different instruments which are used for different purposes, each indicator in the tool box of a trader has to be used for a particular situation.

In our Live Trading Room we teach, among many other things, a series of lessons we call “Know your Indicators”, which introduce specific indicators, and go over the characteristics and drawbacks of the same.

First and foremost, there is one point that a trader needs to keep in mind – all indicators are lagging, and it is ultimately price which is the only leading indicator.

Indicators should be used just as they are described – as “indications” for price movements and not as confirmations. While this does not diminish the importance of the indicators, one must remember that a change in price will cause a change in the indicator – not the other way round.

Indicators, nevertheless, play an important part in the building of strategies and techniques – but only if one applies them correctly.

The DMI/ADX is one of the most effective and yet underused indicators. If used with the correct parameters, it can be a very effective trading system on its own. Read the rest of this entry »

Hey Traders,

This is the third episode of our Secrets of MetaTrader video series. Today’s lesson is dedicated to installing indicators on your MetaTrader 4 platform, without having to dig around on your “C” drive looking for the right folder.

We’ve had A LOT of requests for something like this, so I hope you all find this extremely helpful and effective! If you ever need to install indicators manually, this is the recommended way.

Let me know if you have any questions or comments, and enjoy the video!

Hey Traders,

Welcome to another episode of Secrets of MetaTrader. Its been a while since we posted another update, but it was surely worth the wait.
Our second lesson discusses duplicating objects on your charts – something many traders can find very useful when plotting channels, Andrews Pitchforks, etc.

Another topic in today’s video is stacking indicators – placing one indicator on top of another in a separate indicator window. This is a very versatile feature that many traders ignore because they don’t know about it.

Let me know if you have any questions or comments, and enjoy the video!

In the forex markets, it’s worth knowing the characteristics of the currency pairs, since each of them exhibit distinct identities.

Most of the currencies exhibit similar movement patterns, which can help a trader confirm price movements.

One such close relation can be found between the EUR/USD & USD/CHF.

The price movements of these two currency pairs are absolute mirror images.

In short, they have an inverse relationship: If EUR/USD is rallying, then USD/CHF should have downward movement, and vice-versa. Read the rest of this entry »