__________________________________________________________________________FOREX TUTORIAL
PART II
The Basics On
How to read and interpret charts and different candlestick patterns
How to identify Pivot Points and use them to make profitable trades
Using different forms of Technical Analysis
A lot of different vocab and explanations for very important topics in relation to the market
How to read and use multiple indicators such as Moving Averages, MACD, ADX, DMI
By the end of this tutorial you will have a much better grasp on the market and be able to execute a high ratio of extremely profitable trades. 
Welcome to the second part of the tutorial! This is where you guys and gals will learn technical analysis and how to make some very exciting and profitable trades!
So without further adue, I bring too you, PART II!!
Update
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Signals will be provided for any Currency Pair of your choice(If your interested in purchasing FOREX trading signals PM me for details - spots limited)
______________________________----- Reading Charts & Understanding Candlestick Patterns & Other Basics -----
Before we start on
Technical Analysis lets take a look at some charts and get a feel for what certain things mean and how to read and understand what your looking at
Netdania is a free website that provides really good charts and has the tools required for this part of the tutorial, if you don't already use a website or
have a program that provides you with the charts and tools that you need then i suggest using
Netdania or finding one that you like as you will need it for this tutorial
You can use
Netdanias charts by going to
http://www.netdania.com/Products/live-streaming-currency-exchange-rates/real-time-forex-charts/NetStation.aspx and clicking
launch netstation. Or you can google
"Forex charts" and use what ever charts you prefer as long as it has the tools needed for this tutorial. The screen shots i will be using for this tutorial will be taken from
Netdania so if you want to follow me
step-by-step then i suggest using their charts or something similar.
(Here is a direct link that will load Netstation for you if you cant find the "Launch Netstation button". http://www.netdania.com/Products/live-realtime-streaming-currency-exchange-rates-charts/chart-forex-charts/NetStationFullWindow.aspx) After going to the website provided in the previous link, Click on
"Launch Netstation" and once it loads click on
EUR/USD under the
"Quote List" and a chart will open for the currency pair
EUR/USD. Below are screen shots of this. After it loads just keep it handy as we will be going back to this window VERY soon.
------------------------------------------
------------------------------------------The very first thing you need to understand and learn how to read are what is referred to as
"Candles"
As you can see, within a moment of viewing a
candle you are easily able to gather a multitude of information such as the currency's
highs and
lows and where the currency has
opened and
closed as well as weather it closed
higher or
lower then when it opened
Candlesticks are formed using the
open,
high,
low, and
close of the chosen time period. Before we discuss different candlestick patterns I would like to first explain what
"Bearish" and
"Bullish" candles are. Below is a picture of two candles, one of which is a
Bullish (white)
candle and the other a
Bearish (Red)
candle.
(depending on what chart your using the colors could be different but should be easy for you to decipher which is which. The charts we're using for this tutorial use
Orange for
Bearish Candles and
Blue for
Bullish Candles)
If the Body of the
candle is White (or
Blue) it means the
candle has closed
higher then when the candle originally opened, and vice-versa, if the candle is Red (or
Orange) then it closed at a lower price then when it originally opened
*** New vocab! ***The terms
Bullish and
Bearish are used a lot in the trading community (I'm sure you can google the roots of the word if your curious but this isn't a history lesson
)
In the previous lesson you have all learned what going
Long or taking a
Short position means.
Bullish refers to any
LONG move made in the market and a
Bullish candle is a candle that is formed when the price
INCREASES, whilst vice versa
Bearish refers to any
SHORT move made in the market and a
Bearish candle is formed when the price
DECREASESNow that everyone knows what
Candlesticks are and how to read them, lets move on to
Candlestick Patterns!
_________________________________----- Candlestick Patterns! -----
Now lets discuss different candlestick patterns
First off lets take a quick look at the difference between
long and
short candles in
length. Below is a picture of the two
A
long candle is an indication that there is alot of buying or selling pressure happening, the
longer the body the more
intense this pressure is. Meaning that either the
sellers (
Bears) or the
buyers (
Bulls) were able to take control of that candle by the time it closed and the next candle opened
A
short candle just means that there is very
little activity going on at that moment
Okay now that you know the difference between
long and
short candles in
length and what they mean lets take a look at some
Candlestick PatternsThe first
Pattern were going to look at is referred to as the "
Spinning Top" (which is illustrated below)
When it comes to
Spinning Tops its not very important weather the
Bulls or the
Bears have control of the candle. What
IS important to note is that not much movement in
either direction has occurred and more importantly there is alot of
indecision in the market
If you start to see
Spinning Tops while the market is in a
downtrend then a possible
reversal in direction may occur, and of course this applies in the vise-versa when the market is in a
uptrend and you start to see
Spinning Tops form also indicating a possible
reversalSpinning Tops often occur when a
trend is dying out, making them very important for predicting
reversalsNow instead of discussing each of the
Candlestick Patterns individually I will simplify it for everyone and provide a chart with interpretations of them all at the end of this vocab session
I feel it is important that everyone knows the names of these
candlesticks before continuing so lets have a quick vocab session!!
****Vocab!!!****
(The Spinning Tops we just discussed are part of this vocab list as well)
The second type of
Candle I would like you to know the name of is what is referred to as a "
Doji Candlestick".
Doji Candlesticks have the same
open and
closing price and their are
4 different type of
Doji Candlesticks. We will discuss what they all mean at the end of this vocab. Below is a picture of the
4 different
Doji Candlesticks along with their names.
The next type of
candlestick you should know the name of is what is referred too as a "
Hammer and Hanging Man". Below is a picture of a
Hammer and Hanging Man candlestick. (more on what these candles tell us at the end of the vocab) For now I just want you guys to know what they
look like and what their
names are
Next up is what is referred too as the "
Inverted Hammer and Shooting Star"
pattern. Below is a picture of this
pattern
That concludes the vocabulary for now
. Good job! You made it threw the boring vocab!
. Now that everyone is familiar with the
names of the
patterns we will be discussing we can continue
.
Their are much more advanced
duel and
triple candlestick patterns which will be discussed later on, at the moment this is not important and for now we will stick to the
basic candlestick patterns as to not get overwhelmed with too much at once
-------------------------
Okay now lets interpret the
patterns we just discussed. Below is a "
Cheat-Sheet" if you will, on the various
candlestick patterns that we have just discussed. I suggest you
study this chart and
familiarize yourself with it. Maybe even
save it to your desktop as a reference until you are able to
recall what the
patterns indicate by
memory.
(This picture was scanned from a book so bear with me, I'm aware that it isn't the best of quality lol)
As you can see, some of the various
candlestick patterns we just looked at along with others are described in this "
Cheat-Sheet" as
Bullish or
Bearish. For instance
number 9 depicts the "
Hammer or Hanging-Man" as being
Bullish if the market is in a
Downtrend and
Bearish if the market is in a
Uptrend. Meaning if you see a
Hammer or Hanging-Man form during a
Uptrend in the market then this is a indicator to
Sell. And of course vice-versa if you see a
Hammer or Hanging-Man form during a
Downtrend then this would indicate that the market may
reverse and start
trending up and that you should possibly
Buy--------------------
Yay!! Now that everyone knows what
candles are and how to read them we can finally start looking at some charts!! Give yourselves a pat on the back
. Right now we will be
focusing on how to read charts and the
Technical Analysis side of things which will allow you to set up some very
profitable trades. With that said, I feel as if it would be an
unwise use of our time if i was to explain all of the buttons and such on the charting programs so instead we will just be talking about the
tools and different
functions needed to
understand and
proceed in this tutorial.
The proceeding screen shots will be of the charts provided by
Netdania's,
Netstation. Links and details for using their charts were talked about in the beginning of this part of the tutorial, here is another link though
http://www.netdania.com/netstation. (Click
Launch Netstation and then click on
EUR/USD as I described at the very beginning of Part II) Below is a screen shot of what it should look like after loading the chart for
EUR/USD
(
above)
Here is a
1 hour chart for
EUR/USD. The
timeframe is displayed at the top in the
red box. Circled in
red is the
Studies tab, upon clicking the
Studies tab a new window will open up allowing you to select various
tools for
Technical Analysis and
Charting to be used at your disposal, a few of which will be discussed shortly
Lets first take a look at the
time-frames and what they mean. To the beginner the concept of
multiple time-frames may at first seem confusing but don't worry its a
very simple concept and
easy to grasp
At the top you will see buttons that read "
T 1 5 10 15 30 1H 2H 4H 8H D W M" representing the different
time-frames ranging from
one minute to
one month. We are currently viewing the
1H (one hour) chart, which simply means each of the
candles on the chart we are currently viewing were open for
one hour exactly. At the end of the
hour the most recent
candle will close and
immediately a
new one will open for the
proceeding hour. The new
candle will move up and down in price for
exactly an
hour upon which it will close and the next
candle will open and start moving.
Each
time-frame has its own
pros and
cons and can be utilized for different types of
trading techniques and
styles. You will most likely end up finding and using a particular
time-frame that suites your
style of
trading and
Technical Analysis more then the others.
Lets take a look at the
pros and
cons of
short,
medium, and
long term time-frames and what kind of
TA (Technical Analysis) their mostly used for. Later on we will discuss more
in-depth the different techniques/styles that are used on the various
time-frames. (You can skip this part for now and learn what time frame you prefer and the pros and cons of them as you go along but that's up too you
)
Its important too note that some people consider times frames of a hour as short term time frames and some people consider 30 minute times frames as long term. It depends on your style and what it means in relation to your style and techniques.I just want to give everyone a basic understanding of the concept. Further discussion on this topic will take place later.--Short-Term Time Frames--
By using a
short term time-frame anywhere from
1 minute to
15 minutes you will be
provided with
much more trading opportunities then longer
time-frames. If you are someone who wants to make
multiple trades in a
single day or even in a
single hour and
profit from the
many minuet swings that occur threw-out the
day or even threw out a
single hour then the
shorter time-frames are what you'll be using for this. While trading using the
shorter-term time frames opposed to the hourly charts or longer, most traders will utilize
higher leveraged positions so as to
maximize their
profits on the
many extremely small swings in the market that occur
minute by minute. Using
200X Leverage is
not uncommon here. (We will discuss more on leverage in a little bit
)
Now lets discuss the
downside of using
shorter term time-frames. Too start, when using
shorter time-frames sometimes the market will move too
fast for you to have
ample enough time to execute
accurate and worth-while
Technical Analysis and
strategy. Also, since your trades are
much more frequent you will have
higher fees coupled with the fact that the trades are
much smaller in this
time-frame. Lastly, because moves happen so
quickly at this
time-frame you have
less room for
error and may get
margin called or
stopped out by
small rally's and
reversals.
Timing is
IMPECCABLE when it comes to using
short term time-frames and
strategy. Trading will be
intense at this
time-frame due to all of short
quick moves in the market.
--Medium Time Frames--
This is my favorite
time-frame too trade on. Every trader is different and there is
no right or wrong
time-frame to trade on. The
medium time-frames that I concentrate mostly on range from
30 minutes too
2 hours. When trading on these
time-frames you have
plenty of time to execute and plan solid concrete
Technical Analysis and
strategy, and
plenty of time to use the various
tools provided for
TA so that you are able to plan a more precise
entry as well as a better idea for where to place your
Stop Loss and
Take Profit variables at
.
The
downside to this is that there is of course much
less opportunities to trade opposed to a
shorter time-frame. Depending on what
you prefer and how
you trade, a
shorter time-frame may be your bread and butter
. Don't worry, after trading for just a short time you'll figure out what
time-frame you dominate and prefer over the others
. (Also its not like you have to stick to any one
time-frame anyways, chances are you'll find yourself using
multiple time-frames)
--Long-term Time Frames--
This is a
time-frame that a lot of people really prefer using and you'll see why in a moment. Although, it of course has its downsides as well
.
Long term time-frames are considered to be the
8 hour chart all the way up to the
1 month chart. (The chart being used for this tutorial has buttons that correspond to the following "
long term"
time-frames:
8H,
D,
W, and
M. Where
D is
Day,
W is
Week, and
M is
Month. Some charts will even go up to a
year)
When using
long term time-frames you can
easily view and
identify the
direction of the
trend and weather the
Bulls or
Bears are currently in control of the market.
Long term time-frames will also
grant you the chance to gain a much
larger profit per trade and you will be
much less likely to have your position
force closed by getting
margin called/hitting your
Stop Loss due to
unexpected Rallies or
sudden Reversals.
Long term trades will inherently last much much
longer and thus give you the opportunity to monitor your trade
more closely, this will allow you the
ability to make
wiser more
clear-headed decisions on when to take
profit or where to place your
Stop Loss.
Less emotion is involved when trading these
slower time-frames opposed to the
lightning fast high pressure trading that occurs in the
quicker,
shorter time-frames. This is a
good thing as you
DO-NOT want to trade using your
emotions. After all, we're
not gambling, we're making calculated trades and
emotions can get in the way of this. Math doesn't have
emotion .
(although some would debate that markets do have "emotion", but that's some economic philosophy that we wont be getting into during this tutorial lol)_____________________________
----- Technical Analysis & Various Tools [of the trade] 
----- (AKA - The Fun Part ) Are you ready to finally start making some trades!Now that you know what your looking at when viewing a chart lets discuss some
Technical Analysis and how to use a few of the
tools provided to analyze a currency pair and set up some
profitable trades!
.
If your feeling overwhelmed its okay, that's normal,
don't worry! We will start off with some
basic yet
extremely effective technical analysis that everyone who has made it this far will be able to
quickly grasp and
execute and within no time you will finally be identifying and making
profitable trades
. (Remember if you ever have any questions AT ALL, DO NOT hesitate to ask. You can always PM me if you need some help or clarification
)
First lets take a look at what "
Support" and "
Resistance"
levels are and how to identify them and use them to trade. Too make things
simple lets take a look at Wikipedia's definition of
Support and
Resistance. (The following two definitions are a direct citation from Wikipedia) I have put in
bold the part that I want you to know and remember
Support*A Support level is a level where the price tends to find support as it falls.* This means the price is more likely to "
bounce" off this level rather than
break through it. However, once the price has
breached this level, by an amount exceeding some noise, it is likely to
continue falling until meeting another
support level
-----------------
Resistance*A Resistance level is the opposite of a support level. It is where the price tends to find resistance as it rises.* This means the price is more likely to "
bounce" off this level rather than
break through it. However, once the price has
breached this level, by an amount exceeding some noise, it is likely to
continue rising until meeting another
Resistance level.
So now you may be asking how do we
find and
chart these
Support and
Resistance levels. To do this we are going to be using what is referred to as "
Pivot Points". I will give you a brief definition of what
Pivot Points are.
Pivot Points are simply the
average of the
High,
Low, and
Closing price from the previous
day or
hour or what ever
time-frame you are calculating them for, these numbers are used to project
Support an
Resistance levels for future
time-frames .
There are
5 main types of
Pivot Points, all of which are calculated using a different formula. We will be sticking to just the
Standard Pivot Point formula for this demonstration. (In part 3 of this tutorial we can discuss the other pivot points but for now lets not add too much into the mix and become overwhelmed)
If you would like to research the other pivot point methods right now then these are the names of them so you can look them up (This is NOT needed to continue the tutorial and may just overwhelm you at this point)
Fibonacci Pivots
Camarilla Pivots
Woodies Pivots
Demarks Pivots Now
luckily you do not have to spend the time calculating
pivot points on your own as there are
numerous websites that do the calculations for you and display them in a
easy to read manor
Here is a website that will give you the
Pivot Points for various
time-frames on essentially every currency pair you will be trading
.
http://www.actionforex.com/markets/pivot-points/standard-pivot-points-2010040848154/ - We will be using this website for the following part of this tutorial
Open this website up in another tab. We will be using this website
shortly Okay now its time too finally put some
technical analysis into action! First off lets learn how to use these
pivot points to make some trades.
Make sure you have
Netdania or what ever
website/program your using to view charts
open and
ready to go. For this demonstration we will be focusing on
AUD/USD. Make sure if your not using
Netdania that what ever chart you are using has a
tool for drawing
lines on your chart
Now, open a
30 Minute chart for
AUD/USD and at the
top select the tab labeled
Lines >
Add Lines >
Click Add Free Horizontal Trendline.( Refer to the Screen Shot below if you cant find this lol)
Next, go to the website I
just provided for viewing
Pivot Points that have already been calculated for us and click on
AUD/USD(
http://www.actionforex.com/markets/pivot-points/standard-pivot-points-2010040848154/)
After
clicking on
AUD/USD you will be brought to a page that looks like this
We will be
focusing on the
Daily Pivot Points for this part of the tutorial so just
ignore the data for the
Hourly,
Weekly, and
Monthly Pivot Points for now
PP - Stands for
Pivot Point.
S - stands for
Support.
R - stands for
Resistance.
As you can see in the previous Screen Shot, the
Pivot Point or
PP is at
0.7085, so were going to draw a
line at this price to represent the
Pivot Point!
(below is a screen shot of this)
If you
right-click your
Pivot Point line you just drew you can select
Properties and change the
color of the line. For this tutorial change the
color of your line to yellow, this will help distinguish the difference between your
Pivot Points and other lines you will be drawing here shortly.
Next, were going to add
R1,
R2, and
R3 onto our chart. These will represent lines of
Resistance.
(http://www.actionforex.com/markets/pivot-points/aud%10usd-pivot-points-2010040873475/)Looking back at the website that provides us with our data for
AUD/USD you will notice the following:
R1 is at
0.7132R2 is at
0.7172R3 is at
0.7219Now lets
add all
three of these lines to our chart. After adding them to the chart, change the color to
RED.
After
adding these lines and making them
Red your chart should look like the following
Screen Shot.
(I realize chances are you'll be reading this at a different date then what my charts are at currently but as long as your understanding the concept, which I'm sure everyone at this stage does, then your fine .
Now that we have our
Pivot Point and
Resistance lines charted lets add our
Support lines
Looking back at the website were using to provide us with our data the following is what our
Support is at
S1 being at
0.7045S2 being at
0.6998S3 being at
0.6958Add these lines on your chart as well and make them
Green in color. Afterwords your chart should resemble the following
Screen Shot
Okay now that we have all of our
Pivot Points in place lets talk about how were going to use them
effectively A very
important strategy that
Pivot Points are used for is to gauge
Market Sentiment, allowing you to see and
visualize weather or not traders are
more inclined to
buy or
sell the currency pair in question.
Picture the Yellow
Pivot Point line is the
50 yard line on a
football field. Depending on what side the
ball (or price in our case) is on will tell you weather
buyers or
sellers have the
strength.
If the price is
ABOVE or
breaks ABOVE the
Pivot Point this indicates
Bullish sentiment in the market, where on the other hand if the price is
BELOW or
breaks BELOW the
Pivot Point then this would indicate
Bearish sentiment in the market.
-------
After reading the following explanation on how to use pivot points there will be a screen shot with an example so just read it threw even if your not understanding it and after looking at the screen shot you will definitely understand An
important thing to note is that the
price will test
Support and
Resistance levels
repeatedly and the
more times that the
price touches/tests a pivot level and
reverses then the
stronger that pivot level is.
(by pivot level I mean any of the lines for Support and Resistance as well as the actual Pivot Point its-self)One way too trade using
Pivot Points is to trade the
reversal. If you notice that the
price is nearing a pivot level then you can
open a trade in the
opposite direction once it "
bounces" off the level or
Pivot Point in question. Then using the
nearest pivot level in the direction of your trade as a
target to take profit you can set your
Take Profit parameters at this level or if your looking to lock in
more profits then you can set your
Take profit at the
next pivot level. Also, you will be using the pivot levels that are in the
opposite direction of your trade too set your
Stop Loss at as well. (After viewing the following screen shots this will all make sense if your not understanding
)
For example, if the
price is
nearing the first level of
Resistance or "
R1" then you can
sell the currency pair by opening a
Short position and placing your
Stop Loss slightly
above the second level of
Resistance or "
R2". If you want to be more
conservative and are
extremely confident that the
reversal is going to occur then you can place your
Stop Loss slightly
above R1 opposed too
R2. After opening a
Short position at
R1 your going to set your
Take Profit target at the
nearest pivot level in the direction of your trade, weathers that's the
Pivot Point its-self or one of the
Support/
Resistance lines.
OR for more
profit you can set your target at one of the proceeding pivot levels.
Now, lets look back at our
AUD/USD chart that we just drew our
Pivot Point and
Support &
Resistance levels on and lets look at this scenario played out.
As you can see if we
sold the currency pair/opened a
Short position at
R1 then all
3 of our
Profit Targets would have
hit! It
broke threw the
Pivot Point and continued to
break threw the first level of
Support/
S1 and
bounced off
S2. Congrats on your
profits!
. Now on the other hand if you got greedy and tried to take profits at
S3 then you would have missed out. Also if you would have placed your
Stop Loss just above
R1 opposed to
R2 then you would have been
stopped out. Until you get the hang of things you should place your
Stop Loss one full pivot level away opposed to the pivot level your
opening your position on
.
This part is very
important so pay attention to this. Once the price
BREAKS THREW a pivot level, (weather that's a level of Support, Resistance, or the Pivot Point its-self) that level will then inherit the
opposite properties from what it once had. I will give you a example.
If for instance the price
breaks above R1 and
bounces off of
R2 then
R1 now becomes a line of
Support opposed to
Resistance. If price was to continue to
break threw
R2 and is making its way too
R3 then
R2 now becomes a line of
Support instead of
Resistance Same thing with
Support lines. If price
breaks below S1 by a reasonable amount and is making its way towards
S2 then
S1 is now a line of
Resistance opposed to
Support and you can expect prices to meet
resistance at this level where it once had
support.
This
Resistance-turned-Support and
Support-turned-Resistance is important to remember and if for some reason this is confusing too you
don't worry its a
simple concept that you will catch onto quickly, also i will
provide screen shots of this scenario later so that you can have a example to reference.
Here is another screen shot of the Pivot levels we drew together on
AUD/USD illustrating the
technique we just discussed in regards to using our
pivot points to make
profitable trades.
By now you guys should
understand the concept of
Pivot Points and the
Support and
Resistance levels derived from it. In
Part 3 of this tutorial we will be discussing much more
advanced technical analysis and other ways too use
Pivot Points but for now lets keep it simple
.
In
part 3 i will teach you guys how to trade the
breakout of these pivot levels as well.
_______________________________
Indicators
Okay now that you guys have Pivot Points down, lets talk about a few different Indicators and how we can use them for technical analysis
We're going to discuss and learn some simple techniques on how to use the following indicators/tools:
Moving Averages - Helps us Determine the current
Trend and
Market Sentiment, etc.
MACD (Moving Average Convergance Divergance) - Will help us time our
Entry's and
Exits, etc.
ADX (Average Directional Index) - Will help us determine the
Strength of the current
Trend DMI (Directional Movment Index) - Will help us determine the direction of the
Trend as well as the trends
Strength and various other things.
For now this is what were going to
focus on and
discuss. These
tools are all you'll need for now. I don't want to overwhelm you guys and teach you too many things at once so in
part 3 of this tutorial we will learn how to use some other
tools/
indicators such as
Bollinger Bands,
RSI ,
etc,
etc.
For now this is
all you'll need to make
plenty of
profitable trades
Moving Averages
First off lets discuss
Moving Averages and how to use them to
identify the current
trend and
sentiment in the market. This part will be
VERY SIMPLE and
SHORT.
There are alot of different things that
Moving Averages can tell us but for now were just going to be using them to
determine the current
trend and
market sentimentFor this part of the tutorial were going to be looking at
EUR/USD so
open up a chart for
EUR/USD and follow along
.
While on a
1H chart for
EUR/USD Click on the
tab at the top of the screen labeled "
Studies".
(If your not using Netdania's Netstation then you'll have to find it on your own but look for Moving Averages)
After clicking on "
Studies" a box will
open with a list of various
tools and
indicators. Type
Moving Average in the search bar or find it on the list and click on it. After clicking on
Moving Averages, in the box labeled "
Parameters" under "
Period" your going to type
100.
After clicking
Add you will notice a
blue line on your chart. This line represents the
average price based off the last
100 points of data.
As you can see the line is moving in a nice uniform
upwards trend, indicating that the market is currently
trending up. I drew a
arrow to represent this.
Moving averages can be a simple way to recognize
Support and
Resistance levels, keep in mind you should always use
multiple indicators together when
analyzing a currency.
Once you have
identified a very
strong trend in the market, any time the price retracts
back to the
Moving Average you will have a good opportunity too
open a trade and hop on and ride the
trend until the price
breaks threw and closes on the other side of the
Moving Average.
Now lets look back at
EUR/USD again. I took a screen shot and drew this in order to give you guys a
visual of what I'm describing. (You are too buy at the arrows i labeled as Support and then close your position and take profits at the arrow i labeled as Resistance)
As the price retracted
back to the
Moving Average and
bounced off it you would have had
multiple opportunities to
open a
long position/
Buy EUR/USD and then as the price
closed below the
Moving Average this would have been an
indication to
close your position and take
profits . This would have netted you some
healthy profits, especially with adequately applied
Leverage (which we will be discussing later on).
!!!
That's it for now for
Moving Averages! Later on I will teach you guys how to use
multiple Moving Averages at once, and then using the
crossover of the two as a "
Trigger" too either
Sell or
Buy. I don't want to overwhelm anyone with too much at once and the best way to go about things is to learn one piece at a time so for now were going to move on
.
Give yourselves a pat on the back! Take some of those
profits you've made so far and treat yourself to something nice as a reward for making it this far! You deserve it! (For real though, you should probably take a break and give yourself some fresh-air champ
)
*UPDATE*
As you can see in the following screen shot that was taken a few days later, the price finally
broke threw and closed
BELOW the
Moving Average thus making the
Moving Average a point of
Resistance now opposed too
Support
---------------
MACD (moving average convergence divergence)
Okay next we are going to discuss the
indicator referred to as
MACD (Moving Averages Convergence and Divergence). I am going to teach you guys how to read and understand
MACD and use it as a "
trigger" to either
Sell or
Buy the currency your viewing, which in our case is
EUR/USD.
MACD is a very
powerful indicator and is one of the
most popular
indicators used by traders today. Its ability to generate a good percentage of consistently accurate
Buy or
Sell signals coupled with its
simplicity is probably one of the biggest reasons this
indicator in conjunction with others is analytical
gold to the adept trader.
MACD can be used too help determine the
direction of a
trend and weather a trend is likely to be
ending or
reversing, as well as the
momentum and
strength of the
trend. This will
immensely help you time the
Entry's and
Exits on your trades.
Lets go back to our
charts and add
MACD too it.
(in case you still need the link http://netdania.com/Products/live-streaming-currency-exchange-rates/real-time-forex-charts/NetStation.aspx Click Launch Netstation)At the top of
NetStation (The charting program we are using for this tutorial) click on the tab labeled "
Studies" again.
After clicking the tab labeled "
Studies" a box will pop up with a list of
indicators like before except this time your going to type
MACD in the search bar or find it on the list and
click it. Your screen should look like the following screen shot. Keep all of the
parameters at their default settings ( 12, 26, and 9) including the
colors and click "
Add"
After clicking on "
Add" their should now be a
separate chart attached to the bottom of the
EUR/USD chart. This is your
MACD Indicator . The following screen shot is a picture of
EUR/USD with the
MACD indicator attached to the bottom. This is what it should look like.
Okay now lets learn the basics of
MACD. In
part 3 we will go
much more
in-depth on all of the
indicators mentioned in
part 2 as well as others.
MACD is essentially just two "
EMA's" or
Exponential Moving Averages. One
moving average is
shorter and
faster then the other
longer and
slower moving averageThe
MACD we just added to our chart (EUR/USD) is using the
default EMA's of
12 periods and
26 periods. The
12 period
EMA in our case is
Green and is the "
faster"
moving average, whereas the
26 period
EMA is
Blue in our case and is the "
slower"
moving average.
For now I just want you too remember which
EMA is the "
faster" one (green) and which one is the "
slower" one (blue).
Now I am going to teach you guys and gals how too use the
MACD Crossver as a "
trigger" too either
Buy or
Sell.
Lets discuss what
signals are being given to us when the "
Faster"
moving average (Green)
crosses or
intersects with the "
Slower"
moving average (Blue).
As this
crossover occurs, there is a
very important moment in the market for us to possibly
capitalize on
In the following screen shot I drew
arrows at these
crossovers so you guys can get a visual
Each of these points are
signals telling us to either
Buy or
Sell and are referred too as either a
Bullish Crossover or a
Bearish Crossover.
Bullish Crossover- A
Bullish Crossover occurs when the
Faster moving average (green line) crosses
ABOVE the
Slower moving average (blue line). This would be a
signal to
Buy the currency in question which in our case is
EUR/USD.
(The first, third, fifth and seventh cross-overs on the previous screen shot would be an example of this)Bearish Crossover- Yup, you guessed it. A
Bearish Crossover occurs when the
Faster moving average (green line) crosses
BELOW the
Slower moving average (blue line). This indicates a
signal to
Sell the currency.
Now lets look back at our
EUR/USD chart with our
MACD indicator attached too it and see these principles in action. Below is a screen shot demonstrating what we just learned.
This
visual should help you understand the concept of
MACD crossoversOn the
bottom half of the previous screen shot you will see that on the
MACD chart I
highlighted the
Bullish Crossovers in
Green and drew
green arrows pointing too them. I also
highlighted the
Bearish Crossovers in
Red and drew
red arrows pointing to them as well.
On the
top half where the
price is displayed I highlighted the areas that correspond with the
MACD chart
below on the
bottom half.
Wow! Look at how much insight
MACD crossovers can give you! As you can see these
signals can be very appealing and if you listened to what these
crossovers had too tell you then you would have netted a
very nice
profit!!!
Congrats!Okay now lets look at how
MACD can be used to
signal momentum and
direction.
I'm sure by now you guys are wondering what those
red bars on the
MACD chart are for. This is referred to as a
Histogram. The
Histogram can be used to
signal Market Momentum and
Direction. These bars are calculated by analyzing the two
EMAs. The
size of the bars and the
amount in which the bars
change in
size will provide us with information about
momentum. When the bars are becoming
bigger/
longer this means that
momentum is
rising and the
trend is becoming
stronger and vice versa when the bars are
decreasing in size this means that
momentum is
falling and the
trend is starting to
weakenThe
Histogram shows us
direction by observing weather the bars are extending
upwards or
downwards. When the bars are extending
upwards this means that the price is moving
upwards in
direction with the
histogram and of course the vice versa applies when the bars are extending
downwards opposed to up.
That's it for the
Histogram . In
part 3 we will go much
more in depth about all of the
indicators that we have discussed in this part of the tutorial
------------
https://1broker.com/m/r.php?i=3567(Part 2 Continued in next post)
