Trading with the ADX/DMI, MACD/DMI, Bollinger Bands and Stochastic

In earlier posts is the ADX/DMI, MACD/DMI, Bollinger Bands and stochastic illustrated.

Purpose of this post

In this post is the purpose to analyzing the EUR/USD with the four indicators. The purpose is to illustrate the thought in using the indicators.

How to analysis with the ADX/DMI, MACD/DMI, Bollinger Bands and Stochastic?

The chart is the EUR/USD and illustrates the price chart in the morning: from 7:15 until 9:15 is the price falling; at 9:15 is the price starting to increase.

Bollinger Bands an the stochastic

Between 9:15 and 9:30 is an indication that the price is starting to move in an upper direction; the lower Bollinger band and the price line are crossing each other and the stochastic is indicating that the EUR/USD is oversold.

Between 10:30 and 10:45 is the upper band crossing the price line and the stochastic is indicating that the EUR/USD is overbought.

ADX/DMI: How strong is the trend?

Between 9:15 and 9:50 is the red line above the green line; it indicates that the trend is negative.

At 9:50 is the green line crossing the red line; it indicates that the trend is positive and the price is increasing.

MACD/DMI: How likely is the trend?

Between 9:15 and 9:50 is the blue line above the green line; it indicates that the trend is unlikely. The histogram confirms the indication.

At 9:50 is the green line crossing the blue line; it indicates that the trend is likely and the price is increasing. The histogram confirms the indication.

When to buy?

The Bollinger bands and the stochastic indicate that the buy signal is between 9:15 and 9:30 as the lower band cross the price line and the stochastic indicates that the EUR/USD is oversold.

The ADX/DMI and MACD/DMI indicates that the buy signal is at 9:50.

The entry in the market would be at 9:50 as the ADX/DMI and MACD/DMI indicate a likely trend.

At the same time period is the stochastic in an overbought zone; which would have been a signal that the price soon will start to fall. It would have been true if only the Bollinger Bands and the Stochastic was used as indicators.

In this analysis is also the ADX/DMI and MACD/DMI used; they confirm a likely up going trend.

When to sell?

At 10:00 are the upper band and the price line crossing each other; the price is still increasing and the trend is likely.

At 10:40 are the price line and the upper band again crossing each other and the trend is less likely. The stochastic is also indicating that the price is decreasing.

The analysis indicates that the sell signal is at 10:40.

Please note

Please note that this post is only illustrative and the purpose is to give insight into how to trade with indicators.  

CFD Trading: Correlation between Currency Pairs

One of the problems as a trader and as a new trader is to discover how the market works. In previous posts are illustrated some of the common chart patterns and some of the common indicators.

In this post is the mind on the currency pairs. The idea is to illustrate the correlation between the currency pairs. The posts are only illustrative and only the correlation between the currencies will be illustrated.

The idea is to get started as a trader or move forward in the thought as a trader. Please leave a comment about correlation between currency pairs if you want to share some of them.

Social investment network

Just before I write about the currency pairs I will place a link to the social trading platform called eToro Social Investment Network; it is a platform where traders socialize about trading CFD.

EUR/USD and USD/CHF

The EUR/USD and the USD/CHF are often a mirror; the currency pairs move in the opposite direction. Is the EUR/USD bullish is the USD/CHF bearish and vice versa.

It is a rule which means that they can move in the same direction as well.

EUR/USD and EUR/GPB

The EUR/USD and EUR/GBP move most of the trading time in the same direction but could also move in reverse direction.

USD/CHF and USD/JPY

USD/CHF and USD/JYP are also currency pairs that often move in the same direction most of the trading time.    

It is a rule which means that they can move in the opposite direction as well.

An example:  How to use the information about the correlation between the currency pairs?

Watch the EUR/USD chart pattern; is the pattern bearish or bullish? Is the pattern bearish? Watch the USD/CHF chart or the USD/JPY chart for an entry in the market.

Please note

This post has illustrated some common correlation between currency pairs and is only inspiration to get started as a trader or move forward in the thought as a trader.

The correlation between the currency pairs can be stronger or weaker over time.

Trading CFD with the indicators ADX/DMI and MACD/OsMA

In an earlier post is the content about the ADX/DMI and the MACD/OsMA.

What are the MACD/OsMA and the ADX/DMI?

The MACD/OsMA and the ADX/DMI point out how the price trend behaves.  

The ADX/DMI analyzes the strengths of the trend; the MACD/OsMA analyzes how likely the trend is.  

In the post Trading Forex using the trading strategy123 trading signals is the two indicators described. 

How to analyze the price behavior using the MACD/OsMA and the ADX/DMI?

In the graph are the USD/CHF price line; the indicators ADX/DMI and the MACD/OsMA are at the button of the image.

ADX/DMI: How strong is the trend?

Between 8:15 and 9:00 is the DI+ and DI- line crossing each other; the DI+ starts to move higher than the ADX line; between 10:30 and 12:45 is the DI+ starting to get near the ADX line; in the same time period is the DI- moving closer to the ADX line.

MACD/DMI: How likely is the trend?

The MACD line crosses the signal line between 8:15 and 9:00 and the histogram starts to grow; between 10:30 and 11:15 starts the histogram to fall.

When to buy and when to sell?

A likely buy point would be between 8:15 and 9:00 as illustrated in the image with the indicators signal in mind; the sell point will be around 12:45 as the image illustrates with the indicator signals in mind.

Where to trade with the MACD/OsMA and the ADX/DMI?

PLUS500 offers the traders to trade with the MACD/OsMA and the ADX/DMI. The list of indicators is at the f(x) button on the trading platform.

If you would like to download the trading platform at PLUS500 and try it with the 25 euro welcome bonus click on this link for more information.

Please notice that your capital may be at risk trading CFD.

CFD Trading: The Simple Moving Average

The Simple Moving Average is an indicator that calculates the future price movement of the past.

Equation

Is the indicator based on a 10 period timeframe is the future price calculated from the past 10 prices. The equation is

(Price 1 + price 2 + price 3 + price 4 + price 5 + price 6 + price 7 + price 8 + price 9 + price 10) / 10 time period = Future price

Time period

The equation is simple which makes the simple moving average best in a trend-following market. The timeframe has also an impact on the calculated price; the longer the time period is the slower is the simple moving average to react on trend changes in the market.

Purpose

The simple moving average purpose is to find the trend changes in the market. The indicator is an indicator that should not stand alone in the decision to enter a trade.

The Simple Moving Average illustrated in a graph

In the graph is the simple moving average illustrated; the graph illustrates a blue line, red line and a green line; the blue line is the simple moving average based on a time period of 10; the red one is based on a time period of  20 and the green one is based on a time period of 50.

The green line responds later than the red and blue line.

The second indicator is the stochastic. The purpose is to verify the simple moving average.

When to enter a trade?

The green, red and blue line gives different indications on when to enter a trade as they are based on different time periods.

When the simple moving average is above the price line is the price bearish and bullish when the price line is below the price line.

The stochastic gave an indication at the time where the simple moving average crosses the price bar; around 7 o’clock the 10-10. The stochastic is also in a downtrend which indicates that the price is increasing as the price is moving away from the overbought zone. The indication is at the tops at the stochastic; they are getting lower and lower.     

Try the simple moving average

Which time period is best when a trader use the simple moving average is individualized; the trader have to try different time periods or place the simple moving average with different time periods at the same time as illustrated in the graph.

Where to trade with the simple moving average?

The CFD trading platform PLUS500 offers the traders the simple moving average as an indicator. The list of indicators is a the f(x) button on the trading platform.

Watch the review of PLUS500 or download the trading platform from their website from this link.

Please notice that your capital may be at risk trading CFD.

Trading Forex, Stocks, Commodities and Indices from your Mobil Phone

A new video from Plus500 is illustrating how to trade on their online trading platform from a mobile phone.

Plus500 is a simple and user-friendly trading platform offering a 25 Euro welcome bonus.

Link to Plus500’s website is on this link. 

Please notice that your capital may be at risk trading CFD.

Harmonic Trading: AB=CD Pattern

In the last post was the focus on the three drive pattern and harmonic trading. In this post is the focus on the AB=CD pattern.

AB=CD Pattern
In an AB=CD pattern is A-B = C-D; the time duration between A to C is the same as the time duration between B to D. 

The same time duration is in this context approximately the same time duration. An example is a 20 week time duration from A to C and 15 weeks time duration from B to D.  

AB=CD Pattern and the Fibonacci numbers
The AB=CD pattern is a pattern that indicates a trade opening with the Fibonacci numbers 0,618, 0,789, 1.27 and 1.618.

The calculating in the AB=CD pattern is

AB=CD

AB*1, 27=CD

AB*1, 618=CD

Illustration of the AB=CD pattern
In the image are a bullish and a bearish pattern illustrated

Bullish Pattern

The image illustrates a bullish AB=CD pattern with the Fibonacci numbers 0,618, 0,789 (AB) and the CD numbers 1,27 and 1,618.

A buy opening is likely if the price curve is in the harmonic area 0,618, 0,789, 1,27 and 1,618 at point A, B, C and D; the buy opening is likely as the AB=CD pattern indicate a rise in the price curve.

A stop loss should be a couple of pips below point D; remember that a stop loss is set individually and that the numbers are not exact numbers but numbers in an area; a harmonic area.

Bearish Pattern

The image illustrates a bearish AB=CD pattern with the Fibonacci numbers 0,618, 0,789 (AB) and the CD numbers 1,27 and 1,618.

D is a likely sell point if the price curve is in the harmonic area 0,618, 0,789, 1,27 and 1,618 at point A, B, C and D; the sell is likely as the AB=CD pattern indicate that the price curve decrease.

A stop loss should be a couple of pips above point D; remember that a stop loss is set individually and that the numbers are not exact numbers but numbers in an area; a harmonic area.

Calculating the AB=CD pattern in a spreadsheet
An example of how to calculate an AB=CD pattern in a spreadsheet is illustrated in the images below.

Spreadsheet; bullish AB=CD pattern

Spreadsheet; bearish AB=CD pattern

Conclusion
In this post is illustrated how an AB=CD pattern looks like and how a spreadsheet could look like calculating an AB=CD pattern.

The purpose in this post is illustrative and only the basic in the AB=CD pattern is illustrated as the Fibonacci numbers could be more extreme than the numbers used in this post. The numbers used in this post is the ideal numbers in an AB=CD pattern.

In some AB=CD patterns are the AB=CD pattern also in the main AB=CD pattern.

Harmonic Trading: Bullish and Bearish Three Drives

Harmonic trading is a trading technique recognizing a specific pattern with the Fibonacci ratios. The technique assumes the patterns repeat themselves.

Harmonic trading is to identify these patterns and to identify when to enter or exit a position based on the historic cycles in the patterns.

The patterns are not 100% accuracy in connection to the Fibonacci ratios but approximately to the numbers. The important is to recognize the pattern.

The technique is useful to any time frame.

The Fibonacci Numbers
Harmonic Trading is based on the Fibonacci ratios. The primary ratios are the numbers 0.618, 0.786, 1.27, 1.618 and the secondary numbers are 0.382, 0.50, 1.00, 2.0, 2.24, 2.618, 3.14.

The most used numbers are the primary numbers; the ratios 2.24, 2.618, 3.14 are considered as extreme numbers.

The ratios are used to identify the cycle in the historical pattern and to identify the entry point, exit point and stop loss.

The Three Drives
A three drive is a 3 wave pattern following the Fibonacci numbers. The pattern could be a bearish or a bullish pattern.

A Bearish Three Drives
The pattern is illustrated in the image

The image illustrates a three wave cycle; the impulse waves are the Fibonacci numbers 1,27 / 1,618 and the corrective waves are the 0,618 / 0,786. At the point (3) the pattern will end and the price curve will be bearish. Point (3) is the exit point.

Calculation - Fibonacci numbers 0,618 and 1,27
An example; the price is 40 and rise to 50; the pattern rise with the numbers 0,618 and 1,27; the calculation is

0 – 1 (corrective wave)
40 – 50 =  10 * 0,618 = 6,18
50 – 6,18 = 43,82

1 – 2 (impulse wave)
40 – 50 = 10 * 1,27 = 12,7
43,82 + 12,7 = 56,52

1 – 2 (corrective wave)
40 – 50 = 10 * 0,618 = 6,18
56,52 - 6,18 = 50,34

2 – 3 (impulse wave)
40 – 50 = 10 * 1,27 = 12,7
50,34 + 12,7 = 63,04

63,04 is the exit point if the Fibonacci numbers are 0,618 and 1,27.

A Bullish Three Drives
The pattern is illustrated in the image

The image illustrates a three wave cycle; the impulse waves are the Fibonacci numbers 1,27 / 1,618 and the corrective waves are the 0,618 / 0,786. The pattern will end at the point (3) and the price curve will be bullish. Point (3) is the stop loss point and the entry point.

Calculation - Fibonacci numbers 0,618 and 1,27
An example; the price is 50 and decrease to 40; the pattern decreases with the numbers 0,618 and 1,27; the calculation is

0 – 1 (corrective wave)
50 - 40 = 10 * 0,618 = 6,18
40 + 6,18 = 46,18

1 – 2 (impulse wave)
50 - 40 = 10 * 1,27 = 12,7
46,18 - 12,7 = 33,48

1 – 2 (corrective wave)
50 - 40 = 10 * 0,618 = 6,18
33,48 + 6,18 = 39,66

2 – 3 (impulse wave)
50 - 40 = 10 * 1,27 = 12,7
39,66 - 12,7 = 26.96

The entry point and stop loss are set at the price level 26,96 if the Fibonacci numbers are 0,618 and 1,27.

Elliott Wave Theory: Triangle Pattern

In an earlier post and in one of my earlier articles is written about the triangle pattern and the Elliot waves. The post and the article are on the following links

• “Chart Pattern: The Triangle Pattern”
• “Trading Forex Online? What Are Elliott Waves?”  

Focus in this post and the Elliot wave theory 
In this post is the focus on the triangle pattern in an Elliot wave; the focus is also on possible entry in an Elliot wave with a triangle pattern. The article “Trading Forex Online? What Are Elliott Waves?” described the theory; just to make the theory more understandable is the theory illustrated in the images.

The impulse and corrective waves 
The first image illustrates the Elliot wave theory; the impulse and corrective waves; the image illustrates also the pattern in the waves. 
The corrective waves 
The corrective waves are on the first image placed as a correction just after the last impulse wave; wave number 5. On the image below is the corrective waves also placed between the impulse waves as an A, B and C pattern. 
In the image is the corrective pattern illustrated as an A, B, C pattern; the pattern is a “zigzag” pattern but could also have been a “flat pattern” or both; a “zigzag” and “flat pattern” as in a triangle pattern.

The Elliott waves and the triangle pattern 
A triangle pattern is an A, B, C, D and E pattern that ends with a breakout; in the image is the triangle pattern between the 3 and 4 impulse waves; a good place to enter a trade as the impulse wave; number 5; isn’t the shortest of the 5 impulse waves.

 If the price develops as the theory describe an entry is made at E4. 

Investing in Currency Pairs: The Bollinger Bands and the Stochastic Oscillator

In earlier posts are the Bollinger band and the stochastic Oscillator used to analyze the market for entries. In this post is the Bollinger bands and the stochastic Oscillator illustrated.

The Bollinger bands and the stochastic Oscillator
The Bollinger bands consist of an upper band and a lower band; if the price line is outside the upper band is it an indication that the currency is oversold; if the price line is outside the lower band is it an indication that the currency pair is overbought.

The indicator cannot stand alone; as a second indicator is the stochastic Oscillator handy as it provides information about the market condition; is the market in an oversold or overbought condition.

The Bollinger bands
The image illustrates a price line and the Bollinger bands; the volatility in the market rise with the bands; wider bands are a market with more volatility and reverse.

If the price rise and the lower band starts to fall is it an indication that the price will start rise slower or fall; if the lower band starts to rise is it an indication that the price will start to rise faster.

The stochastic Oscillator
The image illustrates also the stochastic Oscillator; in this post is it the second indicator; it confirms the market condition the Bollinger bands provide.

How to use the two indicators 
The indicators are used to find the entry and exit point where the market is in an oversold or overbought condition; in my article “Trading Forex Online - How to Use Bolling Bands and Stochastic Oscillator As a Trading Strategy” are described how to trade with the two indicators.

In the image is an overbought and an oversold situation;  the two indicators give the traders an indication of which direction the market is moving in by looking at the tops and bottoms of the price line and the tops and bottoms of the Stochastic Oscillator.

In the overbought situation is the two highest price line tops in an uptrend and the two price line tops at the Stochastic Oscillator in a downtrend which indicates an exit point if the items are met in my article “Trading Forex Online - How to Use Bolling Bands and Stochastic Oscillator As a Trading Strategy” .

Reverse in the oversold situation is the two lowest price line tops in a downtrend and the two price line bottoms at the Stochastic Oscillator in an uptrend which indicates an entry point if the items are met in my article “Trading Forex Online - How to Use Bolling Bands and Stochastic Oscillator As a Trading Strategy”.

Please note that the past performance of any trading system or methodology is not necessarily indicative of future results which also is the case using the two described indicators.