Forex Parabolic SAR Indicator Explained

admin — Thu, 27 May 2010 14:32:56 +0000

The parabolic SAR is a tool that is developed by the same person creating the RSI, Welles Wilder. It is a very simple indicator that is mainly used to indicate the end of a trend or the setting of stop loss by some traders.

The SAR behind the word Parabolic refers to Stop And Reversal which can help traders to identify entry and exit position of their trading position. This indicator makes use of dots as a visual tool to help traders clearly identify the direction of the price movement. When the trend is up, the dots will be under the candlesticks and when the trend reverses to down, the dots will flip side to be formed above the candlesticks.

How To use Parabolic SAR

Basically, the parabolic SAR is a simple to use tool that can help to give forex buy sell signals to traders. When the dots are formed below the candles, it is a BUY signals and when the dots are formed above the candles, it indicates a SELL signals.

However, it is best to use this tool together with the help of trend. To be able to trade successfully with parabolic SAR, you should first identify the long and short term trend of the market and then place your trade in the direction of the trend according to the signals given by the SAR.

In addition, the parabolic SAR should always be used with other forex indicators such as MACD, RSI, Stochastic or Bollinger Bands for better results.

Advantage of Parabolic SAR Indicator

- It is a very simple to use indicator as you just have to look at the position of the dot to understand what it is conveying to you.

- You do not have to make any calculation as it is all automatically calculated by the program of your trading platform.

Disadvantage of Parabolic SAR Indicator

- It creates too many signals within a period of time as the price moves up and down.

As a whole, the PSAR is a good tool to use if it is combined properly with other indicators.

—

Kelvin is basically a full time forex trader. Before getting into the field of forex trading, he used to work as a process engineer in a multinational company. he was introduced to this field by one of his friend who had also quit from day job to be a full time trader today.

Please visit my website for more information.

E-Mail: forexkel@forexindicator.org
Website: http://www.forexindicator.org

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Forex Fibonacci Indicator Explained

admin — Thu, 27 May 2010 14:30:20 +0000

As most of you know that the forex market basically moves in waves and there will be time where the market extends and there will also be time where the market retraces.

One of the best tools that you can use to time this retracement and extension is the forex Fibonacci levels.

So What Exactly Is Fibonacci?

It is a number sequences that is named after Leonardo of Pisa and the Fibonacci number sequences goes like this

0, 1, 1, 2, 3, 5, 8, 13 and so on. (Add the first 2 numbers to get the next)

However in trading, we are not interested in the sequences, we are actually interested in the Fibonacci ratio that the sequences create.

These are the ratio that we use as a forex trader.

Below are the retracement ratios

- 0.236
- 0.382
- 0.500
- 0.618
- 0.764

Below are the extension ratios

- 1.272
- 1.382
- 1.500
- 1.618

So How Can You Use These Ratios In Trading?

The Fibonacci ratio is in fact used as a level of support and resistance. These are areas where you will SELL or BUY depending on what you see and where you are.

Although there are quite a number of ratios given above, the important ones are the 0.382, 0.500, and 0.618 as they are usually area of strong support when the price retraces down and area of strong resistance when the price retraces up.

Here Is How You Should Plot Your Fibonacci Levels In An Uptrend

Step 1: Using the tool provided by your platform, Pick a high point and a low point

Step 2: Select the levels that you want to display. (We will select 0.382, 0.500, 0.618, 1.272, 1.382, 1.500 and 1.618)

If you are in a downtrend, all you have to do is to switch the step 1 points.

Uptrend Fibonacci

Downtrend Fibonacci

In the case where you are in an uptrend, you will find that the retracement of your price will usually land on the 0.382, 0.500 or the 0.618 level as these are area of strong support and the price will then extend up to continue in its uptrend movement.

If you ever find the price moving below the 0.382 level, there is a high chance that the trend is reversing.

In the case where you are in a downtrend, the market will retrace upward and it will also find its resistance at 0.382, 0.500 and the 0.618 levels. Similar to the uptrend, if the market retraces above the 0.382 level, there is a high chance that the market is reversing.

Fibonacci Support and Resistance

In my next blog post, I will show you how to trade using Fibonacci Strategy and how you can make use of the 1.272, 1.382 and the 1.618 levels. In the meantime, you should try to plot the Fibonacci levels on your chart to see the power of it.

—

Please visit my website for more information.

E-Mail: forexkel@forexindicator.org
Website: http://www.forexindicator.org

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My Forex Breakout Indicator Revealed

admin — Thu, 27 May 2010 14:27:43 +0000

In today’s post, I will be sharing with you several indicators that I use to trade breakout and I call them the forex breakout indicator.

Forex breakout is one of the most profitable trading strategies that even new traders are able to do. It is very simple to execute and the movement is usually very large which also translate to more profit. In order to trade breakouts more effectively, you should make use of some indicators which are sometime known as breakout indicators.

Here are a few indicators that you should use when trading this strategy:

1) MACD indicator: This is one of my favourite indicators as it provides me with reliable entry and exit signal. When you are trading breakout, the most annoying thing that can happen is to see yourself entering a trade when you see the price breaking through a trend channel or trend line but later find it reversing and stopped you out. This occurrence is known as fake out and it can be minimise by using the forex macd indicator.

2) Oscillators: These are indicators that are able to show you whether the market is currently oversold or overbought. Examples of such oscillators are relative strength index and stochastic. By using the oscillator, you will be able to further enhance your entry as you are able to tell whether the price is going to continue in its range or breakout of the trend.

Let say that you are in a trend channel and the price is moving within the range. You will not know when it will break above or below the range or whether it is going to be repelled by the range resistance and support.

This is when the oscillator comes into use as it will be able to help you in this area. If you see the price moving toward a resistance level, you should take a look at the oscillator to see if it is overbought. If it is indeed overbought, there is a high chance that the price will be repelled by the resistance level. If you want to double confirm that it will be repelled, you can check your MACD to see if a bearish crossover is going to occur and this is exactly how I check for breakout and repulsion.

3) Bollinger Bands: This is an indicator that plots a upper band and a lower band that envelopes the price. Forex breakout usually occurs best when the market is in a period of consolidation. The longer the consolidation, the stronger is the breakout.

If the Bollinger bands are very narrow, you are likely to be in a period of consolidation and you should be looking for the price to make a sudden burst of movement.

Once you see the price breakout, you will definitely find the Bollinger bands to widen and this is the best time for you to enter a trade.

The above are 3 forex breakout indicators that I use to trade breakouts and I hope that this information is useful for your trading as well.

—

Please visit my website for more information.

E-Mail: forexkel@forexindicator.org
Website: http://www.forexindicator.org

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BP Gets Pass From Obama Administration To Potentially Pollute Lake Michigan

admin — Thu, 27 May 2010 14:25:09 +0000

The Obama administration, already charged with providing political cover for BP in the Gulf of Mexico mega-oil disaster, is also charged with allowing BP to renege on agreements between the firm, the US Environmental Protection Agency (EPA), and the state of Indiana to prevent pollution of Lake Michigan from the firm’s Whiting, Indiana refinery near Hammond.

In 2007, the EPA, under the Bush administration, said it was powerless to stop BP from dumping more toxic waste into Lake Michigan from its expanded refinery that was processing increased amounts of heavy crude oil from Canada.

However, the EPA did urge BP to mitigate the increased pollution of solid waste and ammonia by taking other proactive steps to limit environmental damage, including financing projects for other plants along the Grand Calumet River and Lake Michigan to reduce their pollution and other clean-up and run-off water-filtering projects.

Environmental groups opposed the EPA permit to expand its Lake Michigan refining operations. BP’s position was bolstered by federal and state court decisions that shot down the suits from the environmental groups. BP also took out newspaper advertisements and paid Internet bloggers to defend the refinery’s expansion. The payment of money to bloggers by BP is also evident in the number of pro-BP postings on the web concerning the mega-oil disaster.

The Obama administration, including EPA Administrator Lisa Jackson, has permitted BP to violate the promises it made to the state and federal courts that steps would be taken to mitigate the effects of increased Lake Michigan pollution.

Informed sources in Chicago have told WMR that what is occurring in the Gulf of Mexico could very well happen to Lake Michigan when considering that BP not only continues to pollute the lake at higher rates but also has a record of safety and environmental infractions at the expanded Indiana refinery.

Source: http://oilprice.com/Energy/Energy-General/BP-Gets-Pass-From-Obama-Administration-To-Potentially-Pollute-Lake-Michigan.html

By the Wayne Madsen for Oilprice.com who offer detailed analysis on Crude oil, Natural Gas, Geopolitics, Gold and most other Commodities. They also provide free political and economic intelligence to help investors gain a greater understanding of world events and the impact they have on certain regions and sectors. Visit: http://www.oilprice.com

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May 19th- SSEC completing a correction?

admin — Wed, 26 May 2010 14:34:41 +0000

The recent Shanghai Surprise has been breaking that potential bullish triangle I outlined several weeks ago with a downside break of 2900. Subscribers to TheMarketTrendForecast.Com may recall that was my line in the sand for the SSEC index to remain bullish. With the break of that possible bull triangle, the SSEC index has fallen down to near 2500. Everyone on CNBC is bearish on the Chinese Indexes now, and I can’t find any bulls for that country either. They were everywhere several months ago, and now, nowhere to be found.

What I’m seeing as a possible intermediate “BULLISH VIEW” is that the Shanghai Index is completing what is known as a “3-3-5? wave pattern. This means it’s an A B C zig zag to the downside, which works off the prior bull move from 1600-3400. So far this correction has re-traced a bit over 50% of that bull move, which would be typical and would kick everyone off the bull.

A 3-3-5 correction unfolds in a series of wave patterns. 3 waves down, 3 waves up, and then 5 waves down to complete. I outline this potential pattern below in the SSEC chart. This does not mean I will be right, merely that this is a very valid and normal corrective pattern after a massive bull wave up. The index is extremely oversold as well on traditional indicators, which I use to overlap my Elliott Wave views.

This forecast could mean some Chinese stocks are super cheap here, and it will be fun to watch the action from here. The index could drop to about the 2300 range and still validate this bottoming pattern. That means there could still be another 8% or so drop from here, but aggressive investors would start scaling into long positions over a few weeks. Indeed it was January of 2009 when I started recommending small cap indexes and mutual funds, but that index didn’t bottom until early March of course. Scaling in was wise though, as the TNA 3x ETF soared from 11 to 60 during the bull phase up. I started buying at 28 and down to 11, so my average was around 20 or so.

Worth watching anyways.

David Banister - www.ActiveTradingPartners.com

—

Dave Banister is the Chief Investment Strategist and commentator for ActiveTradingPartners.com. David has written numerous market forecast articles on various sites (SafeHaven.Com, 321Gold.com, Gold-Eagle.com, TheStreet.Com etc. ) that have proven to be extremely accurate at major junctures. You can read more at www.activetradingpartners.com

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Mid-Week Gold, Oil, Dollar and SP500 Report

admin — Wed, 26 May 2010 14:29:56 +0000

It has been an interesting week in the market as stocks and commodities push to extreme support levels. Below I have posted some charts showing where the market is currently trading at and what I think is likely to unfold.

Gold Futures - 4 Hour Candle Stick Chart

The price of Gold is testing a key support level. I figure we will see gold try to stabilize over the next week or so as it digests the recent drop in value then start to head back up.

US Dollar Index - 60 Minute Candle Stick Chart

The US Dollar and gold have been moving together the past few weeks as more countries pop up on the radar for serious financial issues. This is helping to boost both the US Dollar and gold as investors around the world starting buying what seems to be safety. The dollar has had a sizable pullback and is now testing a key support level.

This could be the start of a possible Head & Shoulders pattern forming which means the dollar rally could be nearing maturity in the next couple weeks.

Crude Oil Futures - Daily Trading Chart

Oil has been under serious selling pressure because of the rising USD. It has now dropped to a key support level and is starting to look very interesting. If the US Dollar bounces in the next week or two it will keep downward pressure on oil. I think this bottom is going to be a process not a one day event.

SP500 - Daily Trading Chart

Stocks have been under dropping like flies the past few weeks and shorting the SP500 last week at 1170 has played out very nicely for members. The broad market is giving me mixed signals and when I am unsure of a trade I stand on the sidelines. It’s always better to sit in cash and watch things stabilize than it is to watch your hard earned money evaporate. We could see a wave of panic selling in the stock indexes testing the previous lows so be cautious.

Mid-Week Stock & Commodity Trading Report Conclusion:

In short, I feel gold and the dollar will bounce in the coming days from their support levels. This will keep pressure on oil & the SP500 holding them down near support. Once the US Dollar forms a possible right shoulder we will most likely see them pop and rally.

We are still 7 trading days away from a cycle low on the broad market making this scenario very likely to play out. At the moment I am getting a lot of mixed signals and during times like this I prefer to stay in cash because volatility will rise and it is easy to get shaken out of trades.

If you would like to get my Real-Time Trading Signals & Setups checkout my services at www.TheTechnicalTraders.com

Chris Vermeulen

—

Chris Vermeulen is Founder of the popular trading site TheGoldAndOilGuy.com. There he shares his highly successful, low-risk trading method. For 6 years Chris has been a leader in teaching others to skillfully trade in gold, oil, and silver in both bull and bear markets. Subscribers to his service depend on Chris’ uniquely consistent investment opportunities that carry exceptionally low risk and high return.

Please visit my website for more information.

http://www.TheGoldAndOilGuy.com

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White House Covers Up Menacing Oil “Blob”

admin — Wed, 26 May 2010 14:25:08 +0000

In an exclusive for Oilprice.com, the Wayne Madsen Report (WMR) has learned from Federal Emergency Management Agency (FEMA) and U.S. Army Corps of Engineers sources that U.S. Navy submarines deployed to the Gulf of Mexico and Atlantic Ocean off the Florida coast have detected what amounts to a frozen oil blob from the oil geyser at the destroyed Deep Horizon off-shore oil rig south of Louisiana. The Navy submarines have trained video cameras on the moving blob, which remains frozen at depths of between 3,000 to 4,000 feet. Because the oil blob is heavier than water, it remains frozen at current depths.

FEMA and Corps of Engineers employees are upset that the White House and the Pentagon remain tight-lipped and in cover-up mode about the images of the massive and fast-moving frozen coagulated oil blob that is being imaged by Navy submarines that are tracking its movement. The sources point out that BP and the White House conspired to withhold videos from BP-contracted submersibles that showed the oil geyser that was spewing oil from the chasm underneath the datum of the Deep Horizon at rates far exceeding originally reported amounts. We have learned that it was largely WMR’s scoop on the existence of the BP videos that forced the company and its White House patrons to finally agree to the release of the video footage.

The White House is officially stating that it does not know where the officially reported 10 miles long by 3 miles wide “plume” is actually located or in what direction it is heading. However, WMR’s sources claim the White House is getting real-time reports from Navy submarines as to the blob’s location. We have learned that the blob is transiting the Florida Straits between Florida and Cuba, propelled by the Gulf’s Loop Current, and that parts of it that is encountering warmer waters are breaking off into smaller tar balls that are now washing ashore in the environmentally-sensitive Florida Keys and Dry Tortugas.

Corps of Engineers and FEMA officials are also livid about the cover-up of the extent of the oil damage being promulgated by the National Oceanic and Atmospheric Administration (NOAA) and its marine research vessel in the Gulf, RV Pelican. NOAA stands accused by the aforementioned agencies of acting as a virtual public relations arm for BP. NOAA is a component of the business-oriented Department of Commerce.

Similarly, the Coast Guard, which takes its orders from the cover-up operatives at the Homeland Security Department, is denying the tar balls washing up on the Florida Keys are from the oil mass. WMR has been told the Coast Guard is lying in order to protect the Obama administration, which has thoroughly failed in its response to the disaster. The White House’s only concern is trying to limit political damage to its image in the electorally-important state of Florida while the Pentagon has spent between $25 and $30 billion on oil spill operations in the Gulf and the Atlantic to date.

WMR sources also report that the oil mass has resulted in dead zones in the Gulf of Mexico that have cut off oxygen and killed massive numbers of marine creatures and plant life. Seafood wholesalers from the Gulf Coast to New Jersey and New York have been told that the supply of shrimp, oysters, and other seafood from the Gulf is severely in short supply and that they can expect a possible total cut-off as the situation worsens. The shortage will also affect the supply of seafood, especially shrimp, to national seafood restaurant chains like Red Lobster and Long John Silver’s.

There is also evidence that BP, Halliburton, and Transocean sank a drill to a depth of 35,000 feet at the Deep Horizon site some six months ago without the required permits from the federal government. WMR has learned from U.S. government sources that the drilling at 35,000 feet caused a major catastrophic event that required the firms’ oil rig personnel to quickly pull up the drill and close the drill hole.

However, the Deep Horizon re-sank the drill some six months after the unspecified “catastrophe,” resulting in another, more destructive chain of events following the explosion that destroyed the rig, killing eleven workers. When the Deep Horizon blew up, WMR has been told it also “blew down,” cracking the the sub-seabed pipe that may have been re-drilled to a depth of between 25,000 to 30,000 feet, again, without a government permit.

Government sources also report that BP is intent on recovering as much oil as possible from the undersea geyser rather than simply plugging and capping the well, which would then place it off-limits to further drilling. The Corps of Engineers reports that BP is playing a game with Obama, convincing him of the feasibility of “shooting junk” into the subterranean pipe, which would stop up the pipe with a manufactured chemical compound called “MUD.” However, WMR has been informed that BP actually intends to shoot cement into the pipe in an attempt to cap the well with the later intention of digging a trench for side drilling from the pipe to recover as much oil as possible. The technology that would be employed by BP is the same technology that was used by Kuwait to conduct slant drilling of Iraq’s Rumallah oil field — an event that helped trigger Iraq’s invasion of Kuwait.

Corps of Engineers and FEMA sources also give a failing grade to both Homeland Security Secretary Janet Napolitano, who stands accused of being woefully incompetent in handling the disaster, and Interior Secretary Ken Salazar. Government sources say both secretaries should immediately step down or be fired.

Source: http://oilprice.com/Environment/Oil-Spills/White-House-Covers-Up-Menacing-Oil-Blob.html

By the Wayne Madsen Report for Oilprice.com who offer detailed analysis on Crude oil, Natural Gas, Geopolitics, Gold and most other Commodities. They also provide free political and economic intelligence to help investors gain a greater understanding of world events and the impact they have on certain regions and sectors. Visit: http://www.oilprice.com

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Psychological Plunge in Oil Prices Makes OPEC Nervous, Official Says

admin — Tue, 25 May 2010 14:34:37 +0000

The plunge in oil prices in the wake of the euro crisis has OPEC worried.

Qatar oil minister Abdullah bin Hamad Al Attiyah emerged as an unofficial spokesman for the oil cartel over the weekend in a series of news agency reports from the Gulf that signaled the group’s concern.

On Monday, as oil futures briefly dipped below $70 a barrel after settling Friday at $71.71, Al Attiyah told reporters that a price below $70 a barrel was too low for companies to maintain investment and expand capacity. Such investment is crucial to avoid a supply shortage in the future, Al Attiyah said.

He reiterated that following the lead of Saudi King Abdullah’s pronouncement about a “fair” oil price in December, OPEC officials want to see a price between $70 and $80 a barrel.

At another industry event on Saturday, Al Attiyah told news agencies that the drop in oil prices was “psychological” and not based on fundamentals. He said the crisis concerning Greece and the euro was causing the drop and speculation about “contagion” would continue to depress oil prices.

“The whole world then started to ask the question about if it will move to other countries,” the Qatar minister said, according to agency reports. “We’re watching, with nervousness.”

Qatar, one of the world’s leading producers of natural gas, is a relatively small oil producer, but is closely allied with the main Gulf producers - Saudi Arabia, Kuwait and United Arab Emirates.

Concern about the future of the joint European currency continued to batter financial and commodity markets on Monday, as prices fell and the euro declined further against the dollar and other currencies.

At a meeting of the Arab OPEC members earlier this month, Kuwaiti oil minister Ahmad Abdullah Al-Sabah said a price below $65 a barrel would “ring a bell” for the oil cartel and could prompt them to hold an emergency meeting ahead of the next scheduled meeting Oct. 14.

OPEC could react to a low price by cutting production, as it did in 2008 when the financial crisis lowered demand and sent oil prices plunging.

Source: http://oilprice.com/Energy/Oil-Prices/Psychological-Plunge-in-Oil-Prices-Makes-OPEC-Nervous-Official-Says.html

By. Darrell Delamaide for Oilprice.com who offer detailed analysis on Crude oil, Natural Gas, Geopolitics, Gold and most other Commodities. They also provide free political and economic intelligence to help investors gain a greater understanding of world events and the impact they have on certain regions and sectors. Visit: http://www.oilprice.com

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Fibonacci Retracements on the Mini Dow

admin — Mon, 24 May 2010 14:30:07 +0000

Fibonacci Retracements - A Precision Trading Strategy

Deciding on a topic for this article, I reviewed the top ranked articles in T2W and found some fantastic material. I did not however find inspiration for a new article idea that readers may like. Perhaps strangely, I then looked at the lowest rated articles. I noticed that two of them discussed Fibonacci which both surprised and intrigued me. It was not necessarily that people did not like Fib, just that perhaps it had not been explained well enough for their liking. I am a huge Fibonacci fan and it plays a big part in my trading so the following will explain how I use it to trade successfully.

While this strategy can be applied to almost any market, I will focus on the Dow Jones e-mini future, with all screenshots been the mini-Dow, (symbol YM) 1 minute charts.

Fibonacci - Is it really so subjective?

No! Not once you know how to use it correctly. There is a precise place where lines should be drawn and many places where they should not be drawn. I have seen them drawn in crazy places by people who claim that Fib does not work. There are also precise retracement levels that you should look to enter at, levels that you should use as a guide only and levels that will help you place stops.

What I am teaching is not from a book and it’s not scientific (not that I know of anyway). It is simply the way that I have come to use Fibonacci retracements after many hours of screen time and it has added significantly to my trading ability after learning how to use it this way. I truly hope that it will assist you with your trading in a positive manner.

This article aims to dispel some of the myths surrounding Fib by showing how it can be used to trade the markets profitably & precisely, not subjectively as so many people seem to think.

You will learn:

How fib is used objectively every time we draw a line
Exactly where to draw lines from (Start point)
Exactly where to draw lines too (End point)
Which of the Fibonacci retracement levels should be used as entry points and which should be used as guide to direction only or a stop loss
A trading strategy with precise entry, stop loss and targets

What is a Fibonacci retracement?

After a move up or down in the market, at some point the market will start to ‘pull back’ or ‘retrace’. As the market starts to retrace, traders draw a Fibonacci line in the direction of the trend to see where the market might retrace too. This results in a series of lines drawn horizontally across the chart that the price may be supported or resisted at if price reaches them (See Figure 1). Common retracement levels are 38.2%, 50%, 61.8% and 78.6%. This means that after a move in either direction, equalling 100%, the retracements may be 38.2% or 50% or so on, back in the opposite direction of the 100% move. I.e. If the full move reversed then this would be a 100% retracement.

Figure 1 - Fibonacci Retracement Ratios

The problem is that as the price retraces, there can be five or more retracement levels of possible support/resistance. How do you know which level the market is most likely to turn at? More importantly, where is a good place for you to enter a trade? The answer is you don’t know yet; there is no high probability trade with only this amount of analysis.

This has led a lot of people to say that Fib is subjective and they argue the point valiantly. Well the truth is, it is subjective! But only for those people who don’t have a precise strategy for how to use it. If you cannot pinpoint a trade with precision, i.e. the exact retracement level that you would like to buy or sell at, then you do not have a trading strategy. All you have is a very subjective and virtually useless (IMHO) trading tool.

So, lets cover how you can pinpoint the precise Fib retracement level that has the highest probability of the market turning. To understand the full trading strategy you must first understand trends at the basic level.

Trend Analysis

Simple trend analysis is perhaps the most straightforward, most important and yet most over-looked technical tool at our disposal. Time and time again I meet traders who skip over it because they think higher highs and higher lows it is ‘too simple’. They think the advanced stuff (such as Fibonacci) is what will make them more money. This could not be further from the truth! Without a grasp of the basics, the advanced stuff never quite makes sense either. Correct trend analysis is, in my opinion, the most important thing that a trader can ever understand. It is also necessary for drawing Fib lines correctly (no wonder so many people think Fib is subjective when so many don’t yet understand trends).

An uptrend is:

A series of higher highs (HH) and higher lows (HL). See Figure 2. An uptrend is over when this trend reverses. I.e. The price makes either a:
Lower high (Figure 2 Point A) and/or;
Lower Low (Figure 2 point B)

Figure 2 - Uptrend

A downtrend is:

A series of lower lows (LL) and lower highs (LH). See Figure 3. A downtrend is over when this trend reverses. I.e. The price makes either a:
Higher High (Figure 3 Point A) and/or;
Higher Low (Figure 3 point B)

Figure 3 - Downtrend

Where the Fib line should Start from

Firstly, you should only draw a Fib retracement level when there is a trend. All trends have to retrace in order for the above definitions to be true i.e. in an uptrend price has to pullback from a HH to make a HL. You are always looking for a retracement of the current trend which ensures you have momentum behind the move. If there is no clear trend then by using Fib retracements you are swimming against the tide even before you even begin. Fib does not work in ranging markets! The nature of a ranging market is that it will range between two levels, hence pulling back around 100% of each prior move.

Now that you are trading with the trend, you should start your Fib line from a HL within an uptrend or a LH within a downtrend. Refer back to Figure 2. Each HL was a possible start point for your Fib line. You should draw it upwards in the direction of the trend. Equally, in Figure 3, each LH was a place to start a line from and draw downward in the direction of the trend.

The most important place to start from is:

The most recent low within a current up-trend.
The most recent high within a current down-trend

Remember the above points as they are the most crucial steps in applying Fib correctly. This will ensure that you are only looking for retracements of the current trend in the timeframe you are trading. For example, look at figure 3. We have now reversed the downtrend and are uptrending (made a HH & HL) so there is no point drawing a Fib line downwards any longer. In fact, if you were to draw a line on this chart right now, the only place to do it would be with the uptrend from the last LL up to point A.

Where the Fib line should End

This is the part where people most often get it wrong. There are highs and lows all over the chart so which one do you use? The answer is in fact very simple: The line should always end at the extreme i.e.:

The most recent HH within an uptrend or;
The most recent LL within a downtrend

Hence, if there is no trend there is no Fib retracement to be drawn. Also, once a new high or low has been made (a new extreme) new fib lines need to be redrawn, your old ones are now completely invalidated as you would no longer be looking at a retracement of the current trend. Look at Figure 4 for an example. You MUST draw your fib line as shown from point D (the most recent high) down to point E (the most recent low or the extreme). There is no point drawing a line from C down to X2 any longer. X2 was a valid low when it was the extreme, however now a new low has been made at E and this is the ONLY point where Fib Lines should end.

Figure 4

To confirm:

To confirm: Short term move

Within an UP trend, you MUST always draw your Fib line starting from the most recent low and finishing at the most recent high
Within a DOWN trend, you MUST always draw your Fib line starting from the most recent high and finishing at the most recent low
Both of the above are what I refer to as the ‘Short-term Move’

Long term move

All Fib lines must ‘end’ at the same point, you can however ’start’ from different points, drawing to the same end point. This is what I will refer to as the long-term move. This is how we locate clusters and is also how we start to build a high probability entry point.

Locating clusters of Support and resistance

Again looking at Figure 4, we know that the line has to be drawn from D down to E as this makes sure we are only trading a pullback of the current trend. This however leaves us with four potential retracement levels. To define a potential entry point, we must look to see if any Fib retracements cluster at the same level. To do this, you must use a different start point for your Fib line and finish at the same end point. See Figure 5 which shows the same chart as Figure 4, however this time we are drawing a second Fib line from a different start point, C, and finishing at the same end point, E. Note that the 38.2% for the larger move down (C to E) overlaps with the 50% of the short term move (D to E). This is what is referred to as a Fib cluster and become a much higher probability turning point if the price reaches there.

Figure 5

The same is very true in an uptrend. Refer to figure 6 which shows a cluster of the short term 50% and longer term 38.2%. See figure 7 to see what happened when this level was tested.

Figure 6

Figure 7

The retracement levels and their correct usage
While there are many more Fibonacci retracement levels, the ones that you should use are as follows:

38.2%
By nature of the fact that we are looking for clusters for an entry point, the 38.2% will only be used for the long-term move. E.g. a 38.2% move for the longer term may cluster with the shorter term 50% or 61.8% level.

50%
The buy zone - look to buy 50% pullbacks of the short term move when there is a cluster of support/resistance at the same level. Granted, 50% is not actually a Fib number to the best of my knowledge. However it works well and it works often. 50% represents the point of equilibrium between buyers and sellers within a trend.

61.8%
The buy Zone - as with the 50% level, you should look to buy 61.8% pullbacks of the short term move but only when this level clusters with other support/resistance at the same point. 61.8% is known as ‘The Golden Ratio’ and is perhaps the most powerful of all Fib retracement levels.

78.6%
This level should not be used for entry. Rather your stop loss should be placed behind the short term 78.6% retracement level. The reason for this is that the further the price pulls back, the higher the probability that it is actually a reversal as compared to a retracement. Once the price pulls back over 78.6% there is a far higher probability that it will actually retrace the full 100%. Hence, a stop behind 78.6% protects your losses by having a slightly tighter stop that using the 100% level. This also results in a more favourable reward to risk ratio.

100%
This means that the full move has reversed. Use this for stops only in a situation where you would like a slightly wider stop than the 78.6% or where the 100% adds significantly to the probability of your trade. E.g. It is a major support level.

Note that we do not use the 23.6% pullback, this is simply too small a pullback for a high probability entry point.

Trading Strategy
I use one minute charts on the mini Dow future (YM) as the short term trends are clearer but it does not really matter what you use. For example I trade the same strategy on Forex with 15m charts and regularly analyse daily charts across a range of markets using the same technique. Another reason I prefer the 1m chart on the Dow is that I predominantly trade the US open from 2:30pm GMT. While you may of course look at 2, 5 or 15 minute charts, the trends will be less clear and take longer to develop once the market opens. A 1m trend becomes clear very quickly and thus suits my timeframes.

Entry
Enter at the precise point of the cluster i.e. as the price touches it. Not before and not after. Only ever trade with the direction of the overall trend.

Your confirmation is the fact that you have a strong cluster within a strong trend. Do not wait for the price to turn around at this level, by then it is too late. If you wait for the price to do what you thought it would then you have missed the trade. We are using leading indicators here to predict the move in advance.

Stop
Your stop should be placed behind the 78.6% retracement level. More conservative traders could place their stop just behind the 100% level but do not have a stop any wider than this.

Target
Your target is the old high/low or the 0% retracement level. I.e., you expect the price to retest the extreme.

A further profit target for those who prefer to scale out of trades is to use Fibonacci extension levels.

Improvements

Other technical factors to consider:

Trend Improvements

Look for convergence and divergence between price action and indicators to assess trend strength
Use trend following indicators such as the ADX or DMI
Assess trends in multiple timeframes

Cluster Improvements

Look for proven price action support and resistance at the same levels i.e. price has tested and failed at that level before
Pivot points - a topic for another article perhaps. In my opinion pivots are the most powerful, individual technical tool at our disposal. Find a pivot at the same point as your Fib cluster and you have a VERY high probability trade. This forms the basis of what I call my Precision Trading Strategy. It also happens far more often than you may think.

There are various ways to improve upon the success of this strategy even further. There are thousands of technical tools out there and we can’t use them all but if you have something that is working for you, keep on using it. The Precision Trader philosophy is quite simple - ‘Have as many reasons as you possibly can for every single trade that you place’. The more reasons you have occurring all at the same time, the higher the probability of the trade been a success. At the end of the day that is all you need. the confidence in your strategy that you have more chance of winning than losing. And of course the ability to execute precisely according to your rules. Happy trading and best of luck for a very prosperous 2008!

—

Nick McDonald is an independent fulltime trader as well as a mentor in foreign exchange & Dow Jones futures trading strategies.

Through his company, Precision Trader, Nick aims to cut through the nonsense and teach people real trading strategies in a practical trading environment, omitting irrelevant information that is not conducive to trading successfully. Nick was the featured trader in Traders Mag in November 2008 and is a regular author for the magazine. Nick has also worked with many major brokers and their clients worldwide, passing on his trading knowledge & skills.

Please visit my website for more information.

www.tradewithprecision.com.

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Oil Prices Drop Further in Week as Euro's Travails Continue

admin — Mon, 17 May 2010 16:13:03 +0000

Oil Market Summary from: 05/10/2010 to 05/14/2010

Crude oil prices plunged nearly 4% on Friday and were off almost 20% from their 18-month high less than two weeks ago, as the euro continued to lose ground against the dollar and U.S. oil inventories continued to build.

The benchmark West Texas Intermediate contract settled at $71.61 a barrel on Friday, down $2.79 on the day, compared with $75.11 a week earlier, and the lowest price in three months. Oil prices hit an 18-month high of $87.15 on May 3.

The euro on Friday reached its lowest point against the dollar since October 2008, falling below $1.24 from just above $1.25 on the previous day. As the dollar strengthens, it puts downward pressure on oil prices.

Oil futures fell below $71 a barrel in intraday trading, and analysts now feel that prices may test the $70 threshold. OPEC has repeatedly said it would like oil prices to stay in a range of $70 to $80 a barrel, and the oil cartel might be prompted to cut production if prices fell below $70.

The buildup of inventories continued to weigh on the Nymex contract. The European benchmark, ICE’s Brent crude, which normally trades at a discount to WTI, settled at $77.18 on Friday.

The weekly inventory report from the U.S. Energy Information Administration on Wednesday showed an increase of 1.95 million barrels in oil stocks. In Cushing, Okla., the delivery point for Nymex crude, inventories rose by 784,000 barrels to a record 37 million barrels.

The oil price decline on Friday came in spite of an increase in the Reuters/University of Michigan consumer sentiment index for May. The index rose to 73.3 from 72.2 in April, indicating a possible pickup in demand.

Also on Friday, it was announced that U.S. retail sales rose 0.4% in April, to $366.4 billion – the seventh straight month sales have risen.

Pressure on the euro continued even though European leaders last weekend agreed on a nearly $1 trillion package to back euro zone members and the European Central Bank reversed its earlier position and agreed to buy member’s government bonds to counter selling pressure in international bond markets.

While the oil spill in the Gulf of Mexico has seemed to have little direct effect on prices, President Barack Obama pledged on Friday that the U.S. government would review its regulatory procedures for oil companies in the wake of the accident.

Earlier in the week, the administration said it would split up the government agency responsible for offshore drilling so that supervisory and enforcement responsibilities would be separate from leasing and revenue collection.

Source: http://oilprice.com/Energy/Oil-Prices/Oil-Prices-Drop-Further-in-Week-as-Euros-Travails-Continue.html

By. Darrell Delamaide for Oilprice.com who offer detailed analysis on Crude oil, Geopolitics, Gold and most other Commodities. They also provide free political and economic intelligence to help investors gain a greater understanding of world events and the impact they have on certain regions and sectors. Visit: http://www.oilprice.com

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