Posted on November 3rd, 2010 by Rapid Forex5 Comments »
Yesterday I discussed EMA profit divergence for online forex trading. Today I’m going to show you how to use the MACD (moving average convergence divergence) to spot the end of a trend and how to exit a trader early.
The MACD provides essentially the same information as the double ema signal I mentioned yesterday. But the MACD plots the information different graphically.
This gives you different insight into when the trend is “losing steam.”
EMA or MACD?
Both EMA and MACD are valuable when used together. The gap divergence between candlestick & fast ema signal (discussed in yesterday’s video & today’s video below) is a great visual signal that the current price wave is nearing it’s peak. It usually reveals a price very close to the actual high.
But some times the trend will keep going. Although the MACD doesn’t signal this perfectly (anything can happen), it is a fairly reliable indicator to spot the end of a trend, or in other words a potential trend reversal.
MACD Video
The video below walks you through a 5 minute chart with the EMA/MACD setup. I intentionally “play dumb” as much as possible to follow the logic of what you’d be thinking as you read the signals.
This requires a little bit of practice, but it’s worth understanding as it’s one of the most basic (and useful) tools used by traders for online forex trading.
Smaller MACD Peaks
When the MACD reaches a peak (for an uptrend) or a valley (in a downtrend), it signals the near extreme of the price movement.
The shape the MACD makes is like a little hill, or mound. I call this the MACD mound.
If the MACD Mound is like a mountain, the trend will likely retrace a bit & then continue in the trend direction.
If the MACD Mound is like a hill (or at least much smaller than previous mounds), the trend will likely reverse and then move in the opposite direction.
Whether the MACD Mound is a hill or a mountain, when reaching the peak of the mound (maximum divergence) it signals the end of the current price wave.
I’ll explain more about how to use this concept in future rapid forex blog posts and videos
Posted on November 2nd, 2010 by Rapid Forex9 Comments »
This week I’m going to start a little series on technical analysis for forex trading online. Today I’m going to discuss how to use Exponential Moving Averages (EMA) to know when to get out of a trade early.
Watch This EMA Video First
In the video below I walk you through a quick explanation of a basic EMA setup. After watching the video, I’ve included the main points as notes below.
What EMA’s Were Used in the Video?
Two exponential moving averages were used in the video above. There was a 7 period EMA, which was referred to as the “fast”EMA. This is because it is based on only recent candlesticks, so it reacts more quickly “fast.”
There was also a 21 period EMA, which in this case is referred to as a “slow” EMA. It’s “slow” because it incorporates a longer history of candlesticks so it takes longer to react to price changes “slow.”
EMA Divergence Gap
Two “gaps” were mentioned in the video above. The first one explained was the EMA Divergence Gap. This is the distance between the 7 period EMA and the 21 period EMA. This gap can become wider (i.e. diverge), or become narrower (i.e. converge). Plotted a different way this is the MACD, but that will be covered in another video.
When looking for a potential exit, it’s best to look for a widening (divergence) of the EMA Divergence Gap.
Candlestick-EMA Divergence Gap
The second gap mentioned in the video above was the gap between the candlestick itself and the fast EMA.
A good exit sign for when prices near their peak (in a long trade) or valley (in a short trade) is when there is a significant gap between the candle itself and the fast EMA. If one of the previous few candles can fit in this gap, this is a potentially good exit signal as long as the EMA Divergence gap is also at it’s maximum wideness.
Final Thoughts on EMA Profit Divergence
EMA Profit Divergence is a great way to look for when your trades are losing steam. After entering a trade using Forex Sailing, this signal may cause you to exit a trade for a profit earlier than your limit being hit. but this can also help you “keep” profits before your trade reverses against you
Posted on March 15th, 2010 by Rapid ForexNo Comments »
Over the past two days I’ve been explaining “trading days” in the foreign currency exchange. Today I’m going to explain the procedure for attempting currency trading on “trending days.”
Trending days, in contrast, are characterized by the following external events and conditions:
Upward Movement on a Trending Day in currency trading
Downward Movement on a Trending Day for currency trading
Currency Trading on a Trending Day
If you plan to day trade currencies on the trending day, cancel and replace on a 30-minute forex chart. There are two currency trading strategies on a trending day: the first is to trade the straddle (when the session’s fundamental announcement is preceded by consolidation).
The second is to trade a convergence (when the session’s fundamental announcement is not preceded by consolidation). Refer to our earlier discussion of trading the straddle for the why’s and how’s of that type of trade.
Trading a convergence on a trending day is similar to trading a convergence on a trading day (except that you will not see the formation of a bell curve on a trending day).
Begin at the anticipated release of the fundamental announcement – that’s where you will expect that market to break into a downtrend or an uptrend. Look for consolidation to make sure that you should not be trading a straddle – if there is no consolidation, you’ll trade the convergence. Draw your inner, outer, and long-term outer trendlines.
Next set your Fibonacci lines based on the latest price swing. Based on your trendlines and your Fibonacci numbers, do you see a possible convergence? If equity management allows, trade the convergence in the direction of the trend.
If the fundamental announcement reverses the current trend, your losses will be confined to the distance between your entry and stop loss order. In addition to using the trendline and Fibonacci numbers to set up your trade, you can also use your technical indicators (MA crossover, MACD, etc.) to help you anticipate the market’s movement.
Rules for Currency Trading on a Trending Day
The general rules for currency trading a convergence on a trending day are:
Locate the point at which the fundamental announcement will be released. Plan to create your market order 15 minutes prior to the fundamental announcement.
If there is a fundamental announcement planned for the trading session, but the market is not in consolidation prior to that announcement, you’ll trade a convergence (if the market is in consolidation prior to the announcement, you’ll trade a straddle, described earlier).
Find and draw all your trendlines (inner, outer, and long-term outer). This will help you determine if the market is trending up or down, or if a trendline has been broken.
Locate the price at which you anticipate the market will bounce (at the trendline and/or one of the Fibonacci numbers). If the anticipated trendline bounce and Fibonacci bounce are located at the same price, you will trade a convergence. 15 minutes before the fundamental announcement is released, place an order to buy or sell the convergence in the direction of the trend.
Practice sound equity management. If you can’t afford the potential loss (the loss you would incur should the market reach your stop loss order), don’t make the trade.
By understanding the market’s likely movement on a currency trading day and on a trending day, you can prepare yourself to make more solid, predictable trades.
The principles you use to make your trades are largely the same no matter what kind of session you’re in (e.g. trading a trendline bounce, Fibonacci bounce, a convergence, a candle formation, or technical indicator) but having an idea of whether the market is going to move slowly, closing near the open or move aggressively downward or upward can help you immensely in making consistently profitable trades.
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