Expert: Rob Nowak, Forex market analyst, at Endeavor Forex Management
Start: January 25, 2006 - 15:00GMT 10EST
End: approx. 16:00GMT 11EST
Topics that will be covered for above session are:
- Note: This is the first chapter in a 5 part series Stay tuned!
- Difference between have a profitable versus an unprofitable trading year
- How to perform professional, effective, and comprehensive daily analysis
- Indicator settings, software requirements, fundamental analysis, support and resistance, pivot points and pattern recognition
'Robert Nowak’s 5 Part Series on How To Become a Thriving Trader'
Part I: Daily Analysis 'Your Trading Roadmap'
Daily analysis of the market is essential to trade profitably. This presentation will be the difference between have a profitable versus an unprofitable trading year. Mr. Nowak will provide an overview of how to perform professional, effective, and comprehensive daily analysis of the EUR/USD, USD/CHF, GBP/USD & USD/JPY. Topics touched on will include: indicator settings, software requirements, fundamental analysis, support and resistance, pivot points and pattern recognition.
Part II: The Art & Science Pivot Point Trading
Part III: Moving Average Crossover Trading Techniques
Part IV: Trading on Breakouts
Part V: The Psychology of Trading
Who is Rob Nowak?
The key of Rob Nowak’s trading plan is the ability to determine market direction based on institutional accumulation and distribution and recognizing signals based on the correlation of technical indicators and the use of intra-day pivot points and levels.
Speech Material:
This is the first part of a 5 part series presented by Rob Nowak of Endeavor Forex Management. The 5 sessions combined will provide valuable insight into the mind of a professional money manager. Topics that will be explored are
Part I – How to Analyze the Forex Market on a Daily Basis
Part II – The Art & Science of Pivot Point Trading
Part III – Moving Average Crossover Trading Techniques
Part IV – Trading on Breakouts
Part V – The Psychology of Trading
Part I Reading Material
Introduction
Trading without daily market analysis is like going to war without a battle plan. No matter what market you are operating in, be it equities, futures or currencies, your analytical approach and discipline are the foundation for your trading success.
What is analysis?
When we say the term "analysis", what is it about which we are speaking? Analysis is the systematic process of asking and answering questions to gain an understanding of a subject matter. The present subject matter is the spot foreign currency market for a given currency pair. Throughout this series we will be using the EUR/USD as an example currency pair.
So, what are the right questions to ask? Where do we look to find the answers? How often we ask the questions? Are some answers more right than others? Can we ask the right questions but get the wrong answers? How do we know if our answers are correct?
Analysis as applied to the forex market is a process in which we must ask and answer certain questions about a specific currency pair on a daily basis. But, which questions do we ask and what tools do we use to answer them? No matter what your trading system, two questions that must be at the root of any analysis are: when is a trade opened and when is a trade closed? Every trading system should be designed to provide the answers to these questions. The key is that the questions that you ask and answer and the analysis that you develop must be performed within the context of YOUR trading system and trading plan.
Trading Plan vs. Trading System
Your trading system is a subset of your overall trading plan. The trading plan is a macro term, the trading system fits within it.
A trading plan includes your:
• Risk Capital
• Number of Trades/Day
• Order Size
• Trading Hours
• Sleep Regimen
• Mental Conditioning
• Choice of Platform
• Trading system A trading system is the collection of the following:
• Analytic approach
• Entry and Exit signals
• Stop loss & take profit expectations
• Trading mechanics (i.e. indicators)
• Consistently applied and implemented system of execution
Analysis & Trading Plan
Analysis fits into your trading plan as the primary tool through which you apply & implement order execution. All trades involve 2 components: an entry and an exit. Early in my trading career, I spent more time awaiting execution than I did planning for it. The by-product was that I lost money. I failed to plan first and then act. In fact I failed to plan, period. I now realize that there are always underlying trends in the market and the best trades are executed with, not away, from those trends. I realized that in order to be a successful trader I needed to carefully perform daily analysis of the market. I knew that if performed properly, this analysis would form the basis of my entry and exit decisions. What I am about to share with you is the evolution of my analytic approach.
Analysis & Trends The best approach to analyzing the market is with a top down approach. By top down we mean by moving from a larger perspective (or compression) to a smaller perspective (or compression). The strongest trades in the forex market are generally in the direction of the prevailing trend or daily bias. Therefore, knowing the daily bias is extremely helpful in determining trade direction. I am often asked, “When do you perform your analysis?” I like to perform my analysis when the market is slow and I have as much data to work with as possible. The best time for me is when positions roll over at 5 p.m. EST, 10 p.m. GMT.
Chart Settings & Indicators
Before we walk through the analytic approach, construct a chart with the following settings:
Price chart setting: candlesticks, white background, black and white candles
Daily compression with 200 days of data
Exponential Moving Averages (EMA’s) of price: 10 period (blue), 20 period (red), 50 period (brown), 200 period (pink), 500 period (green)
Slow Stochastic: 14, 3, 3
MACD: 12,9,26
Most platforms have the ability for you to construct charts using these indicators and settings. Keep in mind that although charts available on platforms are good, they do have limitations. That is why professional traders use customizable charting applications like Tradestation.
While we are on the subject of indicators, here are a few tips:
Regardless of your trading system, try to use as few indicators as possible
Always remember that price is your most important indicator
The oldest indicators are still the most widely applied…this is because they work
Don’t trust your indicators 100%...use common sense in addition to mathematics
If you plan to rely on indicators, back test your strategies
Daily Analysis Step by Step
1. Begin by using a daily price chart with at least 6 months of data on the screen.
2. Plot long-term, intermediate and short-term support and resistance lines on your chart.
3. Calculate and plot daily pivot points on your chart. Pivot points are mathematically determined support and resistance levels around which institutional traders have placed pre-determined orders. If you are not familiar with pivot points, Part II of this series will deal with that topic specifically. (Note: I use pivot points because my system calls for them. You can just use support or resistance or any other measures of price.) The reason for plotting these lines and using such a basic analysis technique is that we want to see how the market is contained. What are the boundaries? How has price reacted to support and resistance?
4. Examine the pattern of price itself…that is just the price without taking into account moving averages, etc… Over the short term to intermediate term is price trending up or down? Is it moving sideways? If it is moving sideways, is it at the top or bottom of the range?
5. Examine exponential moving averages in relation to price and each other. Where is price relative to all of the moving averages? Where are the moving averages in relation to one another? Look for price reacting to a key moving average or two moving averages crossing one another. Examine the price activity of the last few days and then examine historical data to see similar patterns and their characteristics. How do these historical patterns resolve themselves? Remember that market history repeats itself. If the price has bounced off but not broken a key moving average on previous occasions, there is a chance that such average is a support/resistance area and price will bounce again. The same logic applies to 2 moving averages crossing. If you are not familiar with moving averages crossover trading techniques, Part III in this series will deal with that topic specifically.
We now have a general sense of the overall market direction and the boundaries within which the market can be expected to move. The next question we need to answer is, which direction will the market move?
6. Examine your systems technical indicators in consideration of price and direction. Despite what many traders think, indicators are not a bag of magic beans. Technical indicators tell you where the price has been, not where it is going. Indicators are historical facts, however, and as such can help to estimate where the market will go. There are 2 basic types of indicators…those that provide a gauge of direction and those that provide a gauge of activity or momentum. Indicators like MACD and Stochastic are directional while indicators like volatility and ADX are a measure of momentum and activity. For purposes of this discussion, we will ignore momentum indicators and focus on directional indicators.
With respect to Stochastic, consider the following questions: Is stochastic trending up or down? Where is it in relation to the overbought/oversold lines? Has it crossed down or up and where in the range has it crossed? If price is at the top of a range, is stochastic also at the top? When similar patterns have set-up in the past, what has been the result? Is the slope of the stochastic movement divergent to the price movement?
7. Drill down into tighter time compression. Once you have completed all of the above for the daily chart, move on to a 4 hour chart and then a 1 hour chart.
8. Determine entry & exit points. For this step, you can use pivot points, support and resistance, or changes in indicators. In the EUR/USD recently, the range was 1.1660 – 1.1880. When price was at the top of its range on a 4 hour chart and stochastic was above the overbought line and turning down on the same chart, we would go short from a bounce off of resistance. In other words, if the price was 1.1830, we don’t want to go short at that price. We can see that the EUR/USD had previously hit 1.1880 and bounced down on several occasions. We don’t want to go short too soon and have to give up pips before going positive in the trade. So we would set a sell limit order at 1.1860ish with a stop at 1.1915 and a take profit at the next lowest pivot point, somewhere around 1.1910.
Conclusion
Daily analysis is one of the cornerstones of successful trading. By utilizing some method of daily market analysis, a trader can develop a trading blueprint for the day on which his trades will be based. If performed properly and consistently an adequately back tested and implemented analytical approach should enable a trader to trade profitably and with confidence.
Derek Frey's FX weekly Outlook
Expert: Derek Frey, Head Trader of Odom & Frey Futures & Options
Start: January 30, 2006 - 15:00GMT 10EST
End: approx. 16:00GMT 11EST
Topics that will be covered for above session are:
Who is Derek Frey?
Derek Frey has been a futures trader since 1989 and is Head Trader and partner at Odom & Frey Futures & Options, a firm that specializes in high probability, defined risk option spread trades for the futures markets. Derek is also co-author of O&F News & Views, a weekly newsletter that is published by several publications and over 20 financial websites including FXStreet.com
Speech material
Forex Currencies:
EUR/USD:
The Euro had a very strong week right up until Friday. Friday’s reversal is another example of why using trailing stops is key in these markets. The Euro could continue to correct this week but I think support will hold above 120.
USD/CHF:
I moved my stops down to 127 earlier in the week and then got stopped out there at a profit. I will look to short again around 128.75 this week with stops at 129.25 to start.
GBP/USD:
We got out at our objective of 179 and are now flat. I am working buy orders at 176 now with stops at 175.
USD/JPY:
Got filled on my buy stop at 115.78 this week and am still long. Target is at 118 and I am working a 75 pip trailing stop that is currently at 116.75 as of Fridays close.
AUD/USD:
Buy stop working at 75.77
USD/CAD:
Not quite stopped out yet. My stop is working at 114.25, and I do expect to be stopped out this coming week.
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