Summary: During the webinar, we will be doing live
trading exercises, looking at single currency pair on multi-times
frames (1 hour, 30 minutes, 15 minutes and 5 minutes). We will be
analyzing pivot points, support & resistance, RSI, Bollinger Bands
and moving averages used as confirmation signals to exit and entry
Expert:Mark Whistler, Senior Market Strategist at TradingMarkets.com Moderator: Maud Gilson
Summary: So many trades often mistake "stock indicators" as tools to spot
reversals; however, with the proper trend analysis, traders will find
that momentum is easily derived from many common indicators. During
this special Webinar, Whistler will show traders how to spot short-term
momentum within markets... For quick trades in volatile markets built
Expert: Jerry Furst, Founder & President of InvestorsEducationNetwork.com Start: February 8, 2006 - 15:00GMT 10EST End: approx. 16:00GMT 11:00EST
Topics that will be covered for above session are:
How to Determine Support and Resistance Levels
Determining Entry points for a trade
Determining Exit Points for a trade
Using Moving Averages
Drawing Regression Channels
How to apply Fibonacci Retracements
Who is Jerry Furst?
Jerry Furst is president and founder of Investors Education Network (IEN), an educational networking group for active traders and investors. He is a former senior analyst programmer with IBM and consultant to Fortune 100 companies. Mr. Furst has been trading his own account since 1987 and primarily trades and invests with forex currencies and equity options for his own accounts. He has found that running a networking group for traders is extremely rewarding as he continues to learn from the experts in the industry and the traders in his group.
Support Resistance and Determining Entry and Exit Points. Usually I would drill all the way down from the monthly, weekly, and then look for patterns and trade setups on the daily, 4 hour, 60, 30, and 15 minute charts. After doing this for so long it is actually a quick exercise, however the time flies by because it can get quite detailed. For the purposes of this brief presentation, we will not drill up or down. And only focus on the four hour chart.
Ok – Furst! Let’s look at Moving Averages: Click to enlarge:
I have the 7(Green), 50(Blue), and 200 (Black) MA’s plotted here. The concept is that MA’s act like magnets. By themselves MA’s are weak price targets, but you can be sure a lot of people are looking at the 50, and 200. In this case, we have a great example on The Euro Monday night around 1am EST with the Euro trading at 1.975. You can see the two moving averages converge at the 50 and 200, that’s a stronger magnet than just one.
Now, Let’s add my Linear Regression Channel: Click to enlarge:
The concept of Linear Regression Channels (LRC) is that they are plotted at a standard deviation on both sides of the closing price. Similar to the concept of Bollinger Bands – but different. Without getting too deep, look at how price is behaving in between the blue outer bands and the Red “Heart Line” in the middle.
This is showing potentially a fantastic target @ 1.2067 as the top of the LRC is converging with the 200ma and the 50 ma. The 50 ma is also running parallel to the LRC.
And saving the best for last – Fibonacci Retracements and Extensions: Click to enlarge:
I have drawn the Fibonacci Retracements from the top left Pivot Point @ 1.2322, to the Bottom of the current run down @ 1.1943. Notice the 25% retracement @ 1.2037 is showing a prior Resistance area. That will be my first price target.
We now have all three technical analysis tools in place on this four hour chart. Click to enlarge:
We have a perfectly Symmetrical Trade of 27 pips per target!
The trade will be triggered to buy 4 lots @ 1.2008 with a 10 pip trailing stop. PT1 @ 1.2035 = 27 pips exit two lots (just below the 25% retracement) PT2 @ 1.2062 = 54 pips exit two lots (just below the 200ma and top of the LRC) SL @ 1.1981 = 27 pips exit trade at loss (Risk Reward = 1:1)
Now lets see the order placed on the Proedge FX – GTS Platform to auto execute in a “Set it and forget it trade”: Click to enlarge:
Who Igor Belitsky?
Igor Belitskyis a specialist in applied mathematics and trading systems development. Since 1996 he has been working as a forex market analyst in a Moscow based financial company
Using RSI in trading systems
1. General RSI trading rules
Relative Strength Index (RSI) is the most popular technical indicator. Below are 4 well-known RSI trading rules:
RSI levels of 70% and 30% (80% and 20%) are known as overbought/oversold levels. Buy signal generated when the market is oversold, sell signal generated when the market is overbought. These levels are only working good inside range phase and produce losses during trend phase.
EMA often plays the role of support and resistance just the same as for the price itself. Buy signal generated when RSI rises above its EMA, sell signal generated when RSI drops below it's EMA. EMA is always lagged behind and often produce buy signal when up-trend is over.
Bullish divergence and buy signal occurs when price makes a new low which is not confirmed by RSI, bearish divergence and sell signal generated when price makes a new high while RSI fails to make a new high. The main drawback of divergences is that they are trying to predict trend reversals instead of trend-following signals.
Chart formations like trends, support/resistance, triangles, head and shoulders and so on are applied to RSI just the same way as they are applied for the price. Bad thing is that chart formations like trends and triangles are very subjective and could not be used in trading systems.
2. Composition of RSI and Bollinger Bands
We apply Bollinger Bands study to RSI indicator. Buy signal is triggered when RSI falls below Lower Bollinger Band. Sell signal is generated when RSI rises above Upper Bollinger Band. There are many signals against the trend so we need to use some trend filter. We add MACD indicator as trend filter. If MACD>0 the trend is upward, if MACD<0 the trend is down.
The main advantage of using RSI with Bollinger Bands is that it helps to catch trading signals inside trend phase while standard overbought/oversold levels are useless inside trend. We believe that RSI(Bollinger Bands) composition study is working good both in range and trend phase while 80% & 20% RSI levels are only suited for ranges.
3. Trading System example
Below is USD/CHF 240 minute chart with sample automatic trading system. Sell signal is generated every time RSI rises above Upper Bollinger Band while MACD<0. Buy signal is generated when RSI falls below Lowe Bollinger Band while MACD>0.
Click to enlarge :
Click to enlarge:
If we used RSI overbought/oversold levels on the chart above we would have missed sell signals inside down-trend as well as buy signals inside up-trend phase while composition of BOB(RSI) works fine.
Below is equity chart for this trading system based on target order = +400 pips and stop-loss order = -200 pips. There are 222 trades with total profit of 6040 pips. Spread of 5 points was included. We tested it on historical USD/CHF 240 minute chart with 2500 bars. This system is not perfect because maximum drawdown is more then 1500 points.