Technical Analysis; S/R, Trendlines, MA's, Useful Indicators and Price-patterns

Introduction to this thread;

I’m going to save you some time. What I present here is something that works well for me. It hasn’t fallen down on any silver-spoon and the results I’m starting to see is because of everything I’ve sacrificed in my normal life. At my young age, time is normally spent with any other things than sitting alone in a room with 2 flashy screens. Unsocial as hell. But as they say; You can’t get something for nothing.

I can't recommend any substitute for experience gained by a large amount of practise. By practising one particular system and keeping a journal of your trading progress, you combine 2 things that the infamous 95% most likely doesn’t.

Only strong motivation and a clear visualization of my (hopefully soon upcoming) future have made me survive in this particular learning-hell, for that is what forex have given me. And I will not be too surprised if that [will be/is your] experience.

“Opinions based on fundamentals shouldn't be called "analyses". Especially in the long run since fundamentals do change over time while technicals just continue to perform in accordance with its pre-installed programs. Therefore analysing current fundamentals for developing longer-term projections, just makes no sense at all” by Igrok.

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“When forecasting the future, all you need to do is recognize that there is about to be an inequality in supply and demand”

Technical analyses (TA) is all about increased probabilities. With that said, you will quickly understand how important it is to preserve your precious capital to be sure you’re always around for the next trade (extended learning-curve is what money management will do along with a good habit in the start).

Technical analyses can only present scenarios of (increased) probabilities


With the right amount of practice, research and testing (along with a focused mind), your brain will most likely (after some years depending on your intelligence I would assume) start to recognize different patterns on your chart very well, just with different modifications, time after time.


The main-focus of this thread is to put a exercise-plan (system) for the methods named in the threads topic which you can practice on yourself.


Contain of this thread presented in posted orders;

1. Applying support and resistance, but never without the word potential.

1. How to draw trend-lines in an efficient way. This is a method I've never seen around before, and credit is given to Brian Marber for putting my "last" pieces of this puzzle together with the help of he's book.

1. Correct use of moving averages (1-month, 3-month and 1-year). I mostly use them as potential support and resistance and a reminder of what way the price is channelling, if my head is not on.

1. How to use indicators (mostly ROC and MACD) correctly with divergence as the key-word.

1. How to practice on different price-patterns like head and shoulders, double top/bottoms, triangles, flags (and even diamonds thanks to Igrok which happen to have the only efficient way of applying diamonds seen so far by me).

Examples of candlestick (more known as price-action here @ FF) might be presented during time on this thread, hand in hand with rest of the threads concept depending on how it develops. I will edit post #1 if so happen with details. During my different researches, I’ve seen how good entries/exit candlestick (pinbars on trend-lines, inner-bar after long bear/bull runs to mention a few) can give from time to time along with trend-lines and price-patterns.

The recommended time-frame for any instance mentioned, if nothing else is said, is daily. Don’t apply this on a 1h chart, please.

Charts posted in this thread have education purpose only. Don't take any of the potential setups presented in the future as trading-signals ! Trading of daily -> charts will in most cases present hundreds of pips in SL, which never should exceed above 0.5-2% of your entire account.

There is no such thing like strong, very strong etc. support or resistance (S/R). There is only potential. High and low swing points are in most cases potential S/R. Just make sure your lines are objective and not based on where it “seems” better. Start from swing high/low.

We don’t know if price will respect those levels or not until it have been confirmed by a close nearby or broken by 0.5 % (half of what we use on TL). In the presented chart you will see some examples of how S/R drawing can look. I don’t care to put any line up before I see a price-level have been tested and respected at least 2 times.

That’s it.

I use close-price chart to make it easier.

To apply any form of trend-lines (from now on TL), you need to have a trend. So what is a trend? I’ll show you. When price forms higher highs (HH) and higher lows (HL) you are in an uptrend. If price forms lower lows (LL) and lower highs (LH) we are in a downtrend. But this doesn’t help much?

It does if you attach TL to some of these points. But never look at the right side of your chart when drawing TL. Don’t draw from the lowest low to the highest high. Why? As Marber says, that’s where you’re hoping it will be. And hope doesn’t help you much.

3 criteria’s to help you drawn TL correct;

1.Find the lowest point on your chart (the lowest point from where price started to make new highs)
2.A high followed by HL which is higher than the bottom and a
3.Higher high, higher than the first one.

Reverse this process in a downtrend.

Trend reversal;
An uptrend reverses/end when the TL has been broken (by close-price) by 1% (in many occasions, you’ll find that the 1% rule act as support/resistance against price) AND the last significant LOW on the way up have been broken (at three successive closes, if we should follow the book) and visa versa for downtrend.

Notice that a sign of a broken trend is not necessary a trade-signal.

I’ve never had any use of moving averages (MA) until I got any brief explanation of them. In the FX market, the MA’s I use is

1. 21 Simple Moving Averages, closing price (1 dealing-month in the FX market)
2. 65 SMA (3-month)
3. 261 SMA (1-year)

On weekly chart the settings is 4, 13 and 52 SMA.

As said, I only use them as potential S/R and confluence between those and TL’s.

When all the averages are in correct order (21 above 65 and 65 above 261 in a bull-market) and price confirms i.e the short-term MA as support and the MA is still rising, price is likely to head to previous high. I prefer 65 and 261 above 21 for this strategy. It hasn’t been in my interest to test this with significant amount of date, but I thought it might be in value for someone and feel more than free to post any research you obtain here. This is just the classic use of them, for what it’s worth.

Those two you will mostly see here is ROC (momentum) and MACD. ROC settings will be 63 on daily and 14 on 4h and weekly. MACD is standard 12,26,9.

I only use them to spot divergence and I never trade a divergence alone.

Double tops/bottoms;

This pattern occurs after a (significant) bull/bear run. In my experience, I find double tops/bottoms (DT/DB) to perform best when the distance between are lesser than 1 month.

I always pay attention to how both indicators are channelling. It increased the success-rate when both indicators are (already) making new highs and higher lows or lower lows/lower highs (divergence) when DT/DB forms.

Pattern aborts when price have closed above/below a confirmed DT/DB. I play this a bit more defensive. So I will close half my position if price closes below/above the highest/lowest (peak/rally) confirmation-point on DT/DB.

The (high) difference between tops/bottoms shouldn't exceed 100 pips on most pairs.

I posted this eur/nzd trade here

Pattern that signs exhaustion of the currently bull/bear run and a break to the opposite direction of the wedge is expected. But there is no such thing as always in this market.

Calculation of potential targets;

Downward wedge; Take the lower TL and copy its angle and attach it to the starting-point of upper TL.

Upward wedge; Take the higher TL and copy its angle. Then attach it to the starting-point of lower TL.

To copy any line in MT4, mark line and press down CTRL bottom while you drag it.

“The king of all reversal-patterns”

Before you open the Champagne, I must disappoint you with that this pattern doesn’t occur every day. Yes, you might see it posted 100 times everyday in many different threads but if you look back you’ll see that few if any worked. Included my last head and shoulder post on usd/chf which in hindsight was too small. I would favour daily-chart and above for head and shoulders pattern.

You calculate potential targets by measuring high/low from neckline-head.

When looking for a head and shoulder top, it increases the credibility of the pattern if the right should is lower than the left and visa versa for head and shoulder bottom.

Head and shoulder does also work as continuation-pattern. Example will be posted when it occurs.

Enter: when price closes 1% below/above the neck-line.

Exit: I close half the position if price heads back above (for tops) the neck-line after a 1% close and rest if price close above the right shoulder.

Price-patterns that occurs after time with indecision. Buyers buy at higher level and sellers sell at lower level.

Enter: a breakout occurs when price closes above/below the second contact-point market as H or L on presented chart. Potential target is measured by copying lower TL (on upside break) and attach it to starting-point of upper TL. Reverse this process for a downward break.


Exit: when price closes back inside triangle is what most books says. I would close it if price closes back above/below entry-line and rest if price heads into formation again.

Known as continuation-pattern. To have a flag, we need a flag-pole. And 2 touches on both lines, at least. The flag-pole cannot have (in a down-market) more than 2 successive up-days and visa versa for up-market. Sides of the flag can be parallel, converge or diverge so pennants are included in the term flag.
Flag aborts if;

 

1. In a downward market, we see 3 successive up-days, in a upward market, we see 3 successive down-days
2. 1 % close above the pattern
3. Fails to reach its potential target in the same daily range as the flag-pole had.

Target I use is half the distance of the flag-pole.

Exit: If price enters back into the pattern, I’ll close half the position and rest if price closes inside.

Hi Aediaz1,

This is how I am trading at the moment, and got to say, that I am starting to become successful, with trading just S/R.

Keep up the good work.

Regards,
Vip

Hi My friend,

Congratulations for the new thread!!

This is the way to go!!

I see you took the very best from the books you firmly believe in and after experiencing, doing research on these very interesting topics you came up with a pattern of trading (not to be confused with trading patterns ) of your own.

I am shure you were a great trader and now you have become an EXCELLENT trader!!

It's great to see someone like you doing the actual research that other people prefer not to do.

Your story remembers me of myself.

Never stop searching. Never.

Best Wishes and keep it up!!

Cheers,

JP.

Good the hear. It's better to start with something basic as S/R, and watch how price reacts to different levels instead of 6 different indicators, tell you nothing without the right knowledge about each of the indicators.

Hi JP ! Thanks, after some days of work (believe it or not) I managed to post it. I hope someone understand what I'm trying to say here lol.

Excellent trader ? Far from it But I consider it to be an achievable goal. Practice make champs, wouldn't you agree ?

Yes. 100% agreed upon. No doubt. Although I am far from being a "reliable" trader, I invest much of my time on studying, testing and doinf research.

Sometimes it even "hurts" to get answers like when you try to extract something from Mr. Igrok.... Like the "sweet" answer I got on obtaining tragets based on divergences... It hurts, but I get the answer.

Now, talking about H&S and divergences, I was waiting for another opportunity to jump on another cable short along with its crosses (EJ and Geppy). And it finally came to me yesterday.

The weekly chart shows us a few good examples of the principles explained by Aediaz on this great thread.

1) H&S formation. Playing it safe, took an initial Short 1% below neckline break. Took profit right before a horizontal support observed on weekly. This is very personal way to trade, but I always take profit bfore critical lines.

2) Took another short below horizontal support. Did not apply the 0.5% rule in this case, because the gap did not allow me to. But anyway took the opportunity.

The monthly chart also demonstrates a few good examples:

1) Trendlines.
2) MACD divergence. No only the divergence itself, but how we can use them to spot targets. Observe how this valley establishes an initial target @ 1.70.

Had another great example on this last month on a divergence on AUDUSD. Target was already reached. We shall wait and see if we will have a 100% correction of that uptrend before price decides what it wants to do next.

Notice that in both cases (cable & aussie), it will take some time until another crossover happens.

Hope this contribute in some ways to this thread.

Cheers,
JP.

Continuing to contribute....


As mentioned on the earlier post, trading this H&S on Geppy weekly would have been very profitable. For those who were able to spot it and trade it.

I didn't have enough knowledge by than to trade it. I am trying to catch the "tail" of it. Anyway, this is how I personally would have traded it. Playing it safe.

Considering cable is headed down, I must make a good ammount of pips from it.

Once again, the gap prevented me from entering earlier.

Hope everyone can "see" all of this.

JP.

I strongly disagree. It shouldn't hurt. You just can't count on achieving any degree of success if you don't know the very basics, pretty much like you wouldn't be able even to write your own name in case you haven't learned the alphabet first.

That's the first step toward success, IMO. Just look around and see how much time people throwing away, trying to cross 2 indicators and want to double their account.

Igrok give me an light association from some of my old bosses during my time as apprentice. I worked at some of the finest place in Norway (at the given time) with some of the best people around too. But they where hard-asses. They never gave me any opportunity to slack, when I asked a question they always look stupid on me and said; what do you think? forcing me to think think THINK and make up my own ideas. Painful for 2 years, yes, but when I was finished there, I was 2 years ahead in both knowledge and skills, able to choice any job I wanted.

You can't get something for nothing.

For me, I learn best when those with skills and experience wouldnt accept any type of question, forcing me to think like hell on my own. That's what I like about Igrok's cave, it's not some place I just rush in with my first thought and post. With diamonds, which I never could explain to my brain in a proper way, I printed 2 prefect diamonds Igrok have shown us, and I taped it infront of my desk. Now its a bit clearer.

Disadvance; after all this diamond-talk, my girlfriend want a diamond-ring THANKS IGROK

Igrok outside he's cave ? I need to throw out some more meat around different threads to keep him here

Someone notice how good mood he gets in every time the market make big moves ?

My chart looks pretty much alike on weekly (TL have been broken). On daily chart we're on potential support. In 12 hours (daily close) I think we're wiser than right now. Where price closing according to those red lines (0.5%) might tell us what's next (bounce up, or not)

Agreed Mr Toshchakov!! 100% true.

Although I am fairly young, nothing in my life came easy. Neither will trading. This is just another "hurt" that makes me come back to your thread and ask those "stupid" questions over and over again...

But you have to honestly admit, I am improving my questionaire.

As I improve my questionaire, seems like I am searching more, reading more and perhaps leraning more.

Time will tell. If the market doesn't blast me away before, I still have some more room to learn.

Anyway, don't worry... I am used to the pain!

Cheers,
JP.