Forex for Beginners and Pro, level up your skills to make money from the market

 Here are important tools and indicators that many experts use to make money from the market

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Relative Strength Index (RSI)

One of the most popular technical analysis indicators, the Relative Strength Index (RSI) is an oscillator that measures current price strength in relation to previous prices. The RSI is a versatile tool, it can be used to:

• Generate buy and sell signals
• Show overbought and oversold conditions
• Confirm price movement
• Warn of potential price reversals through divergences

The chart below of eBay (EBAY) shows how the RSI can generate easy to follow buy and sell signals:

RSI Buy Signal

Buy when the RSI crosses above the oversold line (30).

RSI Sell Signal

Sell when the RSI crosses below the overbought line (70).
Varying the time period of the Relative Strength Index can increase or decrease the number of buy and sell signals. In the chart below of Gold, two RSI time periods are shown, 14-day (default) and 5-day. Notice how decreasing the time period made the RSI more volatile, increasing the number of buy and sell signals substantially.



There is another way the Relative Strength Index gives buy and sell signals. This, and how to interpret RSI divergences, all contained on the next page.

An alternative way that the Relative Strength Index (RSI) gives buy and sell signals is given below:

• Buy when price and the Relative Strength Index are both rising and the RSI crosses above the 50 Line.
• Sell when the price and the RSI are both falling and the RSI crosses below the 50 Line.

An example of this methodology for buying and selling based on 50 Line crosses is given below in the chart of Wal-Mart (WMT):

For another interesting and under-utilized method for using the RSI indicator for buy and sell signals, see: Stochastic RSI, which combines both the popular Stochastics indicator and the Relative Strength Index.

Relative Strength Index Confirmations & Divergences

A powerful method for using the Relative Strength Index is to confirm price moves and forewarn of potential price reversals through RSI Divergences.
The chart below of the E-mini Nasdaq 100 Futures contract shows the RSI confirming price action and warning of future price reversals:

Low #1 to Low #2

The E-mini Nasdaq 100 Futures contract's price made a substantial move from Low #1 to Low #2. The RSI confirmed this move, helping a trader have confidence jumping on board the price move higher.
The break of trendline of the e-mini future was also confirmed by the trendline break of the Relative Strength Index, confirming that the price move was likely over.

Low #3 to Low #4

A bullish divergence was registered between Low #3 and Low #4. The e-mini Nasdaq 100 future made lower lows, but the RSI failed to confirm this price move, only making equal lows. An astute trader would see this RSI divergence and begin taking profits from their shortsells.

High #1 to High #2

A bearish divergence occured when the e-mini futures contract made a higher high and the RSI made a lower high. This bearish divergence warned that prices could be reversing trend shortly. A trader should consider reducing their long position, or even completely selling out of their long position.
The Relative Strength Index is a popular tool for generating buy and sell signals, confirming trends, and warning of impending price reversals.

Trend Line Support and Resistance: Trading Support and Resistance in Forex

Today we are going to draw trend lines on the chart. The first thing to remember is that drawing the lines is more of an art than a science. Where you draw the trend line may not be the exact place where I draw the trend line. To determine where the line gets placed, look for 2 common points within a chart.
 

Determining Buy Signals
 

(Created using FXCM’s Marketscope 2.0 charts)

Here is a daily chart for the AUDUSD. I’m simply connecting the 2 low points at the green circles. An effective support trend line (up trend line) is effective when it is placed on the lows of wicks of the candles. After drawing the line, I now have 2 pieces of information to help me in my trade.

*Since the trend line is sloping upward, my trend direction is upward

*Use this trend line to generate buy signals into this pair

In an uptrend, once the trend line is established, a new long position can be taken when price action trades down to support and respects the support so that a candle body does not close below it. Once prices have touched the support and the candle has closed above it, we have a valid buy signal.
 

Determining Sell Signals
 

Here is a daily chart for the USDCHF. Connect the common swing highs (pink circles) to form a resistance trend line. In this case, prices have just touched the resistance line for the 4th time. The more times a line is touched, the weaker it becomes so the best time to trade trend lines is on the 3rd and 4th touch of the lines.
 

(Created using FXCM’s Marketscope 2.0 charts)

*Since this trend line is sloping downward, the trend of the pair is down and we want to filter our trades looking for sell signals.

*Use this resistance trend line to generate sell signals into this pair.

In a downtrend, once the trend line is established, a new sell position can be taken when price action trades up to resistance and respects the resistance line so that a candle body does not close above it. Once prices have touched the resistance line and the candle has closed below it, we have a valid sell signal.

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Bollinger Bands in Forex and Stock Trading

 Bollinger Bands are the second indicators I use after the candlesticks. In fact the combination of candlesticks and Bollinger Bands makes the signals for me.

There are some awesome features in the Bollinger Bands that can not be found in the other indicators. Before talking about the signals lets see what Bollinger Bands are and how they look like. If you don’t have them on your chart, please add them and let the setting to be the default setting which is 20.
Bollinger Bands are consist of three lines: Bollinger Upper Band, Bollinger Lower Band and Bollinger Middle Band.

Bollinger Middle Band is nothing but a simple moving average. Bollinger Upper and Lower Bands measure deviations. I can bring their formula here but it will not have any usage for your trading. The only thing we should know is that they are so strong in diagnosing the trends and reversals.
Note: In all the below examples, the Bollinger Band setting is the default setting which is 20 period and 2 deviations.

So how can we use Bollinger Bands in trading? What do they tell us and how their signals look like?

1. Trend Trading:

One of the most important features of Bollinger Bands is that when the market is slow and there is no reasonable volatility, the upper and lower bands become close to each other:

As you see on the above image, Bollinger upper and lower bands have become so close to each other in the area that I have placed those white arrows. Keep in your mind that when the market becomes slow like that and it makes a narrow range a breakout that can be the beginning of a big trend is on the way. You can easily predict the direction of the breakout with the signals that the market already has shown. Just follow the numbers at the above image and you will see what I mean.

The candlestick #1 has a long lower shadow. What does that mean? It means a big Bullish pressure is imposed to the market suddenly. So the price wants to go up. This is the first signal. You could take a long position after this candle but if you did not, the market would show you some more signals to go long. After candle #1, market becomes slow and Bollinger upper and lower bands become so close to each other. Candle #2 shows a breakdown with the Bollinger lower band but it is closed above it. This candle also has a long lower shadow that reflects the upward pressure. Then the market becomes slow for several candles BUT candle #3 assures you that the range is broken up. So if you didn’t have a long position, you could go long at the close of #3 candle. Then some red candles are appeared but you should know that after a range breakout, the very first reversal signal is not in fact a reversal signal. It is a continuation signal.

The above breakout could be the beginning of a big trend but it is not. I just brought it here as an example of ranging and breakout. If the candlesticks movements make you confused, you can shift to the line chart from time to time and find the real support and resistance of the range. Line chart is plotted based on the close signal. Close signal is the most important thing specially when you want to interpret the signals with Bollinger Bands and predict the market. Lets shift to line chart and see how it looks like:

As you see the support and resistance of the range are shown much better in the line chart (blue circles). Numbers 1, 2 and 3 are where the candles #1, #2 and #3 formed on the last image. In the above line chart the range breakout is conformed while candle #3 was forming. The price line goes up, touches and rides the Bollinger Upper Band. This means the range is broken up and we have an uptrend.

So we learned that the close price is very important when we work with Bollinger Bands. A Bollinger Lower Band is not broken down as long as the candlesticks are closed above it and a Bollinger Upper Band is not broken up as long as the candlesticks are closed below it.

Like the Fibonacci system I explained earlier, one of the ways to trade using the Bollinger Bands is finding a range and then waiting for its breakout.

Bollinger Bands are really good in trend following. Please follow the numbers in the below image. #1 shows a good reversal signal (I will talk about the Bollinger Bands reversal signals later in this article). If I wanted to take a long position I would wait for more confirmation which is the #2 candle. I would go long at the close of #2 candle.

The next a few candles break up the Bollinger Middle Band and the candles after them make a small ranging BUT as you see all of them are closed above the Bollinger Middle Band (zone #3). Some of them tried to break down the Bollinger Middle Band but they couldn’t. What does that mean??? It is another confirmation for the beginning of an uptrend. Zone #3 is the most important part of the below image. More conservative traders prefer to take their long positions after formation of such a confirmation. They go long when the thin red line is broken up (#4). They place the stop loss below the low of the last candle that its shadow is broken down the Bollinger Middle Band. As you see it goes up strongly (first red big arrow). There are some small red candles but they should not be considered as reversal signals. At #5 the price goes down to retest the Bollinger Middle Band. This is the beginning of the second Elliott Wave. It is where some traders wait for the retrace (continuation) to go long. I have explained it in another article I wrote about Fibonacci.

Can you take a short position at #5 ? You can but you’d better not to do that. It is against the trend direction and when you see the price has been going up strongly and for a long time, you should ignore the first and even the second reversal signal. They are not reversal. They are continuation signals in fact.

So the price goes down, retests the Bollinger Middle Band and it even succeeds to break down the middle band but keeps on going up again. As I have explained above, although it could break down the middle band we should not go short.

It starts going up again (#6) and the next candles are all closed above the Bollinger Middle Band. Fibonacci can be a big help here. As you see at #7 and when it wants to break above the 100.0% level, it shows a bearish reaction but the next candle is closed above the Bollinger Middle Band and the next candle break up the 100.0% level (#8). We should expect that it breaks above the 161.80% level because it is a strong trend and as you see it can even reach the 261.80% level (#9) and break above it (#11).

Both when the uptrend is started seriously (#4) and when the 100.0% level is broken up (#8), candles touch and ride the Bollinger Upper Band. It is the same as when we have a downtrend. Candles touch and ride the Bollinger Lower Band.

2. Reversal Trading:

Bollinger Bands are great in showing the reversal signals too. Usually a nice reversal signal becomes formed when a candlestick breaks out of one of the Bollinger Upper or Lower Bands and then it is followed by another candle which has a different color. One of the best examples can be seen in the above image at #1. I am going to make the signal bigger and show it once again here:

As you see the candlestick #1 which is a bearish candlestick is formed completely out of the Bollinger Lower Band and the next candlestick (#2) which is a bullish candlestick has covered the body and upper shadow and also most of the lower shadow of candlestick #1. These two candlesticks form a signal which is called Piercing Line. A Piercing Line which breaks out of the Bollinger Band is much much stronger. A Piercing Line is called Dark Cloud Cover when it happens at the top of a pick. I strongly recommend you to learn the candlestick signals.

Here is some more reversal signals:

A long upper shadow that has broken out of the Bollinger Upper Band strongly

Bullish Engulf
Note how both candlesticks broken out of the Bollinger Lower Band and how the second candlestick has covered the first one totally.

Dark Cloud Cover
Note how both candlesticks broken out of the Bollinger Upper Band and how the second candlestick has covered the first one.
Also look at the big upper shadow that the second candlestick has.

False Signals:

We can always see some false signals. True signals are easier to catch because they are strong and obvious. A good trader is someone who can distinguish and avoid the false signals.

There are false range breakouts and also false reversal signals. Those who like to trade reversals will be encountered with more false signals because a trend can be continued for a long time and it is not easy to say when a reversal happens. If you like to avoid being trapped by false reversal signals just ignore the very first two reversal signala when there is a strong trend. Of course if you really wait for a big and strong breakout and you don’t rush to take a position when you see a weak and partial breakout you will have less number of false reversal. For example some traders take a short position when they see the below signal but as you see this is not a strong signal in comparison to the signals I showed above:

Why is the above signal a false signal?

1. The uptrend is a strong uptrend and this signal is the very first reversal signal. What do I mean by strong uptrend? Look at the uptrend slope. It is a sharp slope that is going up strongly. There is no sign of exhaustion in it yet. A trend should show the exhaustion signals to tell us that reversal is close.
2. Although about 50% of both #1 and #2 candlesticks are placed out of the Bollinger Upper Band, this can not be considered as a strong signal because

• Both candles are not long enough and are relatively short candles.
• They don’t have any big upper shadow that reflects the power of a downward pressure.
• The second candle is very short and the first candle is not covered by it strongly.

Can you mention any more reason?

Here is two other examples for such a false reversal signal:

Can you say why those signals are false signals?

The third signal can be known as a relatively true signal because the uptrend is still strong. Look at the Bollinger Middle Band Slope (the first red arrow). So the trend is still strong and has not formed any sign of exhaustion when this relatively true signal was formed. However you could take a short position but you really had to get out when the continuation signals formed around the Bollinger Middle Band.

Now look at the below image and follow the numbers. Find out why some signals are false, some are true and some are continuation.

As you see Bollinger Middle Band works very well with continuation signals. In an uptrend, continuation signals are formed when the candles go down, retest the middle band and then start going up again. In a downtrend, continuation signals are formed when the candles go up, retest the middle band and then start going down again. Taking the continuation signals are much safer than reversal signals unless you make sure that the trend is really close to reverse.

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Forex Calendar

Using a Forex calendar for wiser trading choices

Forex trading is serious business where big money changes hands within seconds. As with any serious business one needs to be aware of the current market situation at all times and have one’s finger always on the pulse.
This is why we are proud to introduce the eToro Forex calendar, a tool that you will shortly come to heavily rely on for your trading decisions. Our calendar is located in an interactive widget which you can easily access by clicking on the “Tools” button in the WebTrader interface, so you can check the calendar at any point during your trading activity.

The FX calendar is a tool that tells you when major events take place in the world of Foreign Exchange. By major events we mean announcements and figures release by various financial institutions and policy making bodies. These announcements have a major effect on the market since they give clear indications of various factors in global economies. The principles of fundamental analysis state that because currencies are invariably affected by their respective economies, by observing the changes in global economies one can predict the movements of currencies in the financial market.

Another reason that a Forex calendar is a tool that is crucial to traders is that it determines what time they choose to trade. Due to the fact that these financial announcements present hard figures that reflect the state of global economies, most traders and major financial institutions will open trades based on these figures immediately after the announcements. This means that the Forex market is particularly volatile in the short time after each announcement, with currency rates rising and dropping radically. Radical changes in the market mean the opportunity to make bigger profits (although it is riskier to trade during these times). It is important that you consult the eToro Forex calendar on a daily basis at least, because you may want to save your trading till after a particular announcement.

How to read a Forex Calendar?

In the calendar you will have a few indicators to look out for. First and foremost you must of course note the date and time of the announcement. The next thing will be the currency that the particular announcement will affect. Most announcements affect only one single currency. Announcements that have a more international scope are very rare. The next important thing about a Forex calendar event is its impact – indicated in the eToro calendar by the color of the flame next to the event’s name, ranging from yellow to red. Simply put, yellow means that you can afford to skip this one, while red means that you should put aside anything else you have going at that time and give your undivided attention to this announcement.

Finally, the most crucial information is the predicted outcome of the announcement, since this is the figure that determines the direction and volatility of the market following the announcement. If the actual reported statistic differs from the predicted figure in any significant way, the market will be very volatile since this difference will influence investor sentiment drastically. If you wish to take part in the market volatility (depending on whether you don’t mind the riskiness of sharply moving prices), you need to figure out whether the announced figure is more positive/negative than the predicted one and then place a position accordingly (buy if its positive, sell if its negative). Remember, higher figures can sometimes be a negative indication of the state of the economy (as in the case of inflation for example), so check the meaning of the figures before making any decisions.

The calendar is something that you should plan your week around as a Forex trader. Use it to become more aware of the global situation in the financial market, and of course to become a better and more successful trader.

 Link Calendar: http://www.forexfactory.com/calendar.php

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200 SMA Forex Day Trading Strategy

Using multiple timeframe currency analysis will enable you to dramatically increase the odds in your favor. The 200 SMA forex day trading strategy is made up of 3 different timeframe's, the 4 hour, 1 hour and 15 min chart. In this particular strategy, both the 4 hour chart and 1 hour chart are used to track the overall trend in the market. The 15 min chart is primarily used to determine the exact entry, exit and the stop loss. Once the 15 min chart trades in agreement with the 4 hour and 1 hour forex trends then you can enter a forex trade.

Trading Setup

Currency Pairs: Any
Used Timeframe's: 4 Hour, 1 Hour and 15 Min
Used Indicators: 200 Simple Moving Average (SMA200), 5 Exponential Moving Average (5EMA)
Trading Hours: EURO and US Session

How the 200 SMA Forex Strategy works

1. Determine the overall trend on both the 4 hour chart and 1 hour chart.

Buy Trend: When the 5EMA crosses the 200 SMA upwards.
Sell Trend: When the 5EMA crosses the 200SMA downwards.

4 Hour trend	Hourly Trend	Overall Trend
UP	UP	Buy Trend
DOWN	DOWN	Sell Trend
UP	DOWN	No Trend
DOWN	UP	No Trend

2. Trading rules to go long

> Market is in Buy Trend.
> Enter long when 5EMA crosses 200 SMA upwards on the 15 min chart.
> Place your stop loss 1 pip behind the low of the most recent support level.
> Profit Target: Use risk to reward ratio 1:2 (PT should be at least 50 pips).

3. Trading rules to go short

> Market is in Sell Trend.
> Enter short when 5EMA crosses 200 SMA from above on the 15 min chart.
> Place your stop loss 1 pip behind the high of the most recent resistance level.
> Profit Target: Use risk to reward ratio 1:2 (PT should be at least 50 pips).

Check out the following short example for better understanding of the 200 SMA forex strategy.

4 Hour chart : On November 8, Euro/Dollar is in Sell Trend

Hourly chart : On November 22, Euro/Dollar is in Sell Trend

15 Min chart : On November 26, Euro/Dollar short trade entry

On November 26, the 5EMA crosses the 200SMA downwards on the 15 min chart. As a result, the Euro/Dollar trades in agreement with both the 4 hour and 1 hour downtrends. We enter short at market on the close of the bar at 1.3338. Initial stop loss is placed 1 pip behind the most recent resistance level at 1.3385. Total trading risk on the short trade: 47 pips. Our target is twice the risk taken or at least 50 pips: 47 pips x 2 = 94 pips at 1.3244.

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If you take my advices and win your trade, just remember me. Thanks