Forex Traders Blog & Newsletter

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Deadly Trading Mistakes: Jack Cahn CMT

First of all, it??™s worth noting that you can more or less avoid all of these mistakes by harnessing the power of mechanical trading systems. Automation on a stable platform can produce some amazing results and cut down on a lot of the factors that keep traders from being truly successful. (more…)

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Attached is the weekly chart of the USD/CHF pair with annotations regarding fib. and RSI analysis.

# 1 shows Fib. lines from A to B retracing to C which shows the downtrend to have medium strength with no candle body above 61.8. We project 80% of A to B added to C for our target price.

#2 shows Fib. lines from A high to B low retracing to C suggesting the down cycle is strong. Price should easily exceed B with target at A to B added to C. It is important that we meet or exceed target expectation for confirmation of down cycle.

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#3 shows Fib lines from A to B, retracing to C at 50.0 level which suggest the down trend has medium strength. Our target is 80% of A to B added to C. A historical RSI reverse negative divergence is noted at 3 C, suggesting lower prices.

#4 shows Fib lines A to B with retracement to C at the 38.2 level suggestive of a strong down cycle. Price target is A to B added to C. Two additional RND are noted in this period.

#5 shows Fib. line from A to B low, retracing to C, 100.0, suggesting the downtrend is very weak and will probably fail.

#6 found at the bottom right hand corner of the chart shows Fib lines from A low to B followed by retracement to the 61.8 level. The up cycle is weak and may not exceed B. An active RSI reverse positive divergence is noted in the 6 C period suggesting higher prices.

#7 shows Fib. lines from the high to low in this time frame. A down cycle is show from a to b with retracement to the 23.6 level which suggest the longest cycle is in a strong downtrend. The 6 C period shows two current H-A consolidation candles which likely suggest trend change. We cannot be sure the retracement in this period is complete and should wait for a confirming H-A candle. If the bulls are in charge as anticipated we should not see prices below the low currently set in the 6 C period. The contemplated trade is long against a strong downtrend and is higher risk.

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With respect to the monthly chart we observe a down cycle from A to B. Fib lines are placed on this period. Point B to C shows a retracement against the previous down cycle. This retracement moved above 76.3 level and therefore suggests the prior down cycle is very weak. (more…)

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Attached are four charts and a diagram regarding retracement analysis concerning the AUD/USD pair. Fibonacci retracement analysis is a valuable method to determine where the long term force is regarding price movement. (more…)

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Reverse Divergence , in this article Loren responds to a question regarding this.

Thank you for the note Bruce, good questions.
I have drawn a representation of the appearance of reverse divergences together with a short explanation which I attach. Reverse divergences are the exact opposite of classic divergences and are easy to identify once you become familiar with their appearance in up or down trends. As distinguished from classic divergences reverse divergences almost never fail in their prediction. The reason is that they only appear in an existing trend, up or down. Therefore the technician is merely adding to or entering an existing trend. Class A vs. Class B, yes there is a significant difference. According to Dr. Elder class A divergences never fail whereas class B may fail. Your questions regarding RSI and trend issues are discussed in John Hayden’s article Trend determination using RSI (available in downloads section).

Also both articles by M. Pring and B. Star regarding reverse divergences are also available. They do a better job of explaining the issues than I can do here. With respect to your question regarding MACD divergence. Yes, MACD will display, most of the time, divergences of both types, classic and reverse. However RSI is more accurate in faithfully revealing divergences than MACD. Furthermore RSI is a quicker indicator than MACD. RSI is the principle indicator with MACD used for confirmation only. If there is a difference between the two indicators RSI is the better choice.

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In this article Loren Morlan explains the reasons behind currency Pair and time frame selection in her analysis of the Swiss Currency against other currencies (more…)

by Loren Morlan; loren@metatradertools.com,
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The daily trend is up and consolidation. A reverse positive divergence suggesting > prices is noted on chart. It seems most likely that daily bulls are still controlling price. MACD red and green lines do not trace a reverse positive divergence because they are slower than RSI movement. However, MACD vertical lines do trace a RPD like RSI and confirm each other. The last daily H-A candle is a strong sell. (more…)

by Loren Morlan, loren@metatradertools.com
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Our first chart (EUR/GBP) is an expanded chart showing low to high over the longest period available for examination/analysis. The technician should start their analysis with the longest period available for study.This chart only uses Fib lines commencing at point A to B, generating the fib lines shown. The purpose of this limited examination is to establish information regarding the trend direction and strength. (more…)