Support and Resistance Levels

Written by ForexCycle.com

Support and resistance are respective price levels at which prices stop going down or up. Support levels indicate the price at which most traders believe that prices will move higher. Resistance levels indicate the place where the most of traders feel prices will move lower.

Trading ranges are formed by support and resistance levels. A trading range can play an important role in determining support and resistance as turning points or as continuation patterns. In a trading range, price fluctuates in a narrow band with no clear trend. Buyers take long positions when the prices move to the support level, and sellers go short at the resistance level.

Support and resistance does not always hold. A break below support level signals that the sellers have won out over the buyers, and bearish movement can be seen to follow. On the other side, a break above resistance level indicates that the bulls have won out over the bears, and the following uptrend can bring market price to a new high.

Here is an example in the forex market. Resistance for the EURUSD is located at 1.4975. The market bounces around below this level and forms a sideways consolidation for several weeks until both buyers and sellers think that fair rate of EURUSD is higher than 1.4975. The market breaks out of its trading range on 26-Feb-2008 and moves higher until most of the traders agree that fair rate is 1.5700.


Some times we can see the price pulls back to the previous resistance level, and then rally again. Why does such interesting thing happen? If the market trades back down to the previous resistance, buyers who missed the earlier breakout will see their second chance to go long. So the market rebounds up off this level which has now turned to support.


Sources :

1. ForexCycle.com : Support and Resistance Levels

The Basics of Swing Trading

Written by ForexCycle.com

Swing trading is a trade method in the gray area between trend following and day trading. A swing trader holds a stock for a small period of time and then will trade the stock when it's in it intra-week or intra-month oscillation. A experience swing trader will generally choose a large-cap stock because of its broadly defined high and low extremes. The trader will ride the stock wave in one direction for a couple of weeks, only to switch to the opposite side of the trade when their particular stock changes direction. A swing trader is best in position to do this when that market is more on the stable side versus it being a bear or bull market. This is because those markets' momentum generally carry stocks in one direction only (and for a long period of time).

The success in swing trading is to be able to identify what type of market is currently being experienced. One of the best ways of doing this is looking at historical data of what was indicative of different markets in the past, particular prime swing markets. If a market is identified as prime for swing trading, but later turns out to be a bear or bull market, a swing trader can find that there are the same up and down oscillations than those that occur in a more stable market. This would ensure that best strategy would be to trade on a long-term directional trend instead of the quicker trends that many of the most experienced swing traders are noted for.

Unlike many stock traders, swing traders are not looking to make it big with one particular trade, but are more concerned with hitting its baseline and confirm its direction. At the profiting level, a swing trader will want to exit the trade as close to the upper or lower channel line without being too close, which can cause a loss in opportunity. In a market where a stock is showing a strong directional trend a swing trader will usually wait for the channel line to be reached before selling, thus when a stock is showing a weaker directional trend, the trader will usually sell before the before it hits the channel line in the event the direction changes and the line does not hit on that particular swing.

Swing trading is a great method for beginning traders, while offering a profit potential to advanced traders. A great trader will be able to know when the stock is ripe and what momentum their particular stock has gained before making a decision. Trend following plays a very important role in swing trading as well knowledge of the physics of the stock market. Like the physics of ocean waves, swings can be unpredictable but when a large wave comes rushing at the shore, then its prime time for swing trading, but remember that swing trading is never as predictable as the swinging of a clock pendulum.


Sources :

1. ForexCycle.com : The Basics of Swing Trading

The Trading Secrets of Fibonacci and the Golden Ratio

Written by ForexCycle.com

We all are familiar with the fact that successful traders use Fibonacci and the Golden ratio. Before, we all get ready to try our luck, it is imperative that we know and understand what they are. While Fibonacci numbers and sequence was first known to appear in a book (Liber Abaci ) written by a famous 13th century mathematician Leonardo Fibonacci da Pisa in 1202 as a solution to a problem. The question quoted "How many pairs of rabbits can be generated from a single pair, if each month each mature pair brings forth a new pair, which, from the second month, becomes productive?"

The Fibonacci numbers were the first introduced in the European countries, which was still using Roman numerals with the decimal system or the Hindu-Arabic numerals as presently used. The Fibonacci sequence: 1,1,2,3,5,8,13,21,34 and so on to infinity, is made by adding the two previous numbers in the sequence, to come up with the next number.

Similarly, Golden ratio is also connected to Fibonacci, as it was recorded that just after the first few numbers in the Fibonacci sequence, the ratio of any number to the next higher number is approximately .618, and the lower number is 1.618. These two numbers are known as the Golden ratio.

Fibonacci numbers like much of its use in spheres of art, music, biology and architecture; finds an ardent follower in traders, who uses Fibonacci numbers to set stop loss orders. Two of the most important Fibonacci percentage retracement levels in trading are 38.2% and 62.8%. While other important retracement percentages include 75%, 50% and 33%. For instance, if a price trend initiates at zero and peaks at 100, to later decline to 50, it would be considered as 50% retracement. Similarly, the same levels can be applied to a market that is in a downward move and then suddenly experiences an upward correction.

There is a great connection between Fibonacci numbers and trading, as it defines stop loss level. A trader can set a stop loss placement just below or above the zone, in case three Fibonacci price levels come together in a relatively tight zone. Moreover, a Fibonacci number can help define stops in eventualities like if the support zone is violated and the price trades below that zone; or a trader trades against a support zone. In such cases, the cause for the trade is annulled and the position closed.

However, using Fibonacci retracements takes away the excitement out of trading and gives a pre-defined exit point. Moreover, Fibonacci numbers gives position sizes depending on the risk you are prepared to take per trade; and also defines profit objectives to bank partial profits or constrict stop loss level, once a pattern is completed against a Fibonacci price zone.

One of the immense advantages of Fibonacci numbers and the Golden ratio in trading is the fact that while taking the excitement out of trading, you can define not only stop losses to exit a market, but also set profit objectives as well.


Sources :

1. ForexCycle.com : The Trading Secrets of Fibonacci and the Golden Ratio

FX Trading Journal - GBP/USD (2008.11.21 - 14:57 GMT)

After looking trading signal, with price action inverted hammer and spinning top in 61.8% fibo area and confirmation with bearish candle, i decided open position GBP/USD SELL : 1.4927 TP : 1.4813 in current day pivot level.


Update Trading Journal
-----------------------------


My position reach TP: 1.4813 at 2008.11.21 15:00 GMT, banked 102+ pips.

FX Trading Journal - GBP/USD (2008.11.20 - 15:00 GMT)

From today i try to begin posting my Fx trading journal, i learn to specialize in GBP/USD.

After taking look trading signal, price action tested and over daily support 2 and price action over fibo 0%, i decided open position GBP/USD SELL : 1.4779 TP : 1.4703 in support 3.

At this time i uploaded the trading journal, the profit was 20 pips. you can close OP or continue to reach the TP.


Update Trading Journal
-----------------------------


I decided close position in the 2008.11.20 22:11 GMT, because the price get reversal signal and MACD show over bought position. This time banked 48+ pips.