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Before we begin to look at what are the best indicators for determining overbought/oversold conditions and how to use them, let’s first define what overbought/oversold means.
Overbought/Oversold Defined
I define an overbought condition as a situation in which the price level of a currency pair has risen to such an extent that it is overvalued and therefore the likelihood of a pullback is very high. The opposite is true in oversold conditions where price action has fallen to such a level as to justify new buying opportunities due to its’ current undervalued state. In simpler terms, we are dealing with an extreme level in price action that as a result we should therefore see a corrective move take place.
What’s going on in the markets
Continue reading–>Overbought/Oversold: Using RSI, Stochastic, and Moving Average Envelopes
It’s one of the first questions you ask yourself whenever you first learn about this market and the reasons are extensive. Here are the top 10 reasons to trade forex.
1. Take control of your own finances. No one wants to be a wage slave and trading forex is another way to supplement your income. The returns offered on most mutual funds, hedge funds, or managed funds is laughable usually around 5% annually. Unless you have millions to invest, that 5% doesn’t mean much until many years into the future. Most successful forex traders earn between 10% – 30% of their overall capitol each year.
2. You can make money working only a few hours a day or week on your
Continue reading–>Why Trade Forex
First let me give a quick recap to yesterday’s market action and then I will get into my analysis for the upcoming week. Some highlights from yesterday’s news:
· Bloomberg reports Germany may use KfW bank to buy Greek debt
· EU says Greece needs another EUR 4 bln in budget cuts
· Chicago PMI rises to 62.6 from 61.5; stronger than expected
· Reuters: Long dollar position on IMM* largest since Lehman collapse
· S&P 500 rises 0.1%
· Oil up 1.51 to $79.68; gold little changed at $1116
· AIG reports large loss, says may need more government aid
· US Q4 GDP revised to +5.9% from 5.7%, consumer spending weak
· University of Michigan consumer sentiment index falls to 73.6 from 74.4
· US existing home sales
Continue reading–>EUR/USD At Crossroads
Last week was a continuation of our range bound trading that began Feb. 8th, and except for the fake out provided by Bernanke and friends on Thursday with the Fed discount rate hike, we continue to be range bound. Now that price action has returned to pre-release levels, I believe it shows that we are locked into a battle of fundamental and technical forces and that the parameters have been set to watch for a breakout. A return and close above 1.3800 would mean we are definitely going back up before we go down any further, while a return back below 1.3540 would mean sentiment has become more bearish and I would look for a move down to the 1.3300’s
Continue reading–>Fundamental Outlook for Feb. 21-26
Disclaimer
When considering whether or not to become a forex trader you must first be able to resist the biggest temptation that exists when it comes to this profession: Greed. It’s the central focus of all the forex advertisements you’ll encounter, whether they are brokers, expert advisers, signal services, or mentoring services. The idea that you have just stumbled upon this new frontier of unbeatable risk to reward ratios and endless, easy income is a myth! So let me end it right here and now for you. YOU WILL NOT BECOME INSTANTLY RICH THROUGH FOREX. Actually, you will become overwhelmed, then frustrated, then tired, then discouraged, then apathetic, perhaps you’ll become hopeful, optimistic, and if you’re are lucky, eventually profitable over
Continue reading–>Money Management
I don’t know why, maybe because those “forex coaches” like to make money off newbie traders, but for some reason with most things in forex the simplest of things are turned into insurmountably complex ideas and theories that leave people frustrated and confused instead of educated and empowered. And never has this been more true than in the case of Fibonacci Levels. More literature and debate has gone into this area than most of the other 1,001 indicators, and more “experts” use them to baffle and confuse traders than any other indicator . But it only shows that these lines are hugely popular and important to trading success. And I am about to give you a very simple lesson on
Continue reading–>Fibonacci Made Easy
We all know big banks move the markets. They have at their disposal access to a tremendous amount of capital so when they act in the market it’s always apparent by the huge spikes in price action or reversals in trends that we see. They are the market makers, the driving force behind price action that all of us retail traders try to hitch a ride on each day. But banks must follow strict regulations and guidelines before taking a position in the market, thus banks can’t trade on a whim like you or I. Their trading systems are methodical and mechanic and pivot points are a big part of their strategies. So therefore you as a retail trader must
Continue reading–>Pivot Points
Fundamental analysis is the use of economic data given out by government agencies, economic groups, and political and business leaders that effect the value of a country’s economy. These types of economic reports are usually released according to scheduled times and can be located using an economic calendar like the one found on this website.
Understanding the economic calendar is central to being able to conduct fundamental analysis. Here’s an example of the calendar that is located on this website.
Since the market reacts to the most recent economic news events it is crucial that you begin each week of trading by taking a look at the upcoming news events for that week. As you look at
Continue reading–>What Is Fundamental Analysis
This is one of the biggest indicators you will come across when you study fundamental analysis because it does so well at describing not just the state of the US economy but also how the other big economic indicators will turn out later in the month such as CPI, PPI, GDP, and even Housing. In another section I’ll discuss trading this announcement, but for the purposes of this lesson I just want to translate what it is, how its developed, and what it means.
Non-Farm Payrolls gets released the first Friday of every month by the Bureau of Labor Statistics (BLS) of the US department of Labor. It is a compilation of a series of surveys conducted by the BLS which
Continue reading–>NFP – Non-Farm Payrolls
Moving averages are yet another very common indicator that every forex trader must know how to use because all the major market movers apply this indicators to their trading strategies. So lets dive into this one head first.
What do Moving Averages do?
To put it simply, they give us a much smoother/easier visual representation of what the price action has been doing. So instead of a chart that’s littered with candlesticks that are doing all sorts seemingly random moves up and down, we get a solid line which depicts the AVERAGE price action over the time period in question.
Check out this example:
So how do Moving Averages work?
To calculate a moving average you do the basic math involved with any basic
Continue reading–>Moving Averages
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