Abe’s Trading Tip: 2 are better than 1
By Mike Conlon | July 28, 2010
Here is a simple trading tip that is provided by our guest contributor and professional trader Abe Cofnas
Among technical indicators, Bollinger Bands is one of the most famous as well as useful. Basically, a Bollinger Band is a statistical bell curve. Each band represents a standard deviation distance from a moving average. The standard setting is 20 for the simple moving average, and 2 for the standard deviation. If you don’t remember basic statistics, one standard deviation would mean that the price is 67% of the time between the two bands, and 2 standard deviations means that the price is about 96% of the time between the two bands. We should add that 14 represents the default periods.
Now that we got a basic definition out of the way, I want to point out some better understanding of the use for the bands for currency pairs. First, many traders misinterpret the fact that a price is probing one of the bands. They see this situation as a reversal indicator. It is not! Just because a price goes to a Bollinger Band doesn’t mean it is going to reverse. Remember, it got there for a reason. Sentiment has pushed the price to the outer levels of the band. All it means is that there is an alert to watch out. It may reverse. A second point is important, the shape of the band itself. If the Bollinger Bands are sloped up or down, its more likely than not that if a price goes to the band, it will stick along there. A sloped band reduces a bounce potential. Very often we see a price stay for a long time hugging an upward slope, or sliding down a Bollinger band- but not reversing. We can see this in the example below. The candles went beyond the lower band, and stayed below for a while before it reversed up. The slope of the Bollinger Band was not level. But when the price went to the upper band and actually penetrated it, notice the band was very flat. A reversal then occurred.
A good idea when using Bollinger Bands is to add another band with a different setting. I call this an Extended or Extreme Bollinger Band. The second Bollinger Band provides a greater level of granularity to the price action. The question that the trader faces, is how extreme is the price when it hits the band. We saw with one Bollinger Band at a standard setting, a price probing the band is not a very reliable indicator on its own of a reversal. But when we add another band with a setting of (13, 2.618) things get interesting.
This setting shortens the moving average to 13 instead of 20, and extends the standard deviation to nearly 99% instead of 96%. In other words, if a price is at an Extended Bollinger Band, it is really extreme and more likely to be a reversal indicator!
Let’s look at the chart below with two Bollinger Bands. The outer band has the setting of (13, 2.618) and the inner band has the regular setting of (20,2). A nearly perfect “bounce” set up is seen in the middle. The Bollinger bands are flat. The candle went above the first band and touched the outer extended band and then came off it. A sell signal occurs when the price goes back below the standard band. The same scenario applies to a buy signal. We can see the candle went beyond the lower standard band, didn’t quite make the outer band, and returned back. It then moved back up for a nice bounce. The main point is that once we have a second extended Bollinger Band on, we can judge reversal conditions much easier!
Tags: Bollinger Bands, Breakout, currency trading, Forex, Moving Average
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Buy EUR/CHF in newly established uptrend with “blessing” of the Swiss central bank, while earning daily interest too!
By Sean Hyman | July 22, 2009
The best of all worlds…
Trade a pair that recently broke into a new uptrend. Trade it because the Swiss are intervening in their currency to weaken it and boost the EUR/CHF pair. Trade it to earn intereest daily with little downside likely.
Take your pick, on your reasoning…personally, I trade it for all three reasons. Click on the chart to enlarge it. You’ll see that the daily downtrend is broken by almost any measurement you can think of. It’s above its red downtrend line, above its 50 SMA, also above its 200 SMA (long term moving average).
Then check out the 4 hour, 40 day chart below. You can buy the breakouts of these red downward corrections and get in “in a timely fashion”. Click on the chart to enlarge it.
Want to learn more about fundamentals and technicals? Sign up for an inexpensive, only forex course today and we’ll show you how: http://www.mywealth.com/currency-trading.php
Also, get a free, real time demo trading station here: http://www.fxedu.com/practice-forex-account
Sean Hyman
www.forextradingblog.com
Tags: account, blog, breakout, CHF, course, currency, demo, demo trading, dow, downtrend, EUR, forex, forextrading, free, fundamental, fx, fxedu, Hyman, mywealth, pair, practice, real time, Sean, Sean Hyman, station, Swiss, technical, time, trade, trading station, uptrend
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Summer Trading Technique!
By Sean Hyman | June 29, 2009
In the summer, all financial markets havea tendency to die down and become more calm. Why? Because the very biggest of traders tend to take long summer vacations. In fact, many of the biggest traders may be out the entire summer (in stocks, forex, etc.). They will leave only “junior traders” on their trading desks which don’t have the authority to throw around the big bucks.Therefore, the markets in the summer (FX included) tends to be somewhat range bound. Therefore, I’d suggest taking this approach. Buy fundamentally strong currencies on pull backs and earn their higher yields daily while playing only the “long” side of the range. That way, if you get a breakout in the direction of the major uptrend, you’re still in the game and never counter to it. So being a buyer of AUD/USD or AUD/JPY for instance, on its pull backs could be a way to play this.
Tags: AUD, breakout, buck, currencies, dow, financial, forex, fundamental, fx, jpy, market, stock, stocks, trade, trader, trading, trend, uptrend, USD
Topics: What To Look At In The Market | 1 Comment »
The “Risk Seekers” return to the market today!
By Sean Hyman | June 18, 2009
The risk seekers finally re-emerge! Today, the biggest percentage gainers are NZD/JPY (up 2.12% on the day), AUD/JPY (+1.85%), NZD/USD (+1.52%), AUD/USD (+1.14%). So the theme of the day is: commodity dollars vs. the dollar and yen. Now that these pairs have had a significant pull back and consolidation…see if they can breakout into new recent highs. If so, you might consider breakout entries to the upside and see if this thing “has wings”.
Tags: AUD, blog, breakout, commodity, currency, dollar, forex, fxedu, Hyman, jpy, momentum, mywealth, nzd, pair, percentage gainers, Sean, Sean Hyman, USD, Yen
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Short Term Traders: Get Ready for a Big Breakout Soon!
By Sean Hyman | May 12, 2009
If you look at most daily charts, you will see that we’ve had some narrow trading days the last couple of days. That means that there will be a huge breakout coming soon once again…and it should produce some huge percentage movements on the day when it does. So be on the look out and alert. If you’re there at the right time, you can have a huge gain in a short amount of time. It can be very rewarding if you catch it right. In particular, the “dollar pairs” could be huge movers soon! Get a free practice account here: http://www.fxedu.com/practice-forex-account
Tags: account, alert, breakout, charts, dollar, forex, free, fx, fxedu, movement, pair, practice, practice account, Sean Hyman, time, trading
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Look for a sizable correction in the yen crosses and dollar pairs!
By Sean Hyman | May 11, 2009
Well, pairs can’t go straight up forever…and so it is with the yen crosses and dollar pairs. Lately, foreign currencies have been rallying hard especially against the yen but also the dollar.
Well, now it’s probably a good time for a sizable correction in the favor of the yen and dollar over the course of the next day to days. However, I’d not suggest counter trend trading…but rather, waiting for the uptrend in these pairs to resume.
Also, remember that the dollar index has broken its uptrend but will likely trade back up to the breakout point before resuming this new downtrend. Therefore, be patient…you’ll retain more profits that way be doing so.
After a sizable correction…AUD/USD, AUD/JPY, EUR/USD, EUR/JPY all may be ready for a good run up. We’ll see! Get a free practice account here: http://www.fxedu.com/practice-forex-account
Sean Hyman
www.forextradingblog.com
Tags: AUD, blog, breakout, course, currencies, dollar, dow, downtrend, forex, forextrading, index, jpy, pair, time, trade, trend trading, uptrend, USD, Yen
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Low Momentum Begets High Momentum!
By Sean Hyman | May 7, 2009
Yesterday was the “ho-hum” day for intra-day traders. However, low volatility begets high volatility. It doesn’t have to occur the very next day…but one thing’s for certain…if there’s low volatility for a period of time, your “radar” should be on alert for the breakout because it will usually be powerful and directional.
Today is that day. The yen is tanking against the commodity currencies the most (NZD/JPY, AUD/JPY) but also is tanking vs. the euro too (EUR/JPY). So all of these pairs have bolted higher to the top of the percentage gainers on the list.
That means that “today”, big traders are “risk seekers” and have their offensive team out on the field. They’re buying commodity currencies predominately.
NZD/JPY is up a whopping 3.29% so far on the day and AUD/JPY is right behind it at 2.39%.
Also, as I’m writing, AUD/USD and NZD/USD are working their way up the lists. So they’re now buying up these currencies vs. the buck too.
So the theme of the day so far is yen and dollar selling (selling defensive currencies) and buying commodity currencies.
Also, I hope you noticed last night that Australia ADDED JOBS rather than lost jobs in their latest employment report. Their unemployment rate DECREASED.
Australia, in my opinion, has the strongest fundamentals of all major currencies out there right now. Therefore, if you agree, you’d want to look to AUD/USD, AUD/JPY, AUD/CHF, etc. for “long” opportunities as they arise and take them over other currency pairs that have buy signals with “lesser fundamentals”. Get started with a demo account today: http://www.fxedu.com/practice-forex-account
Sean Hyman
www.forextradingblog.com
Tags: alert, AUD, blog, breakout, buck, CHF, commodity, currencies, currency, currency pair, currency pairs, dollar, EUR, Euro, forex, forextrading, fundamental, jpy, nzd, rate, Sean Hyman, time, trade, trader, unemployment, USD, Yen
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Daytrading:Know when to Hold’em…Know when to Fold’em!
By Sean Hyman | April 23, 2009
So far, today is one of those days where the movements are mild so far (except in the exotic currencies: USD/ZAR and EUR/TRY which are the biggest % gainers on the day).
Nothing is either gaining or falling rapidly today. Daytraders typically need momentum and breakouts and days like today (unless it changes all of the sudden) are not conducive to that.
Now, if someone is a range trader and they play ranges, picking something in the “middle of the pack” like AUD/CAD, CHF/JPY, etc.
Sean Hyman
www.forextradingblog.com
Tags: AUD, blog, breakout, cad, CHF, currencies, EUR, forex, forextrading, jpy, momentum, movement, Sean Hyman, trade, trader, USD
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Trading Concept: Inside Trading Days
By Sean Hyman | April 21, 2009
One concept that short term traders look for are “inside days”. What is this? It’s where a completed candle’s high/low of the day is within the range of the previous day’s high/low. See the chart below and I think you will see what I mean. Notice that the current closed candle is within the boundaries of the previous day’s high/low (blue lines).
When there are one or two “inside days” from a previous candle, it means that the volatility is compressing (or coiling up). When this happens, there is a huge chance of a sizable breakout to one side or the other.
The strategy is to put an order on either side of the breakout with a reasonable limit (15-20 pips). When one of the order triggers, cancel the order that would be in the opposite direction to ensure that it doesn’t get hit too.
Yesterday, I noticed that there were two “inside days” on the daily charts. Remember, you have to wait until the candle closes at 5pm EST before you can say it’s closed. EUR/CHF and AUD/NZD were the two pairs. Since AUD/NZD has a much smaller spread to overcome, I’d favor the EUR/CHF pair.
Place an entry order on either side of the pairs previous day high/low by 1 to 2 pips. Also, include a limit order at that time too and a stop. The limit would need to be 10-20 pips (something near term). That way, any real spike could trigger your limit. You’d want a wider stop (you decide…but something wide enough to handle the volatility…maybe 50-60 pips). The thought being that there should be much more of a likelihood of the limit hitting than the stop, therefore making the wider stop worth its distance.
Keep in mind to practice these on a demo account first.
Sean Hyman
www.forextradingblog.com
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Tags: account, AUD, blog, breakout, charts, CHF, closed, demo, demo account, EUR, forex, forextrading, index, mywealth, nzd, oil, pair, pip, pips, practice, rate, Sean Hyman, ssi, strategy, time, trade, trader, You Tube
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Swing Trade Idea
By Sean Hyman | April 2, 2009
AUD/NZD is coiling up on the 2 hour chart between its 20 sma and its 200 sma. A breakout will likely come very soon (in the upcoming hours). A breakout in either direction could possibly be worth 300 pips. Typically, a consolidation will break out in the former direction that it was headed in before the consolidation. If so, that would be a breakout to the upside. However, let the trade show you which way it will break.
The only one point of resistance to the upside that I see is the declining 20 SMA on the daily chart. However, if the break is strong enough, it could break through that with no problem. This is purely a “technical” swing trade. See what you think.
www.forextradingblog.com
Tags: AUD, blog, breakout, forex, forextrading, nzd, oil, pip, pips, Sean Hyman, ssi, technical, trade
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