Stochastics with Forex

Trading Forex with Stochastics Indicators (www.mo4forex.com’s Forex Notes)

I remember Stochastics from when I dabbled in trading stocks a few years back. I didn’t quite grasp the importance of Stochastics back then but I now realize they are one of the most helpful technical indicators in finding which direction the Forex market will go. I do believe I used them incorrectly when I first started out trading back then, but this time I was determined to use Stochastics to my advantage, so I sought out in depth explanations and modifications to this indicator. The stochastic indicator is a momentum oscillator, which can often indicate a pair’s upcoming strength or weakness in advance of a reversal.

What Stochastics does is calculate the current close price relative to the high/low range over a period of time that you can set and displays this result in the form of 2 lines. The %K line Is the main line and is usually displayed as a solid line. The %D line is a moving average of the %K and is displayed as a dotted line here.  In the example to the right it’s in the bottom window, it’s the real wavy looking lines in red and blue.  If we compare price movements with stochastics, there’s always movements up and down, but its those big moves we want to try and catch, which is why I’ll explain below, I’ve learned you can’t just trade using this one indicator if you want better odds.

· %K line is more sensitive than %D
· %D line is a moving average of %K
· %D line gives the trading signals

The three types of stochastics are Full stochastics fast stochastics and slow stochastics.
Slow stochastics is a smoother version of fast stochastics.
Full stochastics are even a smother version of slow stochastics.

How To Read Stochastics:

Buy when %K falls below the oversold level (below 20) and rises back above the same level.

Sell when %K rises above de overbought level (above 80) and falls back below the same level.

Many experts will say reading stochastics and applying them to Forex trading, only works when the market is flat or ranging. Understandibly, in a strong uptrend or downtrend, a reading on Stochastics might not always result in tren reversals, simply because a strong uptrend will always have retracements at some point, and reading Stochastics literally on each wave up or below the overbought/oversold levels can only be indicitave of a temporary movement. It’s important to note when the market is an uptrend then Buy Signals will always have greater probability for wins. The opposite is true in a downward trending market, we’ll want to find opportunities to sell instead of buy. ALthough counter trend trading on a longer time frame is profitable for many people.

The chart below is an example of what I’ve been taught to look out for, multiple indicators of a possible reversal in trend. Here I could have tried a coulpe of things, but keeping to the Stochastics aspect, we see that the %K line flip and rise above the 80 level (#1 Indicator), simultaneously we see the top of the trend channel be tested (#2 Indicator). Now, if I just jumped right into a counter trend trade, I’d experience a few pips in drawdown AND possibly get scared out of the trade when that retracement that breaks the channel line. RSI also indicates the pair is overbought (#3 Indicator) and if I had drawn a tren line in this move up, it wouldn’t have been broken until that second little move up is over, indicating a safer place to enter (#4 Indicator). So with all of these indications the price might reverse, I still did not enter this trade, to my own detriment, simply because I am scared out of counter trend trading by alot of people who have failed miserably at it. Including myself. But when I (you) take the time to sit down and analyze the charts for multiple indicators, we can ultimately become better traders on our own terms.

On the other hand, we could always trade with the trend, in which case we’d look for places this pair is oversold, this is when the stochastics fall below the oversold level [the red line in the chart above] and returns near to the same level.

When the market is trending down we will only look for overbought conditions (when the stochastics rise above de overbought level [above 80] and falls back below the same level. This isn’t rocket science once you see it take place a few thousand times

Forex Killer Signal — February 3rd-4th

(Forex Killer Signal Review @ www.mo4forex.com) I’m posting this trade in hindsight as to not give away Forex Killer signals to those who have not purchased the software.

There are two examples here how I lost money with Forex Killer’s signals, while they look like stupid entries on a 1 hour, they seem more logical on smaller time frames. In fact, Forex Killer’s signals weren’t off in these instances, as they resulted in positive pips at one point, but I set my take profit a tad too high and my stops very low. No trailing stop. So they resulted in a loss. Trade #2 was a disaster from the get go, I followed a sell signal on 15min and 60min and the market went against me after only a few pip gain, it actually spiked up just enough to hit my stop before retracing a little bit that would have let me break even.

This is why I don’t think trading Forex Killer signals without any other indicators is wise.  

This next trade I wanted to document in this post was USD/JPY again at 8PM February 3rd (Super Bowl Sunday — Go Giants), risking 1.1 standard lots, risking 51 pips and trying to gain at least 30. I set my Take Profit below the first Dinapoli level, these usually are great indicators of where price reaches and reverses on trends. In the time it took to write this intro, the price has gone almost 15 pips up, so it looks to be profitable if the trend continues as predicted by Forex Killer.

USD/JPY

15 Min — BUY – Up 75 Down 25
60 Min — BUY – Up 75 Down 25
240 Min — BUY – Up 80 Down 20
Daily — No Trade — Up 52 Down 48

—- Trade Conclusion 8:00 AM February 4th

It appears that the prediction I made about USD/JPY with help from Forex Killer and Dinapoli Level Indicator was a failiure by exactly 1 pip! The price actually touched my profit target then immediately retraced back down to 106.81. A few hours later it flirted with 107.00 but couldn’t break it. I did however did not lose money on this trade, and made a profit, although my target wasn’t reached. You can see by this example that the entry was made above at 106.78, minus 4 pip spread, would have made exactly 30 pips, but missed it by one pip as you can see in example two here. So trades like this don’t turn me off to using Forex Killer to enter trades, but it does force me to reexamine when I enter trades, how much I trust Forex Killer at what times, and to come up with better exit strategies.

Let me know if you have any comments or suggestions about my trade here. Anyone else using Forex Killer to trade this week? Comment in and we can make more pips together!

Forex Market Hours Around the World

(posted at www.mo4forex.com) Here’s a list of times of Markets around the world. Here in the USA, offiical trading time is from Sunday 2-5PM (depending on your broker) to Friday 5PM. But that is of no consequence when talking about how certain time periods and market hours affect what is going on with certain currencies. I thought it would be useful to me and anyone out there who isn’t away of them to know the times markets open around the world and its signifigance to your Forex Trading. Technically, there are no Forex Market hours persay, just Forex brokers tapping in to other market makers and institutions that are trading currencies. Why market hours concern us is stocks and commodoties have as great an impact on the “big” forex traders’ sentiment as the traders trading the stocks, commodities or whatever it is they are trading.

Of course holidays and weekends do not factor into these time listings here and they are subject to change, please comment me back if you know of any errors I make, as I thought this is the most up to date info available.

When looking at a map of the world and going East to West, the first major market with a great impact on Forex prices to open is Tokyo, Japan, at 7:00 pm EST.

The Singapore and Hong Kong markets both open at 9:00 pm (EST).

The German market in Frankfurt opens at 2:00 am (EST).

The London Market Opens At 3:00 am (EST). Officially marks start of European Open and it’s busiest time while one hour later at 4:00 am EST, all Asian markets have closed.

The United States starts in New York at 8:00 am (EST). By this time, the European market is coming to a close.

The New Zealand market opens at 4:00PM (EST) AND can have an impact on your trading if you trade NZD pairs, which probably have a huge margin attached to them.

The Australian market opens approximately 5:00 pm EST, slightly after the New Zealand markets, the AUD/NZD pair is usually a nice mover around this time, but again, the spread might be too much.

7:00 pm, the Tokyo market is ready to open once more, which is the end or beginning of the trading cycle.

Not knowing when markets open and close even if they aren’t currency markets can have an adverse effect on your Forex trading. In fact, you might be a Forex loser if you repeatedly miss opportunities or have the markets go against you because you were not away of Forex market hours.

Dealer Lots Manager Expert Adviser

Dealer Lots Manager Expert Adviser Review and Notes from www.Mo4Forex.com — Just started testing out a Forex script called Dealer Lots Manager DLMv 1.3, an expert Adviser in Meta Trader 4. And boy, what a rollercoaster this is. I’ve read over a few times the brief explanation about the settings and features of this EA, but I can’t seem to find settings that will make it backtest without depleting my margin.

Here’s just one of many examples, one of many combinations of settings that usually all look like this. Dozens of backtests all failiures within a few trades; not just failiures, money GONE.

However, determined not to be discouraged by this expert adviser, I am testing it live on some trades and it has in fact helped me gain almost $1000 this morning so far! But if you look closely, the EA has opened up for me at least 10 pending orders which isn’t too crazy except look at the lot sizes! Maybe I am missing a setting in the properties for this EA, but I set lot size start 0.1 and step .1, how does that translate into doubling the lot size of each new position? Please comment me back an answer to this if you have one.

That’s pretty scary huh? Especially for those of us with $10,000 accounts! They’ve opened 3 positions that are 100 lots each! I never tried to take out a pending order so big, but I’m sure I’ll get hit with “NOT ENOUGH MONEY” message really soon. It’s also a pain to go in one by one and delete all of these trades. So, I doubt positions are very viable or useful in complete automatic mode “Live Trading Enabled,” therefore live trading will be turned off for this Forex EA Dealer Lots Manager for now, but I will allow for manual confirmation of these entries and determine whether or not to take the trade on a number of different factors, not just what this indicator says. I’d love for someone familiar with this EA to write back to me and tell me what settings you had the most success with.

The positions that it did open for me resulted in a few gains, but it’s still impossible to walk away from the computer and trust Dealer Lots Manager to not open a 10 lot position that would wipe most of us out even with a tiny retracement against us. Ok, hope this helped, happy trading Guys.

Bond Spreads In Forex

Bond Spreads in Forex Trading

 
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