Using DiNapoli Levels in Forex

Published at (www.mo4forex.com) My notes on the significance of DiNapoli levels in Forex trading. I recently came across a site made for and/or by Joe DiNapoli, a name I’ve heard thrown around and a name an indicator in MetaTrader4 fhat I have seen and tried out a few times in the past never really knowing what it did or the signficance it had on Forex Trading. This post is a brief outline of the things I’ve learned about trading DiNapoli levels and why they are indeed a great indicator of where price movment might reach. Read more

RSI (Relative Strength Index)

RSI stands for Relative Strength Index. The RSI measures the markets activity as to whether it is over bought or over sold. It gives a trader an indication as to which way the Market is moving. It is important to note, that this is a leading indicator and thus allows one to see what the market is about to do and then act accordingly. The higher the RSI number, the more over bought it is and conversely the lower the RSI number, the more over sold it is. It is a great leading indicator for the micro and macro reversals in the forex market. In the example avove, RSI is in the middle window and I have made two red lines to indicate when the pair has been overbought or oversold, respcetively, I put my lower line at 20 even though most exeprts say put it at 25. Here I’ve used RSI on a longer time frame, but for swing trading, you might want to drill down to 5 or 1 minute charts (or 50 to 100 tick charts).

Got this advice elsewhere, please someone verify if this helps in Forex, I can see it does but have little indication why these settings are the best.

By using an RSI on the 1 minute chart set at a period of 18 and overlaid on the bottom of your charts tend to give the best entry signals. This can also be applied to the 5-minute chart as well. The two significant entry numbers are 25 and 75.

RSI does not (and I believe CAN not) be an accurate way to find the top and bottom of a move in Forex. Sometimes an overbought market in Forex (after a move upward) will be followed by retracement (or a correction downward) in order to gather momentum so it will continue its trend upward. Conveersely, an oversold market in Forex will be followed up by a retracement upward and gains momentum and goes down further, continuing the downtrend.

Drawing Fibonacci levels will help the most at this stage to determine possible retracement levels. In the example above, I’ve used the trend lind approach to find entries and exits in addition to reading the RSI indicator.

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

Bond Spreads In Forex

Came across a really interesting article by Kathy Lien, Chief Strategist at FXCM about Bond Spreads and Interest and how they affect the Forex Market. Some of this is common sense, but is always good to be reiterated and gone over from time to time. Including the idea that investors will tend to seek higher yields on interest rates and thusly buy currencies with higher rates than the currency they are holding. Read more

Forex Killer Showing Promising Results (So Far)

New Forex Killer Review (mo4Forex.com) After a month of using Forex Killer I’ve concluded that it does actually make me pips, but the losers are unfortunately outweighing the winners in terms of pips lost vs gained. I will enter trades looking for a 30-50 pip profit (not including the spread), and set an equal stop loss (or a stop loss near a point of resistance) So, while my winning trades netted over 5800, my losers accounted for 3700 in losses. Hardly a killing. In fact I feel a little roughed up myself, but alas, I have seen the err of my ways. Instead of just blindly trusting Forex Killer, you really need to use your brain and do your own analysis on the pair. I know for a fact that news spikes didn’t affect my positions opened with help from Forex Killer’s signals. Also, I used smaller lots for more of the winners and there were some larger lot trades with more of the losers. I deduced that Forex Killer entered me into losing trades because I read the signal near the end of a trend, which still indicated a strong buy or sell signal, but was soon to retrace or reverse, and with the stops I had set for many of them 30, 40 or 50 depending on the pair and situation, I would have a $500 losing trade versus a $100-200 winning trade. So even though I had a 3:1 success rate, the pips gained/lost ratio is much tighter. But, that alone should not turn me, or you, off to this software, my trading method just needs to be tweaked. I thought it would be useful to bring up and see if anyone else had a similar account of trading with Forex Killer.

In total, I have made 48 winning trades and 16 losing trades with Forex Killer. Now, demo conditions are not indicitive of what live conditions might be like, so keep this in mind. Also, note that these results will be different for everybody, there’s just no possible way 2 people can enter the same trade time and time again, so, results will vary. My Detail Statement graph reflects my trading all month, and about mid way I started to use Forex Killer, so you can see how much my trading improved. To repeat, that graph has my own manual trades based on whatever I thought was a good trade, often times a loser for me, on this demo account at least. The graph does speak for itself though; This was not a hypothetical backtest, these were real trades made on a demo account, but real trades noneheless, and for my losses to be wiped out and to see a $3000 gain thanks to Forex Killer’s advice really convinced me to keep trying at it. Even though the often tedious task of entering in one price at a time takes its toll, the signals have proven to be quite accurate and on more pairs than originally suggested by the software developers.

It seems trading GBP/USD was the biggest loser for me, short and long trades were about even in terms of winners/losers. EUR/USD was the second worse and USD/CHF came in third in terms of losers. But like I said, winners outweighed losers 3:1 exactly.

Now, I’m trying out some more trades today and so far things aren’t looking good, 4 losers at once right now and will probably hit their stops. Actually I am down $800 as I type this to you on Forex Killer signals, so things don’t always work, of course.

Addendum— 3 hours later
I was wrong about not trusting these signals, and my least favorite pair earned me $1200 in profits, 120+ pips on two seperate trades, and also another winner in USDCHF and EURUSD.  So all of those trades I thought were about to be losers are now winners, all closed except the one big trade on GBP/USD, I set a 25 point trailing stop loss and am 10 pips away from my target!

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