OrderBookFx – Supply Demand Theory in Forex

Another very interesting site putting forth theories that apply to other markets, but in Forex, is not touched upon as much as others, that is the idea of supply and demand.

I’d argue though Supply and demand in Forex is one of the major reasons for the major trends we see pairs go through, I’m talking yearly, monthly; daily fluctuations in price could be affected by news dealing with S&D but generally I believe these factors are absorbed into the market and help tilt sentiment one way or another in the long run more so than not.

A good example would be to think of the price of Euro is now at $1.40 and when someone with a significant amount of EUROS steps in and sees USD as a good deal and decides to buy billions worth of the USD currency, obviously supply of USD would drop and the price would increase since the supply of EUROS lessened and the demand for more dollars at a higher rate decreased.

OrderbookFX attempts to tackle this issue but on an interday level helping us visualize points where supply and demand are most likely to have an effect, or more specifically where price is likely to be pushed to to fill the demand/supply for currencies at the moment.  Typically I like to follow more and think this can be a good addition to a trading system, but it is definitely worth the try, and I’m not even paid to say it!

Forex Probability Indicator

I’ve been following the development of FerruFx’s Probability Meter for trading Forex with MetaTrader 4.  To be quite honest, I find this to be a pretty brilliant tool for those of us who like to see in BOLD colors which way to trade.  This tool could easily keep you out of the most disastrous trades by shorting a currency that is clearly strong or buying a currency that is weak.  The Probability Meter will show you not only the direction of the trend but how strongly it is moving in that direction.

Basically, how this indicator works is the user must determine whether or not the individual indicators within the chart align.  The creator says that 75-80% is a  good trigger for an entry, but without a doubt other things should be considered like Fib levels and pivot levels.

Example how you can trade with the Probability Indicator from FerruFx: “attach the Meter on M15 and the 2TFs below (M5 and M1). First, the 2 additional indicators on the 3 TFs must agree. Then watch the numbers of the 3 others indicators (doesn’t matter which TF because the number will be the same). If these numbers are about the ones i suggested in the explanation above, then the Global % would be close to a good entry point. 75% seems to work well but with experience we’ll all find our % which we are confortable with.”

 The Probability Indicator works with the following currency pairs:

EURUSD
GBPUSD
AUDUSD
USDJPY
USDCHF
USDCAD

EURJPY
EURGBP
EURCHF
EURAUD
GBPJPY
GBPCHF
AUDJPY
NZDUSD
NZDJPY
AUDNZD
CHFJPY
EURCAD
AUDCAD

The indicator by itself is only $67.  Check out Forex Forums for a discussion on the Probability Indicator.

Protected: Trend Follower 5min System Notes

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.

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