Learn Fibonacci

We will often use Fibonacci ratios in our trading, so should you learn Fibonacci and loved it. Fibonacci is a very broad subject and there is so much to be learned from Fibonacci with weird names, but we will only study the two, there are: retracement and extension.

First let us know the Fibonacci maker: Leonard Fibonacci. Leonard Fibonacci was an Italian mathematician. He found a simple series of numbers that make up the ratio describing the natural proportions of a thing in this world.

Determine Take Profit & Stop Loss (Support and Resistance)

There are 3 Main Points to consider

1. Let the chart/graphic that shows us where we should place the stop loss

Optimal Stop loss should be placed under the support (in long position) or above the resistance (in the short position).

The most important thing when we are trading is realized when we should exit from market when our position as opposed to the actual market direction, it mean we have to stay put a stop loss and change it when the market friendly to us. The best place to put the stop loss is above resistance or below support, and change to levels that may form later.

Determination of support or resistance can be performed after measuring the range of price movement and taken an extreme high level (Resistance) or extreme low level (Support) on the chart.

How Do We Know Support or Resistance is truly Break-Out?

There is no absolute answer to that question. There are some arguments that say that the level of support or resistance break-out when the closing price has passed that level. But in reality not always so. Let's look at an example below and see what happens when the price closed through the resistance level 2500. 

In this case, the price had closed twice above resistance level 2500 but they always end with prices that falling back below the resistance level. If you really believe in what you see and say that this is an actual breakout, and then take action to buy, then you will feel very sad. Let's look at the chart now, you can see and make a conclusion that the actual resistance level has not really break-out, and the level is now even stronger than before.

Method to Determine Support and Resistance Point

After explain an understanding of what is supports and resistance in last post before, in this post will explained how the basic method to determine support and resistance.

common methods used in determining the level of support and resistance are Simple Visual Method and Trading Range Method.

Simple visual method in determining support and resistance levels are method that relatively easy to implement. To establish support visually is simply draw a line or area of the previous candlestick. To determine support visually, the support line set at the points where reversal is occur on the candlestick.

Simple visual method

Trading Range Method (making the trading range, or band method) can provide an important role in determining the position of support and resistance. In this method of support or resistance can serve as a critical point which can serve as turning point or continuous pattern.

Support and Resistance Location

Location of Support

Usually the range or line of support established under a running price (the price that happen at this time). Traders generally dont take a position when prices are near the support line or with the support range, because the tendency of price movement has a higher uncertainty.

Location of Resistance

The range of resistance is usually located above the running price (the price that happen at this time). Same with support, generally in this range traders and investors tend to hold themselves to take positions becuase the increase level of uncertainty. And besides that, same, as support, in determining the range of resitance, analysts, traders or investors prefer a resistance zone.

Support and Resistance

Basic Technical Support & Resistance

When we make investments in stocks, indices, forex and commodities, analysts and traders expected the ability to read the direction of price movement. For the purposes of these various analysis techniques have been developed and applied, and one important part in the process of this analysis is technical analysis. One of the most useful tools of technical analysis is support and resistance analysis. This is relatively easy to analysis using support and resistance because can improve the accuracy of the analysis of price movements.

Support & Resistance Basics Definition

Support and resistance describes the estimates where the price movements both from the supply and demand reaches equlibrium point. At that range if supply is more excessive then prices will tend to come down from that range and if demand is excessive then prices will tend to increase from that range, and if the forces of supply and demand are relatively balanced, then the price will tend to survive, consolidation or sideways on that range. On other way, excessive supply cause bearish and excessive demand cause bullish.

Support Definition

Support is the price range where in this level or range is estimated that demand is strong enough to hold the price fall down further. Simple logical is that when prices fall closer to the range of support, causing the increased willingness of investors to buy stock, index or a particular currency, and when prices are touching or near the range then demand is estimated will exceed supply so the markdown is hold .However, keep in mind that the range of support does not mean prices will definitely stuck in range, always open the possibility that the range of support can be penetrated or bypassed, which it indicates the increasing supply greater than demand, in this case support is break, so we need to made other support under the previous support.

Resistance Definition

Resistance is a price level where the trend is expected to sell in that range are strong enough to hold the rate of price mark-up. Basic logical is that if the price mark-up is close to the range of resistance, then the trend of trader or investor to sell is increasing. And on the other hand when the price is perceived too high then the tend to buy will be relatively decreased. So when the price touched resitance range, it is estimated that the supply will exceed demand so that would hold price to increase.

Elliot Wave Theory (continued)

Impulse waves

A variation known as an "extension" can be seen in parts of one impulse waves. Extension is a movement that exceed or longer movements and it is completely out of scale when compared with other impulse wave (in each Wave 1, wave 3 or wave 5). Most Extension occurs in wave 3. Extension may also occur in Extending wave itself.

Elliot Wave Theory

Fundamental Concept

The most popular pattern of Elliot Wave are :

Picture 1

1.    Main movement in Forex market surely will form pattern in five wave, then after formed a whole series wave there will be “correction” which is formed by three wave that move reversal. (See picture above)

2.    Amount from this phases called “cardinal waves” by Elliot, also knowing as “impulse wave”, this condition popularized again by Pretcher and Frost. The Phases that marked by alphabet known as “corrective waves” or in general called as “threes”.

3.    Wave 2 is the correction from wave 1 then wave 4 is the correction from wave 3. A whole series wave from 1 to 5 have correction a-b-c series.

4.    In macro illustration, series wave from wave 1 to wave 5 completed if peak from the wave that formed is more higher than before or alson known as “simply put”. This, series wave from wave to wave 5 is accomplished if wave 1, 3, 5 is formed, meanwhile a-b-c series completed if wave 2 and wave 4 is formed. (see picture 2)

Forex Chart Type

There are three most popular Forex chart types:

• Line Chart
• Bar Chart
• Candlestick chart

Line Charts

Line chart is a simple chart which is illustrates a line from one closing price to the next closing price. When line was formed, we can see the price movement of a currency pair in general at any given time.

Example for line chart in Daily GBP/USD:

Some Open Position (OP) Example with Weighted Method - KG's Technical Analysis

MA_MODE created by Goen and approved by KG

0 = Simple Moving Average (SMA)

1 = Exponential Moving Average (EMA)

2 = Smoothed Moving Average (SSMA)

3 = Linear Weighted Moving Average (LWMA)

For download this indicator please click here ==>

http://www.forexindo.com/forum/attac...-kg-ma-1.3.mq4

USD/JPY Case on Maret 2008

Let Observe in M15 TF , Daily and Weekly MA tend to start moving flat, its meaning that if they fall trying to give more attention to the Daily Lower BB (dashed Lime) and weekly (dashed magenta), follow the small trend 8 hours, 4 hours or 1 hours to take exit decisions. And now price was in the area of Lower BB weekly, for these conditions as described in the beginning, it is best to OP buy at lower BB and OP sell on the Upper BB with observe over the small movements trend.

USD/JPY Case

From the picture seen that KG take buy position, from M15 chart analyze seen that daily and weekly LWMA tend to be flat, and from price movement prove that price reverse back and rise after touch weekly lower BB.

OP's Target can be done by following the small trends, if the price is able to pass through daily WMA, Upper daily BB or around the weekly WMA will be the first target, if not should close position.

Index of Forex Technical Analysis :

• KG's Technical Analysis
• Elliot Wave Theory

When Market is Trending - KG's Technical Analysis

1. Example from H1 Time Frame EUR/USD case

Look at the picture below, from this picture SMA 480 (Magenta), SMA 120 (Lime) and SMA 24 not in flat condition, thus we add SMA 8 and SMA 4 to see EU movement during 4 and 8 hour, and open buy is taken if SMA 4 is above SMA 8, so that its follow the SMA 24, SMA 120 and SMA 480 trend.

2. Example from M15 Time Frame GBP/JPY case

Sell is taken if price have been reach BB 96, then followed by SMA 4 position still below of SMA 96, for more ensure that GJ will up or down again, see SMA 4 open and close next candle.

Boillinger Bands (BB) - KG's Technical Analysis

This picture below shown 1H chart that have been zoom out, to observe what happen in SMA 480.

After chart is zoom out, seen that SMA 480 being consolidation, after the trend is down sharply before (See yellow line).

There are 3 movement patern Up, Down, and Flat. The most important thing to observe is Flat movement patern, because from this patern price will starting to move Up or down. Then at flat movement patern in mathematically and statistically the boundary movement is easy to predict.

Simple Moving Average (SMA) - KG's Technical Analysis

Observing Charts Trend

Look at this chart below :

If point C seen from point B, trend is down. But if seen from point A, trend is up. Thus, each different reference point have different result, and it represent different information that obtained just seeing a point from different observation.

Point A and B is sighting point which is distinguished by time, so when observe point C from point B, actually we observe the price in point C and compare it with the price at the time point B is formed.

Forex is Business world that driven by human as the main actors, which it work with time as reference, therefore time reference that will use adapted with business time reference, that is yearly, monthly, weekly, daily, 8 Hour, 4 Hour, 1 Hour, even 5 minutes.

KG's Technical Analysis

There are many way for analyze chart in Forex, both fundamental or technical way, where the result will use to open transactions, i.e. open sell, buy, or just watch it first. I get this Technical from http://www.forexindo.com/, with indonesian language and i want share in English to this blog.

There are two kind of data that need to obtained from the analysis.

First: a prediction of where prices will move (up or down).

Second : It has a prediction to which prices will move.

These prediction are not generated in-consequent, but through mathematical and statistical calculation. For example, from the data that has been formed can be calculated and analyzed, then predict next price movement.

Level Trader ( level 4 and 5)

Level 4 Conscious Competence

In this level, they only trading if the system give signal to open position. They easy to cut loss same as take profit. because they know that their system will give more profit than loss, and their cut loss that they do is the risk of bussiness i.e. max 2% from their acount balance.

In this level they begin trade with target profit is 20 point/day, and after do that constantly and consistently for several week, they raise target until 40 point/day. And they do it like before, can maintain their target.

Level Trader ( level 3)

Level 3 The EUREKA Moment


In the end of 2nd level, they realize the main problem is not in system. They realize that we can get profit even only use simple sistem like moving average without other indicator if they can exploit their brain and right money management.

They started read psycologichal trading book, and identified with the carachter that explain in this book, finally the enlightenment is come.

They realize one important thing, that we cant predict what happen in market in 30 second later acurately. They are have one system now then moidify this system , so it can appropiate with their character and can give more profit than the original system.

They only started trade if probability to profit is greater than to loss, they only trade if they get signal from their system, they use stoploss,because they know this is risk in trade and they know it can prevent loss become margin call.

Level Trader ( level 2)

Trader Level 2

Level 2 Conscious Incompetence

In This Level they realize that they cant trade properly, don't have ability to obtain profit consistently. And they know the solution, realize that in level 1 their mind are controlled by emotion so cant trade properly.

In this level they will find a holy grail (100% Profit system and never loss), they started to bought system from Internet, browse and read website about forex around the world, read every e-book, they apply all system that they acquire, they always want to know all about forex like a wanderer in the desert who is thirsty to drinking water.

Level Trader (Level 1)

Before We enter in the forex trader world, we must know about level trader. Everyone who advance in forex must pass every level before they become a master or advance in forex. This is the first level :

Level 1 Unconscious Incompetence

This is the first level when a trader only play in forex. They always believe that forex can make someone rich very fast. They always play, not analyze market very well. They use instinct to open every position and they become a beginner luck. But unfortunely market will defeat them. They hold loss position, and hope market will comeback and make their position become profit, but this hope can't be reality because their margin now is gone, so they have nothing.