Moving Average Envelopes Conclusions
Moving Average Envelopes are percentage-based envelopes set above and below a moving average. The moving average, which forms the base for this indicator, can be a simple or exponential moving average. Each envelope is then set the same percentage above or below the moving average. This creates parallel bands that follow price action. With a moving average as the base, Moving Average Envelopes can be used as a trend following indicator. Beyond simply trend-following, though, the envelopes can also be used to identify overbought and oversold levels when the trend is relatively flat.
Moving Average Envelopes Conclusions and forex signals
Moving Average Envelopes are mostly used as a trend following indicator, but can also be used to identify overbought and oversold conditions. After a consolidation period, a strong envelope break can forex signal the start of an extended trend. Once an uptrend is identified, chartists can turn to momentum indicators and other techniques to identify oversold readers and pullbacks within that trend. Overbought conditions and bounces can be used as selling forex trading signals opportunities within a bigger downtrend. In the absence of a strong trend, the Moving Average Envelopes can be used like the Percent Price Oscillator. Moves above the upper envelope signal overbought readings, while moves below the lower envelope signal oversold readings. It is also important to incorporate other aspects of technical analysis to confirm the overbought and oversold reading. Resistance and bearish reversal patterns can be used to corroborate overbought readings. Support and bullish reversal patterns can be used to affirm oversold conditions and buy forex trading signals.
The Role of Interest RatesCustomers, investors and buyers are vulnerable to have a huge impact on their financial status since their businesses and economy conditions are unavoidably affected by interest rates. More specifically, the changes in interest rates affect the costumer’s purchasing power, the company’s cash flow on a daily basis, and the bank’s loan and credit activity spearheading, in such a way, the global market. The next few paragraphs will give you an idea on the matter of interest rates on the global market. How does it work?The interest rate is the amount of money that a lender charges to a borrower for the asset's use, to put it simple, interest rates are related to the amount of cash that is in circulation. No matter where the interest rate comes from: a corporation or another depository organization or banks (institutional level), from customers acquiring goods and services like their homes and cars (retail level), the truth is, they all become part of the global market place and it can be eventually considered as the soul of the market.The central bank is the essential foundation of the economic system, as it controls lends funds which are, in many cases, holding another depository institution or the government overnight. This lending and borrowing activity produces liquid interest rates that are intended to produce economic growth and safety.The monetary policy and the market force as such, both play an important role within the economic activity worldwide: monetary policies, generally dictated by the central bank, are in charge of stabilizing prices and reducing unemployment rates by accomplishing the most accurate measures and producing the most liquid interest rates. If there is more purchasing demand out there (respective to the amount of cash in circulation), the amount of money or interest rate will be more worthy.What About The Change in Rates?Whenever interest rates vary, the lending level between all the banks and other entities may vary as well. Now, in order to determine the difference in the bond's yield (DV01), one has to calculate the interest rate risk which represents 001% in a 1000 basis points. The result would ultimately be marked as a change in interest rate.The important thing to understand here is that this sort of “economic behavior” is ultimately determined by the banks when they borrow and lend money to each other (or other entities like companies and individuals). The perfect formula for banks to decrease interest rates is when there is a sensation of slow growth and stable prices. On the other hand, they will increase interest rates when the formula combines a sensation strong growth and rocketing prices. This is how this interchangeably operation will affect the soul of the interest rates at the market.
Becoming a professional price action traderForex market is all about noteworthy traders. If you are in the market or if you are hoping to hop into the market you should understand that there are certain important factors that you should learn. You may be the professional trader with all the knowledge about forex trading, but educating yourself more and more will not bring you any losses. So here we go how to become a noteworthy price action trader? If you are new to the market, you will not have the fair knowledge on price action so let us give you some brief explanation of the price action it is the best indicator among other lagging indicators since the price helps the trader to decide whether to trade or not by the price analysis.If you want to become a noteworthy price action trader you must use price actions to direct to the profitable trade, not the other indicators. Actually, price action traders are more of technical traders because they rely on price movement, charts, volume and other raw data. It does not mean that the price action trading is easy, yes it is harder than the others so you must have sound knowledge about it.Tips to become a noteworthy price action traderIf you want to become a noteworthy price action trader in the forex market you should understand the price action strategies in better ways. If you understand the price action strategies then you will be able to make trading decisions logically and effectively.Support and resistance level strategy: This strategy depicts the psychology of demand and supply. The support and resistance can be the best strategy if the traders know how to deal with it. Actually, there are types of support and resistance levels such as swing points, Decision points, Breakout zones, Price action swings etc. but the key level of support and resistance strategy will help the traders to understand the best time to trade. There is a turning point in the market in such situation and also, it shows the good risk-reward ratio. Combo trading strategy (pin bar/inside bar)The pin bar strategy or inside bar strategy which one of the above strategies will you adopt? What if the pin bar strategy comes along with the inside bar strategy? We will explain you about it in the combo trading strategy i.e. the combination of pin bar and inside bar strategy. When you face a situation to trade with the combo trading strategy keep the following points in your mind the validity of the pattern is in the key level, time frame, and the close to the pin bar. We hope we did a job well done.SummaryThe price action strategies are important to any kinds of traders. Every trader should have the pure knowledge on price action in order to trade the forex market perfectly. If you really want to become the noteworthy trader in the forex market you should learn the price action strategies. Even though learning price action strategies can be pretty hard, if you get the notch it’ll be the easiest. Every small step will lead you higher and higher so start learning price action.
Trading is a game of probability. This means that every trader will be wrong sometimes. When a trade does go wrong, there are only two options: to accept the loss and liquidate your position, or go down with the ship.This is why using stop orders is so important. Many traders take profits quickly but also hold on to losing trades - it's simply human nature. We take profits because it feels good and we try to hide from the discomfort of defeat. A properly placed stop order takes care of this problem by acting as insurance against losing too much. In order to work properly, a stop must answer one question: At what price is your opinion wrong? In this article, we'll explore several approaches to determining stop placement that will help you to swallow your pride and keep your portfolio afloat. (For more insight, read Limiting Losses and Trailing-Stop Techniques.)Hard StopOne of the simplest stops is the hard stop, in which you simply place a stop a certain number of pips from your entry price. However, in many cases, having a hard stop in a dynamic market doesn't make much sense. Why would you place the same 20-pip stop in both a quiet market and one showing volatile market conditions? Similarly, why would you risk the same 80 pips in both quiet and volatile market conditions?To illustrate this point, let's compare placing a stop to buying insurance. The insurance that you pay is a result of the risk that you incur - whether it pertains to a car, home, life, etc. As a result, an overweight 60-year-old smoker with high cholesterol pays more for life insurance than a 30-year-old non-smoker with normal cholesterol levels because his risks (age, weight, smoking, cholesterol) make death a more likely possibility. If volatility (risk) is low, you do not need to pay as much for insurance. The same is true for stops - the amount of insurance you will need from your stop will vary with the overall risk in the market.ATR % Stop MethodThe ATR% stop method can be used by any type of trader because the width of the stop is determined by the percentage of average true range (ATR). ATR is a measure of volatility over a specified period of time. The most common length is 14, which is also a common length for oscillators such as the relative strength index (RSI) and stochastics. A higher ATR indicates a more volatile market, while a lower ATR indicates a less volatile market. By using a certain percentage of ATR, you ensure that your stop is dynamic and changes appropriately with market conditions.For example, for the first four months of 2006, the GBP/USD average daily range was around 110 to 140 pips. A day trader may want to use a 10% ATR stop - meaning that the stop is placed 10% x ATR pips from the entry price.In this instance, the stop would be anywhere from 11 to 14 pips from your entry price. A swing trader might use 50% or 100% of ATR as a stop. In May and June of 2006, daily ATR was anywhere from 150 to 180 pips. As such, the day trader with the 10% stop would have stops from entry of 15 to 18 pips while the swing trader with 50% stops would have stops of 75 to 90 pips from entry. Figure 1 It only makes sense that a trader account for the volatility with wider stops. How many times have you been stopped out in a volatile market, only to see the market reverse? Getting stopped out is part of trading. It will happen, but there is nothing worse than getting stopped out by random noise, only to see the market move in the direction that you had originally predicted.Multiple Day High/LowThe multiple day high/low method is best suited for swing traders and position traders.It is simple and enforces patience but can also present the trader with too much risk. For a long position, a stop would be placed at a pre-determined day's low. A popular parameter is two days. In this instance, a stop would be placed at the two-day low (or just below it). If we assume that a trader was long during the uptrend shown in Figure 2, the individual would likely exit the position at the circled candle because this was the first bar to break below its two-day low. As this example suggests, this method works well for trend traders as a trailing stop. Figure 2 This method may cause a trader to incur too much risk when they make a trade after a day that exhibits a large range. This outcome is shown in Figure 3, below. Figure 3 A trader who enters a position near the top of the large candle may have chosen a bad entry but, more importantly, that trader may not want to use the two-day low as a stop-loss strategy because (as seen in Figure 3) the risk can be significant.The best risk management is a good entry. In any case, it is best to avoid the multiple day high/low stop when entering a position just after a day with a large range. Longer term traders may want to use weeks or even months as their parameters for stop placement. A two-month low stop is an enormous stop, but it makes sense for the position trader who makes just a few trades per year.Closes Above/Below Price LevelsAnother useful method is setting stops on closes above or below specific price levels.There is no actual stop placed in the trading software - the trade is manually closed out after it closes above/below the specific level. The price levels used for the stop are often round numbers that end in 00 or 50. As in the multiple day high/low method, this technique requires patience because the trade can only be closed at the end of the day.When you set your stops on closes above or below certain price levels, there is no chance of being whipsawed out of the market by stop hunters. (Want to do some stop hunting of your own? Check out Stop Hunting With The Big Players.) The drawback here is that you can't quantify the exact risk and there is the chance that the market will break out below/above your price level, leaving you with a big loss. To combat the chances of this happening, you probably do not want to use this kind of stop ahead of a big news announcement. You should also avoid this method when trading very volatile pairs such as GBP/JPY. For example, on December 14, 2005, GBP/JPY opened at 212.36 and then fell all the way to 206.91 before closing at 208.10. A trader with a stop on a close below 210.00 could have lost a good deal of money. This is shown in Figure 4, below. Figure 4 Indicator StopThe indicator stop is a logical trailing stop method and can be used on any time frame. The idea is to make the market show you a sign of weakness (or strength, if short) before you get out. The main benefit of this stop is patience. You will not get shaken out of a trade because you have a trigger that takes you out of the market. Much like the other techniques described above, the drawback is risk. There is always a chance that the market will plummet during the period that it is crossing below your stop trigger. Over the long term, however, this method of exit makes more sense than trying to pick a top to exit your long or a bottom to exit your short. How many times have you exited a trade because RSI crossed below 70 only to see the uptrend continue while RSI oscillated around 70? In this example, we used the RSI to illustrate this method, but many other indicators can be used. The best indicators to use for a stop trigger are indexed indicators such as RSI, stochastics, rate of change or the commodity channel index. Figure 5 shows a GBP/USD hourly chart. Figure 5 SummaryIn order to use stops to your advantage, you must know what kind of trader you are and be aware of your weaknesses and strengths. For example, maybe you have great entry methods but have a problem exiting the trade too early. If so, you may want to work with an indicator stop. Every trader is different and, as a result, stop placement is not a one-size-fits-all endeavor. The key is to find the technique that fits your trading style - once you do, exiting failing trades should be smooth sailing.