How To Simple with Metatrader 4

RSI Basics (Relative Strength Index)

This video is focused on how to use the RSI, understanding its construction, general strategies, how to apply divergence, and what its telling us.

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RSI Indicator Divergence Trading Setups

Divergence is one of the trade setups used by Forex traders. It involves looking at a chart and one more indicator. For our example we shall use the RSI indicator.
To spot this setup find two chart points at which price makes a new swing high or a new swing low but the RSI indicator does not, indicating a divergence between price and momentum.
Example:
In the chart below we identify two chart points, point A and point B (swing highs)
Then using RSI indicator we check the highs made by the RSI, these are the highs that are directly below Chart points A and B.
We then draw one line on the chart and another line on the RSI indicator.

How to spot divergence
In order to spot divergence we look for the following:

• HH=Higher High- two highs but the last one is higher
• LH= Lower High- two highs but the last one is lower
• HL=Higher Low- two lows but the last one is higher
• LL= Lower Low- two lows but the last one is lower

First let us look at the illustrations of these terms

There are two types of divergence:

1. Classic
2. Hidden

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RSI Classic Bullish and Bearish Divergence Trading Setups

Classic divergence is used as a possible sign for a trend reversal. Classic divergence is used when looking for an area where price could reverse and start going in the opposite direction. For this reason classic divergence is used as a low risk entry method and also as an accurate way of exit out of a trade.

• It is a low risk method to sell near the top or buy near the bottom, this makes the risk on your trades are very small relative to the potential reward.
• It is used to predict the optimum point at which to exit a trade

There are two types:

1. Classic Bullish Divergence
2. Classic Bearish Divergence

Classic Bullish Divergence
Classic bullish divergence occurs when price is making lower lows (LL), but the oscillator is making higher lows (HL).

Classic bullish divergence warns of a possible change in the trend from down to up. This is because even though the price went lower the volume of sellers that pushed the price lower was less as illustrated by the RSI indicator. This indicates underlying weakness of the downward trend.
Classic bearish divergence

Classic bearish divergence occurs when price is making a higher high (HH), but the oscillator is lower high (LH).

Classic bearish divergence warns of a possible change in the trend from up to down. This is because even though the price went higher the volume of buyers that pushed the price higher was less as illustrated by the RSI indicator. This indicates underlying weakness of the upward trend.

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RSI Hidden Bullish and Bearish Divergence Trading Setups

Hidden divergence is used as a possible sign for a trend continuation. Hidden divergence occurs when price retraces to retest a previous high or low.
Hidden RSI Bullish Divergence
Forms when price is making a higher low (HL), but the oscillator is showing a lower low (LL).
Hidden bullish divergence occurs when there is a retracement in an uptrend.

This setup confirms that a retracement move is complete. This divergence indicates underlying strength of an uptrend.
Hidden RSI Bearish Divergence
Forms when price is making a lower high (LH), but the oscillator is showing a higher high (HH).
Hidden bearish divergence occurs when there is a retracement in a downtrend.
This setup confirms that a retracement move is complete. This divergence indicates underlying strength of a downtrend.

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Reversals with Bollinger Bands

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Bollinger Bands Indicator Bulge and Squeeze Technical Analysis

The Bollinger Bands are self adjusting which means the bands widen and narrow depending on volatility.

Standard Deviation is the statistical measure of the volatility used to calculate the widening or narrowing of the bands. Standard deviation will be higher when prices are changing significantly and lower when markets are calmer.

• When volatility is high the Bands widen.
• When volatility is low the Bands narrows.

The Bollinger Squeeze

Narrowing of Bands is a sign of consolidation and is known as the Bollinger band squeeze.

When the Bollinger Bands display narrow standard deviation it is usually a time of consolidation, and it is a signal that there will be a price breakout and it shows people are adjusting their positions for a new move. Also, the longer the prices stay within the narrow bands the greater the chance of a breakout

The Bollinger Bulge

The widening of Bands is a sign of a breakout and is known as the Bulge.

Bollinger Bands that are far apart can serve as a signal that a trend reversal is approaching. In the example below, the bands get very wide as a result of high volatility on the down swing. The trend reverses as prices reach an extreme level according to statistics and the theory of normal distribution. The "bulge" predicts the change to downtrend.

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Technical Analysis Tutorial Candlesticks (it is the lesson + practics for the about 2 hours)

We wish to guide you through the fundamentals of technical analysis. In this first class, You will learn what really matters to get the basics of your technical understanding . This class will cover candlestick analysis, trend lines, and support and resistance. You will learn how not to be shaken on a shakeout and how not the be fooled by a false breakout. This is the basics but we go a little beyond the basics into things that many more experienced traders tend to miss. In the future we will progress with more advanced classes in this series covering everything all the way up to importing formulas into your charting package, Elliot wave analysis, and point and figure analysis. But it all starts with this class. Hope you enjoy it , we worked very hard on this class.

MT4 Indicator Review: Heiken Ashi Smoothed (indicator attached)

In this video, we conduct a simple review of how we would trade the Heiken Ashi Smoothed MT4 indicator

In the Video above, the silver moving line is the price. The blue and red indicators are the Heiken Ashi bars. Blue indicates bullish momentum, while red indicates bearish momentum.

This indicator will probably work well in combination with another indicator. It reduces “fake-outs” and fake reversals while keeping you in trends with momentum indicated by the color of the bars.

Heikin Ashi is a type of trading chart that originated in Japan (heikin ashi translates as average bar). Heikin Ashi charts are similar to candlestick and bar charts in that they show similar information (the open, high, low, and close of the time frame), but Heikin Ashi charts calculate the information differently.

Heikin Ashi charts are used in trading in the same manner as standard candlestick or bar charts (i.e. chart patterns are used to indicate price movements). However, Heikin Ashi charts have an additional aspect in that the direction of the bar (i.e. its color for candlesticks) is supposed to indicate the overall direction of the market, while ignoring the intermediate direction (e.g. false changes of direction).

Kuasa Forex trading system was once a very popular trading system among traders from Malaysia, Indonesia and Brunei. This system combined heiken ashi smoothed with bbands_stop_v1, kuskus_starlightv2, fibo_pivotv2 and EMA 34. All indicators attached except heiken_ashi_smoothed where New Digital already attached in previous post.



A video showing trades using the kuasa forex system :

Pretty cool way to use the RSI. How to trade using RSI Trading Strategy


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Identify the Trend

The first step to trading any successful trend based strategy is to find the trend! One of easiest ways to find the trend is through identifying a charts swing highs and swing lows. Traders can work from left to right on their graph and identify the outliers in price. If you see the peaks and valleys of price declining consistently, you are looking at a downtrend. If highs and lows are advancing, traders would consider a currency pair to be trending upward.

Given this information, traders should look to sell the AUDNZD as long as price continues to decline towards lower lows. If the trend continues, expectations are that price will decline allowing traders to look for new areas to sell the market.



RSI for Entry

Once a strong trend is established, traders will look to join that trend with a technical market trigger. Oscillators are a family of indicators that are designed specifically to determine if momentum is returning to an existing trend. Below we can again see the AUDNZD 8 Hour chart, but this time the RSI (Relative Strength Index) indicator has been added. Since we have identified the AUDNZD as being in a downtrend, traders will look to sell the pair when the RSI indicator crosses back below a value of 70 (overbought). This will signal momentum returning lower after the creation of a new swing high.

Below you will find several previous examples of RSI entries signaled on the AUDNZD. Remember since the trend is down, only new sell positions should be initiated. At no point should a buy position be considered as price declines.



Manage Risk

Every good strategy needs a risk management component. When trading strong trends such as the AUDNZD, it is important to realize that they will eventually come to an end! Traders have a variety of choices when it comes to stop placement, but one of the easiest methods is to use a previous swing high on the chart. In the event that price breaks towards higher highs, traders will wish to exit any existing sell biased positions and look for new opportunities elsewhere.

Wether you are trading live money or just practicing on a demo it is also recomended to review your trades. This way you can track your progress while making sure you adhere to the strategy rules!

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Episode 69: The Aroon Indicator

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Aroon Indicator Technical Indicator :

Developed by Tushar Chande

The Aroon indicator is used to determine if a trading instrument is trending or not.
It is also used to indicate how strong the trend is.
The Aroon indicator is used to identify the beginning of a trend, the name aroon means morning or dawn. This indicator is used to identify a trend early thus its name.

The Aroon indicator has two lines

• Aroon UP
• Aroon DOWN

Aroon UP

Percentage of time between the start of a time period and the highest point that price has reached during that period.

If price sets a new high Aroon UP will be 100. For each new high Aroon stays at 100. However, if price moves down by a certain percentage, then that percentage is subtracted from the 100 and Aroon UP starts to move down. This means that if Aroon UP stays at 100 then price is making new highs but when it starts to move down then price is not making new highs.

If However price is making new lows for a particular price period then Aroon UP will be at Zero

Aroon DOWN

Aroon DOWN is Calculated the same as Aroon UP but this time using the lowest point instead of the highest point.

When a new low is set Aroon DOWN is at 100 and when a new high is set Aroon DOWN is at Zero.

Technical Analysis of Aroon Indicator

Aroon uses the 50 % level to measure momentum of the trend.

Buy Signal and exit signal

Aroon UP above 50 is a technical buy signal

Aroon UP dipping below 50 is an exit signal if you had bought the currency.

Sell Signal and exit signal

Aroon DOWN below 50 is a technical sell signal.

Aroon UP rising above 50 is an exit signal if you had sold the currency.

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How to trade the Relative Vigor Index (RVI) in Forex

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Relative Vigor Index Technical Indicator

Developed by John Ehlers

The RVI index combines the older concepts of technical analysis with modern digital signal processing theories and filters to create a practical & useful indicator.

The basic principle behind the RVI index is simple –

• Prices tend to close higher than they open in up-trending markets and
• Prices close lower than they open in down-trending markets.

The momentum (vigor) of the move will therefore established by where the prices end up at the close of the candlestick. The RVI plots two lines the RVI Line and the signal Line.

The RVI index Indicator is essentially based on measuring of the average difference between the closing and opening price, and this value is then averaged to the mean daily trading range and then plotted.

The makes the RVI index a responsive oscillator that has quick turning points that are in phase with the market cycles of prices.

Technical Analysis Ehlers Relative Vigor Index Technical Indicator

The RVI is an oscillator indicator. The basic method of interpreting the RVI Index is to use the crossovers of the RVI and the RVI Signal Line. Signals are generated when the there is a crossover of the two lines.

Bullish Signals- A buy signal occurs when the RVI crosses above the RVI Signal Line. Bearish Signals- A sell signal occurs when the RVI crosses below the RVI Signal Line.

ADX - Average Directional Index

This lesson describes the ADX with the DI+ and DI- Directional Indicators, and also shows how they are commonly use

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Average Directional Movement Index (ADX)

Developed by J. Welles Wilder
The ADX is a momentum indicator used to determine the strength of a price trend; it is derived from the DMI –Directional Movement Index which has two indicators
+DI- Positive Directional indicator
–DI - Negative Directional Indicator
ADX is calculated by subtracting these two values and applying a smoothing function, example a function of ten to come up with a 10 period ADX.

ADX
The ADX is not a directional indicator but a measure of the strength of the trend. The ADX has a scale of Zero -100.
The higher the ADX value the stronger the trend.
ADX value below 20 indicates that the market is not trending but moving in a range.
ADX value above 20 confirms a buy or sell signal and indicates a new trend is emerging.
ADX value above 30 signifies a strong trending market.
When ADX value turns down from above 30, it signifies that the current trend is losing momentum.
ADX indicator combined with DMI- Directional Movement Index
Since the ADX alone is a directionless indicator it is combined with the DMI index to determine the direction of the currency pair.
When the ADX is combined with DMI index a trader can determine the direction of the trend and then use the ADX to determine the momentum of the forex trend.

Technical Analysis of ADX indicator

Buy Signal
A buy signal is generated when the +DI is above –DI, and the ADX is above 20
The Exit signal is generated when the ADX turns down from above 30.
Sell Signal

A short signal is generated when the –DI is above +DI, and the ADX is above 20
The Exit signal is generated when the ADX turns down from above 30.

Using MACD to Determine Buy and Sell Points

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MACD Oscillator Technical Analysis Fast Line and Signal Line

MACD is used in various ways to give technical analysis information.

1. center line crosses indicate bullish or bearish markets; below zero is bearish, above zero is bullish.
2. MACD crossovers indicate a buy or sell signal.
3. MACD oscillations can be used to indicate oversold and overbought regions
4. Used to look for divergence between price and indicator.

MACD Construction

The MACD is constructed using two exponential moving averages and MACD indicator plots two lines. The two default exponential moving averages used are 12 and 26. Then a smoothing factor of 9 is also applied when drawing.

Summary of how MACD is plotted

MACD uses 2 EMAs + a smoothing factor (12, 26 Exponential Moving Averages and 9 smoothing periods)
MACD only plots two lines- the fast line and the signal line

• The Fast Line is the difference between the 26 EMA and 12 EMA
• The signal line is the 9 period moving average of the MACD fast line.

Implementation

The MACD indicator implements the MACD line as a continuous line while the signal line is implemented as a histogram.

The fast line and signal line is used to generate trading signals using the crossover method.
There is also the center-line which is also known as the zero mark and it is a neutral point between buyers and sellers.

Values above the center-mark are considered bullish while those below are bearish.
The MACD being an oscillator indicator, oscillates above and below this center line.

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MACD Technical Analysis Buy and Sell Signals

Since the MACD uses 26 and 12 EMA to plot, we shall compare these two EMAs with the MACD indicator to determine how these signals are generated.

The MACD is a leading indicator meaning it generates signals that are leading compared to price action as opposed to lagging indicators that lag behind the price.

MACD Buy

A buy signal is generated when there is a MACD fast line crosses above the signal line. However, as with any leading indicator these signals are prone to whipsaws/ fake out signals.

To eliminate the whipsaws it's good to wait for confirmation. The signal is confirmed when the two lines cross above the zero mark, when this happens the buy generated is a reliable trading signal.

In the example below, the Moving average generated a buy, before price started to move up. But it wasn't until the MACD moved above the zero line that the signal was confirmed, and the Moving Averages also gave a crossover signal. From experience its always good to buy after both the MACD lines move above zero.

MACD Sell

A sell signal is generated when there is a MACD fast line crosses below the signal line. However, just like the buy signal, these are also prone to whipsaws/ fake outs.

To eliminate the whipsaws its good to wait for confirmation of the signal. The signal is confirmed when the two lines cross below the zero mark, when this happens the sell generated is a reliable trading signal.

In the example below, the Moving average generated a sell confirmed after MACD moved below the zero line at the same time that the Moving Averages gave a crossover signal.

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