How To Simple with Metatrader 4

Video 8 - Forex support and resistance lines


Support and resistance lines are among the most common factors that you will come across when you trade. They both represent a price point at which the opposite forces cannot penetrate. Instead, price bounces back into the opposite direction as the support or resistance lines are far too strong.

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Support and Resistance is one of the widely used concepts in Forex trading. Most traders plot horizontal lines to show support levels and resistance levels.

There is also an indicator used to plot Support levels automatically and indicate the resistance and support levels.



When it comes to these levels price can either bounce off these levels or break these levels.

If a resistance level is broken price will move higher and the resistance level will turn to a support.

If a support level is broken price will move lower and the support level will turn to a resistance.

Price where the majority of investors believe that prices will move higher, while resistance levels indicate the price at which a majority of investors feel prices will move lower.

Once price has broken through a support level or a resistance level then it is likely that the price will continue moving in that particular direction until it gets to the next support or resistance level.

The more often a support or resistance level is tested or is touched by the price and bounces, the more major that particular support level or resistance level becomes.

Technical Analysis of Resistance and Support Technical Indicator

These levels are calculated a trend lines method.

Upward Trend

In an upward trend the resistance and support will generally head upwards



Downward Trend

In a downward trend the resistance and support will generally head downwards

Video 9 - How to trade the ADX Indicator in Forex

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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.



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.

ADX indicator and DMI Index


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.




Example :
Below is a strategy using a Simple Moving Average crossover of the 50 and 20 period on an Hourly chart of the EUR/USD. The rules of the strategy are easy, buy when the 20 period crosses above the 50 period, and sell when the 20 period crosses below the 50 period.This crossover strategy thrives in trending markets but suffers in ranging markets.

The signals that occurred while the ADX was above 30 were much more reliable. We took out all of the trades where the EURUSD was moving sideways and only opened trades during the long trending moves up or down. You might have also noticed that some of the winning trades were filtered out along with the bad trades, but this is ok. Overall, we cut out more losing trades than winning trades so it was an overall positive filter to this trending strategy.

Video 11 - How to trade Moving Averages in Forex Part 1

In this first video of two part series we discuss moving averages, how they are calculated and the factors you need to consider if you will use them as part of your trading strategy. In Forex trading, moving averages are a really successful indicator to use but firstly, you need to know what they do. This is what we discuss in this Forex training video.

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Moving average is one of the most widely used Indicator because it is simple and easy to use.

This Indicator is a trend following indicator that is used by forex traders for three things:

• Identify the beginning of a new trend
• Measure the sustainability of the new trend
• Identify the end of a trend and signal a reversal

The MA is used to smooth out the volatility of price action. The MA is an overlay indicator and it is placed on top or superimposed on the price chart.

On the example below the blue line represents a 15 period MA, which acts to smooth out the volatility of the price action.

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Video 12 - How to trade Moving Averages in Forex Part 2

Following our last Forex training video, we will now show you how to trade using moving averages. They are a very good indicator of trend direction and support/resistance levels. They can also be used in conjunction with each other to show you good entries and exits.

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Trading Short-term and Long-term Price Period of Moving Average

A trader can choose to adjust the periods used to calculate the moving average.

If a trader uses short periods then the MA will react faster to the changes in price.

For example if a trader uses the 7 day MA then, it will react to price change much faster than a 14 day or 21 day MA would. However, using short time periods to calculate the MA might result in the indicator giving false signals (whipsaws).


If another trader uses longer time periods then the MA will react to price changes much slower.

For example, if a trader uses the 14 day MA then the average will be less prone to whipsaws but it will react much slower.

Video 13 - How to trade the Momentum indicator in Forex

In this Forex training video we discuss the Momentum indicator and how it can be used in your Forex trading. The Momentum indicator detects strength in a trend which is great if you are a trend trader but it also detects weakness in trends thus providing us good exit signals.

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The momentum indicator uses equations to calculate the line of plotting. Momentum measures the velocity with which price changes. This is calculated as the difference between the current price candlestick and the average price of a selected number of price bars ago.

Momentum indicator represents the rate of change of the currency’s price over those specified time periods. The faster that prices rise, the bigger the increase in momentum. The faster that prices decline, the bigger the decrease in momentum.

As the price movement starts to slow down the momentum will also slow down and return to a median level.



Technical Analysis of Momentum Technical Indicator


The Momentum indicator is used to generate technical buy and sell signals. The three most common methods of generating trading signals used in Forex trading are:


Zero-Centerline Crossovers Signals:

• A buy signal is generated when Momentum indicator crosses above zero
• A sell signal is generated when Momentum indicator crosses below zero

Overbought/Oversold Levels:

Momentum is used as an overbought/oversold indicator, to identify potential overbought and oversold levels based on previous indicator readings; The previous high or low of the momentum indicator is used to determine the overbought and oversold levels.

• Readings above the overbought level mean the currency pair is overbought and a price correction is pending
• While readings below the oversold level the currency is oversold and a price rally is pending.

Trend Line Breakouts:

Trend lines can be drawn on the Momentum indicator connecting the peaks and troughs. Momentum is a leading indicator and it begins to turn before price thereby making it a leading indicator.

• Bullish reversal- Momentum indicator readings breaking above a downward trend line warns of a possible bullish reversal signal while
• Bearish reversal- momentum readings breaking below an upward trend line warns of a possible bearish reversal signal.

Video 14 - How to trade RSI indicator in Forex

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The RSI indicator is one of the most widely and commonly used indicators available. RSI indicator is a momentum oscillator with some trend following characteristics.

RSI is one of the most popular indicators used in technical analysis. RSI is used to generate Forex trading signals using crossovers.

RSI indicator plots the divergence and convergence of moving averages. The RSI is constructed using moving average analysis. Moving Average Convergence/Divergence is a trend-following indicator. It indicates the correlation between two moving averages.

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RSI Indicator Chart Patterns and Trend Lines

Traders can plot trend lines on the RSI in the same way as you can plot trend lines on the price charts. RSI trend lines are plotted the same way trend-lines are plotted on the chart; by joining consecutive highs of the RSI Indicator or consecutive lows on the RSI Indicator.



RSI Chart Patterns

Chart patterns such as head and shoulders or triangle chart patterns that are not evident on the price chart are often formed on the RSI indicator.

RSI indicator also often forms chart patterns such as head and shoulders or triangles patterns that may or may not be visible on the price chart. As shown on the chart below the Reverse Head and Shoulders reversal formation is clearly shown on the RSI indicator.



RSI Support and Resistance Levels

Sometimes levels of support and resistance are demonstrated better on the RSI than on the price chart.

In an uptrend the support levels should not be broken at any one time, if they are broken then price will also break the support levels and the upward trend is going to reverse.

In a downtrend the resistance levels should not be broken, if they are broken then price will also break the resistance levels, and the downward is going to reverse.



In the example above when the third resistance level was broken the downtrend reversed to an upward trend and when the sixth support was broken the uptrend reversed and broke the upward trend line.

15. How to trade Bollinger Bands in Forex

In this Forex training video we discuss hot to trade Bollinger Bands like a pro. There are two main ways in which you can make a lot of money by using Bollinger bands in a trending or a range bound market. Simply follow the instructions on the video to start making profits through Forex trading.

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A Forex trader should wait for the price to turn in the opposite direction after touching one of the bands before considering that a reversal is happening.

Even better one should see the price cross over the moving average.

Double Bottoms Trend Reversals

A double bottom is a buy setup/signal. It occurs when price action penetrates the lower bollinger band then rebounds forming the first low. then after a while another low is formed, and this time it is above the lower band.

The second low must not be lower than the first one and it important is that the second low does not touch or penetrate the lower band. This bullish Forex trading setup is confirmed when the price action moves and closes above the middle band (simple moving average).



Double Tops Trend Reversals

A double top is a sell setup/signal. It occurs when price action penetrates the upper bollinger band then rebounds down forming the first high. then after a while another high is formed, and this time it is below the upper band.

The second high must not be higher than the first one and it important is that the second high does not touch or penetrate the upper band. This bearish Forex trading setup is confirmed when the price action moves and closes below the middle band (simple moving average).

16. How to trade Parabolic SAR in Forex

In this Forex training video we discuss the Parabolic SAR and how it can be used in your trading. Whilst it can be an unreliable trend indicator on its own, when in used in conjunction with the ADX indicator it can be very successful.

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In the world of short-term trading, experiences are defined by a trader's ability to anticipate a certain move in the price of a financial asset. There are many different indicators used to predict an asset's future direction, but few have proved to be as useful and easy to interpret as the parabolic SAR. In this article, we'll take a look at the basics of this indicator and show you how you can incorporate it into your trading strategy.

The Indicator

The parabolic SAR is a technical indicator that is used by many traders to determine the direction of an asset's momentum and the point in time when this momentum has a higher-than-normal probability of switching directions. Sometimes known as the "stop and reversal system", the parabolic SAR was developed by the famous technician Welles Wilder, creator of the relative strength index, and it is shown as a series of dots placed either above or below an asset's price on a chart.

One of the most important aspects to keep in mind is that the positioning of the "dots" is used by traders to generate transaction signals depending on where the dot is placed relative to the asset's price. A dot placed below the price is deemed to be a bullish signal, causing traders to expect the momentum to remain in the upward direction. Conversely, a dot placed above the prices is used to illustrate that the bears are in control and that the momentum is likely to remain downward.

The first entry point on the buy side occurs when the most recent high price of an issue has been broken; it is at this time that the SAR is placed at the most recent low price. As the price of the stock rises, the dots will rise as well, first slowly and then picking up speed and accelerating with the trend. This accelerating system allows the investor to watch the trend develop and establish itself. The SAR starts to move a little faster as the trend develops and the dots soon catch up to the price action of the issue. As you can see in Figure 1, the indicator works extremely well when a stock is trending, but it can lead to many false signals when the price moves sideways or is trading in a choppy market.

Parabolic SAR and the Short Sale

The parabolic SAR is extremely valuable because it is one of the easiest methods available for strategically setting the position of a stop-loss order. As you become more acquainted with technical indicators, you'll find that the parabolic SAR has built up quite the positive reputation for its role in helping many traders lock-in paper profits that have been realized in a trending environment. You can also see that professional traders who short the market will use this indicator to help determine the time to cover their short positions.

It is important to note that this indicator is extremely mechanical and will always assume that the trader is holding a long or short position. The ability for the parabolic SAR to respond to changing conditions removes all human emotion and allows the trader to be disciplined. On the other hand, the disadvantage of using this indicator can also be seen in Figure 1. Notice how the signals can lead to many false entries during periods of consolidation. Being whipsawed in and out of trades can often be extremely frustrating, even for the most successful traders.


Figure 2, below, shows the chart of American Express (NYSE:AXP) from the last part of 2008. The trader can see no real way to get into a long position as the strong downtrend continues. This is shown by the dominance of dots placed above the price.

SAR: United It Stands

Given the mechanical properties of the parabolic SAR, it is no surprise that it is a favorite among traders who develop their own strategies. In trading, it is better to have several indicators confirm a certain signal than to solely rely on one specific indicator, so most traders will choose to compliment the SAR trading signals by using other indicators such as stochastics, moving averages, candlestick patterns etc.

For example, a reversal of the dots from below the price to above is much more convincing when the price is trading below a long-term moving average than when it occurs when the price is above the moving average. Having the price remain below a long-term moving average suggests that the sellers are in control of the direction and that the recent reversal could be the beginning of another wave lower. Furthermore, a signal is considered stronger each time that an additional indicator confirms the same trend. For example, diving into the American Express example again in Figure 3, you'll notice that the parabolic SAR indicator triggered a sell signal (black arrows) each time it neared the resistance of its 50-day moving average (green line). Traders would also take note that the stochastic oscillator crossed below its signal line around the same time as the SAR signals (shown by the red circles). The simultaneous sell signals are then used as confirmation of a move lower.

Bottom Line

The parabolic SAR is a fairly good tool for traders looking for a strategic method of gauging a stock's direction or for portioning a stop-loss order. As illustrated above, this indicator proves to be extremely valuable in trending environments, but it can often lead to many false signals during periods of consolidation. This indicator is simple to implement into any strategy, but like all indicators, it is usually best if it is used in conjunction with other indicators to ensure that all information is being considered.

17. How to trade the Stochastics indicator in Forex

In this Forex training video we discuss how to trade the Stochastics indicator. We discuss three main ways to trade it and it is up to you and your personality to decide which suits you the best.

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Pinpointing Forex Trend Trade Entries with Stochastics

• An uptrend is made up of higher highs and higher lows. Traders can use Stochastics to find excellent risk to reward entries at those low support points in the trend.
• A downtrend is made up of lower highs and lower lows. Forex traders can use Stochastics to find excellent risk to reward entries at these resistance high points
• Stochastics can be used to alert a forex trader to either tighten stops, reduce the position size, or take profit once in a trend trade

By far, traders who trade in the direction of the predominant daily trend have a higher percentage of success than those who trade the counter trend. One of the biggest attractions of the Forex market it is characterized by long trends that afford traders the potential to make hundreds of pips if they have timed their entries with precision and used protective stops to limit risk.

But How Can Traders Find Where to Enter with a Risk for Maximum Gain?

The mantra, “the trend is your friend until it ends,” can be found in many trading books, but it seems that many forex traders have not made the trend their friend and in some cases, the trend has become the enemy. Rather than being on the receiving end of those pips afforded to traders who have correctly entered the trend, many traders have been on the “giving” end of the trade losing pips while fighting the trend.

As people have turned to online dating services to meet their ideal match, forex traders can turn to stochastics as a way of making the trend the their friend again.

In an uptrend on a daily chart, stochastics %K and %D lines moving below the horizontal ‘20’ reference line and coming back above the 20 line indicates that the profit-taking correction is coming to an end. The stochastic crossing up also tells us that buyers are beginning to enter the market again. In addition, this shows that there is good support.

How to Trade the Trend Using Stochastics

Patience is the name of the game when attempting to trade with the trend. Getting into the trend too early can expose traders to large drawdowns. Getting in too late reduces the amount of profit before the swing is completed.

Use the stochastics indicator to find that “Goldilocks” entry of not too early and not too late. Once a strong uptrend is found, wait for stochastics with the settings of 15, 5, 5 to move into the oversold region below the 20 horizontal reference line. Next, wait for the %K and %D lines to move back above the 20 line. Enter long with a stop placed a few pips below the last low. Set a limit for at least twice the size of the stop.

Once in an uptrend position, traders will attempt to squeeze as much profit as possible. Traders usually take profits on their open position or trail stops once stochastics moves into the overbought region. It is important to note that a forex currency pair can continue to make new highs even though stochastics is in the overbought region.

So next time you see a trend and you do not know how to make it your “friend”, let the stochastics indicator introduce you! Once these swings are highlighted by stochastics, stop placement becomes easier as well. stochastics crossovers in an uptrend can help you pinpoint your entries to join the major trend.

19. How to trade trend lines in Forex

In this Forex training video we discuss how to trade trend lines when the market is trending upwards and downwards. We provide detailed instructions on how to draw trend lines, set targets and stop losses whilst also focusing on how not to get caught out with fake trend lines.

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How to Exit While Trading with Trendlines

Talking Points:

• Traders should focus on their exit plan just as much as their trade entries.
• Trendline traders could set their stop losses beyond the nearest support or resistance level and set their limits within the nearest support or resistance level.
• Setting exit prices according to support and resistance levels could tip the odds in your favor.

How Important Is Your Exit Strategy?

Many traders have a strong set of rules that they follow to enter trades, but have difficulty in selecting their exits. This is troubling because how we exit a trade should be just as important, if not more important than how a trade is entered. After all, our exits ultimately determine if our trades are profitable for us or not. So we need to make sure our exit strategy is just as logical as our entry strategy.

When we place our trades based on trendlines, we are placing them based on support and resistance levels. We are thinking the price will bounce off a trendline like it did in the past. I propose we use the same logic when setting our stops and limits.

In the example above, it’s easy to see the sell entry that was given to us based on the bearish trendline. We entered right at the trendline looking for a bounce back down, but where do we want to exit? When do we call it quits if the trade goes against us? Where do we place our profit target? Let’s take a look.

Setting Stops Beyond Support/Resistance
We need to look at placing our stop somewhere above this trendline. If the resistance is broken through, we were wrong on the trade and should accept the loss quickly. It’s possible that price could return back to profitable territory after breaking this resistance, but we cannot rely on being lucky. We can only trade based on what we see.

I like to set my stop 5-25 pips from the closest support/resistance level depending on the time frame I am trading. The smaller the time frame of the chart, the tighter I will place my stops. On this trade, I set my stop 5-6 pips away from my entry since that was beyond the resistance line as well as the previous swing high (Bounce #2).

Remember that when we set our Stop loss, this is also setting our monetary risk on the trade. So we also need to consider our trade side in respect to our Stop loss distance.

Setting Limits Within Support/Resistance

Now that our stop is set, we need to focus on our profit target. For our limit placement, we have two objectives:

• Our limit’s distance needs to be further than our stop’s distance.
• Our limit needs to be placed within the closest support/resistance (by at least 5 pips).

The reason we want our limit further than our stop is because we always want to try to make more money than what we are risking on each individual trade. This is something we discuss heavily at DailyFX so I will say it again here. We want a positive risk/reward ratio.

And the reason we want our limit to be placed within the closest support/resistance level (by at least 5 pips) is for the exact same rationale we used to open this trade to begin with. We know prices have a tendency to bounce off price levels they have bounced off of before, so we want to make sure that no support/resistance is in between our entry and our limit level. In the example below you can see I placed my limit 5 pips above the swing low (potential support). This gives price a clear path to a profitable trade.

Trendline Strategy Complete

This trendline strategy is one that can be used universally across all currency pairs and time frames so it is definitely a worthwhile style of trading to learn. The logic behind the entry and exit rules is also something that can be tailored to other types of strategies as well. Good trading!

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