Something Interesting in Financial Video January 2014 - page 2
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Moving averages are one of the most basic tools in technical analysis. The moving averages are a lagging indicator and do not predict trend, but confirm trend once it has been established. The calculations smooth out day-to-day price fluctuations and reduce noise.
You can use moving averages in simple, exponential or weighted form.
1.Simple -- computes the averages (mean) of the closing price over the chosen amount of periods (tick/bars) and displays in a joined smooth curving line. Short term: 10-30 days, Intermediate term: 30-100 days, Long term: 100-200+. Sum of all closing prices divided by number of closing prices in specific period.
2.Exponential -- applies more weight to recent prices in comparison older prices. Found by applying a percentage of today's closing price to yesterday's closing moving averages.
3.Weighted -- gives current data more weight than older data. Older data is considered of less value/significance. Each price in a series is multiplied by the number of periods preceding it: the old the price the smaller its multiplier.
What can I use this for? The moving averages can be used for various task, but it is suggested that they are used with other technical indicators. The great thing about moving averages is that they simplify data for the eyes.
This video explains the logic behind why gold is an investment tool and store of wealth in an economic crisis, and thus can help individuals grow their purchasing power in terms of great economic uncertainty -- particularly in a currency crisis.
Ichimoku - Applications Of Ichimoku Kinko Hyo
Basket Trading Instructional Video
Forum on trading, automated trading systems and testing trading strategies
Indicators: USDx dollar index
newdigital, 2013.11.06 15:02
Dollar Index Futures & Correlations to Crude Oil & Gold Futures Trading
Scalpers, Intra-Day, Position & Swing traders alike benefit from the correlations seen between the US Dollar Futures Index (DX) & Commodity Futures such as Gold (GC) & Crude Oil (GC). The US Dollar Index Futures is one of the most widely-recognized electronically-trader markets in the world. Comparing the USD against a basket of major currencies, this futures index has relatively low daily trading volume compared to Euro or Pound, and is primarily used for its strong correlations to aid traders in many different situations. Professional traders watch the Dollar Index at the times it is most active, which occurs from 8am to 12pm EST during trading days. The times also correspond well with Crude Oil & Gold futures, which also see more activity at these times as well.There are many ways to use the US Dollar Index for trading opportunities, but most traders find the DX to be most consistently-used as a filter for high-risk trades.Let's first discuss the basic correlation that traders use. There is a negative correlation between the DX and almost every other market that traders watch. The Dollar is negative to other currencies b/c it's the world reserve currency, and it's negative to commodities b/c of the simple laws of supply and demand. Let's focus on the correlation to Gold & Crude Oil Futures.
As traders, there are lots of different times in the day when the dollar begins to move more dramatically, such as the open of the US Markets @ 9:30am EST, before and after major news events such as Jobless Claims Reports or FOMC News. We look for the Dollar to begin its trend, and using the negative correlation between these markets, we look for crude oil & gold opportunities to the opposite of the dollar's trend. When the Dollar is trending, traders use Breakout Patterns to capitalize on this correlation. With the dollar rising, look for high-percentage entries to the short side of Gold or Crude Oil Futures.
Most traders will use the Dollar correlation as a filter because it allows them to avoid high-risk entries on Gold & Crude Oil Futures. Without a trend on Dollar, the Gold & Crude Oil Futures also show flat price action, and tend to reverse their current trends often. The dollar has a tendency to get very choppy during indecisive times in the market, and we tend to stay away from higher-risk trading on Crude Oil & Gold during these times.
Another important thing to watch on the Dollar is key Support & Resistance around simple chart patterns. For example, using a Head & Shoulders pattern on the Dollar, traders will avoid trading Gold & Crude Oil when the Dollar attempts to complete the trend reversal. Smart traders will wait to trade the reaction to the move around these extreme levels, rather than trying to be the first to enter the market when the Dollar here. In closing, the Dollar Index Futures can be used very effectively with a negative correlation with many of the market we love to trade. Of all the uses for this index, the most effective way most traders use the Dollar is as a filter, to avoid taking high-risk trades on other markets such as Crude Oil & Gold.
Forum on trading, automated trading systems and testing trading strategies
Indicators: USDx dollar index
newdigital, 2013.11.06 15:03
Based on - U.S. Dollar Index - USDX
U.S. Dollar Index (USDX) was introduced in March 1973, when the Bretton Woods system ceased to exist. The index shows the ratio of U.S. dollar against a basket of six major world currencies - the euro is (EUR), Yen (JPY), British Pounds (GBP), Canadian Dollar (CAD), Swedish krona (SEK) and Swiss Franc (CHF). As part of this basket each currency has its own weight:
EUR - 57,6%
JPY - 13,6%
GBP - 11,9%
CAD - 9,1%
SEK - 4,2%
CHF - 3,6%
The composition of the basket of 1973 changed only once - in 1999, when the euro was introduced.
At the time of occurrence of the index had a value of 100 points. Historic lows it reached in March 2008 - 70.7 points, while the maximum value was recorded in February 1985 - 148.1 points. The index traded at the time of the global currency markets - 24 hours a day, 5 days a week. Trading on the Stock Exchange are ICE (Intercontinental Exchange) - The former New York Mercantile Exchange (NYBOT - New York Board of Trade). Moreover, the index is presented in the form of various traded instruments: the exchange funds (exchange traded funds, or ETF), mutual funds (mutual funds), stock options.
The index is calculated as a weighted geometric mean of the above mentioned currencies according to the following formula:
USDXt = 50,14348112 x (EURt) -0,576 x (JPYt) 0,136 x (GBPt) -0,119 x (CADt) 0,091 x (SEKt) 0,042 x (CHFt) 0,036
In the formula, the power coefficients corresponding to the weights of currencies in the basket. Calculation of the index coincides with the data used in calculating the Fed trade-weighted dollar index of currencies of countries which form the main foreign trade turnover of U.S..
Most of the international trade in the U.S. accounts for the euro area (57.6%), followed by Japan - 13.6% United Kingdom - 11.9% Canada - 9.1%, Sweden - and Switzerland 4.2% - 3.6 %.
How to use the dollar index on the forex?
It is important to understand whether you like it or not, dictates that the U.S. dollar trends of major world currencies, so the index is an excellent starting point for determining the strength or weakness of U.S. dollar currency pairs.
As a rule, the change trend of the index leads to changes in the trends of the currency pairs in which the USD and he is present. For example, during an uptrend USDX pairs with direct quote will also increase (eg, USDCHF, USDCAD), a couple from the back - slow down (it EURUSD, GBPUSD). Using technical analysis toolkit, such as candlesticks, support / resistance levels, moving averages, you can get an idea about the strength of the U.S. dollar in terms of long-term trends, the possible long-and short-term reversals, as well as changes in the attitudes of market participants.
The Pivot Point Reversal - Part 9 of a video series discussing short term price bar reversals such as the bearish rejection, the bullish rejection, the open close reversal, the closing price reversal, the hook reversal, the key reversal, the island reversal and the pivot point reversal.
In this Forex broker video we discuss the main differences between ECN, STP and Market Maker brokers. This is especially useful if you are a new Forex trader so watch the full video for a detailed explanation.
PRODUCER PRICE INDEX
Talking Points
In the 1950’s gasoline was $0.27, apartment rent was $42/month and a movie ticket was $0.48. In addition, the US dollar was worth 9 times what is worth now. Inflation reduces domestic buying power and that is why central banks fight so hard to beat back inflation by raising the interest rate. Forex traders are well aware that interest rates are the main driver of currency movement. Investors seek higher yields and will migrate capital from low yielding assets and currencies to high yielding assets and currencies. This is why traders pay special attention to the Producer Price Index because it alerts them to the rise and fall of inflation which could, in turn, lead to a rise and fall of currency rates.
What is PPI?Released monthly in the second week of each month, the Producer Price Index (PPI) is an indicator used to measure the average change in selling price, over time, received for finished goods.Retailers that have to pay more for finished goods may have to pass on higher costs to consumers. This measurement of price change from the view of the seller can be a leading indicator for consumer inflation that is measured by the Consumer Price Index (CPI). PPI examines three production areas; commodity-based, industrial-based, and stage-of-processing-based companies. Released by the Bureau of Labor Statistics, PPI is created using data collected from a mailed survey of retailers selected randomly.
Traders can see changes in PPI expressed in a percentage change from the previous year or month to month.
Why Look at PPI?
Forex traders use the Producer Price Index to find the direction of prices and a measurement of inflation. Rising prices in the form of inflation lowers the purchasing power of a country’s currency because consumers can buy less goods and services for each unit of currency. This decrease in consumer buying power usually triggers a central bank response to raise interest rates. A rising PPI could indicate that consumer prices could rise leading to higher interest rates. The increase in interest rates stimulates the demand for that currency as investors chase yield. This inflow of capital results in a higher exchange rate. On the other hand, a stable or falling PPI insures that interest rates will remain low. This results in a lower relative currency exchange rate. As you can see, using the information found in PPI can give traders an advantage when seeking out strong and weak currencies.
Lesson 3 - Bollinger Bands
The Bollinger Bands were created by John Bollinger in the late 1980s. Bollinger studied moving averages and experimented with a new envelope (channel) indicator. This study was one of the first to measure volatility as a dynamic movement. This tool provides a relative definition of price highs/lows in terms of upper and lower bands.
The Bollinger Bands are comprised of three smooth lines. The middle line is the simple moving average, normally set as a period of 20 (number of bar/ticks in a given time period), and is used as a base to create upper/lower bands. The upper band is the middle band added to the given deviation multiplied by a given period moving average. The lower band is the middle band subtracted by the given deviation multiplied by a given period moving averages.
What can we use this for?
Forum on trading, automated trading systems and testing trading strategies
Indicators: Bollinger Bands ®
newdigital, 2013.08.06 13:49
Bollinger Bands Forex Trading Indicator
Developed by John Bollinger.
The Bollinger Bands indicator acts as a measure of volatility. This indicator is a price overlay indicator. The indicator consists of three lines; the middle line (moving average), an upper line and a lower line. These three bands will enclose the price and the price will move within these three bands.
This indicator forms upper and lower bands around a moving average. The default moving average is the 20-SMA. This indicator use the concept of standard deviations to form their upper and lower Bands.
The example is shown below.
Bollinger Bands Indicator
Because standard deviation is a measure of volatility and volatility of the market is dynamic, the bands keep adjust their width. higher volatility means higher standard deviation and the bands widen. Low volatility means the standard deviation is lower and the bands contract.
Bollinger Bands use price action to give a large amount of information. The information given by the this indicator includes:
Forum on trading, automated trading systems and testing trading strategies
Indicators: Bollinger Bands ®
newdigital, 2013.08.06 13:51
How Bollinger Bands Indicator Works
Bollinger Bands calculations uses standard deviation to plot the bands, the default value used is 2.
Calculation
Bollinger considered the best default for his indicator to be 20 periods moving average and the the bands are then overlaid on the price action.
Standard Deviation is a statistics concept. It originates from the notion of normal distribution. One standard deviation away from the mean either plus or minus, will enclose 67.5 % of all price action movement. Two standard deviations away from the mean either plus or minus, will enclose 95 % of all price action movement.
This is why the Bollinger Bands indicator uses the standard deviation of 2 which will enclose 95 % of all price action. Only 5 % of price action will be outside the bands, this is why traders open or close trades when price hits one of the outer Bands.
The Bollinger Bands indicator main function is to measure volatility. What the Bollinger Bands upper and lower limits try to do is to confine price action of up to 95 percent of the possible closing prices
This indicator compares the current closing price with the moving average of the closing price. The difference between them is the volatility of the current price compared to the moving average. The volatility will increase or decrease the standard deviation.
Forum on trading, automated trading systems and testing trading strategies
Indicators: Bollinger Bands ®
newdigital, 2013.08.06 13:54
Bollinger Bands and Volatility
When volatility is high; prices close far away from the moving average, the Bands width increases to accommodate more possible price action movement that can fall within 95% of the mean.
Bollinger bands will widen as volatility widens. This will show as bulges around the price. When bollinger bands widen like this it is a continuation pattern and price will continue moving in this direction. This is normally a continuation signal.
The example below illustrates the Bollinger bulge.
High Volatility and Low Volatility
When volatility is low; prices close closer towards the moving average, the width decreases to reduce the possible price action movement that can fall within 95% of the mean.
When volatility is low price will start to consolidate waiting for price to breakout. When the bollinger bands is moving sideways it is best to stay on the sidelines and not to place any trades.
The example is shown below when the bands narrowed.
Forum on trading, automated trading systems and testing trading strategies
Indicators: Bollinger Bands ®
newdigital, 2013.08.06 13:57
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.
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 breakou
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.
Forum on trading, automated trading systems and testing trading strategies
Indicators: Bollinger Bands ®
newdigital, 2013.08.06 14:00
Bollinger Bands Price Action in Trending Forex Markets
Bollinger Bands indicator is used to identify and analyze trending markets. In a trending market this indicator clearly shows up or down direction.
This indicator can be used to determine the direction of the forex trend. In an uptrend this indicator will clearly show the direction of the trend, it will be heading upwards and price will be above middle bollinger.
In a downtrend the price will be below the middle band and the bands will be heading downwards.
By observing the patterns formed by bollinger bands a trader can determine the direction in which the price is likely to move.
Patterns and Continuation Signals
Forex Uptrend
Price hugs the upper band in a forex upward.
Forex DowntrendForum on trading, automated trading systems and testing trading strategies
Indicators: Bollinger Bands ®
newdigital, 2013.08.06 14:04
Bollinger Bands Trend Reversals- Double Tops and Double Bottoms
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).
What are interest rates?
In this Scene, I explain the basics of interest rates, how they work, and how the Federal Reserve is able to change them through means of the money supply. In addition, I discuss how interest rates changed over the last two decades, and how these changes may have played a part in contrinbuting to the current economic crisis.
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Interest Rate Expectation (adapted from this article)
While it is easy for Forex traders to understand the logic of why investors move money from lower yielding currencies and assets to higher yielding assets and currencies. They may also believe that the simple mechanism of supply and demand is responsible for currency movement. However, this is only part of the story. The expectation of future interest rate increases or rate cuts is even more important than just the actual rates themselves.
For example, the United Kingdom had interest rates that hovered between 4.5 and 4.75% which was much higher than the 3.25% in the United States. Conventional wisdom would dictate that GBPUSD should have went up during this time period. However, as seen in the chart above, this was clearly not the case as GBPUSD headed lower. The reason for this was the expectations that the US Federal Reserve would begin a rate tightening cycle. The 250 basis point premium enjoyed in the UK at the beginning of 2005 narrowed to just 25 basis point difference. The Fed raised the interest rate from 3.25% in December 2004 to 6.00% by May of 2006.
If a central bank decides to one day, hike rates and then say that they are through raising rates for the foreseeable future, then a currency can still sell off though the interest rate was raised.
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Ichimoku - Tenkan Sen And Kijun Sen
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Tenkan Sen / Kijun Sen Cross
The Tenkan Sen / Kijun Sen Cross signal occurs when the Tenkan Sen (Turning line) crosses the Kijun Sen (Standard line).
A bullish signal occurs when the Tenkan Sen crosses from below to above the Kijun Sen
- A weak bullish signal occurs when the cross is below the Kumo.
- A neutral bullish signal occurs when the cross is inside the Kumo.
- A strong bullish signal occurs when the cross is above the Kumo.
A bearish signal occurs when the Tenkan Sen crosses from above to below the Kijun SenKijun Sen Cross
The Kijun Sen Cross signal occurs when the price crosses the Kijun Sen (Standard line).
A bullish signal occurs when the price crosses from below to above the Kijun Sen
- A weak bullish signal occurs when the cross is below the Kumo.
- A neutral bullish signal occurs when the cross is inside the Kumo.
- A strong bullish signal occurs when the cross is above the Kumo.
A bearish signal occurs when the price crosses from above to below the Kijun Sen====================
Indicator for MT5 with alert is on this post.
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