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Introduction to Forex Price Action Trading
What is Price Action?
Price action is a particular methodology employed by traders, based on
the observation and interpretation of price action, usually through the
use of candlestick or bar charts. The price action style of trading is
usually characterized by clean charts, without indicators, with the
explanation that indicators are themselves interpretations of the
historical movements of price, which don't contain any information or
predictive power that isn't available from the charts themselves.
Nonetheless, some traders include basic indicators, such as exponential
moving averages or average true range to augment their charts or to
provide confluence. The attitude of the price action trader is that the
interpretation of price movements can provide an edge, a possibility of
being more right than wrong in their predictions about the future
behavior of price.
The basics of reading candles and charts
Since candlestick and bar charts are the fundamental interface of the
price action trader, the most basic unit is the candle or bar itself.
Candles sum up the price action over a set period of time: on a 5 minute
chart, each candle represents 5 minutes of price behavior, whereas on a
daily chart, only one candle is produced per day. The body of the
candle constitutes the range between the open price and close price,
whereas the wicks or shadows of the candle indicate the high and low
over that period of trading. Various color schemes are used to determine
whether the price movement represented by the candle is bullish
(increasing in price) or bearish (decreasing in price); bullish candles
are usually white, blue, or green, whereas bearish candles are usually
black or red.
Support and resistance lines are typically horizontal, but when they are diagonal along a trend they are known as trend lines. The basic idea behind using support and resistance effectively in a
trading range is to buy at the support level and sell at resistance in
an uptrend, or to sell at resistance and buy at support in a downtrend;
so, we're not necessarily hoping for a break-out through the established
levels, because a break-out means that the market isn't behaving
predictably enough to allow for safe bets on its future performance.
Instead, the most conservative or reliable trades are those that occur
as the market fluctuates between identifiable support and resistance
levels, allowing you, in an uptrend, to buy when a retracement of
bearish leg has brought prices down to a support level, and then sell
when price returns to the resistance level, or, in a downtrend, to sell
when price is maxed out at a reliable resistance level. The reason we
are looking to buy in an uptrend and sell in a downtrend is that price
action trading is all about playing the odds, so trading with the trend
rather than against it is usually a better idea since a trend is
statistically more likely to continue than to reverse.
Basic Set-ups and Stop PlacementMost price action traders place buy or sell stop orders with a
pre-determined stop loss level, and a take profit or target level. The
buy or sell stop sets the level that price much reach for the order to
be filled; the stop loss level sets the margin of loss that a trader
will accept before closing the position; the take profit level sets the
level at which to automatically close a successful position. The buy or sell stop, or entry level, is typically set at a significant
support or resistance level so that it will only be filled when price
has broken definitively in the desired direction; by setting strategic
entry levels in their orders, traders can ensure that they enter trades
with the momentum of the market.
Forum on trading, automated trading systems and testing trading strategies
Sergey Golubev, 2015.05.02 11:26
EUR/USD May Target Mid-$1.1500s; USD/JPY Best Bet for USD Gains (based on dailyfx article)
The ECB's QE trade has consisted of three components in
2015: a weaker Euro; higher bond prices/lower bond yields; and higher
equity markets. This week especially, we've seen that trend reverse, and
quite quickly: the Euro has rallied; German yields, especially at the long-end, have shot higher; and equity markets across the Euro-Zone have slipped.
is thus a split in the US Dollar's prospects, depending upon where you
look. In EURUSD, the potential for a move into the mid-$1.1500s seems
possible given the potential double bottom nature of the recent
consolidation breakout, boosted by the extreme Euro short positioning
seen in the futures market. On the other hand, if the US Dollar is to
continue its recovery after the shelling it took over the past two
weeks, then USDJPY may offer the best opportunity, given that the market
is the least short the Japanese Yen since Q4'12 - right before Abenomics began and the Yen's meltdown commenced.
Sergey Golubev, 2015.05.03 08:30
EUR/USD Retains Bullish Pattern Despite Thin Market Participation (based on dailyfx article)
AUD/USD Outlook Mired by Speculation for Reserve Bank of Australia (RBA) Rate Cut.
Something Interesting in Financial Video September 2013
Sergey Golubev, 2013.08.31 08:00
A lesson on the different contract sizes available to active traders and investors in the forex market.
Something Interesting in Financial Video April 2014
Sergey Golubev, 2014.03.31 14:16
Have you considered automated trading?
Something Interesting in Financial Video July 2013
Sergey Golubev, 2013.07.01 12:56
Warren Buffet once said, Price is what you pay, but Value is what you get. Professional traders understand that we can find great value on our trades by understanding support and resistance. There are multiple ways to identify support and resistance price levels. Many traders turn to pivot points to identify safe price levels to enter and exit our traders. You will be able to find multiple forms of pivot points; however, we believe that camarilla pivots are the best.
Just to remind - we are having few related indicators in Metatrader 5 CodeBase:
Something Interesting in Financial Video January 2014
Sergey Golubev, 2013.12.31 08:44
Ichimoku - Advanced Ichimoku Strategies Additional Criteria
Sergey Golubev, 2015.05.16 08:03
EUR/USD forecast for the week of May 18, 2015, Technical Analysis (based on fxempire article)
The EUR/USD pair broke higher during the course of the week, clearing the top of the shooting star from the previous week. Because of this, we feel that the market is going to test the 1.15 level, and once we get above there the complete trend has changed. We believe that’s getting ready to happen and we are bullish of the Euro in general, so we are buying pullbacks. Quite frankly, we think that this is a move that is telegraphing itself so obviously that almost everybody in the world is getting ready to start buying.
Indicators: MACD Divergence
Sergey Golubev, 2014.01.28 07:59
What is the MACD Indicator? How do I use it? (based on dailyforex article)
One of the most common technical indicators that is used by day traders
in the financial markets can be seen in the Moving Average Convergence
Divergence -- more commonly referred to as the MACD. But one mistake
that many new traders make is that they will simply start using this
indicator without really understanding how it functions or makes its
calculations. This can lead to costly mistakes that should have been
completely avoidable. So, it makes sense to study the logic and
calculations behind the MACD (and all other indicators) in order to more
accurately configure your day trading positions and generate gains on a
The Moving Average Convergence Divergence (MACD) Defined
Anyone with any experience in the forex markets and in technical
analysis strategies has likely heard a great deal about the Moving
Average Convergence Divergence (MACD). But what exactly does the MACD
tell us -- and how is it calculated? Without an understanding of these
areas, it can be difficult to see trading signals as they emerge. Here,
will deconstruct the MACD indicator and explain how and why it is
“In its most basic form,” said Haris Constantinou, markets analyst, “the
MACD is a momentum indicator that is designed to follow existing trends
and find new ones.” The MACD does this by showing the differences and
relationships between a two-level combination of moving averages and
price activity itself.
To determine and calculate the MACD, we must subtract a 26 period
Exponential Moving Average (EMA) from a 12 period EMA. Then, a 9 period
EMA of the MACD is plotted, and this becomes the Signal Line for the
indicator. The Signal Line is plotted over the MACD and this will be
used as the trigger reading for trading signals (both buy signals and
sell signals). These elements form the basis of the MACD construction,
and it is important to have a strong understanding of these elements if
you plan on using the indicator in your daily trading.
Three Common Approaches to the MACD
Now that we understand the basics of how the MACD is calculated, it is a
good idea to look at some of the common ways that the MACD is viewed by
traders so that we can get a sense of how exactly the indicator is used
to identify trading opportunities. There are a few different ways the
indicator can be interpreted, and the three of the most common methods
proven to be the most effective for traders include
Sergey Golubev, 2014.04.02 08:47
Technical Analysis Indicator MACD part one
Most technical analysis indicators are lagging. Let show you how to use MACD properly and its Leading indicator values.
Sergey Golubev, 2014.04.02 08:51
Part two of the three part series on MACD