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June 7, 2014

New Enhancement to Trend Line EA – Helps Spot Reversal Trades!

Filed under: Forex General — Tags: , , , , , , — admin @ 5:32 pm

I have applied a small tweak to my trend line script whereby it now has the ability of detecting whether a currency has had X number of consecutive closes beyond it.

This has proved perhaps more beneficial in the lower time frames such as the hourly charts where price can close beyond a trend line and if the user has been strict on maintaining that once there is ONE close beyond the trend line to consider it broken (the trend line EA would then no longer keep plotting it).

An interesting example that I just stumbled upon when doing my weekly analysis was the CADCHF, have a look at how the new trend line performs:

CADCHF bounces at support off of long-term support zone

CADCHF bounces at support off of long-term support zone

This supporting trend line has been in effect since the end of 2008 and yet has proved to be a good marker for the CADCHF:

CADCHF trend line since 2008 has been a solid support zone.

CADCHF trend line since 2008 has been a solid support zone.

The enhancement of this feature is that it allows the trend line to continue to be plotted even when you have had many closes dotting above its life. This is perhaps more better seen in the lower time frames, such as the hourly charts. A recent reversal trade I spotted last night was on the NZDCHF as seen in this chart:

NZDCHF holds resistance as trend line remains active even though many closes dot above it.

NZDCHF holds resistance as trend line remains active even though many closes dot above it.

Notice how the horizontal resistance line remained active even though we had a successful close beyond the trend line (as indicated by the first arrow). Due to the new enhancement of the trend line EA the trend line remains active and continues to show that this zone is problematic for the NZDCHF – which is confirms on Friday’s price action! (Confirmation is also somewhat similarly seen with the downward trending trend line too)

Anyway, hopefully this enhancement improves those who look for reversal points on the charts. Let me know how you go!

The post New Enhancement to Trend Line EA – Helps Spot Reversal Trades! appeared first on Currency Secrets.

May 11, 2014

AUDNZD Caught Between Two Worlds

Filed under: Forex General — Tags: , , , — admin @ 5:32 pm

The AUDNZD seems caught between two worlds. Last week we saw a strong bullish move which showed promise of breaking it’s long standing resistance area that has been in effect since before Christmas last year. However, more effort is needed and it will be interesting to see how the AUDNZD continues into this week with where it currently sits.

As seen from the following chart the AUDNZD is approaching near-term resistance at 1.08725 (formed last month – 28th April) and then medium-term resistance at ~1.0900 – a price it hasn’t closed above since 11th December 2013. While the AUDNZD has begun to form some support around ~1.0700 this could be a likely breakout entry point should the market continue it’s long-term downward trend.

Eyes will be keenly watching the AUDNZD this week for any strong reversal patterns around the resistance price points of 1.08725 to 1.0900.

audnzd resistance and support zones

AUDNZD beginning to form support around 1.0700 whereas resistance at 1.0900 similarly gathering steam.

The post AUDNZD Caught Between Two Worlds appeared first on Currency Secrets.

May 10, 2014

Why Do Horizontal Trend Lines Work?

Filed under: Forex General — Tags: , , , — admin @ 5:33 pm

Whenever you use an indicator or a trend line in your trading or analysis it’s always good to challenge your presuppositions. Many traders love an indicator because it looks nice or appeals to their taste, which may be a great way to start in trading, but unless your indicator or analytical tool is grounded in something that makes sense you may find its effect short-lived.

One of my favourite analytical tools has been trend lines, with horizontal trend lines being my most favoured of all. And why I know that not every horizontal trend line will come off just perfectly it does then beg me to approach the question: why would/should horizontal trend lines work in the forex market (or for any market for that matter)?

My answer to this question comes from experience – not just forex trading experience (which is a great confirmation to the tool), but to other working experiences outside of trading.

I remember most vividly when working for my father’s small business how we had several large orders to fulfil in China for a client for the purchase of tank containers (the client was a mining company). As we both didn’t know much about the foreign exchange market whenever the suppliers invoice came in (being denominated in USD) we would transfer the funds through our bank and have the invoice paid.

No doubt my father’s small business was not the only business in Australia, let alone the world which would do likewise.

As the business began to grow we needed to place larger orders with our supplier in China and soon we began searching for ways to improve the service. Soon we began finding better foreign exchange providers, such as OzForex, and we even began watching that segment on the news that we never used to pay attention to: the finance section!

Interestingly, during this time we would often tell each other that we would transfer our money to our supplier once the AUDUSD price “got back to where it was last week” and I found that by keeping an ear and eye to the ground on how prices were moving we could make a few extra bucks on the side.

So the concept of trading around horizontal prices was a very real and tangible concept in my father’s small business. We would talk about the price mentioned on the news and speak on it’s relation to whether it was higher than normal or lower than normal – on whether we should transfer our funds now, or wait another few days. We never spoke on the AUDUSD decreasing at a rate of 5 pips per day, or anything like that and this is why I seriously believe that horizontal price is a tangible tool that is tradeable in the markets.

Firstly, when “normal” business people speak on currencies they never speak on the rate at which a currency is moving, or what the moving average is, or where the Stochastic Oscillator is at, or whether the price is overbought or oversold – the only thing sticking in the minds of these busy people is that “high price” they saw on the news a few days ago, or that “low price” they saw. That’s it.

Now I certainly understand that the foreign exchange market is NOT run solely by small business owners decisions, but unless businesses have someone who’s dedicated to watch the forex movements to help improve the company’s bottom line then the scenario I’ve seen would be played out by many other businesses around the world. Now I also understand that banks who receive these orders from small businesses may similarly “hold” and play with their funds to make more money, but if a bank knows that they can’t their not likely to play with it and to process it as soon as possible.

So if there are thousands of these types of transactions happening just the small country of Australia think of what’s going through the minds of the myriad of other business owners and employees who just don’t have the time to watch charts. They’re going to place their order according to prices they’ve heard or read from the news wire and if price is currently around that then they’re going to action a transaction.

This is why I believe horizontal charts just work. Ordinary busy people find it much easier remembering a price and within their role in their company if they’re responsible for transferring funds they’re going to action this when they see that “high” or “low” price. Easy. And done. I’ve seen it in my father’s business and I’m sure others have seen it too.

I love horizontal trend lines. Maybe you should look at it too.

The post Why Do Horizontal Trend Lines Work? appeared first on Currency Secrets.

May 5, 2014

AUDNZD Bearish Flag – Weekly Analysis

Filed under: Forex General — Tags: , , , , — admin @ 5:32 pm
AUDNZD forming bearish flag looking for further breaks down.

AUDNZD forming bearish flag looking for further breaks down.

Currently the weekly chart of the AUDNZD looks nice for further downside. Around November 2013 I made mention of the bearish flag and to watch for it’s subsequent break. Alas 6 months on we did see a nice break at the beginning of 2014 and now we once again are exhibiting this same behaviour.

What’s even more interesting about this break is that we are beginning to near a price point that may break even historic records as shown by the monthly chart:

Last support zone for AUDNZD is around 1.0420-1.0450 - after this... anybody's guess!

Last support zone for AUDNZD is around 1.0420-1.0450 – after this… anybody’s guess!

As price has already had a few jabs through the support trend line at 1.05773, our closest entry short price should be beyond the lowest low formed so far: 1.04890 (formed 19/01/14). This may happen towards the end of this week if we receive another favourable move south like last week, or may take 2 weeks to cover.

Alternatively we could seek prior entry points by analysing the daily chart and looking for any bearish candlestick reversals.

An interesting pattern which occurred last week was the formation of an inside doji candle, which had a nice pin bar (shooting star) like formation prior to it – showing that price was rejecting any higher moves and this helped to break the previous trough zone around 1.07592.

Notice the popular inside doji bar which sparked a bearish move last week?

Notice the popular inside doji bar which sparked a bearish move last week?

So, my thoughts regarding this currency pair are to monitor for any bearish signs on the daily chart. If nothing happens, then we look for a bearish breakout below the weekly support trend line at 1.05773 and for possible entry around 1.04890 (obviously a CLOSE at the end of the week below 1.05773 would be considered a good entry point, however, as price HAS reversed from 1.04890 we do need to be careful in entering earlier).

The post AUDNZD Bearish Flag – Weekly Analysis appeared first on Currency Secrets.

May 4, 2014

What More Can Be Made After Making 2,037 Pips (in 1 Trade)??

Filed under: Forex General — Tags: , , , , , , — admin @ 5:32 pm

You’ll recall last year the famous channel breakout of the GBPCAD. I entered this trade and ended up making a nice profit from it (2,037.1 pips to be exact), however, this doesn’t mean that’s all folks.

While we certainly have to caution ourselves against the emotion of greed, we should continue to trade as we have been and hope that potentially more can be made.

So what do we see in our current analysis?

GBPCAD consolidating and forming higher troughs during it's consolidation - a sign of renewed strength building?

GBPCAD consolidating and forming higher troughs during it’s consolidation – a sign of renewed strength building?

Currently the GBPCAD has been consolidating after a nice long trend throughout the majority of 2013. Now the currency is beginning to find some “real” resistance and as a result hasn’t really progressed as aggressively in 2014 as it had last year. However, with this winding-up pattern it could be possible that the GBPCAD is just taking a breather while it renews itself for another solid move.

It’s highest peaks over the last few months have happened at 1.86601 (week of 21/02/14), 1.86515 (week of 28/02/2014) and 1.86495 (week of 20/03/14). What do you notice about these numbers?

1. They’re ever so slightly declining; and
2. They’re all around the same price.

Therefore, I’d like to see a break of all three preferably in the same day before seeing another LONG entry. Another idea could (just as we discussed with our previous chart on the AUDNZD) to look for any powerful BULLISH reversal signals. However, I’d only be looking for such reversals ABOVE ~1.82000 as any movement BELOW this zone would denote weakness in bullish strength and therefore may be a sign that resistance at 1.86000 is in for a little while longer yet.

Anyway, I’ll be keeping an eye on the GBPCAD and who knows it may break and make another nice return, or fail! Stay balanced.

The post What More Can Be Made After Making 2,037 Pips (in 1 Trade)?? appeared first on Currency Secrets.

April 2, 2014

Designing an Automated Trend Line System – Part 5

Filed under: Forex General — Tags: , , , , , — admin @ 5:32 pm

In the next part of our series we’re going to begin moulding our two parts together. Currently we have an orders section and a trend line section, so now we’re going to copy the functions from each into one package. As we have maintained a modular approach to our EA coding it simply is just a matter of copying the code from one and making sure each element is present in the other. For example, the code in the init() section would be copied from both, except for the same return( 0 ) – this would only be needed once in the combined code.

We also need to check that we haven’t doubled up on our function names and we’ll similarly check the global variables. It appears the only double up is the extern int EXT_ATR = 300; which we’ll remove one instance of.

Now that we have combined code, we’ll jump into the int start() function to determine HOW all of these functions will operate together. Our start() function already contains some code from each of the two code bases, but now we’ll see if more is needed to get both code bases talking and operating together.

The first aspect that needs amending is putting the trend line values into global variables. The second aspect is going to be to create a small isBO() function to determine if the current bar is a breakout bar. Lastly, we add a getTrend() function to help us trade with the trend – this of course can be anything, but for the sake of this example we’ll keep it simple.

So here’s how our EA ends up:

Now it’s a matter of testing the code through a demo account to see how it goes and how we can tweak it!

Hopefully this has been somewhat helpful in designing an Expert Advisor for your own purposes.

The post Designing an Automated Trend Line System – Part 5 appeared first on Currency Secrets.

April 1, 2014

Does The “Market” Hunt For Your Stops?

Filed under: Forex General — Tags: , , — admin @ 5:33 pm

Further to our initial discussion on stop hunting it was difficult not to look at a recent trade’s exit where a 1-minute candle saw price spike to my known stop loss and saw me exit the LONG trade.

Very hard not to be suspicious on such activity – especially when the low was almost HALF A PIP away from your exit.

On the hourly chart price spikes to my known stop loss

On the hourly chart price spikes to my known stop loss

As we can see on the far left price spikes down within a 1-minute span, coincidence?

As we can see on the far left price spikes down within a 1-minute span, coincidence? And price spikes in this cross aren’t too uncommon if you train your eye across the screen.

Would it have been different if I had employed secret stops? Very difficult to tell!

Of course, if price had gradually moved down to that area throughout the hour or even over a span of 10 minutes I wouldn’t suspect much, but to do it quickly within a span of 1 minute is suspect.

Another remedy to this problem is not trade exotic crosses – just stay in the popular liquid pairs.

The post Does The “Market” Hunt For Your Stops? appeared first on Currency Secrets.

March 24, 2014

Do You Feel Your Stops Are Being Hunted?

Filed under: Forex General — Tags: , , , — admin @ 5:32 pm

It can be very difficult to give your forex broker your entry stop and exit stop orders especially if your forex broker is known to be a market maker rather than an ECN. While I believe this activity is certainly becoming less prevalent in today’s forex market, it does make you wonder how “safe” your orders are.

What is stop hunting?

Stop hunting is where an institution runs prices up or down through known or common levels so that the fluctuation of such prices sees existing open trades exit. Generally, this is exhibited with long wicks on candlestick charts and occurs around times of low liquidity. As an example, if a person is LONG a particular currency with a stop loss 100 pips away from the current market if price suddenly moves down, the LONG position is exited, and if other clients’ have SHORT entry stop positions they will find themselves now SHORT. If price then suddenly reverses back up the new SHORT entries may have their initial stop loss prices hit which see them also out of the market.

In the end only those with very wide stops are the only positions active in the market.

When does this activity happen?

Generally this activity happens around economic announcements. On big announcements the market’s liquidity will dry up (which widens the spread of the currency due to the lack of orders) and because of the lower liquidity price is then prone to see-saw rapidly around until liquidity returns.

What can you do to hide your stop information?

A good test of your trading system is to trade it with your stops losses turned on and with your stop losses turned off. When you turn your stop losses off it means that you need to monitor where your current exit price is and once price hits that point to exit at market immediately.

In essence, it means managing your stop loss through the use of global variables in MetaTrader.

Personally I would still use a stop loss – perhaps the initial stop loss, just in case my VPS blows up and I can’t get to my computer to fix any bugs – at least then I know that my broker has some stop there. But when it comes to my trailing stops maybe it’s best if I keep them hidden and only carry them without revealing my hand.

Another benefit on exiting at market

Another nice benefit on managing the exiting of a trade yourself is that when it does come time for a trade to exit you can perform other tasks AFTERWARDS. For example, you might want to alert yourself that the trade has exited and have an email sent to your inbox which highlights the profit or loss made, the length of the trade, the total swap charges (etc).

Here’s an example of what an exit at market function would look like. It’s not until AFTER the trade has exited (which is the priority) that we then go about analysing the trade and/or alerting the user to what has happened:

The post Do You Feel Your Stops Are Being Hunted? appeared first on Currency Secrets.

March 21, 2014

Do You Make This Mistake When Creating Your Trailing Stops Function?

Filed under: Forex General — Tags: , , , , , — admin @ 5:32 pm

In the fifth part of our series on designing a simple trend line breakout system we will move on to exits. Unfortunately early on in my MQL4 coding life I made some big mistakes when I coded my trailing stop function. I found that my entries would be okay, but my trailing stops just weren’t working.

For the purpose of this system we’ll use a simple ATR trailing stop method – it’s a common exiting technique and one that I use with my EA systems.

So what is the mistake people make?

The biggest mistake forex traders make with their trailing stop MQL4 functions is that they run their function on the time frame of their active chart.

The reason why this is a problem is that a trailing stop method using a multiple of ATR’s is supposed to gradually move in favour of your trade every time price continues to advance. As an example, the trailing stop method we will be coding up here will trail from the highest high made since entry for longs (or if the trade is short it will trail the lowest lows).

Now if we are using hourly charts as our active chart and we enter into a trade there are several problems that may arise if we calculate our highest high or lowest low points using this chart.

The reason for why it’s a big problem

The high of our entry bar may not necessarily be the highest high made since our actual entry. We can avoid this problem by NOT analysing the bar of entry, however, we could potentially miss out on profits should the currency skyrocket in our direction and then move against us all within the same entry bar.

Our long entry could be 5 minutes into the bar at 1.0110, have price rocket up 150 pips within 30 minutes to 1.0260, and then within another 20 minutes plummet 200 pips hitting our initial stop loss at 1.0060 and exiting for a loss.

Because we failed to trail properly since our entry our method above didn’t work too well – although it would work fine once the trade began moving into another bar.

So what’s the best solution?

The best solution is to use the exact same function you’ve always been using to trail your orders, but to use the 1 Minute timeframe instead of the active chart’s timeframe.

But wouldn’t the ATR calculation be wrong as an ATR value on an hourly chart is much bigger than a minute chart?

This is the only problem you need to be mindful of when coding your minute trailing stop method – use the ATR value from the active chart, not the minute.

What does this solution look like?

Here’s what the trailing stop function looks like:

The problem with this function

Now the only caveat to this method is that it uses only ONE static ATR distance throughout the life of the trade. The function could certainly be improved so that it uses the actual ATR of the active chart’s bars, but I haven’t found this to be a big issue – it may be an issue if you use small values for your ATR indicator.

So hopefully this has helped better your understanding on how best to trail your trades and hopefully you can weigh up the pros and cons of each approach and make the right decision in implementing it into your system.

The post Do You Make This Mistake When Creating Your Trailing Stops Function? appeared first on Currency Secrets.

March 20, 2014

Designing an Automated Trend Line System – Part 4

Filed under: Forex General — Tags: , , , , , — admin @ 5:32 pm

In this section we will tackle the entry ordering process. The best way I’ve found to test the ordering process is to simply remove all gates (such as the trend gate) and to allow the system to trade based on it’s trigger. Now obviously you will need a demo account with your favourite forex broker, mine being Pepperstone, to be able to fully test the ordering process.

Before we jump into the code there are some aspects with the ordering process that you will need to really think about. Let’s have a look at what some of these are for this simple breakout trend line system:

  • Once price has met the gates and then the trigger do we place an AT MARKET order or an ENTRY STOP or LIMIT order? An at market order may be slower as an entry stop or limit order would have already been placed into the market. We also have the problem of processing risk where ticks may be missed due to our EA taking time to process through the active tick. The problem we have with the placement of entry stop or limit orders is if our entry or stop loss prices need amending prior to entry. As an example, if we determine that our stop loss should be based on the lowest low of the active bar this may change as the active bar fluctuates once we have already placed our entry stop order.
  • Placing additional gates into our ordering process, such as portfolio risk, whether we can meet the margin requirements of the new order, checking the distance from entry to our stop loss.
  • Being alerted to new orders placed by the system. To help monitor the effectiveness of the system, we will have the system report to us the global variables and the conditions of the order.

For the purpose of this system we will use an AT MARKET ordering system, where we will analyse each tick and then place our order into the market.

Create a new EA and insert the above code to test to see whether it meets our ORDERING process.

The post Designing an Automated Trend Line System – Part 4 appeared first on Currency Secrets.

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