FOREX Trading with Candlesticks and Chart Patterns part 2(3).pdf

Contents

Chapter1 - Pivots ------------------------------ 2

Chapter2 - FibonacciLines ------------------------------ 7

Chapter3 - Indicators ----------------------------- 10

Chapter4 - Money Management ------------------------------ 16

Chapter5 - Contents ofa Trading Plan --------------------------- 20

Chapter6 - Trading Psychology ------------------------------ 21

Chapter7 - CITrading System ------------------------------ 22

Chapter8 - Putting ItAllTogether ------------------------------ 28

Conclusion ------------------------------ 33

Disclaimer ------------------------------ 33

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Chapter 1

Pivots

Pivot Points

Pivotpoints indicate reversals in the market

PivotHigh PivotLow

buy

sell

A pivotis a candle orbarwhich has one candle orbaron each side,higherorlowerthan the middle

candle orbar.

Some traders buy ata pivotlow when the price moves 1 pip above the high ofthe middle candle orbaras

the 3 barpivotis confirmed when price moves above the high ofthe middle bar. They sellata pivothigh

when price moves one pip below the low ofthe middle candle orbar.

Candlestick Version ofPivots

sell

buy

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Pivot Lines

Pivotlines are lines ofsupportand resistance and are very usefulin todayÓs forex markets as they

increase yourprofitability. The lines letyou anticipate todayÓs high orlow. You have a roadmap for

upcoming price action. Ifone ofyourentry setups is neara pivotline,you willhave more confidence in

buying orselling.

The new dayÓs pivotlines are calculated from the High (H),Low (L)and Close (C)prices ofthe previous

day (Justuse the daily charts from yourchartprovider). Download the free pivotcalculatorfrom our

website at www.forextechniques.com Itcalculates R1,R2,R3,P,S1,S2,S3.

The PivotPoint = P = (H+L+C)/3

Firstarea ofresistance = R1 = 2P-L

Second area ofresistance = R2 = (P-S1)+R1

Third area ofresistance = R3 = 2P+ (H-2L)

Firstarea ofsupport = S1 = 2P-H

Second area ofsupport = S2 = P-(R2-S1)

Third area ofsupport = S3 = 2P-(2H-L)

Ifthere is no significantnews to influence the market,price willusually move from P to S1 orR1. On the

EUR/USD the S1 orR1 pivotlines have been crossed during 86% ofthe trading days since August1989.

When the direction ofthe currency has set,the targets are typically the nextpivotsupportorresistance

line. Sometimes the currency willeitherreverse orconsolidate when the pivotsupportorresistance line

has been reached. Price tends to hesitate around a pivotline. Price can come back to a pivotline and test

itbefore moving on. When a consolidation occurs,the nexttargetis the nextsupportorresistance pivot

line. In a strong trend,price willslice though a pivotline and keep going.

Sometimes price willstop justbefore reaching a pivotline and then reverse. On otheroccasions,price

willgo slightly pasta pivotline. Allow a bitofleeway.

Price can failto reach a pivotline ifa significantFibonaccipointortrendline stops it.

Take care as the targetcan also be a significantFibonacciline. Sometimes where there is 61.8% fibonacci

retracementline ora 161.8%projection,this willbe the strongertarget.

In summary

Ifprice is atP,watch fora move to R1 orS1.

Ifprice is atR1,expecta move to R2 orback towards P

IfPrice is atS1,expecta move to S2 orback towards P

Ifprice is atR2,expecta move to R3 orback towards R1

Ifprice is atS2,expecta move to S3 orback to S1.

R3 and S3 are a good indication ofthe maximum range forthe day butcan be exceeded occasionally.

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In this chartnote how the differentPivot

lines and Fibonaccilevels came into play

On the move up note how the Euro stalled

at61.8% retracementthen came back to

retestThe PivotLine before carrying on to

R1.

The Euro wentup testing the PivotLine before going down to

S1. Note S1 was notreached firstup butwas reached on the

second attempt,afterwhich the E reversed rapidly

The chartabove shows how the majorlines interactwith the PivotLines. In some cases the PivotLines

willdominate and in othercases they willnot. This highlights the need to putin allrelevantlines so you

willnotbe surprised when the currency pairsuddenly stops and reverses. There is always a reason why

the currency pairstops,consolidates orreverses ata particularpoint. The chartabove illustrates this

point.

Often the currency willtouch a PivotLine then move away and come back to retestthe line before

continuing with the main trade

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In the chartabove the green arrows show where the pivotlines have come into play. Each time waitfor

the trade setup and enterwith the targetatthe nextPivotLine.

The currency in many occasions willmove between R1 and S1. Typically when the direction ofthe

currency is setitwillgo to the nextPivotline. In strong moves itmay go on through to the R2 orS2 and

even to R3 orS3. Itis notenough to solely rely on the pivotlines every day as otherfactors come into

play such as trendlines and fibonaccilines. In the chartabove,ifone had traded from the Pivotline to the

R1 orS1 there would have been a numberofgood trades.

PivotLines work wellin sideways markets as the action is typically between the R1 and S1 lines.

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