Momentum

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Momentum is an oscillator designed to measure the rate of price change, not the actual price level. This oscillator consists of the net difference between the current closing price and the oldest closing price from a predetermined period.

The formula for calculating the momentum (M) is:
M=CCP-OCP, where
CCP - current closing price
OCP - old closing price for the predetermined period.

The new values thus obtained will be either positive or negative numbers, and they will be plotted around the zero line. At extreme positive values, momentum suggests an overbought condition, whereas at extreme negative values, the indication is an oversold condition. (See Figure M1) The momentum is measured on an open scale around the zero line.



Figure M1. An example of the momentum oscillator

This may create potential problems when a trader must figure out exactly what an extreme overbought or oversold condition means. On the simplest level, the relativity of the situation may be addressed by analyzing the previous historical data and determining the approximate levels that delineate the extremes. The shorter the number of days included in the calculations, the more responsive the momentum will be to short-term fluctuations, and vice versa. The signals triggered by the crossing of the zero line remain in effect. However, they should be followed only when they are consistent with the ongoing trend.

The relative strength index is a popular oscillator devised by Welles Wilder. The RSI measures the relative changes between the higher and lower closing prices. (See Figure 5.43.)

Figure RSI1. An example of the RSI oscillator

The formula for calculating the RSI is:
?5/=100-[100/(1+RS)], where
RS - (average of X days up closes/average of X days down closes);
X - predetermined number of days The original number of days, as used by its author, was 14 days. Currently, a 9-day period is more popular.

The RSI is plotted on a 0 to 100 scale. The 70 and 30 values are used as warning signals, whereas values above 85 indicate an overbought condition (selling signal) and values under 15 indicate an oversold condition (buying signal.) Wilder identified the RSI's forte as its divergence versus the underlying price.

The Larry Williams %R is a version of the stochastics oscillator. It consists of the difference between the high price of a predetermined number of days and the current closing price, which difference in turn is divided by the total range. This oscillator is plotted on a reversed 0 to 100 scale. Therefore, the bullish reversal signals occur at under 80 percent, and the bearish signals appear at above 20 percent. The interpretations are similar to those discussed under stochastics. (See Figure LR1.)


The Bollinger bands combine a moving average with the instrument's volatility. The bands were designed to gauge whether prices are high or low on a relative basis via volatility. The two are plotted two standard deviations above and below a 20-day simple moving average.

The bands look a lot like an expanding and contracting envelope model. When the band contracts drastically, the signal is that volatility is low and thus likely to expand in the near future. An additional signal is a succession of two top formations, one outside the band followed by one inside. If it occurs above the band, it is a selling signal. When it occurs below the band, it is a buying signal. (See Figure BB1.)



Today I’ve added another Forex broker to the site — E-Global Forex. It’s not a new broker (they’ve been on-line since 2007) and they also have a rather popular IB company working for them — Forex4you (which has some additional features compared to E-Global). Apart from the standard Forex trading accounts that start from $100, E-Global offers cent accounts that have only $20 minimum and allow trading with positions as small as 10 base currency units (0.0001 lots). It’s a broker with MetaTrader 4 platform. Other highlights of this broker include:

* Sharia-compliant accounts on request
* Leverage from 1:10 to 1:500
* Small yearly interest on account balance (applied monthly)
* Regulated on BVI but offices based in Cyprus
* Deposit via Liberty Reserve, credit card and wire transfer
* Forex, CFD, gold and oil trading

Tags: CFD, Forex broker, Liberty Reserve, MetaTrader
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Do You Use Paid Forex Software?
September 21st, 2009

I stated my point of view on the paid Forex robots and other software in my previous post (Paid Forex Robots — Why I Avoid Them?). But I know that the Forex robots advertised throughout the Internet are very popular nowadays. So, I’d like to know what’s the opinion and experience of my dear readers and site visitors on this matter. I’d also like to ask those traders, that reply positively below, to write in the comments what specific paid expert advisors they have used. Of course, I also want to ask not to spam the affiliate links here as they will be deleted.

Do you use paid Forex robots?

* No, I prefer free Forex robots/EAs.
* No, I prefer manual trading.
* No, but I plan to buy a Forex robot/EA.
* No, buy I tried it before.
* Yes, and I like the results.
* Yes, but results aren't good.
* What's a Forex robot?

View Results
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Tags: expert advisors, Forex poll, Forex trading
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Symmetrical Triangle Chart Pattern on CHF/JPY
September 20th, 2009

Almost a month has passed since the last time I’ve posted the chart pattern analysis here. Today I offer a rather clear symmetrical triangle pattern on CHF/JPY chart at a weekly timeframe. The apex of the triangle is still quite far in time and the early breakouts could probably be false, but a full breakout after 3–4 weeks may signal a good bullish or bearish trading opportunity. The bullish breakout is more probable since the symmetrical triangle is a continuation pattern. Click the image below to see the full-size chart:

CHF/JPY, Weekly Timeframe, 2009-09-20

Tags: chart, CHF/JPY, technical analysis
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Paid Forex Robots — Why I Avoid Them?
September 19th, 2009

Why to avoid paid Forex robots or expert advisors? There are several reasons but most obvious one is quite simple — they don’t work as advertised. First, let’s get straight with the definitions — Forex robots are the same as the automated expert advisors, they are some trading strategies (sometimes advanced, sometimes not) embedded into a program code, which is most often intended for the MetaTrader 4 platform. There are many free expert advisors available on the popular Forex sites and forums and there are also many paid ones that are sold on-line. The price of such paid Forex robots may vary from as low as $20 for CaspianEA to as high as $499 for Dragonpips, while the average price seems to be near $100.

When it comes to the free expert advisors they are usually quite raw, require some optimization and tuning from time to time and work with minimal profit (even the best of them). As for the paid Forex software, it’s usually advertised as something complete — a ready-to-use product that will get updates for free from the author; it’s also advertised with an unbelievable level of profitability with more than 100% gain per month. So, what’s the problem with the paid Forex trading robots?

1. The most obvious question that arises when you see a Forex robot advertisement that promises huge returns in small time is why doesn’t the author of this robot use it for his own Forex account? Really, why rely on some on-line sales at $100 per piece with all the troubles connected with setting up a site for selling, an affiliate program, user support, etc. If you can just turn on this “money-making machine”? And if you are using it for trading and earn huge amounts of money from it daily, why bother selling the software? Want to share your success? Just let the traders download it for free! When I find a good EA that’s, in my opinion, capable of being profitable I share it for free on EarnForex.com; other honest traders I know do the same. So, if you are using a robot and it’s profitable, you already earn enough not to worry about selling it, and if you are selling a robot as a money-maker and not using it yourself, then that looks like a hypocrisy.
2. Verifying the profitability and the possible drawdowns of the paid expert advisors is very difficult, almost impossible. The advertisements display nice charts with the exponential curves of balance, suggesting a lot of potential profit from using the robot. But the problem is that all these test reports and statistics can be easily forged to showed any desired result. Some Forex robot-sellers use sites similar to mt4stats.com to demonstrate the profitability of their EAs. And while this is really a good tool, it has some disadvantages, including soft demo account conditions with almost no requotes or serious slippage, fast quote changes, “market blackouts”, etc. At least many of the advertised Forex robots have some sort of money back guarantee declared, but I am not sure if these claims have something to do with the reality, anyway, it’s almost impossible to rightly estimate the usefulness of the EA in a 30-day period.
3. The whole Forex software industry is getting quite ugly lately. Quite a few paid Forex robots are advertised aggressively via rather generous affiliate schemes, which results in tons of spam over the forums, YouTube, e-mail and other parts of the Internet. Of course, it’s not the creators of the software who spam the web, but the affiliate marketers (and probably not the best of them) but that’s still a problem for the whole Forex industry. The ads often contain semi-false claims, wishful thinking and even outright lies, which is very dangerous for all the potential Forex traders. New traders may fall for such ads easily, resulting in a future disappointment in the currency market. People that don’t know about Forex might think that it’s some kind of get-rich-quick scheme (which, of course, it’s not) or some other scam. So, in my opinion, the paid Forex robot market is currently set up in such a way that it hurts the reputation of the whole Forex trading industry greatly.

That’s what I think about the paid Forex robots. That’s why you don’t see any ads for them on EarnForex.com. Of course, I might be wrong in my judging and you are free to believe otherwise. But the above should be a warning to the newbie traders, while I am quite confident that the experienced Forex traders are already wise enough to see what’s good or bad for them.

Tags: expert advisors, Forex strategy
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Forex Technical Analysis for 09/21—09/25 Week
September 19th, 2009

EUR/USD trend: sell.
GBP/USD trend: sell.
USD/JPY trend: buy.
EUR/JPY trend: sell.
Floor Pivot Points
Pair 3rd Sup 2nd Sup 1st Sup Pivot 1st Res 2nd Res 3rd Res
EUR/USD 1.4037 1.4169 1.4369 1.4501 1.4701 1.4833 1.5033
GBP/USD 1.5985 1.6153 1.6404 1.6572 1.6823 1.6992 1.7243
USD/JPY 86.42 88.31 89.51 91.40 92.59 94.49 95.68
EUR/JPY 128.16 129.85 131.00 132.69 133.84 135.54 136.69

Woodie’s Pivot Points
Pair 2nd Sup 1st Sup Pivot 1st Res 2nd Res
EUR/USD 1.4186 1.4403 1.4518 1.4735 1.4850
GBP/USD 1.6174 1.6445 1.6593 1.6865 1.7012
USD/JPY 88.14 89.16 91.23 92.25 94.31
EUR/JPY 129.71 130.73 132.56 133.57 135.40

Camarilla Pivot Points
Pair 4th Sup 3rd Sup 2nd Sup 1st Sup 1st Res 2nd Res 3rd Res 4th Res
EUR/USD 1.4387 1.4478 1.4509 1.4539 1.4600 1.4630 1.4661 1.4752
GBP/USD 1.6424 1.6540 1.6578 1.6617 1.6693 1.6732 1.6770 1.6886
USD/JPY 89.01 89.85 90.14 90.42 90.99 91.27 91.55 92.40
EUR/JPY 130.59 131.37 131.63 131.89 132.41 132.67 132.93 133.72

Tom DeMark’s Pivot Points
Pair EUR/USD GBP/USD USD/JPY EUR/JPY
Resistance 1.4601 1.6698 93.54 134.69
Support 1.4269 1.6279 90.45 131.85

Fibonacci Retracement Levels
Pairs EUR/USD GBP/USD USD/JPY EUR/JPY
100.0% 1.4633 1.6741 93.29 134.39
61.8% 1.4506 1.6581 92.11 133.30
50.0% 1.4467 1.6531 91.75 132.97
38.2% 1.4428 1.6482 91.38 132.63
23.6% 1.4380 1.6420 90.93 132.22
0.0% 1.4301 1.6321 90.21 131.54

Tags: EUR/JPY, EUR/USD, Fibonacci, GBP/USD, pivot points, technical analysis, USD/JPY
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UWC — Cypriot Forex Broker with Variable Spreads
September 18th, 2009

UWC (United World Capital) is a rather new Forex broker that offers trading services for currency pairs, CFDs and some major indexes. It offers a very high leverage of 1:500 (which can be quite dangerous for the newbie traders) and also a low minimum for the traders to open an account — only $25. This broker is regulated by CySEC, which is not much compared to NFA, but it’s a lot compared to some other offshore but non-EU regulation. Other highlights of this broker include:

* Variable spreads (from 1 to 4 pips for EUR/USD)
* Deposit and withdraw via PayPal, Moneybookers, AlertPay, Neteller and more traditional ways
* Microlots
* Forex pairs, gold, CFD and index trading

Tags: CFD, Forex broker, Moneybookers, PayPal
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EFOREX — Broker from Panama
September 17th, 2009

Panama looks to be one of the favorite starting grounds for the on-line financial companies that are not yet ready for the serious regulation by NFA or FSA but are willing to show up their identity and provide some real-life office information. EFOREX is one of such companies. This Forex broker is very new, it went on-line in mid 2009. It offers two trading platforms — MetaTrader and WinTrader. Currently only Forex instruments are available for trading. Other features of this broker are: