Written by MPL1983
I have been asked on a number of occasions on Openbook will the price move up or down and to what levels a question which I don’t mind replying to but as my followers and copiers have increased I thought I would write an article from my point of view and strategy here on Guru Talk so you, my fellow traders, can read a more in-depth view as to how my mind operates when entering, exiting and holding onto drawn down trades. Please be aware that I can only apply this to the EUR/USD pair, as I don’t trade or spend much time studying other pairs, and this is only from my own personal opinion and there will be other traders with different views who are equally, if not more, successful than me.
First, we all like to try and indentify trends within the market by using charts across various time frames. I like to draw trend lines on M5, M15, M30, H1, H4 and D1 charts mainly to see if the price will continue to bounce off the lines whether being bullish or bearish, but I will never enter a trade on this basis alone. I am fond of many indicators but I will limit this discussion to ones I more commonly use over others. I like to use RSI,14 (Relative Price Index), EMA (Exponential Moving Average) over 50,100,200 periods on all mentioned chart time frames and Intraday Pivot, Support and Resistance levels. These are what I commonly use to identify entry points when creating orders if I feel there’s going to be a certain amount of movement in the market.
Now one thing to bear in mind when using technical indicators is right there in the title of this post – they really are only “indicators” and, therefore, from my point of view, will not on their own govern where the price will move to just because the RSI “indicates” over bought or sold, or the price reaches an EMA level or support or resistance level ….. although at times they can be reasonably accurate and give an idea of how far the price may move before a rebound of some sort.
When a technical level has been reached, maybe the RSI oversold and is showing possible divergence along with an EMA level at a 100 or 200 period with perhaps a support level on perhaps the M30, H1 or H4, for example, we can safely assume from a technical “indication” point of view that the price may well rebound, and for me this is where the fundamental analysis comes into the picture.
On the lower charts like the M5, M15 we will easily identify more regular trend patterns up and down of maybe 20 or 30 pips movements. We may be able to apply logic behind these movements with indicators and then identify a cause from say an Economic Calendar; maybe the price rose by 30 pips due to bad jobless claims from the USD or fell due to bad German GDP. The point is there are so many events during the course of the week that we can apply to these smaller movements, and there could be other areas that can drive movements like the opening and closing of European and American markets, on occasion. For me, though, these don’t really justify my entries and order placing.
First, I have to decide whether I am from a medium to long term view bullish or bearish on the pair. There are too many aspects that I study to create my bias to write about at this stage, but it will generally come from an in-depth analysis fundamentally. My entries/orders now are mainly driven around indicator levels on the M30, H1, H4, D1 charts, when I expect the price to fall this will be due to fundamental reasoning like, for example with more recent events, European bank / country rating downgrades or perhaps austerity delays / disputes; this is what I would see as shorter term fundamental reasoning against the more medium to longer term reasoning for a move back up which would partly be involved to my bias creation. Again, for an example on recent events, this could be investor anticipation in the longer view that Greece will get bailed out or not default, or perhaps the IMF proposals to generate more Euros for the bailout fund, and not forgetting the recent testimony by US Fed Chairman Bernanke, although in the bigger picture this really is a basic description.
So to sum up, if you can apply fundamental reasoning at a time when technical indicators are reached and apply them to reasoning behind price movements of perhaps 50 – 150 pips then I would classify that as a reasonably safe entry point or creating orders at various technical levels.
I hope this made some sense and gives you a clearer view of what trauma I put my brain through just to enter trades and set order levels.
All the best
This news item was republished from eToro Forex news website
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