RichardCox

For day traders, gap trading strategies are amongst the most favored market setups, with many profitable scenarios seen when the formation occurs. The downside is that these occurrences are relatively rare but can generally be seen when markets open as traders establish new positions based on information or news headlines that were released previously. When gapping signals do occur, experienced traders will look to capitalize on the intraday moves, as this is likely to be the source of the day’s volatility and trend direction. 4 Gapping Types Full Up Gaps occur when prices open higher than the high of the previous session. Full Down Gaps occur when prices open lower than the previous days lowest price. Partial Up Gaps occur when prices open above the close of the previous session while Partial Down Gaps are seen when prices close below the low of the previous trading session. Generally speaking, bearish trading signals are generated when prices open higher, run out of momentum and then fall back below the previous session close. Bullish gapping signals are seen when prices open lower before reversing and rising above the previous session high. These are contrarian events, however, while the majority of price gaps result in price continuation, as the impulsive move is based on macroeconomic data or news events that alter the market’s perception of an assets value. The four gap types will give trading signals for long and short positions but should only be triggered after markets are given the opportunity to establish clearly defined ranges. For intraday positions, this can be set at either a 30 minute or one hour interval. Establishing positions before ranges are defined can be undertaken but it should be understood that a higher level of risk will be associated with these trades. Allowing for Increased Volatility By definition, market conditions where gaps occur will also see enhanced volatility levels. Because of this, stop losses need to be managed aggressively once positions are established. The best way to manage this is to use trailing stops, that risk no more than 2 percent at any given moment. Since downside volatility generally is seen as being more forceful that upside volatility, stop losses for bear positions can be tighter than those seen in long positions. Filling the Gap Price activity, once prices have opened in a different area than what was seen during the close, must be monitored closely as reversals can be sharp and unexpected. Using the criteria above, it is relatively easy to spot when false breaks occur (i.e. a bearish signal after a bullish gap or a bullish signal after a bearish gap). But when momentum starts to slow after the initial impulsive move, there is a building probability that prices will “fill the gap” and return to their original level as all of the previously set buy and sell orders are filled. Conclusion Price gaps are generally instigated by major news events or significant macroeconomic data surprises that cause market participants to buy or sell an asset in excess. While these are fundamental events, these conditions are vital for technical traders as well because failure to see builds in momentum will likely lead to false breaks and sharp reversals. Momentum can actually build in the opposite direction when false breaks occur as late traders are stopped out in unexpected areas. Short term traders should remain watchful of price gaps because these situations tend to be the impetus for long term trend reversals and these can be spotted by traders that are primarily technical in nature even though the original reaction was created by fundamental occurrences.

Harold Gartley ran a stock market advisory firm in the 1930s that was one of the first advisory services to use technical chart analysis in its position trades. Gartley looked at stock market behavior in a way that revolutionized the way chart analysis is conducted and his research led to the development of what we now call harmonic trading. Gartley’s analysis did not actually use Fibonacci relationships to identify reversal points but the overall structure of Gartley’s patterns provided a basis for later traders to improve on his research and create higher probability trade setups. Gartley’s trading structures, it was soon discovered, could be applied to any asset market and in the years since there have been many books, periodicals, trading applications and even new patterns that have been created. What this essentially means is that these patterns should not be viewed as static structures but instead as charting tools that can be researched and built upon. The Gartley Structure The Gartley pattern is a visually based geometric price pattern that uses both price and time to identify four consecutive price swings (a series of trend changes) that form structures that resemble “M” and “W” formations on a price chart. The “M” patters signal a bullish pattern is forming, where a “W” pattern signals a bearish pattern is forming. The overall structures relies on the development of an ABCD pattern (discussed previously) and this is preceded by a substantial price movement (the X point). In practice, the Gartley pattern is a leading indicator that can help to forecast significant reversal points. Bearish patterns help to identify when short positions can be established of when long positions should be closed. In contrast, bullish Gartley patterns signal buy entries and closures in short positions. Bullish Gartley Bearish Gartley Additional Characteristics The Gartley pattern can be used in a variety of trading strategies, for example in intraday, position, or swing trades. Fibonacci retracements converge with Fibonacci extensions at the D point, which is the reversal level and trade entry. Ideally, the direction of X to A should match the direction of the larger trend. The move in total from A to D is representative of smaller correction within the larger trend. When the pattern develops on smaller time frames and matches the direction of the trend seen on larger time frames, probabilities are higher as well. Pattern Calculations The Gartley pattern becomes valid when the reversal points (the X, A, B, C, and D points) will come at a significant high or low within the time frame. These price swings comprise a series of 4 pattern legs that are essentially miniature moves within the larger structure. In the pattern movement from A to D, price should retrace 61.8% or 78.6% of the move from X to A. Without a properly structured ABCD pattern within the ABCD move, the Gartly structure becomes invalid. Additionally, the time duration from the X to A move should match the move from A to D, in both proportion and ratio. The time duration of the A to D move tends to be seen at 61.8% or 161.8% of the X to A move. In some cases, the ABCD structure will finish at the 100% measurement of the double top created by the X to A move. When this occurs, the time duration of X to A should also match the previous move. Instances of pattern failure occur when prices surpass the X point, and this indicates that a much stronger trend is actually in place. When this happens, prices are generally seen continuing to the 127.2% or 161.8% extension of the move from X to A.

The Three Drives harmonic trading pattern is similar to the ABCD harmonic pattern discussed previously but is characterized as having three dominant price legs (or drives) that signal the previous trend direction. Within these drives, two corrective waves can also be identified, as prices retrace some of the moves seen in the dominant trend. Traders who are familiar with Elliott Wave theory will notice some similarities here, as the overall structures follow some of the same themes. The Three Drives Structure When a three drives pattern emerges, it is a reversal signal for traders to begin considering contrarian “buy” positions in a downtrend or “sell” positions in a dominant uptrend. The pattern structure is one of the rare cases where symmetry in both price and time becomes a critical identifier, increasing the probability that a trend is reaching completion and that a reversal in imminent. For new harmonic traders, the pattern can be difficult to spot, but with a little practice the Three Drives structure becomes much easier to locate. Specifically, the Three Drives pattern is composed of a series of three consecutive price peaks (in an uptrend) or troughs (in a downtrend), creating two interconnected ABCD patterns. Each drive is followed by a corrective leg and the third completion drive creates a Butterfly harmonic pattern (which will be discussed later). Bullish Pattern Bearish Pattern Pattern Tendencies The presentation of a Three Drives pattern suggests that strong bull or bear markets are becoming over extended, and a price correction will be needed so that prices trade more in line with historical averages. One of the key advantages of the pattern is that it tends to offer superior risk to reward ratios, as stop loss levels are kept extremely tight in the reversal zone. Failures in the pattern tend to suggest stronger continuation in the previously dominant direction. Pattern Calculations and Variations Calculations in the second and third drive are determined by the price and time durations seen in the first drive. Drives 2 and 3 will be measured as either 127.2% or 161.8% Fibonacci extensions of the retracements seen in the corrective A and C waves, which should be measured as the 61.8% or 78.6% retracements of the price swing seen previously. When markets are experiencing trends of greater strength, the retracements can be seen at the 38.2% or 50% retracement levels. In addition to this, the time duration of the A and C corrective moves will be symmetrical, and this also holds true for the second and third drive extentions that complete the pattern. Warning signals of pattern failure can be seen with significant price gaps, as price activity is not seen as obeying the harmonic structure. Trades can be executed when the Three Drive structure is complete (not before) as this is the only way to determine the level of symmetry seen in price and time. Limit orders can be used as prices reach the B point (using the 1.272 extension) but confirmation needs to be undertaken so that the harmonic structure can be verified.

Harmonic trading uses Fibonacci relationships to spot potential reversal points in price activity. There are a variety of harmonic patterns that have been discovered - relatively recently, in some cases. The patterns are useful in the ways they help to identify buying and selling opportunities in any market and on any time frame. The patterns can be used for a variety of strategies, including intraday, swing, and position methods. An additional advantage of harmonic trading is that is allows traders to determine risk vs. reward ratios before trades are placed. With the harmonic method, the strongest trading signals occur when the harmonic structures coincide with other patterns (either on the same time frame or with those seen on multiple time frames). The ABCD Structure The simplest of these structures is called the ABCD pattern, where high probability trading setups occur as the pattern completes at the D point. Both the bull structure and the bear structure can be seen in the examples below: Without looking at the specific Fibonacci relationships, we can see that at each reversal point (at A, B, C, and D) prices make a significant high or low, creating three coinciding swings in price and forming a dominant trend, comprised of three distinct “legs”. These legs are classified as leg AB, leg BC, and leg CD. The BC leg is a corrective retracement, while the dominant trend is characterized by the behavior of the movement seen in legs AB and CD. Looking at the Fibonacci levels within these legs, we can see that leg BC retraces to 0.618 of the move seen in leg AB. The following movement at leg CD should be equal to the 1.272 Fibonacci extension of the move seen in leg BC. Traders should wait until the move reaches completion at point D before entering into a new position, as this is the main reversal area. These are the most commonly watched Fibonacci levels with respect to the ABCD structure but there are variations in these, which will be described below. Additional Characteristics In addition to the characteristics described above, the ABCD pattern is seen as ideal when the length of leg AB is equal to the length of leg CD. This is true not only for price, but also for time, as the duration of leg AB should also be equal to that of line CD. This congruity allows the pattern to reach full cohesion. Pattern Variations One key point to remember, however, is that technical analysis in the forex market is not an exact science. Because of this, there are variations that can be seen with the ABCD harmonic pattern. Alternative structures allow the BC leg to retrace 0.786 of CD or to extend to 1.618 of BC. There are three general ways the ABCD pattern can unfold: The AB=CD pattern occurs when legs AB and CD coincide in terms of price and time. The “classic” ABCD pattern is seen when the Fibonacci relationships match the above criteria but the price legs are not equivalent in terms of price and time. Finally, the ABCD Extension pattern is seen when the time of leg CD is 1.272 (or 1.618) times longer than AB, and the price movement of CD is 1.272 (or 1.618) times longer than what is seen in AB. Conclusion The basis of the ABCD pattern is the Fibonacci relationships seen in the proportions of legs AB and CD. These movements allow us to identify an approximate area for where the overall structure will complete. Because of this, coinciding patterns (multiple harmonic patterns on one or multiple time frames) will tend to increase the probability that the identified structures are valid and that reversals will follow.

One reason that longer term traders often change their overall strategies comes from a general lack of involvement, as it can sometimes take weeks or months for a trading plan to reach completion. Many traders would like to devote more of their time to actual trading activities, and an added advantage is that extra effort will allow you to capitalize on smaller moves within the larger trends. This provides the opportunity to increase trading gains, as investors can identify oversold and overbought conditions and increase on the total number of successful trades. For traders with enough time available to watch charts on an intraday basis, scalping strategies should be considered, and while this form of trade plan is not for everyone, it can be a suitable addition for traders looking to diversify their approach to the Forex market. Here we will look at a simple scalping set-up that focuses on key psychological levels (the 50s and the 00s) as a means for gauging momentum on shorter term time frames. Trade parameters here will include an inverted risk to reward ratio, where we use a 50 point stop loss in each trade, along with a 25 point profit target. Inverting the risk to reward ratio will likely make longer term traders nervous, but this can prove to be an effective method for traders using scalping strategies. The trade is then split in half (half of the position is committed on the initial entry, half is triggered later if prices retrace unfavorably). This allows us to improve on our average price if momentum does not turn on the initial entry. It should be remembered that this trade set up requires a very close focus on price activity, as traders will likely encounter problems if the trading station is not being monitored as long as the trade is open. Next we will look at the best pairs to trade with this method. Specifically, we want to identify Forex pairs with a high tendency to trend, and with this we will focus on GBP/USD, GBP/JPY, EUR/USD, and USD/JPY. These pairs tend to be the most applicable for this type of trading structure. Trades will be triggered when prices break above a 50 or 00 level (for buy positions) and below these levels for short entries. We will look for prices to then retrace back to the psychological area before positions are executed. To help manage the frequency of the trading signals, we will use a 15 minute charts, but variations can be made here as well. Example 1: In the example above, we can see the long entry is initiated after prices break above the psychological 1.32 level, and rally another 15 points before retracing back to the break out level. Expecting this level to hold now as support, half-sized buy positions are triggered. If momentum had continued to the downside (dropping another 25 points), we would have added to the position (full lot size) while leaving the stop loss level in its original place. In the short position, the reverse is seen, as prices are now breaking back below the 1.32 psychological level. The breakout point is then retested and prices continue to reverse, so that the position is underwater by 10 pips. If this had continued another 15 pips, we would have increased the position size (now a full lot size), keeping the stop loss at 1.3250. The trade then continues lower, and the position is closed as prices reach 1.31.75. The underlying argument for this method is that price activity tends to be explosive at major psychological levels and scalping opportunities can be seen when risk to reward ratios are inverted on short term time frames. Adding to the validity of these trade examples is the relationship of price to its moving average, as the buy entry occurs when prices are above the 100 and 200 period EMAs, while the reverse is seen prior to the sell entry.

One of the most frustrating situations new traders experience is seen when trades are established, based on trendline breaks, only to see prices reverse later and continue as though the break had never occurred. Every trader with more than a few trades under his belt has experienced this, and while it is impossible to avoid false breaks completely, there are methods that can be employed to reduce these occurrences and enter into higher-probability trading setups. To start, we must analyze price activity prior to the break (as a means for determining directional bias). For example, this analysis could be based on an Elliott Wave count, or, even more simply, based on whether or not the currency pair is forming consistent higher highs (for a long position) or lower lows (for short positions). Later, once the break occurs, we can decide whether or not to enter into a trade based on the directional bias prior to the trendline break. Example 1: In the example above, we can see that prices were in a firm uptrend prior to the downside break. The break (in and of itself) is a bearish signal and many traders might have chosen to establish short positions on the expectation that the uptrend has completed. But does the other evidence in the chart support this? The first reason for caution comes from the consistent higher lows and highs supporting the uptrend. Next, traders should monitor the way prices behave once the trendline is retested. In this case, prices should have turned downward once the uptrend line was retested (support turned resistance). However, this was not the case, as prices broke through and moved higher. The alternative scenario would be that short positions could be established on the retest of the previous uptrend line, as long as it holds as resistance. The advantage of the (in addition to the confirmation of the trendline retest) is that the trade can then be opened at more preferable levels (i.e. buying lower and selling higher) and improving on risk to reward ratios. In the example below, we can see some differences that would have alerted traders to the fact that prices would be more likely to continue in the direction of the trendline break. Example 2: In the above example, we can see that a higher low preceded the upside break of the downtrend line. Once the break does occur, we can see a retest of the trendline (resistance turned support) and here we can see that the trendline holds and prices make a significant bounce higher. In addition to this, indicator readings are bullish and the MACD reading shows a rise into positive momentum. With all of these factors, traders would have a higher chance of entering into a successful long position, with very little drawdown. In conclusion, what traders should remember here is that trendline breaks are not enough (in themselves) to use as an argument for entering into a new position. Other factors need to be considered, and a more careful analysis of price activity prior to (and after the break) can increase the probability of a successful trade.

It looks like your readings are coming from a daily chart, the trade in the first example in on an hourly time frame. I agree with your point about consolidation, so the same trade wouldn't be viable on the longer term time frames.

Changing the ADX threshold is fine as long as it is understood that this lowers the probability of success in the trade. The upside, of course, is that more trade opportunities will become available. As far as the DMIs, confirmation there can absolutely be taken into consideration but with this trading strategy, direction is based more on the way price behaves in relation to the moving averages.

A great number of Forex technical strategy tutorials on the web suggest that new traders avoid looking for tops and bottoms within a larger trend. There are many occasions where this is sound advice, as this form of contrarian trading will require traders to position themselves against the general momentum in a market, to, in effect, “stand in front of a moving train” or to “catch a falling knife” as this behavior is often described. But even though these are very real factors, it cannot be denied that accurately identifying tops and bottoms in the market will allow traders to enter at the most preferable levels and allow us to “buy low and sell high.” So, the essential question traders should ask themselves is not whether looking for tops and bottoms is a sound approach but rather which method is best for accurately forecasting when a trend has run its course and ready for a reversal. Here we will use a combination of indicators to achieve this: A 20 period EMA, a 40 period EMA and a 14 period Average Directional Movement Index (ADX). In this strategy, all time frames will be considered but trades will only be based on one time frame at a time. ADX as Basis for Reversals The basis for this trade relies on the ability of the ADX to measure trend strength while the 20 EMA acts as a support and resistance level. With this in mind, we look for charts where the 30 is 30 or above, which shows the current trend is strong. Starting with longer term time frames (Daily charts) as these are generally move valid. We can then move to the lower time frames if nothing is seen matching this criteria. If a currency pair shows an ADX over 30 multiple time frames, we opt for the longest term chart. Position Entries After identifying a strong trend, we look for prices to bounce off of the 20 EMA (for buy positions). For sell positions, we look for prices to fail at the 20 EMA. Stop losses can then be set below the 40 EMA, as this area is expected to hold given the underlying trend strength. The difference between the 20 and 40 EMAs also gives the trade some protection against false breaks. Exiting the Trade When establishing trade targets, we use our chart’s Bollinger Bands to identify the standard deviations from historical price action in the currency pair, and then set the profit target to the outside band. What is interesting about this approach is that the profit target can be adjusted later, based on whether or not the Bollinger Band expands or contracts. Always close the trade when prices test the outer Band. In addition to this, a Fibonacci or Trailing Stop method can also be employed when determining profit targets. Fibonacci traders can set targets at the 1.618 extension of the AB move from the previous trend move. In this case, the trade entry effectively acts as point C in the overall price movement. A final method is to simply trail the stop loss once prices move in the forecasted direction. Stops are trailed to just below the previous candlestick low (for longs) or just above (for shorts). The trade is then allowed to unfold on its own until the trailing stop is triggered. Final Points to Remember Here we suggest that there are three potential methods for choosing a profit target in each trade but it should always be remembered that only one of these methods should be employed at a time. Never start with one method and then switch to another in the same trade. Last, the trade should always be closed if the ADX moves below 30, as this signals the trend as longs its underlying strength. Testing this trade requires active monitoring of the charts, as there are many instances where the trade needs to be adjusted manually. This trading method is not ideal for traders who are generally inactive and rely on previously determined levels. Below is a Short (Selling) trade example in real time, using a 1-hour time frame, in EUR/USD: In the example above, Sell positions are initiated when the ADX rises above 30 and prices find resistance at the 20 EMA. The scenario would be reversed for Long (Buy) positions.

you can check here each week for new trading setups in forex.

Here we are going to look at Fibonacci breaks in the USD/JPY in both directions, as an upside break on the daily time frames will signal a bullish move on the weekly charts and give us a clear profit target for long positions that could result a trade worth approximately 700 pips. The dominant trend in this pair has clearly been to the downside, but the latest moves in price activity suggest that a long term base has formed and that a bullish move is highly probably going forward. Upside in the US Dollar against the Japanese Yen (USD/JPY) could rise nearly 10 percent if critical Fibonacci resistance in the 79.90/80.30 zone is breached. The latest rally has been sharp relative to recent volatility levels and if the aforementioned zone (which marks the 38.2 percent retracement of the decline from the highs seen in 2010). This bear move was significant given its relationship to historical averages, so Fibonacci support and resistance levels calculated from this move will be widely-watched by technical traders. On the daily charts, we have seen prices stabilize and consolidate in the 75.50 region, and the latest move is signaling that, potentially, a long term bottom is in place here, providing us with a tradable support base. This is coinciding with oversold indicator readings (on the weekly charts) in areas that previously marked the all time lows (breaking the record decline from 1995). In addition to this, we are seeing a break of the spike highs recorded in October of 2011, which was the Bank of Japan intervention level. Since prices have now moved above that intervention level (an event which was an artificial influence and not indicative of market sentiment), we view the break as a significant event and suggestive of a long term rise in prices. In the daily chart attached here, we can see this break. A daily close above this region of resistance will confirm the break and next we will pull out to the weekly charts to get an idea of a suitable profit target for long positions. This area is shown in the weekly chart attached here, coming in at 86.90: We are looking at this area because it also matches up nicely with support turned resistance and will likely contain prices on first test. If prices do manage to break this level, the next target will be the 38.2% retracement, which also matches up well with resistance historical levels and will likely coincide with the 100 month EMA on approach. Given that this trade will yield nearly 700 points if the profit target is reached we will need a stop loss less than or equal to 350 points in order to match our 2:1 risk to reward ratio. This stop loss level allows us to trade against 78.00, which was the latest break out point and should contain prices if we start to see downside pressure. The trade is triggered on a daily close above 80.30, and stop losses are set at 76.75, with a profit target of 86.90.

What are you talking about?

Well, if you want to be literal about it, there is no direct mention that 0.50 is a Fibonacci level. It is, however, one of the most common retracement levels watched by tech traders and helps make up the "price zone" which is just a cluster of levels that often act as reversal points. I never suggested that RSI, MACD and MAs have anything "to do" with Fibonacci. The article simply explains a strategy for combining indicators with Fibonacci levels to create high probability trading setups.

One of the most commonly used terms used by Technical Analysis traders in the Forex market is “Fibonacci,” or the “Fibonacci Retracement.” Despite its prevalence, many still view strategies developed with Fibonacci tools with skepticism because, it could be argued, the numbers used in its calculations have nothing to do with the underlying markets that are being traded. Is there any special reason why the EUR/USD should find support at a 61.8% Fibonacci level, especially when considering the possibility that only a minority of the market is watching (and actually placing orders) at that level? In this article, I will argue that even though I agree with the idea that there is no direct relationship between the Fibonacci sequence and any of the commonly traded asset markets, traders still can (and do) place trades based on these levels and can achieve consistent gains when these levels are viewed in terms of what they actually are: approximate stalling points within a much larger trend. What becomes confusing and problematic (and results in losses) for many new traders is that Fibonacci is viewed in terms that are too exact, rather than in the context of what is happening in the larger trend. Trades based on Fibonacci levels are contrarian in nature (as we are looking for reversal points) and because of this additional flexibility is required when fighting against the market’s momentum. With this in mind, we will look at a specific strategy to put these ideas into practice. Using a 4-hour chart, we will plot a 100-period EMA alongside a 150-period SMA. For indicators, we will use a 14-period daily RSI and against all of this we will plot the Fibonacci retracements of a significant bullish or bearish move. These levels will match the 0.382, 0.50 and 0.618 levels (which are the areas most commonly watched) and in addition to this, we will plot a 0.250 retracement as well as a 0.750 retracement level. For our stop loss, we will set our levels at 2 percent (or less) of our entire trading account value but this can then be adjusted to align against significant support or resistance levels in this region. Profit targets are more flexible, as we will bring our stop loss to break even once the position is showing reaches the 0.750 retracement (for long positions) or the 0.250 retracement (for short positions). Trailing stops will then be used and we will close the position on a rejection of the support/resistance levels of the larger Fibonacci move. In our trade, the main focus is the Fibonacci zone that is seen between the 0.382 retracement and the 0.618 retracement level within our impulsive Fibonacci move. This is our “price zone” and is our major concern in the trade. Our rules for trade entries will require the following: our shorter term moving average will show a positive cross in an uptrend or a negative cross in a downtrend. In an uptrend, we need to see the RSI reading below 50 while in a downtrend we will need to see a reading below 50. This helps us identify levels where markets are becoming over-extended. Once a major Fibonacci move has been identified on a visual basis, we will wait for prices to enter into the “price zone.” The trigger signal is a close (using candlestick charts) and once this occurs, our parameters are set. The most important thing to remember is that trades cannot be entered “in anticipation” of these criteria being met. This is how traders get caught on the wrong side before the real moves occur. Fibonacci strategies can only work (over the long term) if specific risk to reward ratios are met. “Incorrect” entries are the most problematic obstacle for this type of position and this can be avoided as long as we honor our our original trading parameters.

Technical analysis is the statistical study of historical price behavior, which is meant to give traders an idea of where prices will move in the future based on the way an asset’s value has traded in the past. Many new investors and people outside the trading community are skeptical of the validity of this type of analysis, as it requires no fundamental understanding of the underlying asset. Even within the investment community, there are opposing views with respect to technical analysis. Some believe that the methods involved are reflective of true science and mathematics and there are those who believe that this form of analysis is nothing more than a self fulfilling prophecy, which has predictive market value only because there are so many traders using it. Either way, there is little doubt that many investors have successfully implemented trading methods using technical chart analysis and these tools can be used by any trader willing to research the different types of strategies that are available. In the forex markets, technical analysis has developed greatly and offer much more complicated assessments of price behavior than what has been seen in the past. Computer algorithms have helped to improve the efficacy of technical analysis in the forex markets but a complicated understanding of mathematics is not required to implement some of the basic ideas in chart analysis and realize consistent monetary gains over the long term. Next, we will look at some of the basic ideas and methods used by technical analysts when making trading decisions and defining parameters for trade entries, exits, stop loss levels and profit targets. First, some commonly used terms should be looked at and the initial terms we will define are “support” and “resistance.” Support is an area where prices have literally been “supported” by active buyers and prices have moved higher. Traders will often view these areas as a good entry for buy positions as history is essentially expected to repeat itself and move higher again in the future. Conversely, “resistance” is an area that is seen limiting rallies. Prices are expected to move lower in these regions because in the past, these resistance levels are areas where sellers have entered the market and sent prices lower. The same logic applies here, as history is expected to repeat itself and because of this, “resistance” levels are generally thought of as suitable for entries in sell positions. The next term we will define here is “trend” as many traders base the majority of their positions based on the trend activity that is currently showing on their charts. An “uptrend” is generally defined as a series of higher lows, followed by a series of higher highs. A “downtrend” is the reverse, with a series of lower highs preceding a series of lower lows. Without these characteristics, price activity is usually described as “range bound” as there is no clear direction visible on the charts. Many traders look only to trade in the direction of the dominant trend as this is where the majority of momentum is seen and reversals in price direction are unlikely in terms of probability. Last, we will look at the “moving average” which is one of the most commonly used technical indicators in the forex market. As could be expected, a “moving average” is simply the average change in price. This can be measured in any time interval, with some of the most common intervals being taken over 10, 20, 50, 100 or 200 days. These averages are described as “moving” because they are constantly changing as time moves forward. These averages are used in many different ways to forecast future price activity and here we will outline a few of these methods. First, traders often look at the direction of the moving average on the chart itself. When the moving average line is pointed upward, it is a bullish signal. When the moving average line is pointed downward, it is a bearish signal. Another method is to look at where prices are in relation to the moving average line. Prices above the line show a bull signal, while prices below the line show a bear signal. Additionally, prices breaking above or below the line can also give traders an indication of where prices are headed next. This article discusses some of the basic underlying ideas that are present in the forex market. Technical analysis plays a major role for many traders and can help to define trading parameters by giving specific exit and entry levels. Most of the forex community does acknowledge that technical analysis has predictive value and because of this a firm understanding of the various methods and strategies involved can help an investor to round out a well balanced trading plan.