Predicting sentiment is good

Technical analysis allow you to determine the point of setup and profit target, while the fundamental provide the initial step and accelerating the movement. However none of the two will be able to predict exactly the point of movement and that's why we rely on market sentiment.

The volume of market is not necessarily depending on the fundamental or the technical but on the majority of the crowds direction. What is the majority of crowds think of the market based everyday technical and fundamental data.

So as a result the market movement either short fall or exceeding expectation everyday in our analysis. It is because we can predict the level of market sentiment.

beware of long-term trend overbought oversold

Underestimating the market movement usually is the work of those who look for precision in trading. Unfortunately there is no 100% precision in forex. New traders most often over confidence of using their strategy or technical indicators and they tend to overlook the unforeseen danger of market power. As a result they got caught in the middle of long-term overbought oversold position making substantial losses not knowing why it happens.

A short-term overbought oversold situation is not so painful because even if you are wrong the market eventually will move back or make correction just in time for you to avoid losses.

However in long term overbought oversold situation is different as the market may stay that way for a long time like 1 or 2 weeks before making correction. By the time it retraces back you are already collecting a pile of rollover fees (losses). That is certainly not worth the deal as you are making big time loss. Not only you are losing on rollover fees but also the time and money which you may need to trade during the period of waiting the market to comeback. See the example below EUR-GBP pair it takes a month for the market to retrace back.


How to avoid such situation from fooling you? There is no precise answer to this due to the unpredictable movement which caused by fundamental factors that is beyond our control to influence. The very least we can do in this situation is to watch over the price movement closely and check all the necessary indicators like MACD, Slow Stochastic, Bollinger Bands, and Candlestick. If the price movement defies the direction of all the indicators mentioned do not take your chances as the market is moving on a weak ground. Anything can happen either it will continue or reverse no one knows.

Until the market is fully corrected and price action moves according to the indicators direction then you are 90% safe to trade again. There is one indicator that can predict higher accuracy compare to any other in this situation and that indicator is candlestick patterns and counting.

The interpretation of candlestick patterns is when you smaller (shorts) candlestick patterns it indicates weakening market movement, which at this point you should anticipate the market might reverse. Secondly candlestick counting will help you to determine how many white or black candlestick has been formed. If it is 2 you should be aware of reversal might be just near.

Forex Avoiding Rollover Fees

Do you always hang on your open position until the next day of trade and suffer from the rollover fees? I am afraid that most of the novice who is just starting to trade in the longer time frame I.e. 4 hourly or daily might be trapped into this situation very frequently. This can situation can be more frustrating when the carry over trade is in losing position day after day and keep adding up with the rollover fees. As a result in the end you will more money than you are willing to lose during that one week trade.

Therefore today I am going to discuss how you can avoid that carry over trade and willing to accept losses or whatever profits in each day of trade. In order to do that we are going to analyze the low and high volatility of the market and also managing the 24 hours precious period with care. As you can see on the diagram below I have created spreadsheet table containing the data we needed for this. I am going to discuss this using my Malaysian local time which is +8 GMT.

The low volatility period ranging from 1 A.M. in the morning until 1 P.M. in the afternoon this is the Asian market session. However please note that the lowest actual volatility period is around 1 A.M. to 5 A.M. in the morning because all market are already closed during that 24 hours period and the Asian market will open around 9 A.M. in the morning where volatility will slightly increase. Then within the range of 2 P.M. and 9 P.M. the European market session will open which indicate the highest volatility in the market. This will follow by the US market session open around 10 P.M. where the market will reduce to moderate volatility.

Dividing the 24 precious hours by 4 hourly time frames we get 6 candlesticks for the whole day trading from the 4 hourly points of view. Out of all these 6 candlesticks maybe 2 or 3 of them will produce the highest volumes indicated by the length of the candlestick body. And this probably occurs mostly during the European market session which is 2 P.M. until 9 P.M.

In conclusion by planning and managing the time limit for the day you can avoid the trade to carry over into the next day and take whatever profit and losses you made during that one day. However if you are willing to bear the cost of the rollover fees because you are in profits then this discussion is irrelevant to your trade.

Trading History Ultimate Knowledge

The nature of the forex market short-term movement is very complex and highly unpredictable as it requires more than just explicit knowledge (i.e. books, videos, seminars) to understand the overall market's behavior. It requires more practical experiences in the trading activities itself. However not many traders especially novice traders are aware of the fact that their own trading experience is the most valuable lesson in forex education. Therefore they ignore and failed to take note of the importance to study the indicators' behavior, chart patterns, and price history record.

In the larger institution like banks, hedge fund, and big trading company they are able to record all these in the form of statistical records using automated software. Therefore they have the advantage to study more detail picture of twist and turn in the market in the smallest time frames possible. And because of that they are better than individual traders. Unfortunately for us individual traders we have to build our own statistical record on manual basis where it requires time and efforts to do it. So in order to make our trading decision simple we just rely on indicators that we believe work effectively and ignore the recording part.

Why should we record indicators' behavior, chart patterns, and price history? It is to increase our understanding on of the effect on indicators on the overall market behavior and chart patterns as well as familiarizing ourselves on the unpredictable area of the market.

Indicators Behavior and Chart Patterns Formation

If you have studied the market as in-depth manner you should be able to identify that there is relationship of the technical indicators behavior and the chart patterns such as double tops/bottoms, head and shoulders, or hell's triangle. Especially MACD and Stochastic have so much impact on the chart patterns formation.

As discussed before that the stochastic move faster than MACD but unable to build a solid movement without the MACD indicator. Because of this reason stochastic alone moving in opposite direction of MACD only give you a temporary move in which eventually later it will return to the place where it started. As a result it will create a double tops/bottoms, head and shoulders, or hell's triangle. See the chart…

Notice that at major resistance level on the GBP-JPY downtrend when stochastic moving alone downwards the chart did not make continuation of the trend but instead return back to the same support level to form double tops (M shape). And then when both MACD and Stochastic moving downwards the trend start to continue moving to the next level of support and resistance. This is also apply to the to double bottoms (W shape) formation.

The concept of head and shoulders is very similar to the double tops/bottoms and the only difference is the middle movement higher creating a chart that look like a head and shoulders figure. This happens because the stochastic is unsuccessful to move alone downward and instead making the continuation even higher when the chart it is moving along the MACD line again. And after that stochastic test again the resistance level until it eventually when MACD starting to show downward direction. As both move down it will create strong movement downwards.

The hell's triangle can most bee seen during the non-farm payrolls data release because traders trying to make quick profits. The market usually go ups or downs in high volume but temporary and eventually return to the normal movement. Sometimes it happens also in normal movement where MACD movement relatively weak.

The chart patterns formation also associated to the price historical movement. When all indicators seems to fail to notice where exactly the price will stop moving just take a glance to look at the previous target where it has been reached. There you will find that it might stop somewhere within the same level of the previous target. That's where you will find the overall patterns will form double tops/bottoms, head and shoulders, or hell triangle.

The Number of Peaks/Troughs in resistance Area

Have you ever thought of making studying the number of peaks and troughs created in every major support and resistance level? If you have not yet done that let's take a look at how many of them within support and resistance area. See chart…

Notice that the repeatable patterns generally form the identical number of peaks and troughs at every resistance level. The importance of taking note the number of peaks and troughs is to provide the traders general idea how many times the market will fluctuate whenever the market rest at the major support and resistance level before any continuation or reversal takes place. This will give them precision counts and make sure the market move according to their decision.