Learn Strategy

 Resistance and Support Level

Resistance Level - A Resistance Level is drawn horizontally at the height when one recognizes a ceiling price area that a rate repeatedly tries to upwardly break through, but with no success. Within this level, whenever the rate increases and reaches the ceiling (or nearly reaches it), it pulls right back.
A Resistance Level is drawn horizontally where most peaks appear.

A Buy Signal is received when the Resistance Level is broken. One must make sure that the Resistance Level is clearly and definitely broken, meaning that the Candlestick's Closing rate is above Resistance Level and that the Candlestick is green (i.e. going up).

The quality of a Resistance Level increases:

1. The more peak points it touches.
2. The bigger the Candlesticks created around it get - body or shadow (A phenomenon that indicates sellers pressure not to break the level)

Support Level - A Support Level is drawn horizontally at the height when one recognizes a trough level area that a rate repeatedly tries to go break through below, but with no success. Within this level, whenever the rate goes down and reaches the trough (or nearly reaches it), it pulls up right back. A Support Level is drawn horizontally where most low points appear.

A Sell Signal is received when the Support Level is broken. One must make sure that the Resistance Level is clearly and definitely broken, meaning that the Candlestick's Closing Level is below Support Level and that the Candlestick is red (i.e. going down).

The quality of a Support Level increases:

1. The more trough points it touches.
2. The bigger the Candlesticks created around it get - body or shadow (A phenomenon that indicates pressure on the buyers' side not to break the level.

          


 Trend Lines

Understanding the current market trends is essential for maintaining a level-headed trading.
Trading trends could go three ways: Upward Trend Line, Downward Trend Line or Horizontal Trend Line.

Upward Trend Line - A straight line that rises from left to right and passes under at least the two most recent trough points. In an Upward Trend Line each trough point is higher than its predecessor.

Downward Trend Line - A straight line that descends from left to right and passes above at least the two most recent peak points. In a Downward Trend Line, each peak point is lower than its predecessor.

If no Upward or Downward Trend was identified than one should refer to the current trend as a Horizontal Trend..

             Moving Average

Moving Average describes the average rate of the last predetermined number of periods.
It serves as an indicator of trend reversals.
A Moving Average can be used in many ways. We believe in using two of the Moving Average's lines:
Short Term Average Line - A line that reflects an average of the last 12 periods.
Long Term Average Line - A line that reflects an average of the last 26 periods.

How to predict a Downward Trend - When the Average Short Term Line crosses the Average Long Term Line from above, or when the Average Short Term Line moves away from the Average Long Term Line on a downward direction - this is a sign of a Downward Trend.

How to predict an Upward Trend - When the Average Short Term Line crosses the Average Long Term Line from below or when the Average Short Term Line moves away from the Average Long Term Line on an upward direction - this is a sign of an Upward Trend.

         Candlesticks

Japanese candlesticks are one of the most useful tools for understanding the market We will present the most useful and reliable candlestick patterns:

Doji - A bodiless candlestick that is created when the opening rate is equal to the closing rate. It is most useful after long upward or downward trends, since it reflects the indecisiveness of the trend's future direction.The Doji's appearance serves as a warning signal of an upcoming Trend Reversal. If the market does change its trend after the Doji's appearance, one must react immediately according to the current position.

The Hammer is identified by a short body at the upper end of the Candlestick. It also has a shadow that is at least twice as long as the body. The hammer is useful after long downward moves, since it predicts the coming end of the downward trend. When the Hammer appears at the end of a downward trend, it serves as a Buy Signal.

The Shooting Star is the opposite of The Hammer. It is defined by a short body at the bottom of the candlestick. The Shooting Star's shadow is at least twice as long as the body. The shooting star is useful after long upward moves, since it predicts the coming end of the upward trend. When the Shooting Star appears at the end of an upward trend, it serves as a Sell Signal.

The Engulfing Pattern is comprised of a number of candlesticks.
The last candlestick in the pattern is the biggest one, Its body covers all the candlesticks that appear before him in the pattern. The more candlesticks the pattern includes, the clearer and more significant it becomes. When the Engulfing Pattern appears at the end of an upward trend with its last candle red, it serves as a Sell Signal. When the Engulfing Pattern appears at the end of a downward trend with its last candle green, it serves as a Buy Signal.

Thrust Candlestick

In conclusion - All patterns displayed were reversal patterns, i.e. warning signals of a coming change of trend. In order to verify the trend reversal, we must wait for the appearance of a Thrust Candlestick - a candlestick that strengthens the trend reversal estimation. For example - A Doji appears at the end of an upward trend, followed by a red candlestick whose low point is lower than the Doji's low point.This candlestick is the thrust candlestick, and its appearance reassures that a downward trend approaches.

               Golden Rules

1. Plan ahead - Make your work plan in advance. Know the position size, the StopLoss Points and the TakeProfit Points (SL and TP) before you start to trade.
2. Play it safe - Do not risk over 2% of your balance. For example, if your personal balance is 1000$ and you enter a 10,000$ deal (10:1 leverage), the maximal SL point will be 20 Pips which equal 20$ (2% of 1000$)
3. One pair at a time - It is better to focus on one pair than try to "conquer" many pairs.
   That way you could allow yourself to consider any new financial data or event cncerning the relevant pair
4. The trend is your friend - Trade in correlation with the trend: Do not buy in a downward trend . and do not sell in an upward trend.
5. Cut your losses - While they are still small. Once you lose, do not keep on buying in the same direction, and hope the market will get your investment back.
6. Stop Loss, Stop Loss, Stop Loss - Never enter a position without giving a Stop Loss order. It is your last line of defense
7. Two indicators or more - Do not enter a position based on only one indicator. Look for other indicators that supports your assumption.

 Positioning stop loss order

The positioning of the SL has a crucial part in the success of a deal, since it will determine the maximal loss. The positioning is based on strategic points along the graph and is not based solely on the maximal amount loss (i.e. 2% of your balance).

How to position SLorder:

1. When opening a Long Position, place the SL in a lower rate than the position entering rate - Place the SL at the last trough point prior to opening the position.
2. When opening a Short Position, place the SL in a higher rate than position entering rate - Place the SL at the last peak point prior to opening the position.
3. Very Important! If the SL is over 2% of your balance, don’t make the deal.
4. The TakeProfit will usually be placed in a point where it will yield a profit at least twice as big as the maximal possible loss. We believe that one should be flexible when placing a TakeProfit. In any case, it is highly recommended to place one in every deal.

          Buy & Sell Signals

 So far we have laid out basic technical analysis terms and tools.

Now we are about to display how to turn these tools into trading strategies.

Before we begin, here are two important guidelines:

1. Open a position only after receiving three different signals that point towards a trend.
2. Open positions that are a part of the general trend of the day.

A trend reversal - Buy Signal

Trading trend: A day defined by a general upward trend
» A Doji appears at the end of a downward trend
» Followed by a green candlestick (A Thrust) with a higher peak point than the Doji's
» The fast MACD line crosses the slow MACD line from below or moves upwards and away from it
» BUY

A trend reversal - Sell Signal

Trading trend: A day defined by a general downward trend
>> A Shooting Star appears at the end of a downward trend.
>> Followed by a red candlestick (A Thrust) with a lower low point than the Shooting Star's.
>> The fast MACD line crosses the slow MACD line from above or moves downwards and away from it.
>>> SELL

A Buy Signal - Breaking a Resistance Level

Trading trend: A day defined by treading or by an upward trend
>> A strong Resistance Level with a multiple failed ceiling-breaking attempts
>> The market breaks the Resistance Level when the candlestick's closing rate is above the resistance level.
>> Another green candlestick that serves as a Thrust appears when the candlestick's peak
point is above the peak point of the previous candlestick
>> The fast MACD line moves upwards and away from the slow MACD line
>>> BUY
>> A candlestick or two later, the short term average line will probably cross the long term average line upwards

A Sell Signal - Breaking a Support Level

Trading trend: A day defined by treading or by a downward trend
>> A strong Support Level with a multiple failed trough breaking attempts
>> The market breaks the Support Level when the candlestick's closing rate is below the support level.
>> Another red candlestick that serves as a Thrust appears where the candlestick's low point is below the low point of the previous candlestick
>> The fast MACD line moves downwards and away from the slow MACD line
>>> SELL

>> A candlestick or two later, the short term average line will probably cross the long term averageline downwards.

A Buy Signal - Using a Support Line

Trading trend: A day defined by treading or by an upward trend 

>> Identifying a Support Line
>> A Hammer appears near the Support Line after a downward trend
>> Another green candlestick that serves as a Thrust appears when the candlestick's peak
point is above the peak point of the hammer.
>> The candlestick graph crosses both average lines that are now moving upwards
>>> BUY

A Buy Signal - Using a Trend Line

Trading trend: A day defined by a downward trend
>> Identifying a downward trend and drawing a trend line accordingly.
>> A Doji appears near the trend line at the end of a local upward trend
>> A red candlestick that serves as a Thrust appears, suggesting the downward trend will continue
>>> SELL

A Buy Signal - A Trend Reversal

Trading trend: A day defined by an upward trend
>> An Engulfing Pattern appears at the end of a downward trend
>> The candlesticks consisting the Engulfing Pattern touch a Support Level or are near it.
>> A green candle that serves as a Thrust appears, suggesting the upward trend will follow.
>>> BUY