Archive for the ‘Important Announcements’ Category

Acquaintance with the Charts

Thursday, August 16th, 2012

Forex is measured through charts. It is a virtual representation that reflects the price movement of a quotation within a specific time. There are 2 coordinates that makes up a chart – Price and Time.
The price is shown on the vertical Y- axis while the time is shown in the horizontal X- axis.

The time which is broken down to different time frames may be viewed depending on the trader. The available time frames are usually: 1 month (MN), 1 week (W1), 1 day (D1), 4 hours (H4), 1 hour (H1), 30 minutes (M30), 15 minutes (M15), 5 minutes (M5), 1 minutes (M1), and an individual quoting tick or simply tick which materializes through the form of Bid and Ask.

The time frames are composed of 4 components: Open, Close, High Low

Open – the market price that is formed when the trading period starts.

Close – the market price which is given at the end of the trading period.

High – the highest price that is achieved within the trading period.

Low – the lowest price that was achieved within the trading period.

Chart Types:

Tick Chart – shows the tick movement of a specific currency pair without a specific time frame. It reflects the individual quotes of Bid and Ask prices given by market-maker and is often used to determine the support and resistance level.
tick

Line Chart – it may be easily distinguished through its simple form – Line. Line charts are plotted with the closing price that gives an easier view on technical analysis patterns. But this chart has a downside. The lack of some information, due to the fact that the closing price is reflected in the chart, hinders traders from evaluating the rise and fall of the price within the period.
line

Bar Chart – are composed of stalk like vertical lines which has a small horizontal line on both sides. The upper end of the stalk is the maximum price achieved within the period. While the lower end of the stalk shows the minimum price within the period. The horizontal line on the left shows the opening price while the right horizontal line is for the closing price. The analysis with the help of this chart is a bit tricky. You have to consider the right line as the open price and the left line as the closing; if the left line is higher than its counterpart then the price has decreased within the period; and vice versa.
bar

Japanese candlesticks – it is the most famous chart and also has the same composition with the bar chart. The only difference is that it is more comfortable to look at when compared to the bar chart. Each candlestick has the same composition with the bar chart’s stalks.

The candlestick has 2 parts; the real body, and the shadow. The real body is depicted by a a vertically inclined rectangle which reflects the opening and closing price of the trading period. If the body is highlighted then it is called a solid real body which means that the closing price is lower than the opening price. A hollow or transparent body signifies that the closing price was higher than the opening.

The shadow depicts the minimum and maximum value achieved within the time period. The upper shadow located at the top of the candlestick shows the maximum value while the lower shadow located at the bottom of the candlestick shows the minimum value.
candlestick

Stephen Stevenson

A Japanese Candlestick’s Panorama

Friday, August 10th, 2012

In the Tokugawa era, a man named Munehisa Homma, a rice merchant from Sakata, was said to had first incited the idea of Japanese Candlestick which is now used for futures market analysis. It was then used to predict the price of rice in the Ojima Rice market in Osaka.

Later on a man named Steve Nison, a technical analyst, made a study on it which also pave to its graphical representation.

The Japanese Candlestick chart is made up of individual candlesticks that connotes certain actions that the trend may take. Each candlestick is molded up by 4 attributes namely; Open price, Close price, Low price, and lastly High price. A candlestick is made up of a real body and shadow.

The candlesticks comes in different sizes of the body and the shadows that accompanies it. Each type indicates unique behaviors of the market.

Long Body – long body but with a short shadow

Short Body – short body with a short shadow

Marubozu – candlestick without a shadow. It gives a good confirmation signal of an upward or downward trend

Doji – a candlestick that almost have no body. It is a result of the equal opening and closing price.

Long legged doji – a subtype of doji that have a long shadow of the same length. It shows the strength of the bull and bear are equal and a new trend will soon emerge.

Dragonfly doji – another subtype of doji with a long lower shadow that denotes that there is an impending down falling trend.

Grave stone doji – looks like an inverted dragonfly doji that makes an opposite remark – an evident uptrend may soon occur.

Spinning top – a type of doji that posses a long shadow that signifies that uncertainty encompasses the market. The longer the shadow is, the higher the possibility of a new trend formation.

Hammer or Hanging man – also another type of doji whose name depends on the trend that it belongs. It has a medium size body accompanied by a long lower shadow.

Inverted Hammer or Shooting star – the opposite of hammer and hanging man.

There are certain patterns that may be observed when 2 or 3 candlesticks are merged.

Stephen Stevenson

Hunting with Williams’s Alligator

Saturday, August 4th, 2012

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In Bill Williams’s book, New Trading Dimension: How to Profit from Chaos in Stocks, Bonds, and Commodities, the Alligator was first mentioned. It is a type of strategy based on smoothed moving averages (SMMA) that assist in determining the presence or absence of the trend and as well as its direction.

The Alligator is composed of 3 SMMA:

Alligator’s Jaw’s (blue line) – the longest period line with 13-period smoothed moving average built at the median price (High + Low)/2, then moved into the future by 8 bars.

Alligator’s Teeth (red line) – the middle period line with 8-period smoothed moving average built at the median price (High + Low)/2, then moved into the future by 5 bars.

Alligator’s Lips (green line) – the shortest period line with 5-period smoothed moving average built at the median price (High + Low)/2, then moved into the future by 2 bars.

[SinglePic not found]Hunting with this creature is dangerous if you’re not careful with it. It could snap you off easily if your analysis did not conform with its  behavior. So the first thing you have to know is how the Alligator behaves.

If all 3 lines (Jaw, Teeth, Lips) are intertwined with each other, then the Alligator is sleeping. The longer it sleeps, the hungrier it gets. But always remember that you shouldn’t bother it when it sleeps, so do not open any trade. When it starts to hunt, that’s the time that you had to make your move.

If the Jaws (blue) are at the bottom, then the Teeth (red) is at the middle, then followed up by the Lips (green)  at the top, it signifies that the trend is going on an upward direction. On the other hand, if the positions are reversed wherein the Jaws (blue) are at the top followed by the Teeth (red) at the middle and Lips (green) is at the bottom then the movement of the trend is downward.

After feeding, the Alligator sleeps again and you have to wait until it wakes up and feed again. Elliot wave traders can work best with the Alligator because it helps to identify the impulse and corrective waves. If the price trades outside the Alligator’s mouth then impulse waves are forming but when it is on the Alligator’s mouth, the corrective waves are forming.

Stephen Stevenson

Understanding the Fundamentals – Money Supply

Thursday, July 26th, 2012

Money supply is basically the total amount of currency circulating in an economy at a specific time. It involves issued paper money, coins, and other liquid instruments such as funds on checking and savings accounts in the bank.

The value of Money supply is an important macroeconomic indicator because it may impact the economy through price level of goods and services, inflation, and the business cycle. The government or the central bank releases the information annually.

Analyst from both public and private sector carefully monitors it because of its possible effect on the economy. It is controlled through policies, born from careful analysis of economists, regarding interest rates and increase or decrease of the volume of money currently circulating the economy.

The increase of supply most probably lowers the interest rates thus attracting investments, generating jobs in the process, that would most probably land on the hands of the consumers. The more money in the hands of a consumer, the greater the urge to spend. Businesses would then react to this by increasing the rate of production which would walk hand-in-hand with the increase in the demand of labor.

The types of money and its value on the Money supply are categorized in “M”s:

M0 – is the total cash resource circulating the country.

M1 – All the tangible money, such as coins and currency, and the most liquid resources such as demand deposit and traveler’s cheques. M0 + checkable deposits.

M2 – The combination of the previous type and all time-related deposits; savings deposits, and non-institutional money-market funds. M1 + time deposits ( less than $100,000) and other highly liquid savings.

M3 – The broadest measurement of the money. It includes M2 plus time deposits exceeding $100,000, institutional money-market funds, short-terms repurchase agreements, and other larger liquid assets. M2 + large time deposits and deposits above $100,000.

M4 – the sum of all the preceding types.

The degree of importance of these indicators vary from country to country. There are countries like the United States that pay more attention to M2 while M3 outweighs the other types in most European countries. The Great Britain gives more significance to M4.

Stephen Stevenson

Knowing the Fundamentals – Understanding GDP

Friday, July 20th, 2012

A weak currency is the sign of a weak economy, and a weak economy leads to a weak nation.
- Ross Perot

The main protagonist in the fundamental play of economics. The Gross Domestic Product report or more popularly known as GDP, assumes the lead role in a country’s economy. It is the measurement of the status of the state as a whole and is usually released at 8:30 am EST during the final day of each quarter and reflects the preceding quarter. It is an aggregated monetary value of all the goods and services, excluding international activities, provided by the entire economy during a quarter.

The GDP growth rate is the main indicator on how well the state performed during the period. It reflects the manufactured goods within its territory on a specified period but it doesn’t include the cost to produce those goods.

An average of 2.5-3% growth per year is healthy and sustainable. But difficulty arises when the GDP is above that rate, it is highly unsustainable and may lead to a high inflation. Before an ‘overheated’ economy occurs, governments usually takes preliminary measures to slow down the growth.

On the other hand, a growth below that rate would usually lead to an increase in unemployment and decrease in spending.

Each initial GDP report is revised twice. The “advance” report is followed by the “preliminary” report with a month later and then followed by a final report a month after that. It is reported in two forms: Current dollar and Constant dollar.

From the name itself, it could be figured out that the Current dollar GDP is calculated using the current dollar and provides comparison between time periods. It is the most recent calculation of the GDP in terms of the current year’s dollar and it doesn’t account for changes in the rate of inflation from one period to another.

The Constant dollar GDP converts the current information into some standard era dollar. In the process, it factors out the effects of inflation and allows an easy comparison between periods.

GDP is sometimes confused with GNP or Gross National Product. The GDP only includes the goods and services produced within the territory while GNP includes those goods and services produced by companies operating outside the country’s boundary.

Stephen Stevenson.