Tuesday, July 20, 2010


Hello and good afternoon,

This article will focus more on a low-risk divergence trading with the Stochastic Indicator and good entries with simple moving averages. For a quick understanding of divergence as a forex term please click here before you continue.

I will also appreciate it if you understand the risk warning below:


Stochastic Indicator, if you study well, whipsaw alot in the lower timeframes, say from 1 hour and below, even higher timeframes too whipsaw but you can take advantage of the whipsaw or trending mood of the stochastic from the daily timeframe and above. This example divergence trading plan will focus on the Daily Timeframe for trend trending and entries will be in the lower timeframes.

- Stochastic (5,3,3 daily timeframe and 1hr Timeframe)
- SMA 21, 14 and 7 (in the 15min Timeframe)

Your Daily chart should be as indicated below:
Your 15min Chart should be as indicated below:

When you spot divergence in the daily timeframe, you just need to trade it as a breakout in chart that is not breaking out on Stochastic or breakout in Stochastic that is not breaking out in Chart.

Below, Chart price broke my red line but stochastic lines not breaking my lines

Below Stochastic Line broke my line and chart price did not

The two example above shows the trigger, and more pressure for price to go in the divergent direction and in the lower timeframes - you should plan entry as discussed below.

This is a BUY sample of GBPJPY today 20th of July 2010. We have a Hidden Divergence and its BULLISH, price could not break my horizontal line and Stochastic went down the line. I allow the candle on the stochastic to close, that is waiting a whole day to close on the 19th of July 2010 as indicated in the boxes above in the chart. The next step is to watch stochastic in the 1hour timeframe and make sure the stochastic goes below to the 20 level zone then mark is as shown in the chart below:

The 1hr is set next is the 15min timeframe, a close above all my SMAs will mean BUY, takeprofit should be between 70pips to 100pips and stoploss should not be more than 100pips

I will advice that you manage your risk as this is not holy grail but i bet, only patient minds will enjoy it.


Tuesday, January 26, 2010


Divergence is an important market leading indicator. It is determined by comparing price action with oscillator action. In other words, an oscillator, like stochastic, relative strength index, MACD histogram and so on is needed to be compared with the price action so as to spot a divergent market. When the market is making high highs and lower lows or higher lows and lower highs, oscillators are traditionally expected to follow price, but we have a reversal situation when oscillator is not doing what the price is doing in terms of swing formations
If price is making a higher high and oscillator is making lower high then we have a bearish classic divergence. If price is making a lower low and oscillator making higher low, then we have a bullish classic divergence. If price is making a higher high and oscillator is making lower high then we have a bearish classic divergence. If price is making a lower low and oscillator making higher low, then we have a bullish classic divergence. CLASSIC DIVERGENCIES WILL LEAD US TO PRICE REVERSALS.

iF price is making a higher low and oscillator making lower low then we have a bullish hidden divergence. If price is making lower high and oscillator is making higher high then we have bearish hidden divergence. HIDDEN DIVERGENCIES WILL LEAD US TO PRICE CONTINUATION TREND.

Click here for the rules for trading divergence

I will be providing a trading plan on how to trade classic and hidden divergencies.

Apply stochastic of 30,18,8 to a 30min chart and you will have divergencies as indicated below.

Thursday, January 14, 2010

Multiple Time Frame Analysis

Written by Thomas Long

Multiple Time Frame Analysis is the practice of analyzing a currency pair by looking at the same pair through several different time frames on charts. The advantage here is that by looking at a larger time frame, then a smaller time frame, and then an even smaller time frame, the trader is able to gain a more granular insight as to how the pair is moving and make a more informed entry into the trade.

Generally three time frames are chosen and those time frames will be based on the trader’s individual trading strategy. A trader with a longer-term perspective may choose a Weekly, a Daily, and a 4-hour chart. A much shorter-term trader might choose a 4-hour, a 1-hour, and a 15-minute chart. The key is to use the longest-term chart in the array to determine the “big picture” and the direction in which to take the trade. Then use the shorter time frames to “fine tune” where to enter positions in that direction.

You may have heard the expression “trends exist within trends”. For example, on a Daily chart, the trend may be an uptrend, while on a 4-hour chart the trend may be down and on a 1-hour chart it may be flat… all in the same pair.

In this scenario, the overriding trend is based on the Daily chart -- which is up. Within that uptrend, however, there is a retracement that is going on in the 4-hour time frame. That retracement will likely come to an end at some point and then the 4-hour time frame will come into alignment with the Daily chart. By the same token, within the 4-hour time frame there exists a trend on the 1-hour. As that 1-hour trend comes into alignment with the 4-hour and the 4-hour aligns with the Daily chart, a much higher probability entry point will likely present itself.

In a nutshell, we want to enter a trade when the smallest time frames in our array have completed a retracement (a retracement is a move against the trend we have noted on the Daily chart) and are beginning to make a fresh move in the direction of the Daily trend. That will be our entry signal.

Think of it as tumblers within a combination lock all sequentially coming into alignment.

By using several time frames, a trader can gain insight regarding a pair on three different levels and learn how to utilize that information to successfully enter a trade when the time frames present the highest probability of success.

Let’s take a look at some charts of the AUD/USD.

On the above Daily chart we can see that the pair is in an uptrend. We know, based on that fact alone, that we only want to look for buying opportunities. Since it is at the upper extremities of this bullish move, now may not be the best time to buy the pair as a retracement could be imminent.

Let’s see if looking at a lower time frame chart can shed any light on this trade.

On this 4-hour chart we can see that the pair is still in an uptrend (higher highs and higher lows) and that possibly a support level is being established at the red line on the chart. If that support level holds, a trader could take a long position at that point, since that pair would then begin to be moving back in the direction of the uptrend on the Daily chart. (If a candle closes below support, however, we would then wait for another bottom to be formed before going long.) A more conservative trader would wait to enter a long position when the pair breaks above resistance at the black line.

The key here as it relates to Multiple Time Frame Analysis is that we are using a lower time frame chart to take a more granular look at how the pair is trading before we make our entry decision.

Let’s go down to a 1-hour chart on this pair.

Looking at the 1-hour chart we can see that the support level (red) has been tested several times. This strengthens the belief that this support level may hold and may the point from which the renewed move to the upside is launched. Should price action close below support, as in the case presented on the 4-hour chart, we would then wait until a new bottom is formed before taking a long position. To have a higher level of confidence, however, a trader might wait until resistance has been broken and a candle closes above our resistance, the black line. A close above that level would indicate that buyers are again in control in this time frame.

By using these three charts of the AUD/USD in three different time frames, we hope we were able to demonstrate how a trader can use Multiple Time Frame Analysis to gain greater insight and confidence as to how a pair is moving and how to optimize their entry in the direction of the trend.

Thursday, January 7, 2010


The RSI is a quality indicator for trend. I believe this and i am going to explain another profitable way of combining it with the Bollinger Band for good result.

INDICATORS: Relative Strength Index, Bollinger Band (all default Settings)

TIME FRAME: 4HR AND 30MIN (You could also use 30min and 5min)

Its very simple; apply the bollinger band to all time frames but its needed in 30min timeframe. In the 4hr apply the RSI. When RSI is above 50, its uptrend and below 50 is down trend. Then move to 30min for entries.

While in the 30min time frame, in an uptrend, wait for price to close below the lower band of the Bollinger, then a close above the lower band will make your entry for LONG

While in the 30min time frame, in a downtrend, wait for price to close above the upper band of the Bollinger, then a close below the upper band will make your entry for SHORT


Wednesday, January 6, 2010


Hello again,

I know a lot of people dont believe you can use stochastic as a trend following indicator. mmmmh officially that is true, but practically i think it is not always true. I want to believe its a matter of timeframe. Take a look at the chart below. It shows the crosses of the stochastics in the daily timeframe. I have vertical lines to indicate the begining of the cross and the end. Have a look at the chart below - its daily time frame

Now same price action in the 1hour timeframe below here shows that the general trend is up.

So, within this period i will advise you trade only long trade until you have otherwise in the daily timeframe. So looking on the hourly time frame and below you look for BUY chances only. With this i believe  you can comfortably use stochastic for trend analysis.

Now to explain the main Trading Strategy with stochastic. Special thanks to Egudu Emmanuel. He made me start this research work and i came up with the details below:

INDICATOR: Stochastic (60,36,18) - 4hours and 15min time frame
                       Commodity Channel Index (13) in the 1 hour time frame.

Apply the stochastic on your 4hour and it should look like the chart below, i am using today's trade as an example.

The trend is defined to be up so i need the 1hr timeframe with the Commodity Channel Index (13) getting over-sold. At the point marked red is over sold then i move to the 15min timeframe.

Below is 15min timeframe you can see the stochastic is trying to cross up still in sell mood. That is what you need dont wait for it to cross up.

While its over sold and turning up, get the nearest swing high and place your pending order for BUY. That is it. You sense of support and resistance can help your Stoplosses and Take Profits.

Thank you.

Saturday, January 2, 2010



Please take your time to review this risk warning before the trading plan:

Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial advisor if you have any doubts.


The RSI (relative strength index) i love so much and have a different way of interpreting and using it. I will be explaining how to take advantage of pressure on the RSI extreme levels of 70 and 30.

Indicators: RSI 14 period, Bollinger 20, Default Stochastic on Daily timeframe only.

Time frames: 1hr and 15min

Trading Style: Intra-day

Looking at the chart bellow.

Each time the bollinger band touches the bands, i expect the RSI to touch the extreme points too. If not then, I want to believe price should bouch back from this point. For example, If bollinger band touchies and especially closes above the upper band, and RSI is not touching the 70 level, then i expect a SHORT.

To make an entry I simply go to the 15min timeframe and wait for a trendline break like the popular perter bain would do. Check the chart bellow.

 I will also welcome comments and might post and follow up some real-time alerts to explain more.

NOTE: Dont ever trade agains the Daily Default Stochastic 5,3,3 - check the chart below to confirm our short trade explained above