As part of our "study path", after addressing the main basic terms, today we will address a very important topic such as the analysis of trends in Forex market. As we did for the trends at home Trading, today we will deal with issues related to Forex indicators.
In recent years the Forex market has been analyzed by many specialists, scholars and various enthusiasts. What still keeps the masses away from this economic matter, however, is, if you like, an approach that very often borders on hyper-technicalism for its own sake.
Today we will try to analyse this specific financial market, trying to go deeper, but using a language as free as possible of words and/or incomprehensible vertical analyses. We will try to clear up doubts by providing you with the basis for a thorough defeat of Forex Trading.
As we have said just above, we are talking about an economic opportunity that has only expanded like a patchwork in recent years, an opportunity that has affected various sections of our society. The first advice, however, is not to go with your feet of lead and not underestimate the fact that, at the base of Forex productivity, we find the concept of leverage: a factor that at the same time can lead to very high gains and / or very large losses.
Because of its delicate characteristic (and because it takes advantage of price movement compared to other markets), Forex requires a preliminary analysis that allows to minimize risks. Only in this way it will be possible to think of opening an operating account with few funds and hope to earn immediately (thanks to the carry betrayed can earn both when the market goes down and when it remains stationary).
If you manage your operations with Metatrader, you will need to know that the web is full of suggestions on how to exploit the MT4 market indicators and especially platforms that make available special indicators to download. Some MT4s, for example, indicate the relative maximum and minimum points for a particular Metatrader operation (as is the case with Swing ZZ). Other types can be used to evaluate the weekly pips ranges of the various currencies.
This is a technique related to the discussion of indicators. In practice, according to classical strategy, 3 moving averages are combined, no matter whether they are smoothed or displaced. If the trader is in trouble, you can make it easier to manage the forex alligator by organizing the chart using simple moving averages.
Once we have gotten order towards the trend direction, and that they are spaced out, we have indications that the market is perfectly trendy. Otherwise, it would be better to avoid taking a stand.
How to build Commodity Channel Index
The Commodity Channel Index, CCI, is an indicator developed by Donald Lambert, which measures the deviation of prices from a statistical average; this indicator allows you to discover market trends in advance and obtain purchase signals for put and call options. It gives false signals, however, so be careful, to use it, you have to study it very carefully. Use it by comparing it with other indicators or with price analysis. It can be applied for any reason, with preference for futures as the operational implications are that bullish (long) and bearish (short) positions are opened.
To build it you start:
Where H = Maximum of sitting; L = Minimum of sitting; C = Closing of sitting.
Now a n-period moving average of the Tipical price has to be calculated; at least two different formulations of the period considered are encountered:
It should be taken into account that 20 periods give rise to a rather slow indicator; it can also be reduced to 10 periods depending on one's experience, on the characteristics of the most trading securities. If the Commodity Channel Index is used in conjunction with other confirmation tools, the number of periods should be the same for all.
To build the CCI, the simple moving average must be calculated at "n" periods of the Tipical price (Smatp). In the construction described below we will opt for uniformity in favor of the 14-period version:
Now you have to calculate the deviation of the Tipical price from the moving average:
With this formula, the average deviation of the Tipical price from the average of the Tipical prices is calculated in absolute terms without distinguishing between negative and positive signs. The average of which will be calculable after n days where n represents the number of periods, in our case 14; in turn the deviation will be available after further 14 days bringing the delay to 28 days.
You can now calculate the Commodity Channel Index:
0,0015 x DevTp
Practically, the Cci represents the deviation of the Tp from its average, parameterized on an average deviation of the Tp. The value 0,015 is an arbitrary variable defined to include 70 to 80% of the values in a range from -100 to +100. The Commodity Channel Index cannot be defined as an oscillator because -100 + 100 levels are not limits of oscillations but the thresholds of extreme zones.
It is used when the price trend is based on the following operating conditions:
If false signals are often detected, a filter can be applied:
The closing of positions is generally determined by the return of the indicator to the neutral zone between + 100 and -100.
For operational purposes, we recommend not to rely blindly and exclusively on signals generated by instruments such as indicators or oscillators, the main and most important thing is: follow the price trend and according to this decide accordingly, follow the movement of prices because only in this way you can achieve the purpose of your analysis that is profit.
In the case of automatic trading, however, the Commodity Channel Index is an element of a series of components that, through confirmations between them generate signals of purchase and sale. It is also proposed for the search for divergences; even if there are more precise and efficient indicators in advance for this purpose, the indications of the CCI can sometimes be misleading.
Use is indicated under trend conditions and is subject to the following operating conditions:
An applicable filter in case of false signals may be:
Wait to buy the exceeding of the maximum price of the session; while for the sale wait for the violation of the minimum price of the session. The return of the indicator to the neutral zone between +100 and -100 determines the closing of the position.
For example, in combination with the RSI oscillator, a simple and effective technique can be applied:
Better not to use the Commodity Channel Index to open the position because it generates alarm signals, which are used to give greater value to the input indications given by other tools, such as the candlestick patterns
Especially those involved in economics and finance must always be kept informed about market trends and the main innovations and changes that take place regularly. The purchase and sale of financial goods and services (equities, bonds, government bonds, etc.) by Internet (a procedure defined as online trading) is also affected by major market changes. It is therefore good to keep up to date and to be familiar with the main economic, accounting and financial instruments such as Fair Value Options.
Some important strategies have been developed, such as spread trading, a particular technique that allows you to have a completely neutral exposure on the market.
It is much easier to analyze some data through the reading of graphs than the discussion that can arise around simple numerical inputs. Through the graphs it will be possible to monitor information related to volumes and other technical indicators (they are displayed at the base of the graph characterizing the time axis). To give a concrete example, the bands of Bollinger are directly represented on the price graph.
Let's start immediately with a nice definition. In financial jargon, the option is an asymmetric derivative instrument which, in simple terms, translates into a contract with a non-binding clause to buy or sell the security on which the option has been subscribed. The security in question - which may be a share, a pair of currencies, a commodity or another financial product - is called an "underlying instrument" and can be subject to a call or put option (also known as a put and call option).