Monitoring Support and Resistance With Price Alarms On The Spot Forex

Introduction

 

The forex market is a support and resistance market, all trends start and end at support and resistance. All reversals and retracements start at support and resistance. Forex trading becomes a lot easier if you are an expert at identifying key areas of forex support and resistance.

Short Term Support and Resistance Monitoring

                                 SHORT TERM (Intra-day) SUPPORT ON THE GBP/USD

If near term support and resistance is compared to longer term support and resistance on these simple forex charts and forex trend indicators that we will use in this article then our understanding of forex support and resistance will be strong. So we need to divide forex support and resistance into short term support and resistance and and long term support and resistance.

For analysis of the forex market we use multiple time frame analysis with simple bar chart forex charts, and this is the same way that we analyze support and resistance, across different time frames.

Monitoring Short Term Support and Resistance

If a currency pair is trending you can use price alarms to monitor for breakouts of the short term support or resistance established over the last 18 hours for trade entries while the pairs are consolidating.

To monitor short term support and resistance you can set up some simple trend indicators which are available on a piece of trading software called Metatrader. These indicators that look exactly like these charts presented in this article.

Trend indicators work a certain way and you must learn to think like trend indicators work. There are trend indicators you can use every day like these simple exponential moving averages that work extremely well and will help you to learn forex.  These are price related indicators but are historically and exponentially weighted with the near term pricing support and resistance carrying more weight.  Historical data is accounted for in charts and exponential moving averages work in a similar fashion with natural heavier weighting of data to the right side of the chart.

Set up these forex charts on a Metatrader platform using the setup link at the bottom of this article and check the M5 and M15 minute charts on several pairs when the pairs are consolidating. Write down the numbers and these are the short term support and resistance levels. You can also call this intra-day support and resistance because these levels have been established in the last 12-18 hours.

The chart you can see above this text is an M15 chart showing intra-day support on the GBP/USD, just set your price alarm immediately below the support established on the right side of the chart.

Long Term Support and Resistance Monitoring

                                       LONG TERM SUPPORT ON THE GBP/USD

To monitor long term support and resistance to assist with your forex trading set up the free trend indicators.  But now you need to check the support and resistance on the longer time frames like the H4, D1 and W1 charts. Check out the longer term support and resistance when the pairs are consolidating. Write down the long term numbers and compare the long term numbers to the short term support or resistance numbers. Not exactly too difficult and you will learn forex as it relates to all of the support and resistance numbers on the various pairs on the market.

The chart above shows long term support (W1 Chart) on the GBP/USD just below 1.5300 (yellow line on right). Very easy to spot the support levels.

Setting Better Price Alarms 

                               HOW TO SET UP PRICE ALARMS ON METATRADER

If you decide to set a price alarm off of short term support or resistance be sure to check the long term support and resistance as well on the same pair. In the GBP/USD screenshot you would set the price alarm below the intra-day support on the right side of the chart if the GBP/USD was in a downtrend. Compare the short term support level to the longer term support levels and see how much room there is in between the short term support versus long term support numbers. If the numbers are too close then set your alarm off of the long term support numbers, its just not worth it to try to trade this pair otherwise. In other words if the numbers are close to each other its best to set price alarms outside the long term support or resistance so you have more pip potential if you decide to trade it. Now you can quickly identify the pip potential of any trade.

Sometimes the short term support or resistance numbers match up evenly with the longer term support and resistance numbers and they may match up quite well. If this is the case any breakouts of these prices can produce strong new up trends or downtrends.

On the chart of the CHF/JPY above you could set a price alarm at 76.00 for a potential price breakout of the support level but as you can see it looks like it has held the support nicely over a long period of time and eventually did reverse back up and build an uptrend.

Forex price alarms are also free on a piece of forex trading software known as Metatrader. You can set multiple alarms on multiple pairs and always be monitoring the forex for price movement and breakouts at no cost. A phenomenal free tool for forex traders!! Just above this paragraph is a photograph of how to set price alarms on a Metatrader platform on any forex pair. Monitoring currency pairs with price alarms will help you to learn forex and always know when the market may be moving.

Price Spikes Versus Areas of Support and Resistance

A price spike is generally not too important when analyzing forex support and resistance. Price spikes can happen around forex news events that you can find on forex news calendars. Trend indicators are more sensitive to areas of support and resistance than price spikes, which are somewhat meaningless to trend indicators. Price spikes are quick jumps or drops in price that quickly recover back to the same price level.

Support and resistance matters a lot to the trend indicators you would use to analyze the market, because the indicators you see in this article are price based. All trends start and end at support and resistance. Learning to identify spikes will also help you to learn forex and their relative lack of importance compared to clearly defined strong areas of support or resistance.

Almost all trend indicators treat spikes as insignificant compared to repeating and continuous areas of support and resistance which are very significant. Trend indicators which tend to smooth data like regression channels and the ones you see in this article are more sensitive to areas of support and resistance versus spikes.

Since most trend indicators including the exponential moving averages pictured here all have historical weighting of price built in to their formulas and algorithms they both "see" all of the historical price data especially recent price data because the algorithms are historically weighted on these indicators.

The indicators shown when the green line converges on the H4 and D1 charts this is an indication of a currency pair stalling at longer term support and resistance. This is why the D1 chart on these free trend indicators matches up so well with most other trend indicators. Convergences of the green line occur when the price stalls on the various time frames and is somewhat obvious on the charts.

This is because as we have said over and over, that all trends start and end at support and resistance.

Repetitive Nature of Support and Resistance

                                THE EUR/AUD OSCILLATING IN A 300 PIP RANGE

Spot forex support and resistance numbers are repetitive on ranging or oscillating pairs, they are also repetitive on long term support and resistance numbers over months and years. Its clear on the charts if you have a close look

Oscillating Currency Pairs  - Some currency pairs are not trending, they are oscillating or ranging up and down between support and resistance as in the example above. Major currency pairs and exotic pairs can do this and they do this all of the time in a non trending forex market. Support and resistance numbers are repetitive on ranging pairs and it is obvious.

Setting up the Metatrader forex trading software, these free trend indicators and setting price alarms will help you to learn forex and greatly assist with your forex trading, you will always know when the forex is moving.

Straddle Alarms

                                               STRADDLE ALARM ON THE USD/CAD

Sometimes currency pairs are moving sideways in a tight price range, in this case you can set a straddle alarm. A straddle alarm is two price alarms on the same pair, one is above the tight trading range, one is below the tight trading range. Resistance alarm and support alarm set simultaneously to detect movement in either direction.

In this case after a thorough analysis of the CAD and USD groups using multiple time frame analysis it was unclear what direction the USD/CAD would go so a straddle alarm was set. The reason you set two price alarms of the same pair is that you just do not know what direction the pair will go based on your overall assessment of the market.

In this case it hit the support alarm and a forex trading entry was verified to sell the EUR/CAD based on CAD strength using the Forex Heatmap® which is described below. Remember that this Metatrader forex trading software and charting package is free, and so are the alarms and indicators. Metatrader is available from many forex brokers.

What to Do When The Price Alarms Go Off

                         VISUAL MAP OF THE FOREX - THE FOREX HEATMAP®

So now you know how to set up price alarms and monitor the spot forex pairs for movement using these forex charts. You are now monitoring one or more pairs with price alarms. The London session starts and the heaviest period of market activity is starting including a lot of the forex news.

At some point one or more of your price alarms hits and will go off and the forex market starts moving. Now you get in front of the computer to see if you should enter a trade.  Price alarms will tell you that the market is moving but you still need to verify your entries. There is a new tool now available for entry management and verifying trade entry decisions that most forex traders have never seen, its called The Forex Heatmap®.

The Forex Heatmap® tells you at a glance what currencies and pairs are strong or weak and verifies whether or not you should enter a buy or sell on the the pair where support and resistance is broken, Or it could possibly identify an entry on another pair in the same parallel or inverse group of pairs. Price alarms detect price movement but it could be a price spike or fake out (as discussed in the module above). You need to verify your forex trade entries with a reliable tool.  To use The Forex Heatmap® effectively you need a step by step guide to using it.

Reading the Forex Heatmap® is not difficult. For different heatmap configurations you can quickly see the pockets of strength and weakness on the spot forex at a glance and get your trade platform ready when the configurations are set. Forex trading just got a lot easier using this web based forex software. You can learn what forex trade entries look like and trade much more safely with this tool.  Our library of Forex Heatmap®entry signals will show you various examples of  trading signals for 28 pairs.  

Layers, Zones and Clusters of Support and Resistance

THIS FOREX CHART SHOWS A CURRENCY PAIR STUCK IN A CLUSTER ON THE BOTTOM RIGHT, IT ALSO SHOWS A DOUBLE BOTTOM

Sometime a pair is stuck in a broad range dominated by layers and clusters of support and resistance and the trend charts indicate choppiness. This means that the pair is bouncing up and down in a fairly wide price range and is incredibly difficult to trade. The market is not always trending or oscillating in some beautiful smooth pattern. Trading a market like this is riskier and the incidence of stop outs is more frequent. Trade durations are shorter and movement cycles typically last only through one London-USD trading session and then you would exit trades, or else not trade at all. This is easy to recognize just look at the charts but most forex traders do not understand this concept at all but if they did their forex trading would improve. If you want to learn forex try to take this concept forward.

Layers of support or resistance are also referred to as choppy markets, tight ranges, clusters, tunnels, and not to confuse anyone with terminology but they are all danger signs pointing to riskier trades. Trading pairs with a lot of room to move up and down, and not stuck in clusters, is easier.

On this chart above I have one example of a support cluster, Its best not to trade until the price breaks out of the cluster then it will be able to move much easier to trade and larger trends will form. Price alarms should be set on both sides but outside of the cluster at resistance and support looking for a clear shot at pips. The chart shown above is an H4 time frame on our free indicators using the Metatrader forex trading software.

Forex Support and Resistance Technical Paper

Prior to writing this article a short original article about using price alarms was written by Mark Mc Donnell. You can also review that article for more ideas about using support and resistance.

Support and Resistance Slideshow 

This part of the article discusses a complete library of support and resistance slides that you can view on Flickr.It demonstrates many examples of short term and long term support and resistance and clusters (layers), also double tops and bottoms and how to set price alarms. Click on any slide and you will go into the "slideshow" mode so you can inspect each example chart more carefully.

Throughout this article we have referenced a set of free trend indicators and price alarms, in order to set up these free forex trend indicators just click on the link above and follow the instructions. You will find a complete set of instructions for setting up the free trend indicators, price alarms, and Metatrader charts that you see throughout this article.

The Forex Heatmap® also has a complete user guide for managing entries after your price alarms go off, the link to this valuable resource can also be easily be found in the links below.

Summary and Conclusions

All forex trends start and end at support and resistance, all consolidations, retracements and reversals start at support and resistance on the spot forex.  Let's all work to become experts and strive to be the best support and resistance analysts possible.

Parallel and Inverse Analysis of the Spot Forex

Introduction  

Parallel and inverse analysis of the spot forex can be used two different ways, when conducting the overall market analysis, and at the point of trade entry. Very few, if any, forex traders understand these concepts but as a forex trader the information is critical. If you do not understand parallel and inverse analysis you have almost no chance of being a successful forex trader, but your odds increase dramatically if you understand it well. It can be learned in a very short period of time.

Parallel and Inverse Analysis

Parallel and inverse analysis is the study of how individual currencies influence the movements of currency pairs and their intra-day movement cycles or within the context of a trend. It has also been called currency correlations and individual currency analysis. Few,  if any,  forex traders understand these concepts and essentially nobody is educating traders on this subject. However forex trading success would skyrocket if forex traders would master these concepts. Parallel and inverse analysis of the spot forex can be learned in about two to three weeks by any forex trader at any level. 

Eight Major Individual Currencies

Here are the eight most widely traded individual currencies in the spot forex that we will examine in this article:

  USD  US Dollar
  CHF  Swiss Franc
  EUR  Euro
  GBP  British Pound
  JPY  Japanese Yen
  CAD  Canadian Dollar
  AUD  Australian Dollar
  NZD New Zealand Dollar

Please note that an individual currency is not a currency pair, it seems very simple and fundamental but it is the crux of this entire technical paper and essential to learn forex trading. Remembering that a currency pair is comprised of two separate currencies will open your eyes to the pips.

Parallel and Inverse Pair Grouping Examples

An  example of a parallel group of currency pairs is as follows.

EUR/USD
EUR/JPY
EUR/CHF
EUR/GBP
EUR/CAD
EUR/NZD
EUR/AUD

The EUR is on the left in all pairs and is the common individual currency.

An example of parallel and Inverse group of pairs is as follows:

GBP/CHF
AUD/CHF
NZD/CHF
EUR/CHF
USD/CHF
CHF/JPY

The CHF is on the right on all pairs but on the left on the CHF/JPY, the CHF is the common individual currency.  This occurs on other currency pair groups. These are the very basics to learn forex and parallel and inverse analysis. 

Basic Discussion of How and Why Currency Pairs Move

First example:

If the        EUR/USD is rising
and the     USD/CHF  is falling

then the USD weakness is controlling and "driving" the movement of both pairs, the USD is weak.

Second example:

If the        EUR/USD is rising
and the    USD/CHF  is also rising

then the USD is not controlling the movement. The EUR strength is causing the EUR/USD to move higher and the CHF weakness is causing the USD/CHF to rise. In this case the EUR is strong and the CHF is weak so the best pair to trade would be to buy the EUR/CHF. The USD is completely out of the picture in the second example as far as what was driving the driving movement of the market.

These are two of the most basic examples. Not knowing this basic information represents the biggest failing of forex traders worldwide. Although this relationship between pairs and the real reasons for their movement being the movements of the individual currencies is simple and basic it escapes nearly every trader, although the logic is incredibly clear.

This simple, basic logic works for all 28 currency pairs derived from the eight most widely traded individual currencies in the spot forex listed above and can generate up to 500 to 1000 pips of forex trading profits in a single week of trading, if the market is trending on a lot of pairs.

Lets look at one more example using different pairs and currencies but the same logic.

If the        AUD/USD is rising
and the    USD/CAD  is falling

then the USD weakness is controlling and "driving" the movement of both pairs, the USD is weak.But if both of these pairs are rising the USD is not controlling the movement and the best pair to trade would be to buy the AUD/CAD. This is the same logic as the EUR/CHF examples above but this time we are using different pairs and currency groups.

Once again, each currency pair has two individual currencies, by looking at other currency pairs in the same groups of pairs you can quickly determine what is driving the movement. In the case if the AUD/USD and USD/CAD example they are either moving in he same direction or opposite directions, or on some trading days not at all.

In this example above the EUR/JPY has been dropping for several days based on some simple trend indicators like exponential moving averages. There is a link at the bottom of this article to a set of simple trend indicators like these. You can check several EUR pairs or several JPY pairs over the same time period on the x-axis and quickly determine if the downward movement on the EUR/JPY over this time period was based on EUR weakness or JPY strength, or possibly both.

If the EUR/CAD, EUR/GBP, EUR/USD and EUR/CHF are all falling over the same time period then EUR weakness is driving the movement over this cycle. If the GBP/JPY, CAD/JPY and AUD/JPY are all falling over the same time period, then the JPY strength is the reason that the EUR/JPY dropped. This is incredibly simple but ignored by almost all forex traders.

Next the EUR/JPY stalls at support, Point 1 on the example chart.  If it reverses back to the upside  at Point 1 once again checking a few pairs will quickly tell you if EUR strength or JPY weakness is driving the EUR/JPY back up.

Now apply this logic to any one of 28 currency pairs comprised of the eight major currencies. Almost immediately you will start to understand why currency pairs move. You will also start to get many more pips out of your trading using the basic individual currency movements. This forex market logic presents itself daily to forex traders but almost no forex traders notice. The forex indicators and systems available now to forex traders do not take this simple logic into account and these systems are all fundamentally flawed.

Using Parallel and Inverse Analysis to Analyze The Forex Market 

Now that we know the basics about parallel and inverse analysis lets move into some new concepts.When you analyze the forex market always analyze currency pairs as a group, by individual currency, not individually as a single pair. Currency pairs are not an island. Analyze all of the USD pairs together, then analyze all of the JPY pairs together, then analyze all of the CAD pairs together, etc. If you do this every day the trends of the market, oscillations and consolidation cycles will jump out at you right off of your charts and into your lap. If a particular group of pairs are all behaving the same way the market becomes a heck of a lot easier to trade. It is also very easy to spot choppiness or a more difficult market and you may consider not trading at all today, and with good reason. 

Getting forex traders to do it this way is nearly impossible. But it is imperative to analyze pairs carefully. Doing so will allow you make better decisions  as to when to trade and it will make a lot more sense as to why you should stay in your trades.  For example if you buy the AUD/CAD and the AUD/JPY and AUD/USD are also trending up its alot easier to make an effort to stay in the trade for a longer period of time based on overall AUD strength. This concept works for any pair and thats why the method is solid.

Here is an example of how to correctly use parallel and inverse analysis to analyze the condition of a particluar currency pair. For example if you would like to conduct an analysis of the USD/CHF, you would first conduct an analysis of several USD pairs using multiple time frame analysis. Conduct multiple time frame analysis of the USD/CHF then repeat the analysis on the EUR/USD and GBP/USD, at a minimum. You would be looking for consistent strength or weakness, trends, oscillations, or movement cycles in the USD. In the event that there is no agreement in the 3 USD pairs you could also conduct an analysis of the GBP/CHF and EUR/CHF looking for consistent trends and movement cycles based on CHF strength or weakness.

By analyzing the USD and then the CHF you have completed your analysis of the USD/CHF. Is this what forex traders do?? No they do not, but it works and it work on any pair any day the forex market is open. Then you would know for sure whether or not the USD/CHF is trending or oscillating and whether the reason was USD strength or weakness or CHF strength or weakness, then you have done the analysis correctly and thoroughly. Most forex traders will not do this and most forex traders are not thorough. They want something that is quick like forex robots or forex news trading and they subsequently lose money. But doing it this way is totally logical and starts to reduce or eliminate entry risk of forex trades.

How Currency Pairs are Constructed

This section is incredibly basic but almost every forex trader is completely blind to it. It is a major failing of almost every forex trader.

Most forex traders treat a currency pair like a single unit, or an island in the forex market. This is a huge error and almost every forex trader does this. They take a currency pair like the EUR/USD and treat it as a single thing, single object or single unit, which is a major and a massive mistake. This is not only a mistake but also a complete fallacy and a complete falsehood that leads to consistent failure.

The EUR/USD is composed of two individual currencies each with their own separate behavior, fundamentals, current condition, news releases,  and reasons for moving up and down. In order to analyze the EUR/USD you must analyze the EUR currency separately and the USD separately.

Look at it this way, which is confusing: 
                                                                     

EUR/USD

or look at it this way,  which is much more accurate
                                                                                                                   EUR                                                             USD


This visual should tell you how to think about separating the two currencies in any pair for individual analysis.

The EUR and USD are two separate currencies that can both be weak, both be strong, or both be moving in opposite directions at any time in a trading session or within the context of the current market trends. I have tried and hopefully succeeded in proving this so far and especially in the section about market analysis just above this section.

The sum of the parts equals the whole and 1 +1 equals 2 in the forex. The minute you start to treat the EUR/USD as a single unit you have failed before you ever enter your first demo trade. The minute you start to view the EUR/USD as two separate currencies and analyze each currency separately then you not only have a chance to succeed with forex trading, but pips will begin to fall in your lap with some information that is obvious and incredibly basic but completely overlooked by almost all forex traders.

Now you can apply this same logic to any currency pair, it works.

Individual Currency Strength and Weakness

Now that you know how a currency pair is constructed lets investigate further.

Almost all forex traders apply technical indicators to currency pairs, after you read this section of the article you may never do it again or you will at least wonder why you ever did it in the first place.  I have literally seen forex traders take every technical indicator off their computer and charting system after realizing that what you are about to read below is true.

Back to the EUR/USD again. If you buy the EUR/USD the only way it will rise is if the EUR as an individual currency is strong or the USD as an individual currency is weak or both. The best scenario is both because the EUR/USD will appreciate the fastest under these conditions. This is also true if you buy Euros with US dollars at a currency cashier or buy the EUR/USD online with US dollars. It works the same way.

Buying the EUR/USD implies buying the left (base) currency and selling an equivalent amount of the right (quote) currency to pay for the base currency. For example, buying EUR/USD means that you are buying Euros and using US dollars to make the buy, or selling US dollars.

This concept must be fully understood or your forex journey will be short and you will "blow up" account after account and not know why. Technical indicators do not take individual currency strength or weakness into consideration. They never have and they never will and we have difficulties seeing how any technical indicator could work at all except for scalping. Scalping is not trading, scalping is scalping, and there is not a forex trader alive who will admit that they enjoy it.

There are over 150 technical indicators and over 100 candlestick chart types available to forex traders. But indicators do not drive movement on a currency pair. The only thing that drives movement on a currency pair is the currency strength or weakness of the two individual currencies that are in the pair, that's it, that is all, nothing else. In this regard technical indicators are somewhat worthless because none of the 250 indicators can measure this. Technical indicators are applied to pairs not individual currencies, and that is the failure point.

An analogy is this, the only way a car can move is if you step on the gas pedal, this is what actually causes the car to move. Individual currency strength and weakness is the gas pedal for a currency pairs, this is what makes them move. Technical indicators do not make currency pairs move they just "indicate". Indicators are nothing more than drawings on your computer screen.

Since technical indicators are applied to currency pairs, not individual currencies, people who use them are 99% likely to fail. The failure rate of forex traders is incredibly high and now everyone can see why.

I strongly suggest that forex traders start using parallel and inverse analysis to analyze individual currency groups, and individual currency pairs. Traders can also use parallel and inverse analysis of individual currencies also at the point of trade entry in lieu of technical indicators. This is the entire method and rationale presented here.

The entire forex industry is "steeped" in technical indicators and forex robots based on these technical indicators and slowly forex traders are getting fed up with all of this and looking for viable alternatives with credible logic behind them.  These technical indicators originally migrated over from the stock market and stocks in no way behave like currency pairs nor are they constructed like currency pairs.

Trends in the Forex Market

An intermediate or longer term trend can be created by the day to day dynamics of the forex market. As an example lets say that the USD/JPY is consolidating sideways then starts an intermediate to long term uptrend and continues through that trend for a few weeks or a few months. 

Throughout the course of the trend the movement drivers could be the USD strength or the JPY weakness on a day to day basis because the market dynamics can change day by day. In between the movement cycles the pair consolidates or retraces.

Almost no forex trader can explain what a trend really is on the forex, even people who claim to be a trend trader.

This is because they do not understand parallel and inverse analysis. A trend on a currency pair is nothing more than a long series of continuous market dynamics on both sides of the pair that favors movement in one direction. In order for the USD/JPY to build a trend that lasts for several weeks either the USD must be weak or the JPY must be strong or both throughout most of the period. 

If you analyze the forex charts of other USD pairs or other JPY pairs during the period of time when the USD/JPY is trending at least one of those groups will be trending in the same direction. Parallel and inverse analysis wins again with obvious, simple and logical analysis. It wins every time because it is the logic behind the spot forex. Learn parallel and inverse analysis and you will learn to clearly identify and capture pips from forex trends.

This picture depicts a longer term uptrend on the EUR/JPY using simple trend indicators like exponential moving averages. The up trend forms off of the support. The black line represents the movement cycles and consolidation cycles on a conventional price chart like a bar chart, simplified with a black line chart. Each individual up cycle within the trend is either EUR strength or JPY weakness or both. Nothing else. Its that simple.


Remember that a  trend on a currency pair is a long series of movements and  market dynamics on both sides of the pair that favors movement in one direction. In this case each move off of support is EUR strength or JPY weakness. This works on all 28 pairs we follow.

Ranging and Choppy Markets

We just finished discussing what a trend is and what drives a trending market, currency pair or group of pairs,  now lets discuss a totally different type of market, a ranging or choppy forex market.

Once again parallel and inverse analysis comes to the rescue. You now have some new thoughts and ideas as to how to spot a choppy market or choppy group of pairs using parallel and inverse analysis methods.

Generally speaking a ranging market can take on two forms. Currency pairs ranging up and down in large oscillations that are easy to spot and trade. Or tight ranging choppy markets that are so difficult to trade that its best to walk away. In a tight ranging forex market the drivers (market dynamics) change almost daily. One day the AUD is strong the next day the CAD is weak and the next day the USD is strong, etc., and it just continues for days and days.  In a trending market the market dynamics change far less frequently. In a choppy market the individual currencies driving the movement change much more frequently or almost daily.  Or else the same group of pairs moves in different directions on consecutive days. Once again each currency pairs has two sides, so either side of the pair can be driving the movement. If you can identify what parallel and/or inverse group is driving the market you can successfully trade every day. When do the drivers market switch??? They switch drivers during the intra-day consolidations that generally occur after the main trading session and USD session are complete. 

If you are interested in buying or selling a particular currency pair and you read how to properly analyze the forex market you should be able spot a difficult to trade choppy market rapidly. If you conduct a multiple time frame analysis on the USD/CHF and you suspect it is choppy as evidences bu tight trading ranges down to the H1 and M30 time frames, immediately go to the other USD pairs and CHF pairs to confirm. If all of the USD pairs look the same or all of the CHF pairs look the same you have confirmed that that pair or group is choppy. You may still be able to trade another pair then check the USD/CHF again tomorrow.

If you are stuck analyzing and trading the same currency pair day after day without checking other pairs in the same individual currency families you will be ignorant of the market condition that exists on the same group of parallel and inverse pairs. This ignorance will result in stop out after stop out and you will never ascertain why the stop outs are occurring.

The reason you will be stopped out is a lack of market information which is clearly visible in a simple set of  forex charts and trend indicators that you simply have not checked. These charts are right there on your computer but you have not checked them. You must look at the market deeper.

Conversely identifying a trending market will become much easier as well by checking the parallel and inverse pairs. If the USD/CHF looks like its in an uptrend a quick check of the USD and CHF pairs will confirm the trend. Your trading confidence will skyrocket. This is why all forex traders should review the condition of as many currency pairs as possible in your day to day market analysis routine in the same parallel or inverse currency families that you are interested in trading. Using multiple time frame analysis and drilling down the time frames will unveil what is going on with the pairs you are interested in trading. Combining the multiple time frame analysis with parallel and inverse pairs becomes very powerful and  few, if any forex alert services utilize these analysis techniques.

You may not even trade some of the pairs you analyze but you will know what is going on in the market. As a trader that is your job, to know the condition of the market by examining the forex charts systematically to assist with your forex trading, entries, and trade planning. Identifying a choppy or trending market becomes much easier, and at some point, second nature.

Using Parallel and Inverse Analysis at the Point of Entry

Now that we know why pairs move and how to use parallel and inverse analysis to analyze the spot forex, we can now also apply this knowledge to trade entries.

The number one question forex traders have is "When do I enter??", quite naturally. Once again parallel and inverse analysis will solve this problem. Entry management with parallel and inverse analysis is another application. After you analyze the forex market and you write up your trading plan, you can then set your price alarms at critical areas of support and resistance across some key pairs. Exact instructions to do this are in my article on support and resistance and price alarms.

When the alarms go off parallel and inverse analysis can be used for accurate trade entry management. Forex traders need to know when to get in, when to stay out, and when to look at another pair. They need an entry management tool that verifies the trade entry, and here it is:

This visual map of the spot forex is called The Forex Heatmap® and it tells you which individual currencies are strong and weak in real time, it utilizes parallel and inverse analysis to tell a trader what pair to enter and in what direction across 28 pairs. Its basis is parallel and inverse analysis and individual currency strength and weakness.


Throughout the trading week sometimes you can get a “slingshot effect” when a currency pair has a dual driver, one individual currency is strong and the other is weak. Here is an example….If the EUR is strong across the board (all EUR pairs are green on the heatmap) and the USD is weak across the board, then the EUR/USD will “slingshot” and move higher at a much faster rate. A pair with the volatility level on like the EUR/USD will move  at least 150 pips under these conditions. Some of the GBP pairs can move 400 pips in one trading session. Trading with technical indicators is no longer necessary and after using a tool like this does not even seem to make sense anymore.

Summary and Conclusions

The vast majority of forex traders, almost all of them, don’t even know what parallel and inverse analysis is, much less understand it or use it daily in their forex market analysis or trade entries. I am asking all forex traders to become experts at parallel and inverse and use it to analyze the market and to verify your trade entries. 

Forex traders will never realize the real profits of the market until they become experts at parallel and inverse analysis, which drives the movement in the entire market every day. Technical indicators and the forex robots based on the same technical indicators proliferate the forex trading communities and cause a lot of grief and trading losses. Forex traders want and need alternatives that work to produce solid pips. Thorough knowledge of parallel and inverse analysis will permanently change the way you think about the forex and give you solid a rationale as to why currency pairs move.

Trading Oscillations on The Spot Forex

Introduction

When analyzing the spot forex across multiple time frames and drilling down the charts on a lot of different currency pairs sometimes you can spot currency pairs that are oscillating, or ranging between support and resistance, that can be easily traded. I have been telling forex traders for many years that:

“All currency pairs are either trending or oscillating”

Sometimes the market is not trending but it is oscillating or consolidating in a wide range and then at some point the pairs finally break out of their ranges and start to trend again.

Spotting forex pairs that are oscillating and planning trades for the oscillations is fairly easy. Here are some hand sketches of four different types of oscillations numbered 1, 2, 3 and 4 below.


1. Steady tops and bottoms hitting the same support and resistance

2. Increasing tops and bottoms

3. Decreasing tops and bottoms, and

4. Ragged oscillations, probably best not to trade these or be very careful.

The smooth oscillations shown in sketch 1-3 are much easier to trade.

Forex Oscillations and Time Frames

Remember once again that all currency pairs are trending or oscillating. After a long trending period when the forex market stalls it generally starts to oscillate.

Oscillations can be smooth and clear, trade-able cycles or ragged and choppy like sketch number 4 above. Look at the hand sketches of oscillations above. It is best to not trade a choppy currency pair oscillation like number 4, or be very careful.

Sketches 1, 2 and 3 are smooth oscillations, sketch number 4 is messy and choppy and on the spot forex it can actually be much worse than this illustration. Your goal is to identify the clear oscillations and only trade those for safety.

Example 1 has support and resistance areas that repeat. Examples 2 and 3 have increasing tops and bottoms and decreasing tops and bottoms, respectively.

Basically you just wait for one cycle to finish and wait for the next move in the opposite direction with oscillations. The timing of the trade entry ans cycles are now somewhat predictable. In the case of increasing tops and bottoms its better to wait for a down cycle to finish because if you buy it as it breaks to the upside off of support it could breakout of the oscillations to the upside at the top and start trending up.

In the case of decreasing tops and bottoms its better to wait for an up cycle to finish because if you sell it as it breaks to the downside off of resistance it could breakout of the oscillation to the downside at the bottom and start trending down. Entry points on oscillations are when a new cycle starts up or down when the red and green trend indicators are crossing.

Oscillations on the H4 and higher time frames are strongly recommended. Never trade oscillations on less than an H4 time frame, if you go to a time frame lower than this there is not enough pips to justify the entry and your money management ratio goes way wrong……or else do not trade at all. Actively looking for oscillations across alot of different pairs will result in a forex trader finding a lot of oscillations and potential trades on the H4 time frames and larger, especially in a non trending market.

Trading oscillations on the smaller time frames is not even necessary if you are looking at alot of different currency pairs. If you look across about 28 pairs the oscillations on the H4 time frames will be much more frequent, generating more trading scenarios and potential pips. Also eliminating the need for trading the smaller time frames.

The reason most forex traders move to the smaller time frames looking for oscillations to scalp is that they only follow one or two pairs so defaulting to the smallest time frames becomes a way of life as they seek to “manufacture a trade” or scalp the smallest time frames. At the same time H4 oscillations are clearly there on many other pairs in the eight major currency families if traders would just look for them they would find them frequently.

Volatility and Pip Ranges

Some pairs are not as volatile as others, so the ranges between the top and bottom of the oscillation cycles (amplitude) can be different on two different pairs on the same time frame. Amplitude is just the number of pips between the top and bottom of the oscillations cycles. This is the pip potential of each cycle to estimate your pip potential for the trade cycle and money management ratio. Amplitudes between different currency pairs are contrasted below.

Look at the illustration/sketch above. This is an H4 time frame oscillation cycle example with two exponential moving averages. How many pips will it move up and down??

The H4 oscillation cycle on a less volatile pair like the NZD/USD might only be 100 pips from the top to the bottom of the cycle. The H4 oscillation cycle on a much more volatile pair like the GBP/CHF might be 250 pips from the top to the bottom of the cycle, substantially more pip potential because the pair is more volatile.

On the higher time frame oscillations it could be hundreds or even over 1000 pips from top to bottom of the oscillation cycle. Know your pairs and know the difference so you know the pip potential of each move before you enter. If you move to even higher time frames the pip potential on oscillating pairs is huge and your money management ratio is excellent.

Combining Oscillations with Parallel and Inverse Analysis

If the USD/CHF is oscillating and the hitting support you can check the EUR/USD to see if it is oscillating and hitting resistance on the same time frame. This means that the USD is getting ready to strengthen and you have verified the trade with two different pairs.

This is entry verification and trade planning with two pairs, For more confident entries you can verify entries on pairs with up to 10 pairs using The Forex Heatmap® from Forexearlywarning.com

Here is a snapshot of The Forex Heatmap®, a real time visual map of the spot forex. On the USD/CHF and EUR/USD example you could set a buy alarm on the USD/CHF and when the alarm goes off check the Forex Heatmap® for USD strength and entry verification.

Up until now we have used hand sketches to illustrate our points. Now we will present a series of charts showing oscillations on the spot forex using two charting packages.

One charting package is the red and green light software which has a unique chart characteristic called a pacman, when you combine this with with parallel and inverse pair analysis it can easily confirm an oscillation on the next set of smaller time frames and you can plan your oscillation entries better.

When you see pacman on one of the larger time frames start to look for oscillations on the smaller time frames immediately to the left. Illustrations of “pacman” are below with more detailed explanation.  The second charting package is a set of exponential moving averages, which are available at no cost to any forex trader on the Forexearlywarning.com homepage and can be easily set up by any forex trader. The moving averages do not have a “pacman” type of chart pattern.

Now that we have described both charting packages we will present a picture of a pacman below on the red and green light software.

The pac-man on the left (1) has the green line on top. This means that the currency pair with the pac-man just moved up (in the direction of the green line) and should oscillate back down next on the smaller time frames to the left..

The pac-man on the right (2) has the green line on the bottom. This means that the currency pair with the pac-man just moved down (in the direction of the green line) and should oscillate back up next on the smaller time frames to the left. Pretty simple.

Now we will present a package of eight images below showing currency pairs oscillating on two different charting packages. Clearly, any forex trader who is willing to drill down the time-frames can spot a lot of pips in the forex looking for oscillations. The images are below.

Summary and Conclusions

When analyzing the forex charts across different pairs and drilling down the charts across multiple time frames you should always be looking for clear oscillations and potential trades if the forex market is not trending. Compare the oscillations you find with charts of other pairs in the the same individual currency families for confirmation. You can then prepare a forex trading plan and get solid entry verification from tools like The Forex Heatmap® from Forexearlywarning.com

The forex market is not always trending. If you combine trading oscillations with the pips you can make in a trending forex market across a lot of different pairs you will see that there are a lot of pips to be made in the forex market month after month and you can adapt to changing market conditions..