Month: January 2010

By Fast Brokers – The USD/JPY has strengthened towards our 1st tier downtrend line after U.S. Building Permits data showed an encouraging improvement.  Investors proceeded to snap up the Dollar across the board and sent gold tumbling.  Improvements in the U.S. economy have led investors to prefer the Dollar over the Yen considering recent Japanese economic data has left something to be desired.  Furthermore, investors should keep in mind that both the BoJ and Finance Ministry have reiterated their preference for a weaker Yen, implying the BoJ’s monetary policy should remain loose for quite some time.  Hence, more positive economic data streams from the U.S. could yield additional gains in the USD/JPY over the near-term. That being said, the U.S. will release weekly Unemployment Claims and the Philly Manufacturing Index tomorrow.  Meanwhile, attention will turn to China’s economic data set being released during tomorrow’s Asia trading session.  China’s economic data could increase volatility across the board considering the weight being placed on recent monetary policy action from the central bank.  Therefore, volatility could remain at a heightened state over the next 24 hours.

Technically speaking, the USD/JPY has multiple uptrend lines serving as technical cushions along with intraday and 1/19 lows and the highly psychological 90 level should it be tested.  As for the topside, the USD/JPY faces multiple downtrend lines along with 1/14 and 1/12 highs.

Present Price: 91.32

Resistances: 91.46, 91.63, 91.84, 92.04, 92.25, 92.46

Supports: 91.12, 90.91, 90.75, 90.54, 90.37, 90.24

Psychological: 90, January highs and lows

Market Commentary provided by Fast Brokers.

Disclaimer: FastBrokers’ market commentary is provided for information purposes only and under no circumstances should be regardedneither as an investment advice nor as a solicitation or an offer to sell/buy any financial product. FastBrokers assumes no responsibility or liability from gains or losses incurred by the information herein contained.

Risk Disclosure: There is a substantial risk of loss in trading futures and foreign exchange. Please carefully review all risk disclosure documents before opening an account as these financial instruments are not appropriate for all investors.

By Fast Brokers – The Cable has pulled back to our 1st tier uptrend line despite the continuation of strong economic data from the UK.  CPI came in much hotter than anticipated yesterday, indicating the BoE could have a tough time keeping such a dovish monetary policy stance considering how much weight the central bank places on inflation.  However, King tried to downplay the pop in CPI last night and this helped contain the Cable.  In addition to yesterday’s strong CPI, today’s CCC number came in much lower than analyst expectations, indicating the UK’s employment picture continues to improve.  The recent positive economic data from the UK has yielded an extensive relative strength in the Pound, highlighted by a collapse in the EUR/GBP.  Such optimism concerning the Pound could continue until we see Friday’s Retail Sales number.  However, the Euro’s rapid decline and concern regarding China’s tighter monetary policy stance has dragged down the risk trade, bringing the Cable along for the ride.  That being said, the Cable has held up relatively well and is still trading above all of our previous trend lines.  Meanwhile, attention will shift to the East with China’s GDP and Industrial Production data on deck.  It will be very interesting to see how investors react to this data set.  China’s recent hawkish monetary policy stance hints that the data will outperform.  Although, should China’s economic data come in much stronger than analyst expectations then investors may actually be turned off by the risk trade in the anticipation of even more hawkish liquidity measures from the central bank.  Investors will also digest UK CBI Industrial Order Expectations along with U.S. Unemployment Claims and the Philly Manufacturing Index.  Hence, volatility could remain at a heightened state for the next 24 hours.

Technically speaking, as we mentioned the Cable has held up very well considering the plight of the EUR/USD.  The Cable has held strong above our 4th tier uptrend line and still has multiple uptrend lines serving as technical cushions along with 1/15 and 1/13 lows.  As for the topside, the Cable faces multiple downtrend lines along with 1/15 and 1/19 highs.  Furthermore, the psychological 1.645 area could prove to be a technical barrier should it be tested.

Present Price: 1.6275

Supports: 1.6262, 1.6238, 1.6214, 1.6184, 1.6161, 1.6137

Resistances: 1.6303, 1.6318, 1.6340, 1.6360, 1.6379, 1.6407

Psychological: 1.60, 1.65, January highs and lows

Market Commentary provided by Fast Brokers.

Disclaimer: FastBrokers’ market commentary is provided for information purposes only and under no circumstances should be regardedneither as an investment advice nor as a solicitation or an offer to sell/buy any financial product. FastBrokers assumes no responsibility or liability from gains or losses incurred by the information herein contained.

Risk Disclosure: There is a substantial risk of loss in trading futures and foreign exchange. Please carefully review all risk disclosure documents before opening an account as these financial instruments are not appropriate for all investors.

By Fast Brokers – The EUR/USD is getting pummeled after the IMF’s Director joined the party in issuing a negative comment concerning the state of Greece’s economy.  Greece’s poor economic state is hammering the Euro, exemplified by a huge downturn in the EUR/GBP.  Furthermore, the setback in this week’s Economic Sentiment data wasn’t much help.  Meanwhile, China’s tighter monetary policy stance is worrying investors that this may have a discernable impact on global growth should the central bank continue its course.  During today’s U.S. trading session Building Permits registered an encouraging increase while inflation remained in a sedated state.  The bump up in Building Permits has yielded strength in the Dollar so far and gold has taken a step down.  Strength in the U.S. economy amid instability in the EU and tightening from China leads investors to favor the Dollar over its major crosses.  However, earnings have been negatively mixed thus far.  Should this earnings season disappoint this could stabilize the Dollar since investors would expect the Fed to maintain a loose monetary policy.  That being said, it seems currencies may continue to behave on their own fundamentals, particularly the Euro until the full ramifications of Greece’s debt problem is realized.  Attention will now turn to China’s GPD and Industrial Production data tomorrow.  China’s recent efforts to tighten liquidity imply strong economic data coming.  While one would expect this to have a positive impact on the risk trade, should China’s economic data far exceed expectations then investors may anticipate China’s tightening to pick up pace, a negative development for the risk trade.  Regardless, volatility could remain at a heightened state for the next 24 hours.  The EU will release its Flash PMI data set tomorrow.  Strong PMI data could help stem the bleeding in the Euro, whereas more weak economic data would likely place even more downward pressure on the currency.

Technically speaking, we’ve left our downtrend lines on the chart to give investors a clear picture in regards to the extent of the EUR/USD’s collapse.  The EUR/USD is also dragging below our current 1st tier uptrend line, which runs through August lows, or the 1.38 area.  Hence, there could be even more room to the downside over the near-term should the currency pair not hop back above this trend line soon.  In the meantime, the psychological 1.40 area could serve as a technical cushion should it be tested.  As for the topside, there are multiple downtrend lines we can form considering the pace of the EUR/USD’s pullback.  Hence, the road to recovery looks like an uphill battle.

Present Price: 1.4135

Resistances: 1.4146, 1.4165, 1.4191, 1.4224, 1.4247, 1.4274

Supports:  1.4112, 1.4084, 1.4065, 1.4046, 1.4023, 1.3999

Psychological: 1.40

Market Commentary provided by Fast Brokers.

Disclaimer: FastBrokers’ market commentary is provided for information purposes only and under no circumstances should be regardedneither as an investment advice nor as a solicitation or an offer to sell/buy any financial product. FastBrokers assumes no responsibility or liability from gains or losses incurred by the information herein contained.

Risk Disclosure: There is a substantial risk of loss in trading futures and foreign exchange. Please carefully review all risk disclosure documents before opening an account as these financial instruments are not appropriate for all investors.

Elliott Wave International’s latest free report puts 2010 into perspective like no other. The Most Important Investment Report You’ll Read in 2010 is a must-read for all independent-minded investors. The 13-page report is available for free download now. Learn more here.

By Nico Isaac

In the realm of market psychology, there’s a big difference between optimism and extreme optimism. The first is seeing the glass half full. The second is seeing the glass half full deep in the heart of a bone-dry desert. In finance, it’s what we call “Buying the Dip” mentality — when all outcomes, even losses, are cause for celebration.

We are there now.

To wit: With a new year upon us, the mainstream has already come up with a fresh tagline to define the next 360-or so days. It even rhymes: The Bull Runs Again In 2010. This projection is in no way “in spite of” the fact that the U.S. stock market just finished its first decade of negative returns since the Great Depression; it’s because of that fact.
See, according to the mainstream experts, this “Lost Decade” of abysmal stock performance (in which the Dow ended 9% in the red, the S&P 500 – 24%, and the NASDAQ Composite – 44%) is the very foundation on which a new bull market will apparently be born. One economic scholar recently coined the phenomenon the “Slingshot Effect” — the more severe the downturn, the faster the recovery. (Associated Press)

Adding to the upbeat chorus are these recent news items:

“The horrible decade has wiped out all the excesses of the previous two decades and put us back on track for more normal returns.” (USA Today) — AND — “It may be the best of all possible worlds.” (Business News)

Back in the late 1990s, when the “unstoppable” NASDAQ began to experience regular days of double-digit drops, it was “Buy-the-Dip.” Now, it’s “buy the entire lost decade.” And, as the Dec.31, 2009 Elliott Wave Financial Forecast Short Term Update reveals — current sentiment readings “continue to show that stock market bears have packed up and moved to Florida for the winter.”

The Dec. 31 Short Term Update also reveals two mind-blowing charts of the S&P 500 versus Investor Intelligence Advisors Survey Percentage of Bears — AND, the S&P 500 versus the percentage of “Fully Committed” bullish advisors since 2000. The current reading is the lowest bearish percentage in 22 years.

Take one look at the evidence, and you’ll see that a defining pattern emerges: Low levels of bearishness have consistently coincided with one kind of market move. Combine this picture with the other measures of investor sentiment like momentum, volume and Elliott wave structure, and the evidence tilts overwhelmingly in favor of an unforgettable year.

Elliott Wave International’s latest free report puts 2010 into perspective like no other. The Most Important Investment Report You’ll Read in 2010 is a must-read for all independent-minded investors. The 13-page report is available for free download now. Learn more here.

By Ashley Smith – The Australian and New Zealand Dollars continued their decline today on concern China will maintain its efforts to curb loan growth, reducing demand for higher yielding assets. Australia’s currency dropped to 91.37 U.S. cents from 92.32 cents in New York yesterday. The currency fell 0.9% to 82.97 Yen. New Zealand’s Dollar slid over 1% to 72.12 U.S. cents, and declined to 65.50 Yen.

The New Zealand Dollar also dropped versus all of its 15 most traded counterparts after the release a government report which showed consumer prices unexpectedly fell last quarter. New Zealand’s consumer prices slipped 0.2% in the fourth quarter, worse than expected result. The unexpected result reduced speculation the Central Bank will raise interest rates, dampening demand for the currency. Reserve Bank of New Zealand Governor Alan Bollard stated last month he intends to keep interest rates at a record low until the middle of this year to stimulate the economy.

Meanwhile, the AUD rose earlier to its strongest level versus the EUR on prolonged concerns regarding the financial problems in Greece. Greece’s fiscal crisis has been very detrimental for the EUR. Furthermore, Australian consumer confidence rose in January by the most in 6 months, adding to signs the nation’s economy is healthy enough for Central Bank Governor Stevens to resume interest rate increases their coming February meeting.

Forex Market Analysis provided by Forex Yard.

© 2006 by FxYard Ltd

Disclaimer: Trading Foreign Exchange carries a high level of risk and may not be suitable for all investors. There is a possibility that you could sustain a loss of all of your 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.

Source: ForexYard

The U.S. Dollar firmed against most major counterparts, with the gains especially strong against the EUR, amid continued worry about Greek debt and further signs that Germany’s economic recovery may be losing momentum.

Economic News

USD – The Dollar Turns Positive after TIC Data

The U.S. Dollar traded higher on Wednesday vs. the European currency as worries over Greece’s fiscal problems increased. The U.S currency has strengthened on optimism the U.S. recovery will outpace that of other nations, increasing demand for Dollar denominated assets. The Dollar appreciated against most of its major counterparts as the outlook for Europe’s economy discouraged demand for risk.

The U.S Dollar got a boost after Treasury data showed net capital inflows to U.S. assets rebounded in November. It was last up 0.6% at 91.21 yen well off an earlier 4 week low of 90.32 following news that Japan Airlines would file for bankruptcy protection from some $25 billion in debt.

The greenback also rose 0.7% against its Canadian counterpart to C$1.0325 after the Bank of Canada held rates steady and slightly lowered its growth outlook, saying a strong currency remains a risk to recovery.

EUR – EUR/USD Hits 4 Month Low on German Sentiment

Europe’s single currency declined to its weakest level in 4 months against the U.S Dollar on Wednesday as markets worried about a decline in German investor sentiment and Greece’s public finances. The EUR was trading below $1.43 its lowest level since Dec. 23 as the ZEW Center for European Economic Research said its index fell in January to 47.2 in its 4th consecutive drop.

The EUR also fell to its lowest level in 5 months against British Pound after Kraft Foods agreed to buy British chocolate-maker Cadbury Plc increasing demand for Pound. The single currency fell as far as 86.985 pence, its lowest since late August.
The EUR weakened vs. GBP as investors sold the common European currency on concern that Greece will struggle to contain its budget deficit.

The Pound extended gains today after a report showed U.K. inflation accelerated in December by the most since records began in 1997, fanning speculation the Bank of England will start considering when to raise Interest Rates. Analysts said that the GBP is being bought against the EUR as investors remain concerned over the region’s economic recovery. The Pound is benefiting from Greece’s fiscal crisis, and traders may see an acceleration of Sterling’s rally in the coming days.

JPY – The Yen Strengthens vs. Majors

The Yen gained against the U.S Dollar, hitting a 4-week high after Japan Airlines filed for bankruptcy protection as expected, owing more than $25 billion. Traders said the bankruptcy of JAL may lead to Yen repatriation as the company may have to liquidate some of its dollar-buying derivative contracts or repatriate overseas assets, helping the currency.

The Japanese Yen also advanced against the EUR and Australian Dollar after the People’s Bank of China guided its benchmark one-year bill yield to the highest level in 14 month as it seeks to curb record loan growth and prevent bubbles in the nation’s property and stock markets. Japan’s currency jumped 0.6% to 83.63 per Australian Dollar and was 0.3% higher at 129.65 per EUR, the lowest since Dec. 21.

Crude Oil – Crude Rises as U.S. stocks Rally

Crude Oil prices were trading higher for the first session in six on Tuesday, helped by a surge in U.S. stocks that offset a rise in the U.S. Dollar on concerns about European growth prospects. Wall Street gains boosted Crude prices as investors bet a Massachusetts Senate race could derail President Obama’s healthcare reform plan, which had been seen as a threat to profits in the key sector.

Last week, Oil prices fell nearly 6%, as forecasts of warmer weather dimmed the outlook for demand. A relatively high level of Oil supplies and decreased expectations that cold weather would require more heating fuel have also been weighing on Crude, analysts said. A stronger Dollar may also add some pressure to Oil prices, with the EUR falling to a 4-week low against the Dollar. Rise in the value of the Dollar often discourages investor interest in Dollar denominated commodities such as Crude Oil.

Technical News

EUR/USD

The hourly, 2 hour, 4 hour and 8 hour RSI are floating in the oversold territory while the daily and 4 hour charts’ Slow Stochastic exhibiting a bullish cross. Furthermore, there is a breach of the lower Bollinger Band evident on the 4 hour, 8 hour and daily charts. Going long for the day may be a good choice.

GBP/USD

The pair seems to be exhibiting some mixed signals. While the hourly and 2 hour RSI are floating in the oversold territory and a bullish cross is evident on the hourly Slow Stochastic, the daily RSI is floating near the overbought territory and the Slow Stochastic exhibiting a bearish cross. Waiting for a clearer direction may be advised today.

USD/JPY

A bearish cross is evident on the 4 hour Slow Stochastic with the 2 hour RSI floating in the overbought territory. Going short for the day may be advised.

USD/CHF

The hourly, 2 hour and 8 hour RSI are floating in the overbought territory with a bearish cross evident on the daily and 4 hour charts’ Slow Stochastic, a breach of the upper Bollinger Band is evident on the 4 hour and 8 hour charts. Going short on the day may be advised.

The Wild Card

GBP/NZD

A breach of the upper Bollinger Band is evident on the 2 hour and 4 hour charts while the RSI is floating in the oversold territory on the hourly chart. Furthermore, a bearish cross is evident is evident on the 2 hour and daily charts. Forex traders are advised to go short for the day to take advantage of the impending correction.

Forex Market Analysis provided by Forex Yard.

© 2006 by FxYard Ltd

Disclaimer: Trading Foreign Exchange carries a high level of risk and may not be suitable for all investors. There is a possibility that you could sustain a loss of all of your 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.

Another trading week started with gains yesterday, as the major U.S stock indices retraced all of Friday’s losses. Even though the financial sector weighed on the intraday session at start, due to a worse than expected report from Citigroup, investors looked past the report and drove the indices to higher ground.

On Tuesday, Citigroup posted a $7.6 billion loss for the last three months of 2009. According to the Los Angeles Times, this was the first loss since 2008.Even though Wall Street seems to be ignoring what is happening on Main Street; the Commercial bank’s report showed investors that the banking sector is still severely bruised and is still dealing with the economic recovery. Even J.P Morgan Chase Inc. which reported a profit last week still had losses in its retail lending and credit-card operations.

While the financial sector is still toying with the economic recovery, other sectors seem to be leading the indices higher. Healthcare was the leading sector of the day, closing with a gain of 2.42%. The S&P500 finished the session around its highs of the day after bouncing off minor support.

Forex

Similar to the equity session, the Forex market presented participants with an interesting intraday session, as the Euro plunged to a new 4 month low. The weak Euro had an effect on all the Euro crosses, sending them lower.

Economic data was the catalyst this time round, as German ZEW economic sentiment disappointed investors. The result came out under the expected 50 mark at 47.2, while the ZEW economic sentiment figure dropped to 46.40 points. According to the ZEW president Franz, “the way out of the recession is burdensome and long.

From a technical point of view, the EUR/USD now seems to be heading south but could find support on its upcoming technical support level around $1.4050. The EUR/GBP also continued lower yesterday, after breaking trend line support. This pair was influence by data from the Euro-zone and inflation data from the U.K.

According to the numbers, the price of goods and services in England continued to gain ground and jumped to 2.9%, way above the BOE’s comfort level of 2%. Economists were expecting a 2.6% figure after last month’s 1.9%. The core figure which excludes food and energy soared to a whopping 2.8%. Recent comments from the BOE have stated that inflation should increase to around 3% before coming down to tolerate levels.

Over in Canada the BOC maintained its overnight rate target at 0.25%. Even though the Bank acknowledged the recent recovery, officials decided to continue their QE program and leave their central rate around current levels until June. The Bank revised down their 2010 GDP forecast from 3% to 2.9% and mentioned that inflation shouldn’t be much of a problem.

Economic Data to Watch Out For

The U.K will take the spot light during morning hours today, and is scheduled to release its unemployment rate and MPC meeting minutes. According to economists the unemployment rate is expected to reach a high of 8%. Throughout the session, Canada and the U.S will take the stage. Canada will release its CPI figure, while the U.S is scheduled to release a wave of data including; housing starts, core PPI and building permits.

Daily Forex Market Analysis provided by eToro

Disclaimer: Trading in the Foreign Exchange market might carry potential rewards, but also potential risks. You must be aware of the risks and are willing to accept them in order to trade in the foreign exchange market. Don’t trade with money you can’t afford to lose.

© 2009 eToro Blog.

Crude Oil dropped over $6 lately, and reached as low $77.02 a barrel. Just when it seemed that Crude oil is about to drop further, possibly towards the $70 level, the bearish move was halted. Will crude continue to drop, or is a bullish correction impending?

• The chart below is the Crude Oil 1-day chart by ForexYard.
• The technical indicators used are the Bollinger Bands, the Slow Stochastic, the MACD/OsMA and the Relative Strength Index (RSI). The Fibonacci Retracement lines were used as well.
• There is a very distinct doji candle on the chart, which indicates the lowest price crude oil reached recently.
• Such a doji usually indicates that a correction is on it way.
• The Slow Stochastic provides a bullish cross, also indicating that the momentum is now bullish.
• The next resistant level is placed at the $79.50 level. If this level will be breached, a sharp upward move could take place, with potential to reach the $84.00 level.
• HOWEVER, if the bullish move will fail to reach the resistance level, it could drop all the way down to the 61.8% line, which is located at the $76.70 level.

Crude Oil 1-Day Chart

By Chris Donnell – Just what is meant by support and resistance? Support and resistance are price points in the market where momentum and/or movement may decrease, halt, or change direction. It is a major component of many currency traders Forex Strategy.

We should give a definition of these terms for those with little experience in forex trading.

Support is a section where the price or the exchange rate movement or momentum could possibly stall, stop, or reverse direction in a down-trending market.

Resistance is a section where the price or the exchange rate movement or momentum could possibly stall, stop, or reverse direction in an up-trending market.

Movement denotes the direction the exchange rate is headed.

Momentum signifies how quickly the exchange rate is going in a given direction.

What are normal areas where support or resistance is found?

A number of classifications are considered, such as: price extremes, trend lines, psychological areas, Fibonacci areas, and pivots.

We will first look at price extremes. One form of price extreme is the statistically anticipated top or bottom of movement during a specified time period. Bollinger bands, containment bands, and range projections are examples of price extremes in currency trading. In each of these examples, forex systems utilize mathematical formulas to anticipate the total movement in the market based upon historical data.

Another group of price extremes are the daily, weekly, and monthly highs and lows. That is, when the price is reaching the previous week’s high, several buy and sell orders are put in there, affecting market activity when it is nearing that general vicinity. Movement or momentum will probably stall, slow, or reverse as it nears that weekly high. These sections may further be utilized as trend indicators, but that will be the subject of a separate writing.

At this point, we will look at trend lines. A trend line is created by a succession of bars highs or lows. Whenever the trend line is breached, it may be a sign to either enter or exit a trade. Such a time may further denote a section of support and resistance. Trend lines may be drawn to describe any time period of interest. Traders will consider these on monthly or weekly charts to determine sectors they feel will define support or resistance. Trend lines depicting a longer time frame, such as monthly, will depict a more probable support or resistance than those showing a minute-by-minute chart.

Psychological areas are normally reflected by whole and half numbers. For instance, should the exchange rate for the EURUSD by 1.2500, it would be said that it is a whole number. In this example, a half number would be 1.2550. These are positions of support or resistance as it is likely that many buy and sell orders would be given to a forex broker at these points.

In addition, Fibonacci levels are believed to indicate support and resistance. Why is that? This is due to the fact that many professional traders analyze them. And these professional traders may have orders of such magnitude that they are capable of moving the market. These levels may be further described as Fibonacci retracement areas, .38, .50, l62, or Fibonacci extensions, 1.48, 1.62, or 2.00. The market will generally not move beyond the 1.62 extension.

Pivots are price averages calculated on historical data. The calculated daily, weekly, and monthly pivots are used by traders to make decisions. Again, the monthly pivot will more probably reflect an area of support or resistance than the daily pivot. A discussion of pivots is too long to be adequately dealt with here, so you should read additional articles, watch other videos, and choose pivot options on your charts to observe price action in these areas.

Notice that the word “area” was selected. Support or resistance is generally not defined by a certain price. It is instead a general area surrounding that price.

Channels, trading zones, and clusters are additional concepts of support or resistance which we will address in separate writings. In addition, we will cover the theory of “Once broken, support changes into resistance and resistance changes into support.”

This writing must not be thought of or considered as investment advice. Instead, it is intended only as informational material to assist in prompting your consideration of your manner of trading.

About the Author

Chris Donnell is CEO of LeverageFX.com. We create cutting edge Forex Trading Software and Systems.

By David Adams

Day Trading With the Stochastic Indicator Momentum.

If you look at the way I trade, you will find momentum is the key difference in my trading style and the chart traders or the pure oscillator traders, and the stochastic indicator is an accurate momentum indicator. I would not put the stochastic indicator in a class of oscillator that is sufficient to day trade as a single indicator system. It is a wonderful indicator to have in your day trading arsenal to confirm trades and glean information, which is exactly how I use the indicator.

In a pure sense, the stochastic indicator is a classic momentum indicator. The mathematical formula for the Stochastic indicator is as follows:

%K = 100[(C – L14)/(H14 – L14)]

L14 = the low of the 14 previous trading sessions %D = 3-period moving average of %K C = the most recent closing price H14 = the highest price traded during the same 14-day period.

Even a cursory review of the formula leads us to the conclusion that the stochastic indicator is comparing the current price and the high and lows, the range, throughout a 14 day period. It should be noted that a day trader can set the length of time for the indicator, and a setting of 14 periods is very common. I have experimented with several different numbers, with mixed success. The charting period I trade in is 3 minutes on the ES emini, but it could be hours, day or months. As an emini scalper, I trade the shortest term trend in the market, but this indicator is often used for longer term trading. It is a versatile trading indicator and can be adapted for a several different trading periods, if necessary.

Most traders will recognize the stochastic indicator configuration on the chart, as it uses the traditional crossing line format. When the two lines cross (called %D and %K) a trade is indicated. Long crosses and short crosses are determined by which line is topping the oscillator. If the short line, usually a red line on most charts, crosses thru the long lines, which is usually blue, it indicates a short trade. The exact opposite is true of long trades, when the blue line crosses through the red line, the short trade line, a long trade is indicated. Like nearly every non-linear oscillator, the stochastic indicator will whipshaw you to tears if you are trading it alone, in and out of day trades, when the market is in a consolidating mode, and I strongly warn against trading it as a single indicator.

In some of the previous articles I have written, I point out the notion of divergence as the stuff of gold. If the stochastic indicator is moving in the opposite direction of the market price action, you know the trend is losing some steam, at least temporarily. Obviously, if you are in a trade and the stochastic indicator diverges from the direction your trade, you would seriously consider exiting the trade or, at the very least, be prepared to exit the trade.

The stochastic indicator was developed in the mid-1950s by Dr. George Lane and it remains a popular indicator to this day. The indicator comes in 3 flavors, called the fast, slow, or full. I prefer the slow stochastic, as I find it does not bump me around as much. But the fast and full stochastic indicators have applications for day trading, and traders have flocked to all three versions of the stochastic in droves.

What makes the stochastic indicator so popular?

The stochastic indicator is reasonably reliable, and easy to use. I think the indicator imparts a wealth of information about momentum in the chart, up or down, and traders are naturally drawn to such an easy indicator to read. The trade entries are easy to spot, and a quick glance at the chart can give you a snapshot of what is really occurring in the market with the emini contract you are examining. The stochastic indicator is easy to use, understand, and implement into even the newest traders mind. That being said, it is still difficult to qualify the stochastic indicator as a primary trading tool. It tends to whip you in and our of trades in consolidating markets. I would recommend putting the stochastic indicator on your chart and see if it behaves in a way that is favorable for your trading style. You might like it.

About the Author

You can learn to trade from a 15 year veteran trader, not a salesmen. This program comes with a lifetime mentoring program and an educational package that is second to none. Additionally, the trading system is time tested and has been in use more than ten years. You can get your free emini starter pack (valued at $500) by going to Click here for your free trading pack at Trading Concepts, Inc