Contact us

We always welcome your questions and suggestions on the mail: tegra.adsens.20502050@gmail.com

Order Flow Trader With Technical Analysis

Time For Techs

The main advantage of developing a solid understanding of technical analysis is that it helps traders to build a context for understanding the movements of price on the charts. Once traders have learned to properly identify elements such as trend lines, support & resistance and basic chart patterns it can seem as though as light has been switched on as a whole new landscape is illuminated.

However, despite becoming very adept at identifying the various elements of technical analysis on their charts, many traders lack the ability to define a trade based on their work and are even less confident in pulling the trigger as it were. This is where it can really help to build a filter into your trading arsenal.

Order Flow trader can work as a great filter in these scenarios whereby technical analysis highlights the likely path of price, but the trader lacks a clear entry point. As Order Flow trader highlights when the underlying market flows has turned bullish or bearish it can help to give traders a specific entry point based on their technical analysis.

Using Order Flow Trader

Lets look at some examples of Order Flow trader at work with classic technical analysis.

In the example above we can see that after breaking down through the rising trend line, GBPNZD started to grind lower in quite a clear bearish channel formation. Upon breaking down through the last key support level in the move up, price then retraced to retest the underside of this broken support level. Price failed to reclaim this level and started to roll over once more and as it did we can see that Order Flow trader gave a sell signal.

So what we have here is price retesting a key resistance level (first broken support as the trend changes) and as price fails to climb back above, Order Flow Trader tells us that the underlying market flow has gone negative, giving us our entry.

Tracking the movement of price we can see that each time we bounce and form a new support level on the way down, we then break down through the level and come back up to retest the underside of the broken support (now resistance) and as we roll-over from the retest we get an Order Flow sell signal confirming that the underlying flow is negative taking price lower.

Order FLow 2

In the example above we have a typical rising wedge channel formation. The upper line is in place after we join the first two highs and similarly the lower line is in place after we join tow lows. We then look to fade moves into the channel lines using Order Flow Trader to confirm our entries.

We can see that as price tests the upper channel line for the 3rd time, we get an Order Flow sell signal allowing us to trade price back down into the range. Again, as price retests the upper line for the 4th time we get another Order Flow sell signal as price again falls back into the range.

Now crucially, look what happens as price tests the lower line for the 3rd time, we actually break down through the line (overshoot) before price bounces and trades higher into the range once again. Notice that we don’t get an Order Flow sell signal until after price bounced having first broken through the lower line. If we had simply traded a touch of the level we likely would have been stopped out, but using Order Flow Trader for confirmation not only kept us out of a losing trade but actually gave us entry to the bounce once it materialised.

Finally we see price makes a 6th touch of the upper trend line and again we get an Order Flow Trader sell signal allowing us to profit from the move lower.

Now as you can see, the 5th touch of the upper trend line hasn’t been included. The reason for this is simple risk reward: if our strategy is looking to fade moves into the channel trend lines then we want to take Order Flow signals as close to the trend lines as possible to allow us the most room for profit as price trades back to the opposite trend line. Notice that on the 5th touch of the upper line, price had sold off more than half the range before we got an Order Flow signal, so this is a signal we would avoid taking as the risk:reward is not in our favour.

In the above example we can see a classic double bottom formation. As price bounces from a test of the double bottom support level we get an Order Flow buy signal confirming the move higher and indeed, as price travels higher from the level we can see that we get further Order Flow buy signals offering opportunities to re-enter or to add to existing positions.

Keys To Using Order Flow With Technical Analysis

The problem that a lot of traders have with a system or method of trading is 1) in looking for a 100% hit rate “holy grail” type system and 2) in looking to trade every set-up identified.

There will be times when Order Flow signals in line with technical analysis set-ups fail, as with all systems. The key is to manage risk and ensure that no one loss creates any meaningful disruption to your P&L. This links in with the second point. There will be times when a set-up, although valid, is not ideal and shouldn’t be taken. We saw in second example above a trade I highlighted that I would not have taken because although similar to the other trades that set up in that series of trades, the risk:reward was not as favourable. We also saw highlighted how using Order Flow signals can help keep you out of losing trades, even where the analysis is good.

The best way to use Order Flow signals in combination with technical analysis is to take only the best set-ups where the signals are perfectly in sync with the levels and the risk:reward is favourable. There is plenty of opportunity in the markets on a daily basis and learning to restrict yourself to taking only the best set-ups will hugely benefit your trading.

Mental Stops or Automatic Stops?

Mental stops call for greater maturity and finesse than automatic stops. Mental stops in the wrong hands is a very dangerous weapon. For instance, some currency pairs can sprint 200-300 pips in the blink of an eye, and an inexperienced trader who tries to replicate such a method without the required mindset and/or experience will very quickly learn some extremely harsh lessons.

To summarize, while it's important to see stops as a measure of risk control, it's different than controlling the risk by sizing the position or even managing an open position. Many people believe that knowing where to place protective stops constitutes money management, perhaps because of lack of information or unwillingness to delve into issues related to managing risk.

Although stops are an indispensable tool to protect our capital, the placement of stops is just a part of risk management. If a trader applies, for example, a stop loss of 200 pips on each of his positions he is pursuing a strategy that is absolutely not related to his total available capital or equity: you can not categorize that measure as money management.

What Is a Mental Stop Loss?

Normally when you set a stop loss you place it on your platform where your broker can see it. A mental stop loss is a stop loss, that you do not actually set on your platform to automatically close your trade.

Imagine you enter long on GBP/JPY at the 145.00 level. The way I trade, the maximum amount of pips you want to risk is 50. You can either set a stop loss that automatically closes you out at 144.50 or you could use a mental stop loss. However, with a mental stop you have to be there to monitor the trade because instead of setting an actual stop on the platform you will set an alarm to ring where you have set you mental stop loss. When your alarm rings you go back to the computer and monitor the trade closely so you can decide whether or not closing out is a good idea.

Setting a Mental Stop

There are a few things you have to do.

1. Figure out what you plan to risk on the trade

2. If you’re not going to be monitoring closely set a price alarm about 10 pips before your max risk level.

That is pretty much it. You want the price alarm to ring a little before the level is reached. If it’s moving down fast you do not want it to fly right past your max risk level. Obviously, the amount of pips between your max risk level and your price alarm is dependent on your situation. If you’re going to be in bed you would likely need more warning. If instead you’re going to be surfing YouTube you need less of a warning.

If you are going to be watching your trade like a hawk the alarm is obviously not needed.

Are Mental Stops for you?

I think mental stops can give intermediate and advanced traders an advantage in their trading. Using mental stops allows you to better manage your trades. Inevitably, there are times the price will move against your trade. However, everything clearly indicates that it is a temporary set back and you know it will likely move back in your direction. At times like this, if you have a set stop loss you will be taken out automatically. If you’re using a mental stop loss you can stay in the trade and allow it to move back in your direction. Of course, this could also work against you as I will discuss next.

If you’re a newbie trader, mental stop losses could be a hindrance. I think you need to be at a certain level before you begin using mental stop losses. You need to be able to properly read the market. If you cannot read the price action, and anticipate what will happen next, you are better off with solid stop losses. However, there is something you can do to expedite the learning process so you can begin benefiting from mental stops too. I will discuss that a little later though.

 Benefits of Mental Stops

Mental stop losses allow you to think before the trade is closed. I have always maintained that the more a trader uses their brain in their trading the better off they will be. On the other hand, the more they rely on their computer to do their work for them the worse off they’ll be. Computers (at least your standard PC or laptop) do not have the ability to read price action and weigh risks. When you give a computer a task it carries it out blindly and without question.

When you set an auto stop, your computer will close you out if the stop is reached. It will not look at price action and consider keeping the trade open because it anticipates the drawdown to be temporary. You, however, can take several factors into consideration and decide to keep the trade open. In the long run, this can save you a lot of pips.

So using mental stops can:

1. Save you from being stopped out of a good trade

2. Protect against stop hunting. Yes some brokers do stop hunt but if your stoploss is mental they cannot hunt it.

3. Allows you to properly think through whether or not it’s time to exit a trade.

At times I will have a trade break a S+R line, and then move against me. For example, a new report can be released that pushes the price against me temporarily. On some of these trades, I can tell by looking at price action that it will likely head back in my direction. If my stop loss is mental I have time to analyse the market and decide whether or not keeping the position open is viable.

 Drawbacks of Mental Stops

The drawbacks of mental stop losses are obvious. There will be times when you will lose more than your max risk on the trade. Your mental stop loss could be hit and you may decide to stay in as you believe it is only temporary drawdown. However, the price can keep moving against you. I consider myself an advanced trader and this still happens to me. It cannot be avoided but overall mental stops save me more pips than they cost me.

This is why I suggest only intermediate to advanced traders use mental stop losses. You have to be able to:

1. Handle losses: If you cannot handle losing you may just stay in as it moves further and further against you. You have to have the psychological experience to be able to cut a bad trade lose.

2. Read price action: If you cannot read price action yet you should not use mental stop losses. The ability to read price action is essential to using mental stops. The concept of mental stops is based entirely on the trader’s ability to judge whether or not the drawdown is temporary.

If you’re a newbie please steer clear of mental stops. Set auto stops until you learn to handle losses and read price action. Being able to read price action is something that grows with experience so just be patient and keep trading.

Privacy Policy

Personal identification information

We may collect personally identification information from Users in a variety of ways, including, but not limited to, when Users visit our site, fill out a form, and in connection with other activities, services, features or resources we make available on our Site. Users may be asked for, as appropriate, name, email address. Users may, however, visit our Site anonymously. We will collect personal identification information from Users only if they voluntarily submit such information to us. Users can always refuse to supply personally identification information, except that it may prevent them from engaging in certain Site related activities.

Non-personal identification information

We may collect non-personal identification information about Users whenever they interact with our Site. Non-personal identification information may include the browser name, the type of computer and technical information about Users means of connection to our Site, such as the operating system and the Internet service providers utilized and other similar information.

Web browser cookies

Our Site may use “cookies” to enhance User experience. User’s web browser places cookies on their hard drive for record-keeping purposes and sometimes to track information about them. User may choose to set their web browser to refuse cookies, or to alert you when cookies are being sent. If they do so, note that some parts of the Site may not function properly.

How we use collected information

www.fahmnyonline.com collects and uses Users personal information for the following purposes:

- To personalize user experience We may use information in the aggregate to understand how our Users as a group use the services and resources provided on our Site. - To improve our Site We continually strive to improve our website offerings based on the information and feedback we receive from you. - To improve customer service Your information helps us to more effectively respond to your customer service requests and support needs.

How we protect your information

We adopt appropriate data collection, storage and processing practices and security measures to protect against unauthorized access, alteration, disclosure or destruction of your personal information, username, password, transaction information and data stored on our Site.

Sharing your personal information

We do not sell, trade, or rent Users personal identification information to others. We may share generic aggregated demographic information not linked to any personal identification information regarding visitors and users with our business partners, trusted affiliates and advertisers for the purposes outlined above.

Third party websites

Users may find advertising or other content on our Site that link to the sites and services of our partners, suppliers, advertisers, sponsors, licensors and other third parties. We do not control the content or links that appear on these sites and are not responsible for the practices employed by websites linked to or from our Site. In addition, these sites or services, including their content and links, may be constantly changing. These sites and services may have their own privacy policies and customer service policies. Browsing and interaction on any other website, including websites which have a link to our Site, is subject to that website’s own terms and policies.

Advertising

Ads appearing on our site may be delivered to Users by advertising partners, who may set cookies. These cookies allow the ad server to recognize your computer each time they send you an online advertisement to compile non personal identification information about you or others who use your computer. This information allows ad networks to, among other things, deliver targeted advertisements that they believe will be of most interest to you. This privacy policy does not cover the use of cookies by any advertisers.

Google Adsense

Some of the ads may be served by Google. Google’s use of the DART cookie enables it to serve ads to Users based on their visit to our Site and other sites on the Internet. DART uses “non personally identifiable information” and does NOT track personal information about you, such as your name, email address, physical address, etc. You may opt out of the use of the DART cookie by visiting the Google ad and content network privacy policy at http://www.google.com/privacy_ads.html

Compliance with children’s online privacy protection act

Protecting the privacy of the very young is especially important. For that reason, we never collect or maintain information at our Site from those we actually know are under 13, and no part of our website is structured to attract anyone under 13.

Changes to this privacy policy

www.fahmnyonline.com  has the discretion to update this privacy policy at any time. When we do, we will revise the updated date at the bottom of this page. We encourage Users to frequently check this page for any changes to stay informed about how we are helping to protect the personal information we collect. You acknowledge and agree that it is your responsibility to review this privacy policy periodically and become aware of modifications.

Your acceptance of these terms

By using this Site, you signify your acceptance of this policy. If you do not agree to this policy, please do not use our Site. Your continued use of the Site following the posting of changes to this policy will be deemed your acceptance of those changes.

Introduction to Pivot Points

Pivot Points, one of the basic and most important technical tools and the important one, is in the was used long before the era of computerized trading. The mathematical calculation of various support and resistance levels, based on the high, the low and the closing prices of the previous period, was initially used by floor traders in order to trade efficiently. The indicator was strong enough to be considered for included in technical analysis, resulting it to be and as a result you can find it present in the majority of trading platform. The basic use purpose of Pivot Points (PP) is to determine the important support and resistance levels. It is also used to determine market sentiment: as during the trending market,when the market is trending prices would will fluctuate from support PP to resistance PP, while in times of whereas when the market is directionless or ranging market, prices usually fluctuate around two PPs until a breakout happens. If prices are trading above the pivot point it is considered to carry bullish sentiment, while trading below the pivot point usually suggests indicates bearish sentiment. Moreover, Pivot Points are also an important technical tool for placing trade orders.

Calculation

Although there are several methods for calculating Pivot Points, the most common of them is the Standard Pivot Point system. It uses the simple arithmetic average of the high, the low and the closing prices of the previous trading period in order to determine the Pivot Point, i.e. the very base for calculating various support (S) and resistance (R) levels. Daily PPs are usually calculated based on the New York closing time, i.e. 16.00 EST (22.00 CEST).

Pivot point (PP) = (High + Low + Close) / 3

First resistance (R1) = (2 x PP) – Low

First support (S1) = (2 x PP) - High

Second level of support and resistance:

Second resistance (R2) = PP + (High - Low)

Second support (S2) = PP - (High - Low)

Third level of support and resistance:

Third resistance (R3) = High + 2(PP - Low)

Third support (S3) = Low - 2(High - PP)

Types of Pivot Points

This mathematical calculation applies only to Standard PPs.. With the invention of computerized trading a lot of other PPs have been developed to assist traders:

Standard PP indicators: The very basic Pivot Point calculation starts with the Standard PP Indicators that are identical to the ones described above. These Pivot Points are the corner stone for the rest of the PP calculations. Even though the Standard PP is very helpful, it still has its own limitations as it is a mathematical calculation that sometimes misses the important support and resistance levels. In the example below, we can see six potential Standard PPs plotted on a EURUSD H1 chart.

Fibonacci PPs: Fibonacci Pivot Points are an extension of the standard PPs where Fibonacci multiples of the high-low differential are considered to form various support (S) and resistance (R) levels. You can calculate the Fibonacci PPs in the following way:

Pivot Point (PP) = (High + Low + Close)/3

Support 1 (S1) = P - {.382 * (High - Low)

Support 2 (S2) = P - {.618 * (High - Low)

Support 3 (S3) = P - {1 * (High - Low)

Resistance 1 (R1) = P + {.382 * (High - Low)

Resistance 2 (R2) = P + {.618 * (High - Low)

Resistance 3 (R3) = P + {1 * (High - Low)

In the example below, we can see six potential Fibonacci PPs plotted on a EURUSD H1 chart. Even though the Fibonacci levels are blend with Pivot Points, these Fibonacci PPs are unable to mark all the important support and resistance levels.

Hourly PP: These pivot levels are accurate enough for smaller time frames and can help traders capitalize on the little movements of the pair. Hence, Hourly Pivot Points are mainly used for Scalping. The Basic Calculations are as simple as the standard time frame but in this case the high, the low and the closing prices of the previous hour are considered in plotting various support and resistance points. In the example below, we can see six potential Hourly PPs plotted on a EURUSD M15 chart. We can see that major supports and resistances took place near the Hourly PPs, which proves the importance of this indicator. Due to the perfection in smaller timeframes, these PPs become less helpful while plotting on higher time frames (Daily, Weekly, Monthly, etc).

WOODIE Pivot Point: While all the mentioned PPs consider only the high, the low and the closing prices for calculation, Woodie Pivot Points consider all the four indicators for movement: open, high, low and closing prices. High and low prices usually show the extreme moods of traders and hence fail to mark the important levels. Open and closing prices are considered to represent traders’ intentions more accurately, which makes Woodie Pivot Point popular among traders. The following EURUSD M15 chart describes major support and resistance levels covered by the Woodie PP. Despite all the advantages, the simplicity of the Woodie PP makes it less famous than, for example, Camarilla or Murray Math PP. In addition to that the Woodie PP doesn’t propose any strategy as other advanced PP do, which also makes it less useful for big banks and professional traders. 

Murrey Math PP: One more technical indicator based on the Pivot Point is Murrey Math. It tackles with a lot of limitations of Standard, Hourly and Fibonacci PPs. and is widely used by professional traders and big banks. The indicator is divided into eight lines that mark multiple support and resistance levels. It also mentions the major reversing point (Line 4/4) and the Ultimate Support and Ultimate Resistance lines (line 0/8 and line 8/8 respectively). As you can notice on a EURUSD M15 chart below, the major support and resistance levels are covered by the Murrey Math PP. The indicator divides the chart in nine equidistant lines, from the bottom are at the levels 0/8, 1/8, 2/8, 3/8, 4/8, 5/8, 6/8, 7/8 and 8/8. The mentioned PP lines can indicate when to go long/short as well as important stop-loss and take profit points.

Camarilla: Camarilla is one more advanced PP indicator which helps traders in Scalping and Day trading. It is also one of the renowned technical indicators for professional traders at big financial institutions and banks. It is a price-based indicator for defining the trading levels. Each point calls for specific actions and hence becomes different from the rest of the PPs. The mentioned PP lines can indicate when to go long/short as well as where important stop-loss and take profit points are. You can calculate various levels with Camilla Technical Indicator in the following way:

H5 = (High/Low) × Close

H4 = Close + RANGE × 1.1/2

H3 = Close + RANGE × 1.1/4

L3 = Close – RANGE × 1.1/4

L4 = Close – RANGE × 1.1/2

L5 = Close – (H5 – Close)

The following H1 EURUSD chart describes how Camarilla marked the important support and resistance levels together proposing important trading strategies.

How to Use Fibonacci Expansions

A concept I always teach is the importance of using support and resistance levels to decide when to get out of positions. Just like getting a good entry is important for a successful trade, you must also ensure you are exiting your trades at levels that maximize your gains. This article aims to assist traders in finding profit maximizing exit levels using Fibonacci Expansions.

What are Fibonacci Expansions?

Fibonacci Expansions are price levels created by tracking a price’s primary move and its retracement. The resulting price levels are then drawn on the chart in an area that would normally be difficult to gauge support and resistance using ordinary charting tools. This makes Fibonacci Expansion especially useful for picking profit targets when trading trends.

When faced with an upward trending currency pair, there are going to be times when price temporarily moves counter to the trend. We call these moves pullbacks or retracements. Once this counter move is exhausted, price resumes back in the direction of the primary trend and often times will break to new highs. It is at that moment, that Fibonacci can be used.

While the familiar Fibonacci Retracements are used to determine how far the price might originally retrace, Fibonacci Expansions can help us determine where price might head after the retracement is exhausted. On the EUR/USD daily chart below, I have highlighted a primary move followed by a retracement move.

Learn Forex: Simple Moving Average Crossover (With Trend Filter)

Now that the Fibonacci Expansion has been selected, we will need to select three price points to setup the tool properly. We will click a total of 3 times on the chart at the following price levels, in the following order.

1.    The beginning of the primary move, the low.

2.    The end of the primary move, the high.

3.    The retracement, the swing low.

After clicking OK, we should see several horizontal lines projected on the chart.

Learn Forex: Drawing and Reading the Fibonacci Expansion

How Do You Interpret Fibonacci Expansions?

This particular example on the EUR/USD daily chart is utilizing the more popular 0.618, 1.000 and 1.618 expansions. (There are also optional expansions at the 2.618 and 4.236 levels that you could add). All these lines can be considered resistance levels as the price trends higher, making them perfect areas to place profit targets.

We can see that price quickly hit the 1st profit target before consolidating, and then later broke upwards towards the 2nd profit target before retracing lower. It hit each of these prices on the nose before price regrouped for its next move. This gave us some spectacular exits for a long trade. If we remained a EUR/USD bull, our next target would be right below 1.4250 (at the 1.618 Fibonacci Expansion).

Scaling out of a trade with multiple targets is an effective money management strategy allowing you to lock in profits as the position matures. Just like diversifying your portfolio can help smooth out your overall returns, having multiple profit targets smooth out your returns on a trade by trade basis.

Finishing With Fibonacci

Once you add Fibonacci Expansions on a few of your charts, it becomes second nature to project these support/resistance lines for all your trend trades to assist with your profit targets. It also accompanies the Fibonacci Retracement tool nicely since the Fibonacci Retracement is traditionally used to get good entries on pullbacks from an existing trend.

How to use Fibonacci Retracements

The Fibonacci retracements pattern can be useful for swing traders to identify reversals on a stock chart. On this page we will look at the Fibonacci sequence and show some examples of how you can identify this pattern.

Fibonacci numbers were developed by Leonardo Fibonacci and it is simply a series of numbers that when you add the previous two numbers you come up with the next number in the sequence. Here is an example:

1, 2, 3, 5, 8, 13, 21, 34, 55

See how when you add 1 and 2 you get 3? Now add 2 and 3 and you get 5, and so on. So how does this sequence help you as a swing trader?

Well, the relationship between these numbers is what gives us the common Fibonacci retracements pattern in technical analysis.

Fibonacci retracements pattern

Stocks will often pull back or retrace a percentage of the previous move before reversing. These Fibonacci retracements often occur at three levels: 38.2%, 50%, and 61.8%. Actually, the 50% level really does not have anything to do with Fibonacci, but traders use this level because of the tendency of stocks to reverse after retracing half of the previous move. Here is an example using a graphic explaining the retracement pattern:

This picture shows a graphical representation of the reversal points for stocks in an uptrend. The pattern is reversed for stocks that are in down trends.

After a stock makes a move to the upside (A), it can then retrace a part of that move (B), before moving on again in the desired direction (C). These retracements or pullbacks are what you as a swing trader want to watch for when initiating long or short positions.

Once the stock begins to pull back (retrace), then you can plot these retracement levels on a chart to look for signs of a reversal. You do not automatically buy the stock just because it is at a common retracement level! Wait, and look for candlestick patterns to develop at the 38.2% area. If you do not see any signs of a reversal, then it may go down to the 50% area. Look for a reversal there. You do not know if or when the stock will reverse at a Fibonacci level! You just mark these areas on a chart and wait for signal to go long or short.

How to draw a fib grid

So how do we identify Fibonacci patterns on a chart. Easy, we draw a Fibonacci grid (fib grid) using swing points. Here is an example:

Draw the fib grid from the swing point high and the swing point low of a swing. Your charting software should come with this feature. It is a standard option on most charting packages. If not, you can calculate it manually by using this formula:

Calculate the range from the swing point high to the swing point low.

Now multiply the range times a Fibonacci ratio: 38.2% (0.382), 50% (0.500), and 61.8% (0.618).

Finally, subtract that number from the swing point high. That will give you your Fibonacci levels.

This chart shows an actual trade that I made. HS pulled back into the TAZ and then formed a bullish engulfing candle right at the 50% level. That gave me the signal to go long. Nice trade!

Is it useful?

Well...maybe...sometimes...

Most of the time, when you draw a fib grid on a chart, you will notice that the grid lines up with support and resistance areas that you would see anyway without drawing the lines in! So you really do notneed to draw the lines in. Instead, you can just look at a chart and estimate where the levels are.

Look again at the chart above of HS. If you didn't draw the Fibonacci retracement lines in, you can still tell just by looking at the chart that the stock has retraced 50% of the previous move.

If drawing the lines in helps you to better visualize the fib levels, then by all means use it! The choice is up to you.