Technical Analysis Part 4

Download my chart for better understanding
https://www.dropbox.com/s/w0im0c9vxy6mc36/ATR.gif?m 
 https://www.dropbox.com/s/gsbv0rbvdq658mg/New-Picture-%288%29.gif?m

ATR ( Average True Range) : It is developed by J. Welles Wilder along with RSI, Parabolic Sar, Directional Movement Concept in 1978.However it is a volatility measure indicator since it is designed for stock but today it is used in fx market too. But careful it doesn't provide market price direction. It provides range which means the high and the low price distance of a day/ periods. ATR uses generally 14 days of moving average true ranges. It is important to the traders to set of stop loss, take profit. True range is measure the following possible way.............

*TR = H - L (current high low minus) ( TR = True Range)
*TR = H - CL ( current high minus previous candle's  close)
*TR = CL - L (previous candle's close minus current low)

Let's say that market previous high price is 1.3000 for Euro / Usd pair. You want to trade a previous day price breakout. In this case you may enter buy trade at 1.3005 but you may be mislead by fackout (False breakout). Here ATR (14) helps you just where should entry. Look at the ATR value. Suppose it is 100 pips. Now if you decide 20% ATR value then it is 100*20% = 20 pips so buy entry at 1.3000 + 20 = 1.3020 prices for a secure entry. Now question where to set off stop loss ? Well if you decide  2 to 4 times ATR value then above example 100pips*2 = 200 Pips your secure stop loss of ATR value. Can I use trailing stop loss this case? Yes you can choose 30% or 50 % ATR values of it. Like 100*50% = 50 pips your trailing stop loss.

*Ichimoku Kinko Hoy : It is discovered by Japanese. It means "may the  be pips with you. It is a future momentum indicator, and 3 in 1here you find mean 3 types of indicator works do it only Ichimoku. Wow...right fantastic! wait you have to point some topic here, and you will not be disappointed with me! Promise you believe or not doesn't matter. Japanese word hoy mean 'chart' kinko mean 'equilibrium = balance, Ichimoku mean 'a glance' huh! This is right. You have looked at 2 Sen and 2 Span in Ichimoku to understand it. They are

1. Kijun Sen (blue line )
2. Tenkan Sen (red line)
3. Chikou span ( green line)
4. Senkou span ( orange line)

Kijun sen is calculated average highest high and lowest low last 26 periods.
Tenkan sen is calculated average highest high and lowest low last 9 periods.
Chikou span focus on today's close price pointed 26 periods behind.
Sekou span (1st line) calculated by tenkan and kijan averaging 26 periods ahead. 2nd Chikou span calculates averages of the highest high and lowest low 52 periods and plotted 26 periods ahead. So how do you can trade with it. Well, makes this point carefully:

*Look at where the price is it above or below Senkuo span (orange line) if up then 1st orange line is 1st support and 2nd line is 2nd spot. If below price then 1st line is 1st resistance and the 2nd line is 2nd resistance.
 ( I will be talking later about support & resistance details another lesson)

*Kijun sen provide future price movement if the price goes up blue line then it will be up and if the price below blue line then it will be down, OK.

*On the other hand Tenkan sen just provide a signal that the market is moving. If redline is horizontally that mean market is sideways or ranging or not so move or lazy as what name you can learn.

*Chikou span ( green line) signal to you buy or sell but where. Oh! Wait before jumping to catch pips. If green line crosses from up to down direction then sell and if it crosses from down to top buy.