Article by Shamyl Burki

Whether you are a beginner just learning the ropes of Online Trading or a professional trader with years of experience, this article is a must read. You will learn how to put together 3 simple technical analysis tools in such a way as to enhance your chances of never missing profit taking opportunities in the futures markets again.

I will show you how to combine 3 technical analysis techniques into a winning trading method. Perhaps some of you will have already heard of and might in fact be using these 3 techniques, but not in the combination I will show you.

First you must understand the basics of Candlestick Charting. For a detailed explanation I suggest you visit the expert, Steve Nison at http://www.candlecharts.com/. For our purposes it is important to understand and recognize the use of the Hammer & Inverted Hammer. Using the following candle for confirmation, these can be used as indicators of a change in direction.

Second, we add Bollinger Bands with a Moving Average (MA). These can be used to measure the highness or lowness of the price relative to previous trades. Bollinger Bands consist of:* a middle band being an N-period simple moving average (MA)* an upper band at K times an N-period standard deviation above the middle band (MA+K*sigma)* a lower band at K times an N-period standard deviation below the middle band (MA-K*sigma)

On most charting systems the default values for N and K are 20 and 2, respectively. Similarly, the same period is used for both the middle band and the calculation of standard deviation. This is where you will replace the value of K from 2 to 2.5. I know this may seem like a common change to utilize but you would be amazed at how few traders actually make this change and opt for the standard values. By changing the value of K from 2 to 2.5 you are providing for a broader range, which will give you a more meaningful reading of direction and momentum.

Finally, we add the Relative Strength Index (RSI). The Relative Strength Index (RSI) is a financial technical analysis momentum oscillator measuring the velocity and magnitude of directional price movement by comparing upward and downward close-to-close movements. The divergence between RSI and price action is a very strong indication that a market turning point is imminent. Bearish divergence occurs when price makes a new high but the RSI makes a lower high, thus failing to confirm. Bullish divergence occurs when price makes a new low but RSI makes a higher low.

My suggestion for meaningful technical trading is very simple…to utilize the RSI at the entry levels of “30″ and “70″ and the exit levels of “60″ and “40″. This is guaranteed to lead to more accurate trading opportunities. And take some of the guess work out of your trading buys or sells.

If this brief explanation left you with more questions, then you can get a more thorough and complete analysis and explanation by visiting me here: http://www.Tripleb-trading.com/3-steps-to-successful-trading.html

Shamyl Burki is currently an Executive Director at BBB (Private) Limited. He has been in the equities, futures, commodities, forex and options industry for over 15+ years.

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Filed under: Candlestick Charts

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