Reference Points

Those of you, who dealt already certain time, were familiar with the reference points. In this article we will examine how to find reference point, and also somewhat another approach to their use.

First give let us look how to calculate the value of reference point. With the use of a graph of bars you have for each bar discovery, maximum, minimum and closing. This information represents entire price activity during this specific period. For our example we will use a day bar. For enumerating the reference point everything that we should make - this to add maximum, the minimum and closing. As soon as this is done, sum total is divided by three. For example index FTSE to the 2nd May 2002. had maximum to 5192.70, minimum to 5125.50 and closing to 5174.10, if we add all three values together, then it is obtained by 15492.3. Then as a result the division of sum total into three is obtained the value of reference point - 5164.10. Now, when the value of reference point is obtained, arises a question, what to make with this information. One of the methods of using the reference point with the intra-day trade consists in the use it as the indicator of trend. We already know that the reference point was on May 2 5164.10 and we will use it next day as a intra-day indicator of trend. If the price higher than 5164.10, then we deal only in long positions (we buy) and if she is located is below 5164.10 we we work only in the short positions (we sell).
Since the price can [kolebatsya] around any this point, we will add additional condition. If we have support next to 5164.10, then we first will wait for, when price traverses mark 5164.10 and level of support before to enter into short position. If we have a resistance next to 5164.10, then first we must wait for thus far price it will move through the reference point and the level of resistance before enter into long position. This method becomes even more effective, when reference point is located closely to the price of discovery. If, for example, the price of discovery is equal to 5174.10, and the value of reference point is equal to 5164.10, then we can arise into the short position on mark 5155 and remain in the short position the whole day, until price goes above reference point. Opening position, should be immediately placed rigid foot- warrant and then moved it following the motion of market, in order to protect profit. With other approach reference points are used in the analysis for the longer-term projections. The reference points of annual, monthly and weekly graphs will be used for this. In this case will be required the maximum, the minimum and closing of the previous year, month or week. It is possible to examine the weekly reference point for the short term trend, monthly for the intermediate-term trend and annual for the long-run trend. This can be especially useful for the futures contracts on the market For forex. If you are located below annual, monthly and weekly reference point, then you know that you are located in the strong descending trend and, based on this, can act to correspondingly, for example, increase position. The same is correct for the work in the long position. There are many methods of using the reference points for determining the trend. Also it is possible to use reference points for finding the potential levels of support and resistance, but this will be examined following time.

Experiment with the reference points even you look, does satisfy this approach your style of trade. At least, it is always important to know, where reference points are located, since this can help you to solve on what side of market one should deal.

Mark McRae
www.daytradingcoach.com