Red and Green Light Software

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The Red and Green Light Software for forex trading from Wizetrade, Globaltec and MBT will be discussed and fully described on this slideshow. This software is used for multiple time frame analysis of the forex.

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  • Two of my friends use this softwre with me. we love this software. Still my favorite is Andy Lank Cash Flow
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Red and Green Light Software

  1. 1. About the Red and Green Light Software The Red and Green Light Software for forex trading from Wizetrade, Globaltec, and MBT will be discussed and fully described on this article. We will include articles and various chart examples with all available videos. Please forward any additional information to Mark Mc Donnell at markmcdon2000 at yahoo.com and he will assemble the information and possibly incorporate into this article. Some History and Background Mark Mc Donnell is the owner of Forexearlywarning.com. He started his forex trading journey using the red and green light software from Globaltec. Many of the Globaltec clients were using the red and green light software but losing a lot of money or struggling scalping the forex on smaller time frames. As an employee of Globaltec, Mark developed the “Big Lights” method of multiple timeframe analysis with a focus on the larger time frames and trends to created many successful forex traders by guiding them through and teaching them how to use multiple timeframe analysis of the spot forex. Mark still teaches traders how to use this software but he also gives away a set of free trend indicators that mimic the red and green light software and he is also the developer of The Forex Heatmap®. http://www.forexearlywarning.com/forex-trend-indicators Free Trend Indicators http://www.forexearlywarning.com/the-forex-heatmap The Forex Heatmap®. Many former clients of Globaltec other companies who owned the red and green light software have now migrated to Forexearlywarning.com and use his tools which are based in his background of using this software. About This Training This training consists of written text and links to some important information. We also refer to the red and green light software package chart library which has examples of all of the types of charts discussed.
  2. 2. Link to Chart Library Slideshow http://www.slideshare.net/forexearlywarning/red-and-green-light-software- chart-slideshow Software Chart Reading – Part 1 Introduction The red and green light software is a trend analysis tool, nothing more. It is setup with multiple timeframes and should be used by inspecting the largest timeframes first for available trends. You call tell reasonably fast if the market is trending or oscillating and use the additional time frames to set up custom time frames for the current market. Explanation of Software Algorithm The mathematical algorithm behind red and green light software is fairly complex. The red line and green lines are two summation formulas that are historically and exponentially weighted. They are not moving averages but can be fairly well mimicked by the moving averages supplied by Forexearlywarning.com. Exponential moving averages are also exponentially weighted so that is why they mimick the software so well. http://www.forexearlywarning.com/forex-trend-indicators Moving Averages to Mimick Software On the software, the red line represents the sellers, green line represents buyers. The summation formula for each line uses the open, high, low, and close price and sums up the volatility count at each interval point to produce the curves you see. The volatility count is “summed up” via the summation formula and when you look at a chart you can view the red and green hits on the “last” trade to see this in action so the mathematical algorithm is estimating the buying and selling pressure. Here is a snapshot of the volatility count as it is being measured in real time. Snapshots of The Volatility Count Are In The Chart Library Slideshow http://www.slideshare.net/forexearlywarning/red-and-green-light-software- chart-slideshow At a point of intersection of the red and green lines you have a crossover, where the buyers or sellers take control, but only for that time frame. So if
  3. 3. you do have a new crossover it is always within in the context of the larger trends and time frames. This is why you can use this software tool for multiple time frame analysis of any forex pair. All of the raw pricing data and volatility counts for each of the 7 time frames comes from your data feed and is put into the two summation formulas and continuous calculations are made with the two summation formulas to produce the red and green lines. The chip in your computer cranks out hundreds and some times over a thousand calculations per minute on all of the price and volatility data from the data feed through the summation formulas, and once again all of the historical data is accounted for in the algorithm using exponential weighting. All data points are accounted for but the data on the right side of each chart is more significant due to this weighting. Although the mathematical model of the red and green lines is fairly complex the final display is simple, a red and green line. Whichever line one is on top is the color of the light. The software is a mathematical model of the spot forex. The software truly displays buying and selling pressure. Summation formulas are statistical in nature, and you have a mean and a standard deviation formula that can be used on forex pricing data and basic price charts to draw regression channels through very easily. Breakouts of the regression channels are represented by fresh crossovers on the time frames. The angle of the chart is proportional to the speed of the movement, and the separation between the red and green lines is the disparity between the number of buyers and sellers. More separation means a wider disparity between the buyers and sellers. Increasing separation can also occur where buyers far outweigh sellers or vice versa. Snapshots of Increasing Separation Are In The Chart Library Slideshow http://www.slideshare.net/forexearlywarning/red-and-green-light-software- chart-slideshow Software Chart Reading – Part 2 As we said in Part 1, the red and green light software is trend recognition software, nothing more, nothing less. If you use it for anything else beside that you are making a big mistake, if you use it to analyze trends you are
  4. 4. using it correctly. If you use it for anything else like scalping or trading the news it won’t work. The software is a tool, all tools even mechanical tools like hammers and saws must be used correctly. Use the software to analyze trends which is its intended purpose. For forex trade entries it is actually quite cumbersome and it is not suited for this. Interrelationship Between The Individual Charts and Time Frames. If you start with the long term trend charts on the right and drill down to the left you are expanding the right side of the chart you just looked at as you drill down right to left. Each chart to the left forms a portion of the one you just looked as you drill down. You are expanding or magnifying the right side of the chart you just looked at as you drill down from the larger time frames to the smaller timeframes. You are magnifying, expanding or zooming in on the right side of the chart as you drill down from right to left.
  5. 5. An example of understanding the interrelationship between the time frames is if you “zoom in” when taking a photo with a camera this is similar to drilling down from right to left, except that you are only zooming in on the right side of the previous chart to the right. Always drill down the 7 time frames from right to left to understand the magnification concept. A good or at least experienced red and green light software chart reader should be able to look at the charts on the right and have a very good idea of what at the ones on the left look like without looking at them and vice versa. For example if the two major time frames on the right indicate a strong uptrend going up, obviously the smaller time frames will be going up all of the way across the page. Chart Dynamics and Interval Update The midterm and long term charts on red and green light software are dynamic so go by what you see today; forget about what you saw yesterday due to the dynamic nature of the charts. When I say the chart is dynamic this means the entire profile can change, it does not always change but it can, after the daily interval update. The data changes at each and every data point on the chart by 20% on the midterm chart and 4% on the long term chart, every day after the daily interval update, the midterm and long term charts may or may not change. If the profile does change if may be completely in your favor, like increasing separation to indicate that the pair you have bought or sold will continue up or down. The reason each data point changes daily at the interval update on the entire chart is that as data is added on the right daily on the interval update it has to be accounted for on all data points across the page, like domino effect. This way the daily buying and selling pressure can be measured and reflected in the charts. The interval update is the main reason you should not be scalping with red and green light software or using the software to trade the news. This is not what the software was designed for. There are a lot of reasons why you should not scalp the forex market anyway just add this to the list. The reason you would not scalp with this software is the interval update lag on each time frame on the red line. All trend indicators have an interval lag of some sort but on the red and green light software it is more pronounced. In this case the interval update lag is good and can lead to a lot of pips, especially in the case of a “pacman” on the larger time frames or any scenario where you have increasing separation on a larger timeframe.
  6. 6. See Pacman Examples On The Chart Library Slideshow http://www.slideshare.net/forexearlywarning/red-and-green-light-software- chart-slideshow A great chart reader also know what the charts look like on the right before the interval update takes place, or should be able to give an educated guess. Just take screenshots of the midterm and long term charts before and after the interval update every day to see how the interval update and software algorithm treat the data. If you are a software newbie this is critical. Interval Update On The Smaller Timeframes The interval update on the short term time frame as well as the minute time frames is different from the interval update on the two largest time frames. On the short term time frame and all of the minute charts the interval update occurs once per time frame. On the short term time frame it would be once per day, on the 90 minute time frame it would be once every 90 minutes. This is related to the interval update as well. On all time frames the green line precedes the red line, mostly on price movement. Then after interval update occurs, check the position of the red line to see if there is a trend present or the red and green lines are skewed on that time frame. Stumbling Upon Multiple Time Frame Analysis When the red and green light software first was released almost all of the users were scalping the smaller timeframes based on color changes due to the poor instructions of GT, the software only had 4 lights, and everyone lost money, it was pretty awful. The big lights method was the name given to the method that red and green light software users used to differentiate them from the traders who used the smaller lights and time frames which were completely misused by many forex traders for scalping. Scalping is wrong for a lot of reasons but the red and green light software should never be used to scalp. After I read the article from Kathy Lien about multiple time frame analysis, I combined this with my experience in the stock market, options market and Wizetrade (for stocks) background and I realized the GT clients were losing money because they did not consider trading within the context of the larger
  7. 7. trend. The name “Big Lights” was coined for the red and green light software for traders who utilized all of the time frames. A reprint of Kathy Liens article is available here. http://store.traders.com/stcov226trcu.html The big lights method IS multiple time frame analysis. It is a systematic way of reading the software charts, you just repeat the process of drilling the lights and charts daily or sometimes twice daily for full time traders if you are a full time trader, Drilling down is very mechanical and consistent and adaptable to trending or oscillating markets. The forex market is dynamic, the charts on the red and green light software are dynamic also, (i.e. interval update) and is the big lights method is also dynamic. Expect change, the big lights method of multiple time frame analysis is a rigorous analysis of the entire forex market. The big lights method of multiple time frame analysis is based on 30 years of successful use on the stock market and commodities market. With multiple time frames we always know that we must inspect the larger timeframes first to look for trends that could be starting, ending, or established. Little trends are for little traders and scalpers, and big trends are for big time traders, always drill down the charts and check for larger trends first. Software Chart Reading – Part 3 Along with the article from Kathy Lien I wrote my own on multiple time frame analysis. Please read both articles and you will be on your way to drilling down the charts and thorough forex analysis. Link To Article http://www.forexearlywarning.com/multiple-time-frame-analysis If you are a big lights trader your mindset is different because of efficiency of the forex market and high liquidity, everything is reflected in the charts. You don’t need to pay attention to anything but the forex because the trend is there for a reason. All of the forex news and fundamentals add up to the larger trend. The forex market is the most efficient of all financial markets. The price of oil, gold, direction of worldwide interest rates and any recent news is always reflected in the charts. Keep your focus narrow and drill
  8. 8. down the charts. If the long term trend is in place you ARE a fundamental trader, because you know the trends of the forex market. At first the red and green light software is a foreign language, but a foreign language can be learned, the information and charts in this article will act as your interpreter. Smaller lights and time frames do not matter unless you place them into the context of the big lights and trends which control the overall movement of any currency pair. Even scalpers must know the trend or they cannot survive. The mindset is that we respect the forex market and we respect the trend, especially the higher time frames. We know when to walk away from a set of charts where no visible trends or oscillations are present, and we know that market choppiness causes a higher frequency of stop outs. As you drill down the charts and various time frames to expose the trends and oscillations on a currency pair, some charts and time frames may appear to be chaotic, skewed, or volatile and some may appear smooth on the same pair. This is quite normal. If you see chaotic and braided charts on the larger time frames just continue to drill down to smaller time frames and oscillations will appear. Some charts are not “readable” or orderly and while others are nice and smooth and easily read. These conditions can change within the space of two days. This is the benefit of the Big Lights method. You drill down the time frames and determine the “most optimum time frame setup” customized for each pair based on the current market condition, not the market condition from last week. You expose the current market cycles and dynamics day by day. The Mechanics of Drilling Down The Charts On the Red and Green Light Software Setup 1 – Go to the “parameters” screen and setup custom indicator time frames for all seven in this fashion: 630 660 690 720 SHORT MID LONG 420 450 480 510 540 570 600 210 240 270 300 330 360 390 30 30 60 90 120 150 180 Setup 2 – For a “quick look” at the market use this “generic” setup for the seven time frames. XX XXX XXX 720 SHORT MID LONG
  9. 9. Setup 2 will allow you to quickly see what is going on in the market and after that you can do a more thorough drill down using setup 1 if you wish. Do not use any of the preset time frame packages and setups that come with the software none of them make any sense. They are misleading. Also, do not forget about the parallel and inverse positioning of pairs. If you really want to analyze the USD/CHF for example you would want to examine several USD pairs and several CHF pairs across the time frames. When setting up the software group pairs by individual currency to facilitate this. Setup the software with all of the pairs comprised of the 8 major currencies only, i.e., NZD, AUD. JPY, EUR, CHF, GBP, USD and CAD. What should you be looking for in a typical big lights trade?? Start by inspecting the four largest timeframes (720 minute and larger) on all of the pairs comprised of the 8 major currencies. Look for major trends that are developing or already established. If a currency pair is not trending or trying to build a trend then continue drilling down the charts looking for oscillations. That’s it, do not get confused or make it complicated. You are looking for trends or oscillations on the major time frames. If you see trends or oscillations then drill down all of the time frames looking to optimize your chart setup for the current market conditions. See Examples of Trending Pairs On The Chart Library Slideshow http://www.slideshare.net/forexearlywarning/red-and-green-light-software- chart-slideshow Trending pairs must have a foundation light or time frame of a short term chart as a minimum in other words the short term trend must be established to qualify for a trend, after that a midterm or long term trend with separation up or down also qualifies as a “trending pair” just on a higher time frame. An oscillating pair one that is is cycling up and down in smooth and clear trade-able waves. Pairs can oscillate on virtually any chart or time frame but 720 minutes oscillations or larger should only be considered for trading, don’t mess around with small oscillations because the money management ratio of risk to reward is too small. After you drill down all of the time frames try to determine which trend channel describes the oscillation the best, this is your main oscillation channel. When a pair is oscillating always determine main oscillation channel by drilling down then, measure the amplitude (or range) from the top to the bottom of the oscillation cycles and estimate the pip potential. Then decide if you should trade it or not.
  10. 10. See Examples of Oscillating Pairs On The Chart Library Slideshow http://www.slideshare.net/forexearlywarning/red-and-green-light-software- chart-slideshow Oscillations on currency pairs occur frequently, in non trending markets or after long movement cycles. A library of oscillating pairs is available in the chart library. Software Chart Reading – Part 4 The big lights method of multiple time frame analysis is a consistent and repeatable method, you can identify an orderly or chaotic (choppy) market quickly. You can identify trends and oscillations quickly as well. You always know whether or not to buy or sell or stay out of a particular pair, and you always analyze each pair thoroughly by analyzing other pairs in the same parallel and inverse or individual currency group. You can also get into the habit of analyzing currency pairs in groups and set up parallel and inverse pairs on the platform and analyze them together. With the big lights method you are using the different time frames to statistically smooth out the data and always looking for orderly movement and consolidation cycles or smooth waves. If the movement cycles are choppy and chaotic that’s not bad all by itself but better timing would be required and more time in front of the computer. Sometimes a trend does not exist on the larger time frames and the charts are oscillating in a tight range. If no trend exists on a pair the trend will start building from the smaller time frames on the left, like 90 to 150 minute charts. Trends start and end with the smaller time frames and trends always start and end off of support and resistance. If a currency pair is in a fairly tight range it can breakout on the smaller time frames. Look at the snapshots titles “Breakout” and Range Breakout on these two links below. These pairs in the pictures are trading sideways then breakout to the upside. Snapshots of Range Breakouts are in the Chart Library Slideshow http://www.slideshare.net/forexearlywarning/red-and-green-light-software- chart-slideshow If you are not able to catch the first movement cycle and breakout into a new trend it does not matter that much because you can still catch the second movement and everything beyond that. Let the trend establish itself
  11. 11. then catch the second move if you like. Then when you enter the trade you can add extra lots. This is the way currency pairs move >>>> Movement, consolidation, movement, consolidation, movement, consolidation, etc. You write a trading plan for the next move during the consolidation periods. Now that you know the interrelationship between the smaller and larger time frames you should be much improved at judging the consolidation cycles, which generally occur between the end of the US session all the way through the Asian session. You can supplement your basic software chart reading and drilling down the time frames, a minor amount of basic chart technical analysis can also be included. For example knowledge of basic flags, pennants, double tops and double bottoms occur frequently on basic currency charts and this should not be ignored. http://www.forexearlywarning.com/forex-lessons See Lesson 19 on Chart Patterns Green Line Convergences On the red and green light software a convergence is when the green line moves strongly towards the red line. Short term time frame green line will begin to converge because the smaller minute time frames/charts make one counter cycle against the existing trend, then the smaller trends consolidate, then on the second movement of the smaller trends against the existing trend the short term chart crosses, it takes two daily interval updates to finish the short term time frame crossover, in most cases. The convergence of the green line towards the red line means that the pair has made one counter cycle against the previous movement. Then you have the daily interval update, then the next movement occurs against the trend and the short term time frame has a fresh cross. “The first countercycle causes the convergence and the second countercycle causes the cross.” The counter-cycles are indicating that the short term trend is ending See Examples of Convergences On The Chart Library Slideshow http://www.slideshare.net/forexearlywarning/red-and-green-light-software- chart-slideshow
  12. 12. The definition of a trending pair is that short term time frame trend chart is separated, or building a fresh cross, at a minimum. If the midterm or long term time frames are fully separated this is also a trending pair. If a currency pair is oscillating we would like to see a minimum of a 720 minute chart cycling up and down to be considered oscillating so there are ample pips for trading. Difficulty of Different Types of Trades Oscillations and fresh crosses on short term time frames or larger are easier to trade, also pairs in strong trends with the midterm and long term trends fully separated are easy to trade. Bounces are the most difficult types of trades and newbies should stay away from these at the outset. Bounces are discussed on this blog in a separate post. Newbies should paper trade then trade micro lots on oscillating pairs, fresh crosses and strong trending pairs only to build confidence and to prove that red and green light software trend indicators work. Pacmen Let’s learn to understand the pacman, and what they mean. A pacman is when the red and green lines are pointing up and down in opposite directions on the last interval on the right on any time frame. A pacman indicates volatility or potential movement in the opposite direction of what just occurred. The green line is pointing in direction of the most recent move on all pacmen. A pacman on a larger time frame might be a pacman on a long term or midterm chart that will help you to recognize the larger time frame oscillations much better. When you see a pacman on a daily (short term) time frame the 90-180 minute light should start to cycle in the opposite direction of what it just did. A pacman on a smaller time frame (entry pacman) might be on the two or three smallest charts on the left of your 7 time frame setup, assuming the larger trends are stable. This indicates that the smaller time frames are volatile even though the longer term trend may be in place. In this case you would wait for a cycle against the trend to enter a trade with a small pacman on the left. When you have a small time frame pacman a conventional chart will look like the illustrations below (smooth and choppy trends). This is because a pacman is a sign of volatility and, conversely, volatility is a sign of a pacman. Snapshots of Pacmen are in the Chart Library Slideshow
  13. 13. http://www.slideshare.net/forexearlywarning/red-and-green-light-software- chart-slideshow Bounces A bounce is when the red and green lines are parallel and very close to each other. The green line is on top and the currency pair moves up, causing the green line to rise while the red line holds steady. The green line “bounces” up off of the red line. The opposite is when the red and green lines are parallel with the green line on the bottom and the price on the pair drops, causing the green line to drop and separate from the red line creating the good separation you need to stay in the trade. The green line bounces off of the red line again but downward this time. Bounces are the most difficult type of chart to read for new users of the red and green light software. They are difficult to interpret and trade until you have some experience. Newer traders trading real money have a tough time with these. Wait until you have more experience before trying to trade bounces. This is because when a currency pairs goes through a long sideways consolidation the red and green lines come together with little bit of white space in the middle making the charts and red and green line indicators tough to read. When the red and green lines are close together a potential bounce can become a pacman quickly. If the red line with the green line are close together and the green line is barely above the red line the illustrations below show you what can happen if the price moves up (bounce) or down (pacman). Expect a bounce in the direction of the trend but it could go the opposite way on a shorter term basis, wreaking havoc on the entry and the charts. Tools like the forex heatmap should always be used to verify entries but especially with bounces or situations where the red and green lines are close together. Snapshots of Bounces are in the Chart Library Slideshow http://www.slideshare.net/forexearlywarning/red-and-green-light-software- chart-slideshow Review all charts with the word “Bounce” in the title, most of these are for software but the same bounce principle applies to the exponential moving averages we use to mimic the red and green light software.
  14. 14. Slideshow To accompany this written training we have prepared a slideshow on Slideshare Please refer to this slideshow and you will see example charts of every type of chart listed in the text. Link to Slideshow http://www.slideshare.net/forexearlywarning/red-and-green-light-software- chart-slideshow Low Cost Alternatives to The Software If you like the red and green light software but do not have the funds to pay for it or like to keep your costs low here are some low cost alternatives. To substitute for the charts you can use the free trend indicators provided by Forexearlywarning.com. There are not as many timeframes but 8 of the timeframes match up with the software pretty well. Link to Free Trend Indicators http://www.forexearlywarning.com/forex-trend-indicators To substitute for the lights but in a much more logical way that is easy to read to verify your trade entries you can also use The Forex Heatmap® which is available to subscribers of Forexearlywarning.com for $19.95 per month. Link to The Forex Heatmap http://www.forexearlywarning.com/the-forex-heatmap With Forexearlywarning.com you also get daily forex trading plans. All of this is substantially cheap compared to the software and the trading plans and heatmap make for a complete package of forex services at a very low cost.
  15. 15. If you still use the Red and Green light software we are happy to bring you these free training materials. Using the software as an analytical tool is perfectly acceptable but it is very expensive and inexpensive alternatives are offered by Forexearlywarning. Mark M

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