EURO RALLY ECB RATE CUT OR WEEKLY RANGE RULE - simple forex trading system that worked for the last 7 years

EURO RALLY ECB RATE CUT OR WEEKLY RANGE RULE ~ simple forex trading system that worked for the last 7 years

The rally in the Euro against the American Dollar came as a bit of a surprise on Thursday, given the direct relationship between currency demand and domestic interest rates. The increase followed a brief and expected decline after the European Central Bank (ECB) cut its main lending rate to 0.15% and reduced the rate on bank deposits to -0.1%. However, the very low level of interest rates has led to an increased demand for riskier assets and higher-yielding bonds throughout the region. 

With international investors seeking to benefit from the expected rise in the prices of these asset classes, the Euro ended the day stronger to eclipse the initial bearish reaction. Despite this being an important factor in the strength of the currency, however, the net gain on the day was due in large part to a major technical factor at work in the Forex market, known as the Weekly Range.

THE WEEKLY RANGE

All currency pairs in the Forex market tend to move in waves of uptrends and downtrends with periods of consolidation in between. The recent sharp decline of the EURO USD before the interest rate reaction ended another one of these downtrends, as it moved from a high of 1,4000 on May 8, to settle at 1,3600 before the ECB rate cut. 

DAILY CHART

Source: Dukascopy- Swiss Forex Marketplace

This decline followed the formation of a pair of Double Tops at the Resistance of a large Pennant, that led to the break of its Support at 1,3686 on May 21.

DAILY CHART

Source: Dukascopy - Swiss Forex Marketplace

The speed of this downtrend combined with the breakout from the Pennant, suggests that strong gains for the Greenback are expected this year. This could take place despite the pause and the rally related to the ECB rate decision. However, based on the Weekly Range rule as applied to the EURO USD, the interruption of this downtrend was always expected by currency traders familiar with this rule.

The trends experienced by the EURO USD are governed by ranges of 400 Pips. Whenever the currency pair reaches the limit of this range, there is either a brief pause and pullback or a complete reversal of the trend. This also takes place regardless of any short-term news released to the market, but can be accelerated if there is a sharp reaction by traders to such news items. A few examples will serve to illustrate this.

Prior to the start of the formation of the Pennant, there were two waves of Weekly Range uptrends that occurred between September and October 2013. At the end of the first wave, there was a period of sideways movement in the form of a range that gave way to a breakout long. This then led to the start of the second wave which eventually ended with a reversal and break of the Uptrend Line.

DAILY CHART

Source: Dukascopy - Swiss Forex Marketplace

This market phenomenon was also evident earlier in that year, with 2 previous waves taking place between July and the end of September. The start and end of the first wave took place on July 22, coinciding with the aggressive demand for the Euro following the release of the latest minutes of the US Federal Open Market Committee. A few days later, the other wave began and lasted a few weeks before ending with a break of the Uptrend Line.

DAILY CHART

Source: Dukascopy-Swiss Forex Marketplace

Yet another set of examples occurred at the start of that year, when the first trend began on January 10. After reaching its limit only three days later, the currency pair entered a period of consolidation before resuming the uptrend with another Weekly Range. After this 2nd wave ended, the Uptrend Line was finally broken to start this process all over again in a new direction.

DAILY CHART

Source: Dukascopy-Swiss Forex Marketplace

Many other examples of these Weekly Range patterns abound throughout the history of the EURO USD. Knowledge of these waves helps to identify upcoming trend changes as well as to pinpoint exit points for trades such as in the example above and with the EURO AUD and the GBP JPY in the charts below.


DAILY CHART - EURO AUD

Source: Dukascopy-Swiss Forex Marketplace


DAILY CHART - GBP JPY

Source: Dukascopy- Swiss Forex Marketplace


It can be a fairly straightforward process to spot and take advantage of the start of a trend. However, the challenge for traders has always been to balance the desire for gains with the need to obey the natural laws of the market. 

Now, assuming that this rule can be confidently stated as being a necessary condition to spot important exit points, can it also be deemed to be a sufficient condition? Are there any other factors that go into the trade decision that helps to avoid the trap of greed and unexpected, frustrating reversals?

In these and several other examples across the market, one will notice that some trends can take as little as a day to hit their targets, with others requiring as much as a month. For the Swing traders who use the Daily Chart and the Weekly Range to capture their pip targets, should they hold out for this target regardless of how long it takes? The answer to this question is no. 

Trading successfully requires the strict adherence to rules of Entry, Stop Losses and Limit Orders. The time that is allocated to a trade must also be objectively determined in order to avoid emotional, incorrect decisions. One should always have the option of exiting a position for a small gain to allow another profitable opportunity on another currency to be traded. But what would this objective time period be and is it consistently applicable to the EURO USD and other currency pairs?

There is only one way to find out.

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Duane Shepherd 

(M.Sc. Economics, B.Sc. Management and Economics)

Currency Analyst/Trader

Contact: shepherdduane@gmail.com

Twitter: @WorldWide876

Facebook: DRFXTRADING 

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More info for EURO RALLY ECB RATE CUT OR WEEKLY RANGE RULE ~ simple forex trading system that worked for the last 7 years:

Solution to Low Currency Volatility Multiple Lot Trading - free forex trading system that works

Solution to Low Currency Volatility Multiple Lot Trading ~ free forex trading system that works

The low volatility environment in the Currency Market has made it very difficult for traders to earn at the same rate as under normal conditions. Low interest rate policies by the major central banks and investigations into market rigging have contributed significantly to the downturn in market activity. As a result, trends have been short-lived, forcing traders to either be extremely patient or find new strategies to adjust to the market. With this in mind, there is an aggressive trading option available for the traders whose main strategy is Swing Trading. This option is popularly known as Multi-Lot Trading and involves adding positions to an existing trade to maximize on the trend on its way to the final target. 

SINGLE & MULTIPLE LOT TRADING

The more conservative way to trade the larger trends is to open a single position on a currency pair and hold it until the target is hit a few days later. However, with the limited number of trends being provided by the market, single lot trading might have to take a back seat to allow room for greater returns in the same amount of time.

Lets take  a recent example of a downtrend on the 4 hour Chart to on the AUD NZD that offered 3 clear entry points during the trend. This was a  232 -Pip decline from 1,0880 on April 28, 2014 to 1,0648 on May 6, 2014.

FIGURE 1 - AUD NZD

Source: Dukascopy Swiss Forex Marketplace

In a typical trading scenario, the trader would enter short at the break of the Pennant, with the Stop Loss placed at the high of the formation. With the entry at 1,0786, this would be targeted to capture 142 Pips.

FIGURE 2 - 1ST ENTRY POSITION

Source: Dukascopy Swiss Forex Marketplace

A second lot could then be entered into upon seeing the break of a Counter Trend Line (CTL). Entry would be at 1,0756, the Stop Loss placed above the high of the formation and the pip target set at 108 Pips. The first Stop Loss would then be moved to the 2nd Stop Loss, effectively creating a single position capturing 250 Pips.

FIGURE 3 - 2ND POSITION

Source: Dukascopy Swiss Forex Marketplace

This process is then repeated when a third entry setup in the form of another CTL break appeared. Entry would be at the close of the bear candle at 1,0706 with the Stop Loss placed at the high of the setup. This 3rd position would be set to capture 48 Pips and the Stop Losses of the previous two entries placed at this 3rd Stop Loss.

FIGURE 4 - 3RD POSITION

Source: Dukascopy Swiss Forex Marketplace

After waiting patiently for 8 days, all three positions would hit their target to capture 298 Pips - double the value of a single lot entry at the start of the trend.

FIGURE 5 - CLOSED POSITIONS

Source: Dukascopy - Swiss Forex Marketplace

This is a very effective way of maximizing on the limited number of profitable trends that are available in the market at this time. The number of pips and hence the total revenue can be almost doubled, allowing monetary targets established for the Retail or Institutional Traders to be reached in a much shorter time.


CHALLENGES INHERENT IN THE STRATEGY

As simple as this strategy appears to be, there are a few important considerations that go into this trading style. Apart from requiring an aggressive but patient personality, the trader must use a strategy that correctly identifies the common exit point for each lot. This ensures that the targets arent emotionally determined and that they avoid sharp reversals in the trend as illustrated in this chart.

FIGURE 6 - SHARP BULLISH REVERSAL

Source: Dukascopy- Swiss Forex Marketplace

If a trade is held onto longer than it should by even a few pips, a sharp reversal in a short time can erode or wipe out all positions simultaneously. In this example, the reversal would take 8 hours, but on a smaller time frame where there is very little time to react, the damage can be even more emotionally and financially painful.

FIGURE 7- 30 MINUTE CHART REVERSAL

Source: Dukascopy- Swiss Forex Marketplace

Within only 90 minutes, a trade on the 30 Minute chart with an incorrectly chosen Limit can be erased if the trader took his eye off of it under the assumption that the target was farther down.

ENTRY & EXIT STRATEGY

Given this danger, trades such as these must have the right target chosen based on correct interpretation of the candles and market signals. These targets should be determined by;

1. The Weekly Range of the Currency Pair;
2. The Breakout Equivalent;

If a Currency Pair has a range of 300 Pips in a normal trend from start to finish, aiming for price points beyond this out of greed or negligence will lead to unnecessary losses. If we are talking about a breakout from a Consolidation boundary, then the distance to aim for is usually the Breakout Equivalent. Years of examples on the most liquid currency pairs revealed that these were the main tools to use to identify exit points for trades lasting several days.

There is an argument for monitoring the trades to ensure that these sudden reversals are avoided. However, this presents another set of dangers in the forms of;

• Panicking at the sight of a reversal, that proves to be only temporary;
• Looking at the floating profit and being tempted to exit early;
• Being tempted to hold on beyond the target because of the sight of the large, combined value of the trade;

The discipline to establish the target and avoid looking at the trade unnecessarily is crucial to this trading strategy. You will need to look at the trade when identifying additional entry points, but there is a detailed method of doing so that minimizes the risks involved. 

RECENT EMAIL FROM CLIENT

____________________________________________________

SUBSCRIBE TODAY

____________________________________________________

US$120.00

Free 

 ___________________________________________

Duane Shepherd 

(M.Sc. Economics, B.Sc. Management and Economics)

Currency Analyst/Trader

Contact: shepherdduane@gmail.com

Twitter: @WorldWide876

Facebook: DRFXTRADING 

More info for Solution to Low Currency Volatility Multiple Lot Trading ~ free forex trading system that works: