255 PIPS ON OFFER FROM NZD CAD THIS WEEK - forex mutant trading system

255 PIPS ON OFFER FROM NZD CAD THIS WEEK ~ forex mutant trading system

A Large Range Setup appears to be forming on the Daily Chart of the NZD CAD that could offer us up to 255 Pips this week. The Support Boundary has already been formed at the 0,8335 area and once we see continued gains for the CAD, this will take us back to Support and complete the Resistance Boundary and the Range.

The overall setup can be seen in the graph below. The pattern of movements that have taken place in the last few months appears to indicate the formation of this large Consolidation in the days ahead.

POSSIBLE RANGE SETUP - DAILY CHART

If the pair continues to decline in the next few days, the Resistance Boundary would be formed at 0,8855 to complement the Support area at 0,8335.

RESISTANCE & SUPPORT BOUNDARIES - DAILY CHART

With a distance of 255 Pips from the current market price to the Support area, Swing Traders could realize a large trading gain once the pair gets going again. This would follow the current sideways movement now taking place on the Daily & 4 Hour Charts.

EXPECTED TRADING GAINS - DAILY CHART

PENNANT SETUP - 4 HOUR CHART

When this downtrend finally resumes, we will actually be continuing the breakout from this Pennant Setup. The Support was initially broken with a Bearish Candle and has been followed by a pull back and U-Turn as the market "tests" the broken Support. Once this is done and we start to see additional bear candles, short positions can be opened as long as our Entry and Stop Loss Placements are correctly done according to the Trade Sheet for Consolidation Breakouts from the Trading Manual...

It is fairly easy for us to spot Consolidation Setups and trade them after they have been formed across all time frames. However, the challenge has always been to spot the signs that they are being formed so that we can quickly adjust our strategies from a Trend Trading one to a Consolidation Trading strategy. 


So how do we trade this?


There are several technical factors in the currency market that tell us when these setups are being formed. Many of them relate to how long a trend has been in place before it begins to move sideways or whether we have recently broken a major Trend Line. These and many other factors that lead to these setups can be found in Section 4 Part 2 of the Manual...

As soon as you spot these factors at work on your charts, you can begin drawing the expected lines of Support and Resistance. Once the distance between these boundaries is far enough to allow for trades of between 100 and 200 Pips - comfortably - strong gains can be had as long as the trade meets the requirements set out in Part 3 of the Manual...

The key is to now wait on the appropriate signal on the Daily Chart to start taking advantage of the move to Support and the breakout from the 4 Hour Chart Pennant.

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THOSE PESKY FALSE BREAKOUTS WHAT DO WE DO - forex trading system system

THOSE PESKY FALSE BREAKOUTS WHAT DO WE DO ~ forex trading system system

False breakouts are one of the necessary evils of the Forex market. Signals that appear to indicate the start of large gains for the trader often turn out to be broken promises that lead to unexpected losses. Spotting the signs that actually give a heads-up as to the potential for these reversals helps to avoid these scenarios that arise during long periods of market indecision and low liquidity.

Take the recent movements of the EURO NZD and the GBP AUD as examples. These both gave bearish signals that broke the Support of their respective Consolidations that had formed below larger Pennants setups. Given that these smaller Consolidations represented a test of the Support of these broken Pennants, gains of several hundred pips would have been expected.

EURO NZD - DAILY CHART

Source: FXCM Marketscope

DAILY CHART- GBP CAD

Source: FXCM Marketscope

Nevertheless, the candles that broke these setups were not strong enough to justify entry. Whenever this happens, you will either have a stronger candle that appears a few days later to continue the breakout, or an opposing candle that starts a False Breakout reversal. In this case, the latter was the result for both pairs.

DAILY CHART- EURO NZD

Source: FXCM Marketscope

DAILY CHART- GBP CAD

Source: FXCM Marketscope

From this point, we could have one of two scenarios unfolding in the next few days. We could see the market move sideways for awhile before providing another set of bearish signals that start their respective downtrends. On the other hand, the reversals could indicate that start of uptrends that take them back inside of their Pennants, possibly breaking out above the Resistance. But how can we know in advance that what seems like perfectly normal signals will actually lead to these types of reversals?

Practice, practice, practice. With Candlestick Patterns, one has to review several examples of breakouts to be able to quickly distinguish between the ones that lead to breakouts and those that will only cause unnecessary headaches for traders. This will allow you to confidently enter and trade those that will actually break and provide strong gains over a very short period.

DAILY CHART- CHF JPY

Source: FXCM Marketscope

DAILY CHART- USD CAD

Source: FXCM Marketscope

The concept of the average Daily Range of a currency pair is also important. Most breakout candles that lead to trends are usually the same size of the Daily Range of that pair. This range also varies among currencies such that a normal candle that is acceptable to be traded for one currency pair may not be strong enough for another. One must also be able to determine if the candle and the start of a potential breakout would also coincide with the Weekly Range of that pair. This would significantly increase the possibility of a reversal such as that which is now taking place on the EURO USD.

DAILY CHART - EURO USD

Source: FXCM Marketscope

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Duane Shepherd 

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

Currency Analyst/Trader

Contact: shepherdduane@gmail.com

Twitter: @WorldWide876

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NZD CAD SHARP 800 PIP FALSE BREAKOUT AS FORECAST - mtf forex trading system

NZD CAD SHARP 800 PIP FALSE BREAKOUT AS FORECAST ~ mtf forex trading system

The last time we examined this pair in April this year, we had projected a sharp decline in favour of the Canadian Dollar based on the False Breakout pattern that had been unfolding. In the chart below, we can see that the Bullish Candles that attempted to break out long from the Pennant were eventually taken out by the slow Bearish Candles that took us back inside of the Consolidation.

DAILY CHART - FALSE BREAKOUT 

Based on this movement and the fact that False Breakouts usually lead to breaks at the opposing end of the Pennant, we had projected the pair to break towards the major Outer Uptrend Line.

DAILY CHART - PROJECTED DECLINE 

Looking at the current situation on the Daily Chart, we can see that this forecast had in fact materialized over the last few weeks. Starting from the high of the start of the reversal, the pair has declined sharply by approximately 800 Pips.

DAILY CHART - SHARP DECLINE 

Now, how could you have taken advantage of this profitable move?

Having seen the start of the breakout below the Support of the Pennant, the first thing to do would have been to draw the Downtrend Lines that were being formed.

DAILY CHART - DOWNTREND LINES 

These Downtrend Lines can be used for the placement of Stop Losses with the assurance that your profits will be protected throughout the trade. The next step would have been to enter short at around the 0,9100 area, with a Stop Loss of 100 Pips placed above the Inner Downtrend Line. Your Limit Order would initially be set to the Outer Uptrend Line for a profit of 370 Pips.

  

DAILY CHART - ENTRY SETUP

As the market began to move in you favour, you would have moved your Stop Loss lower, breaking even initially and then locking in profits below your Entry. This would have continued until the market started to reverse bullish just above the Outer Uptrend Line target. Your Stop Loss would “sadly” have been taken out and you would have pocketed 300 Pips in gains.

DAILY CHART - 300 PIP PROFIT

This is one of the ways in which Breakouts and False Breakouts can be profitably traded in this market. Many of these opportunities are likely to continue to present themselves for us given the current environment of low liquidity that now characterizes the major Currency Pairs. As Swing Traders, we simply need to spot these setups and the appropriate signals provided to take advantage of them, for continued monetary reward.

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ANOTHER FALSE BREAKOUT ON THE EURO USD - m1 forex trading system

ANOTHER FALSE BREAKOUT ON THE EURO USD ~ m1 forex trading system

Many traders will now be wondering why the 2 strong Bullish Breakout attempts on this pair have been met by sharp Bearish reversals in favour of the USD? The Bull Candle Signals given on the Daily Chart appeared to be strong enough to justify entry and provide sharp EURO gains, yet on each occasion, the Bears took control aggressively to pull us back inside of the Pennant Setup. So are there explanations for these reversals that are all so common across the Forex Market or should we put them down to just being random movements?

The Pennant Setup on the Daily Chart was formed by waves of Uptrends and Downtrends since June of this year. Within the last few weeks, we saw the first attempt to break out of this attempt with a strong Bull Candle at Resistance. However, this was followed up by sharp Bearish Candles that took the pair back inside of the Consolidation.

DAILY CHART- FALSE BREAKOUT SIGNALS

After only managing to reach half-way inside of the Pennant, we saw another attempt to head higher and breakout once more. This was given with a smaller candle signal but a very strong one nonetheless that usually leads to successful breakouts. Yet, once more, the Bulls were taken out by sharp Bearish Candles that have taken us back below the Resistance boundary. Based on this, it is very possible that we see a break to the Support boundary at 1.0815.

DAILY CHART - EXPECTED BREAK TO SUPPORT

These scenarios are very common traps that lead to trading losses. Breaks of Consolidation barriers are usually strong indicators that a profitable move will take place, offering large gains in a very short time. So it is no exaggeration to say that these losses can be surprising and frustrating for traders -especially when the signals are strong.

Based on what I have observed in the market over the years, I have found that there are 3 main categories of Breakout Signals that appear at Consolidations and only 1 of these leads to profitable breakouts. I have also noted that these candles also have to break the Resistance/Support boundary by a large enough distance in order to justify entry.

TAKEN FROM THE TRADING MANUAL 

("Successful Currency Trading With the Daily & 4 Hour Time Frames"-
Available as part of the Swing Trading Course at www.drfxswingtrading.com)

The first Candle that attempted the break out is one of those that have a low probability of success and should be avoided. The 2nd Candle is actually one of those that are normally safe to trade but the distance by which it broke the Resistance was not enough. Ideally, more than half of the body of the Candle needs to close beyond the boundary.

DAILY CHART- TYPES OF BREAKOUT SIGNALS

In order to have a correct signal, therefore, the type of candle and the distance of the breakout need to be appropriate. Once you are able to identify these types of Candles and examine if they should be traded based on these and other criteria in the Trading Manual, you will be able to avoid these traps and focus on those that lead to profitable moves.

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AUD USD STRONG RALLY OR FALSE BREAKOUT AHEAD - forex news trading system

AUD USD STRONG RALLY OR FALSE BREAKOUT AHEAD ~ forex news trading system

The Range Setup on this pair was finally broken with a strong bull candle breakout signal. This signal - a Normal Candle - has also broken the strong Downtrend Line that was formed with the breakout from the large Pennant Setup started in November of 2014. Given these strong bullish technical signals that point to the start of a strong breakout, many traders would be getting ready to capture hundreds of Pips from this expected rally. However, as attractive as this setup is, there a 3 other important, more dominant technical factors that may lead to either a False Breakout or a breakout that is volatile and risky to trade.

The breakout candle that was given on Monday April 28 can be seen in the Daily Chart below.

DAILY CHART- BREAKOUT SIGNAL

From Section 8 of the 2nd Part of the Trading Manual, we can see that this candle which broke above the Resistance, complies with all of the requirements of a Normal Candle that would usually make this a tradeable setup.

Even though the Stop Loss on the 4 Hour Chart would not meet the 4th criterion in the Trade Sheet for an immediate “ENTRY USING THE DAILY CANDLE”...;

4 HOUR CHART - BREAKOUT SETUP

...we would simply wait for a follow-up signal that meets the next set of criteria and trade accordingly. Nevertheless, due to 3 important, overriding factors about this pair’s setup, we are unlikely to reach or need to wait on this signal.

Trends eventually come to an end and the Range Setup that we have here can lead to the start of a new trend. However, there usually tends to be a major factor or combination of reasons that dictate when this trend change will take place - reasons that are not yet seen for this pair.

THE BREAKOUT EQUIVALENT OF THE PENNANT

Major trend changes can occur if the Breakout Equivalent of a large Consolidation has been hit. Since these areas generally lead to strong pullbacks, they can lead to a gradually change in the overall trend of a pair. The larger the Consolidation, the stronger the expected pullback and the more likely that a new trend direction materializes.

In the current scenario, we can see that the Pennant Setup that was broken was fairly large. Based on how the Breakout Equivalent of these Large Pennants is measured, this area would lie below the Outer Uptrend Line.

DAILY CHART - PENNANT BREAKOUT EQUIVALENT

TREND LINE BOUNCE

Significant trend changes also take place when major Trend Lines have been hit. The momentum that the pullbacks at these areas normally produce is usually strong enough to lead to a new trend. The Outer Uptrend Line on this pair has been in place since early 2001, forming its 2nd Support point between 2008 and 2009 when global Risk-Appetite returned to the financial markets.

DAILY CHART- NO TREND LINE BOUNCE

As can be seen here, we are still some distance away from this important Trend Line. This could therefore reduce the strength of any bullish U-Turn that takes place in an attempt to resume the overall Uptrend of this pair.

SIZE OF THE SETUPS

Despite the significance of Trend Line Bounces in leading to major U-Turns, successful reversals can still take place without these boundaries being hit. Nevertheless, the setups that would allow for this are normally large and in sync with the previous setups that formed that Trend Line. The charts below show that the two Support Points that formed the Outer Uptrend Line were noticeable larger than the current Range Setup.

  

1ST SUPPORT POINT SETUP

These were a pair of wide Double Bottoms that were formed over a 6- month period between the end of March and the end of September of 2001.

2ND SUPPORT POINT SETUP

This setup was a fairly large Pennant Setup that also took 6 months to be formed between 2008 and 2009 before leading to the sharp 3-year breakout.

CURRENT RANGE SETUP

This present Range Setup is very small in comparison to those previous Support Points and has taken only 3 months to be formed. These factors give it a very low probability of leading to a breakout similar in size to those that started in 2001 and 2009.

In the absence of a stronger setup and convincing technical factors, preference for the existing trend is always preferred. It is still possible for the pair to rally for several hundred pips, but it is more likely that either a False Breakout or a volatile rally that is difficult to trade takes place.

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