GBP USD CLOSE TO WEEKLY RANGE - forex trading system rules

GBP USD CLOSE TO WEEKLY RANGE ~ forex trading system rules

The GBP USD has been moving in step with the EURO USD as both pairs decline in sync with strong gains for the Greenback across the Forex market.  Similar to the EURO USD, the Sterling pair is closing in on its Weekly Range target which lies only 120 pips away. When that area is hit in the next few days, we could see a temporary pullback or consolidation take place before the downtrend continues. On the other hand, the slow and staggered nature of the downtrend also points to the possibility of a large Range being formed in the months ahead.

Daily Chart below shows that the pair is very close to hitting its first Weekly Range target of the new downtrend.

DAILY CHART

Within a very short time after hitting this price area, we could see one of two alternate scenarios unfolding.

SCENARIO 1

• A Pullback/Small Consolidation;
• New Bearish Signal to Continue Downtrend;

If the downtrend is going to continue in the next few weeks, we could either have a temporary pullback or a small consolidation being formed. This will then give way to another bearish signal to resume the existing trend direction.

DAILY CHART

  

After resuming the trend, the currency pair will decline until the 2nd Weekly Range Target is hit.

SCENARIO 2

• A Rally that starts a Consolidation;

The slow nature of the downtrend suggests that a Consolidation could also be formed over the next few months. If this is going to take the form of a Range, then the Weekly Range target that will be hit would represent the Support boundary of that Range.

DAILY CHART

 

Only time and traders will show us what actually transpires in the next few days. However, given the manner in which currency pairs behave based on the types of candles and their Weekly Range, these are likely to be the scenarios to look out for going forward.

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MONTHLY RANGE PUTS EURO AUD AT MAJOR CROSSROADS - forex trading system simple

MONTHLY RANGE PUTS EURO AUD AT MAJOR CROSSROADS ~ forex trading system simple

After completing a Bear Crown setup that led to a strong downtrend of over 1,000 Pips, the EURO AUD is now at a crossroads that could either lead to more gains for the Aussie or a strong trend change altogether.

The Chart below shows how this downtrend began, the breaks of the Uptrend Lines and the current Pennant setup that the pair has now formed. 

DAILY CHART

Bull and Bear Crowns as well as the breaks of Trend Lines are typically what we see when major trend changes take place. Traders can either enter at the start and hold trades for long periods or can aggressively trade the waves of the trend. As this trend continued to create lower lows, the Monthly Range of the pair was also breached. Trends that reach this important price point will either pause for a period before resuming the trend or change direction. In the chart below, we can see that this pause took the form of a Pennant that was eventually broken, indicating that we could see a continuation of the downtrend. 

DAILY CHART

On the other hand, as we can also see from the chart above, the current Pennant that has been formed has moved the pair above the Inner Downtrend Line. This could indicate that the current downtrend may actually be coming to an end, given the slow and unconvincing breakout from the larger Pennant. Currency pairs can exceed their Monthly Ranges to give the impression that the trend will continue but the longer the trend takes to get going, the more likely that a trend change will take place. The chart below shows how these two scenarios could unfold.

DAILY CHART 

A simple bearish breakout from the Pennant could be the signal required to continue the existing trend. If the candle given to start this breakout is strong enough, entry can take place there with the appropriate target of between 100 and 200 Pips. However, this Pennant may also be the Centre Tip of a possible Bull Crown that starts a new trend above the Downtrend Lines. One would have to wait for a Right Tip that completes the Bull Crown or another formation before considering entry to go long. Strong trend changes require strong setups and the current Pennant is not large enough to support a trend change. 

Only time will tell what takes place with this currency pair. Regardless of the ultimate direction, we can take advantage by patiently waiting on the appropriate Daily and 4 Hour Chart signals for profitable trades.

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USD JPY BREAKOUT SHORT CRISIS LOOMING - forex day trading system simple 1m scalping strategy

USD JPY BREAKOUT SHORT CRISIS LOOMING ~ forex day trading system simple 1m scalping strategy

As we continue to struggle in a very low liquidity environment for the Currency Market, the USD JPY has also fallen victim to the absence of meaningful, tradeable volatility. This has led to the formation of a 145-Pip Range within which the pair has moved since the middle of April this year. Short-term aggressive traders may have profited from this period of market indecision by trading between Support and Resistance despite the erratic nature of the candles. However, those focused on the larger picture could be rewarded for their patience with a strong bearish breakout of 300 Pips that seems to be looming following the break of two previous Uptrend Lines. 

The chart below shows the Range within which we have been for the last 3 months. Traders who enter and use the Resistance and Support boundaries for Stop Losses would have done so at the 102,75 and 101,30 price areas, respectively.

DAILY CHART

Trading based solely on Support and Resistance without strong candle signals can be a very risk strategy given the possibility of large price spikes at these areas. The absence of such strong candle signals also leads to unexpected Double Tops and Bottoms that appear at the mid-point of these Ranges. On the other hand, if these Range traders were to instead take a broader look at this currency pair, they would see the potential for even larger gains in the next few days.

The chart below shows that this Range is actually sitting atop the Outer Trend Line that has been in place since November of 2012. We can also see that the movement to this Trend Line followed the break of two Inner Trend Lines.

DAILY CHART

In general, trend reversals tend to occur whenever there are successive breaks of trend lines and/or long periods of indecision and sideways patterns. Whenever they are as large as the patterns that we are seeing here, however, they are usually associated with a major change in investor sentiment such as with the GBP USD prior to the safe-haven trading of 2008;


DAILY CHART - GBP USD

And the return of risk-appetite to the markets in 2009;


DAILY CHART - AUD USD

Given that we are seeing something very similar with the USD JPY, we are very likely to see a significant trend change associated with another major shift in market sentiment. If this actually takes place, it is likely to start with a break of the Support of the current Range setup.

DAILY CHART

Even though such a major trend change could last for several months, lets  examine what can take place in the very short-run period of 7 to 14 days.

As the breakout begins, there will be several price points of Support to provide traders with good exits for their trades. However, given the precocious nature of breakouts, the trader would need to know beforehand that a particular Support point targeted for profit, will in fact be hit before the trend ends.

This is where the concept of the Breakout Equivalent becomes useful. It measures the distance over which the breakout is expected to take place before coming to a slow or abrupt end. Knowledge of this price and how to measure it allows traders to set their pre-determined pip targets with greater certainty and avoid the trap of unexpected reversals. If this breakout actually takes place in favour of the Japanese Yen, the Breakout Equivalent target would be at 98,40, some 300 Pips away from the current price. 

This concept can be seen throughout the Currency Market, with the USD CAD providing a very recent example.

DAILY CHART - USD CAD

In this case, the Breakout Equivalent took us very close to a major Uptrend Line that started in September of 2012. You will also notice that the breakout signal was strong enough to give traders the added confidence that we would not fall into the trap of a False Breakout to go long. Once a strong enough signal is given to start a breakout, pre-determined targets can be comfortably set to capture between 100 and 200 Pips (125 Pips in this example). 

Another major issue related to these setups is the holding period for our trades. Breakouts can last anywhere from a few days to a few weeks depending on the speed of the market and the size of the Consolidation. This means that two currency pairs with similar size Ranges can reach their respective target at different times. Given that we do not necessarily want to hold our trades open indefinitely, what would determine our decision to stay in these trades for 4, 7, 10 or 14 days?

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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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TRANSITIONING FROM DAY TRADING TO SWING TRADING - no brainer forex trading system

TRANSITIONING FROM DAY TRADING TO SWING TRADING ~ no brainer forex trading system

Forex Trading has become a very popular means of earning income by individuals all around the world, ever since the market was opened up for Retail Trading several years ago. Those who have been successful in this challenging market have done so by Scalping, Day Trading or Swing Trading the major Currency Pairs each month, with a wide range of trading strategies. As lucrative as Scalping and Day Trading have proven to be for most of these traders, many have chosen to move away from these shorter term strategies in favour of the larger trends of Swing Trading. This style of trading is not as aggressive nor as exciting as the other strategies, but provides less exposure to market volatility and is a flexible, practical option for those with a non-Forex full-time job.

Despite the intention to trade the market with this new approach, however, many have found the transition very difficult given the new way of thinking that successful Swing Trading demands. The previous habit of analyzing the market and expecting a profitable move each day or week may create unrealistic expectations. One may also find it difficult to allow trades to move towards their targets without a micromanagement approach that was required in previous strategies. If, however, the trader were to practice and implement the following safeguards in a disciplined manner on a regular basis, a successful transition to Swing Trading will be realized.

OPEN UP ARBITRARY TRADES

On a Demo Account, open a position on two uncorrelated pairs and leave them for 7 days or until they are closed. This can be based on a strategy that you have already identified to use before going Live or a random selection if you are searching for that ideal strategy. Only check on the trades at the end of each day at 5 00 pm EST. 

Ensure that all charts related to the trades are closed as well as anything that allows you to see the value of the trade/Account Balance. You should only be able to see that the trades are still open by viewing an Open Position tab on your platform such as this one;

This will allow you to become accustomed to the time it takes for these trades to reach their targets, without the pressure of a Live Account. You will also appreciate that despite the longer holding period for these trades, a few days can go by in the blink of an eye.

CLOSE THE SMALLER TIME FRAMES

The temptation to look at the daily movements of the market will follow new Swing Traders, depsite knowing the greater accuracy of the Larger Time Frames. To overcome this problem, the trader MUST close all of the Time Frames below the ones chosen for Swing Trading (generally 4 Hour Charts and higher are used). This will gradually reduce the impulse to constantly check on a trade because of small movements that have little bearing on the major trend direction.

STOP FOLLOWING THE NEWS

Yes, you read that correctly. Economic news released to the market each week can cause spikes and heightened volatility that can be very profitable for Day Traders within minutes. However, these reactions tend to be incorporated into the signals that are seen on the Higher Time Frames at the end of the day. You simply analyze the market in the context of this signal and then trade accordingly. 

Once the setup is clear enough, you can make your trade decision without concern about the nature of the data nor the reaction of the market earlier in the day. It is even more important to not follow market news while the trade is in motion so that you dont second-guess yourself based on minor news items. As you pay less attention to these releases, you will realize that the most profitable swing trades do not require an awareness nor an understanding of the underlying economic fundamentals.

TRUST YOUR STRATEGY

As with most things in life, once a system has been proven itself to be good enough to be implemented, it will work on most occasions. Trust that your Swing Trading system will continue to work for you as it did on a Demo Account. It does not have to be accurate 100% of the time to be profitable so you just have to allow the winning trades to compensate for the losing ones. The habit of monitoring trades and exiting early because of a temporary pullback will only compromise the long-term profitability of the strategy. Trust your strategy, stick with it and it will reward you each month with large rates of return.

________________________________________

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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
Website: www.drfxswingtrading.com

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11 YEAR SUPPORT KEEPS AUD NZD IN CHECK - forex trading system signals

11 YEAR SUPPORT KEEPS AUD NZD IN CHECK ~ forex trading system signals

This pair has just completed another bearish wave within a large Pennant setup on the Daily Chart to now settle at the Support area of 1,0615. This Consolidation has been formed following a strong downtrend in favour of the Kiwi, stretching back to March of 2011. It also coincides with a major Support area of 1,0612 being tested for the first time since being formed by a set of Triple Bottoms between 2003 and 2008.  Now that the pair has reached this important juncture, we will either see a rally to return to the Resistance of the Pennant or a strong break of the Support to continue the downtrend for the rest of 2014.

The chart below shows us the current position of the pair within the Pennant. Following a short-lived breakout above the Resistance, it U-turned sharply to return inside of the Consolidation, forming a downtrend line in the process.

DAILY CHART

In the next chart, we can see the downtrend that preceded this Pennant which led to the 3-year decline of over 3,000 Pips.

DAILY CHART

We can further appreciate the significance of the current consolidation by looking at the set of Triple Bottoms that were formed over a five year period. When tested for the first time, major Support or Resistance areas such as these usually lead to strong pullbacks or large Consolidations being formed. They can then lead to either a complete reversal in the trend or a breakout that resumes the current direction of the market.

DAILY CHART

So given this overall setup for the pair, what are we likely to see take place in the next few days or weeks? Taking a closer look, we can see that a rally to Resistance would lead to a break of the downtrend line formed while a continuation of the overall downtrend will require a strong break of the Support boundary. 

DAILY CHART

In either case, we are likely to see a short period of Consolidation above this Support before a clear picture emerges. For the pair to provide an opportunity for trading, the signals given on the Daily and/or the 4 H Charts will also have to be strong and clear. 

One of the risks of trading within Consolidations, however, is that the movements can be very erratic. Sometimes the signals and the trends that follow can be strong and smooth in one direction and then be unexpectedly volatile and risky when going in the other  direction. This requires carefully choosing the best signals for entry. A trader should also ensure that there is at least 100 Pips of gains that can be comfortably attained as the smaller the distance between the boundaries the more volatile the trend becomes.

Breakouts from these boundaries also have to be careful analyzed to avoid unexpected reversals- the dreaded False Breakouts. Given the size of this Consolidation, a breakout should be preceded by the formation of a setup such as a smaller Consolidation or a Counter Trend Line. Both can be formed within the boundary or shortly after it is broken. This becomes increasingly necessary when the currency pair is close to or has reached its Weekly or Monthly Range as is the case here, since False Breakouts tend to appear at these areas if there arent any of these breakout setups- the main reason for the False Breakout at Resistance.

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