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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350 PIPS NZD JPY SHORT TERM RALLY LONG TERM DOWNTREND - forex trading system rating

350 PIPS NZD JPY SHORT TERM RALLY LONG TERM DOWNTREND ~ forex trading system rating

This pair has finally come to the end of a very strong Uptrend that began in June of 2012, reaching its peak in March of this year. As with most trend changes that are about to take place, the market goes through a period of Consolidation in the form of a Range or a Pennant before breaking out in the new direction. As these patterns are being formed, however, they can also provide setups to trade between Resistance and Support. Such an opportunity may be seen in the next few days if the 2nd Support price point is formed. Once a strong enough Bullish Candle signal appears to also break the current Downtrend Line, a rally of 350 Pips will be on offer for the sharp Swing Trader.

Looking at the figure below, we can see the current sideways movement of the pair that followed the end of the Uptrend. The Inner Uptrend Line was broken and is now hovering above the Outer Uptrend Line, indicating an imminent trend change bearish.

DAILY CHART

The chart below shows us more closely the Pennant pattern gradually being formed above this Outer Uptrend Line. The Resistance boundary has already been formed but with only one Support price point so far, a rally back to Resistance would be needed to complete the Pennant.

DAILY CHART

Such a rally would need to be started with a strong enough Bullish Candle to justify trading the mini-uptrend. This can be similar to the two previous U-turns at the 1st Support point and the 2nd Resistance point.

DAILY CHART

After this rally takes place, we could see another downtrend back to Support. If a major trend change bearish is actually going to take place for the NZD JPY, the Support boundary and the Outer Uptrend Line will be broken simultaneously.

DAILY CHART

This setup to start a new downtrend would be similar to the one that occurred in April of 2013. The Inner Uptrend Line at the time was broken along with a small Range setup.

DAILY CHART

The breakout continued until the Outer Uptrend Line was hit to then continue the overall Uptrend. The major difference between this scenario and the one currently taking place, however, is the size of the Consolidation. The larger the Consolidation being formed after a very long trend, the greater the chance of a trend change. If this is accompanied by a break of an Inner Trend Line, this probability increases even more.

While this trend change looks likely to take place later this year, profitable gains can be had in the short-run. If the setups and trends that are formed inside the Pennant are strong and clear, a few hundred pips can be added to your trading account over the next few weeks.

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300 PIP AUSSIE BREAKOUT MAY HAVE TO WAIT - forex trading system requirements

300 PIP AUSSIE BREAKOUT MAY HAVE TO WAIT ~ forex trading system requirements

This pair has recently attempted to start a breakout from a Range on the Daily Chart, with a break of a Counter Trend Line (CTL) setup below the Support. This is a common way for Consolidation breakouts to begin following a test of the Range with this CTL barrier. However, the bearish break candle was not strong enough and would need to be followed by another bear candle to convincingly start the downtrend. Nevertheless, with a break of the Uptrend Line already taking place and a False Breakout of a previous Consolidation, it is only a matter of time before the USD begins to regain lost ground against its Aussie counterpart.

We can see the CTL setup that was broken in the graph below. CTLs tend to appear at the Resistance or Support of a broken Consolidation as a way of testing these areas before the breakout begins.

DAILY CHART

Despite being a strong candle on its own, the break below the CTL was not far enough to start the breakout. The distance below the CTL normally has to be greater such as in the example below for the CAD CHF this year.

DAILY CHART- CAD CHF

Whenever the breakout is not strong enough, one of two things can take place. There could either be a False Breakout that takes us back inside of the Range or another, stronger bear candle that continues the breakout short. What could tip the balance in favour of a bearish move, however, are three technical factors;

1. The Break below the Uptrend Line;
2. The Plateauing, Sideways Movement of the Currency Pair;
3. A Previous False Consolidation Breakout;

It is very common for trend changes to follow False Consolidation Breakouts and periods of sideways movements. There was a Pennant setup on the left-hand-side of the chart that attempted to break long to continue the uptrend, but this was short-lived, giving way to the Range setup that we now see. These two Consolidations side by side then created a type of plateau which normally means that the momentum of the trend has been exhausted. If we add a break of a Trend Line into the mix, then a trend change is the inevitable outcome.

DAILY CHART

Once this bearish trend gets going, the target that is expected to be hit in the short-term is the 0,9000 area. This coincides with the Breakout Equivalent of the Range and is the price point at which the breakouts from Consolidations come to an end.

DAILY CHART

So long as the signals and setups on the Daily and 4 Hour Charts are strong, we can capture a large part of this expected 300- Pip decline.

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KIWI DOLLAR 10 PIPS AWAY FROM SHARP DECLINE - forex trading scalping system

KIWI DOLLAR 10 PIPS AWAY FROM SHARP DECLINE ~ forex trading scalping system

Following a strong False Breakout rally for the Kiwi against the US Dollar, the currency pair has now settled above the Resistance of its Range just 10 Pips away from a major Resistance formed 3 years ago. If this price is hit over the next few days, we are likely to see a sharp decline of several hundred Pips that carries it back inside the Range and possibly even lower over the next few months.

The Daily Chart below shows the False Breakout below the Support of the Range that turned into the sharp rally over the last few weeks.

DAILY CHART

Despite the fact that False Breakouts usually lead to a break at the other end of the Consolidation, the Bull Candles above the Resistance have so far been very weak. This gives us a very small probability of a continued breakout that supports further gains for the Kiwi. One reason for this might be due to the fact that we are very close to a major Resistance that was formed in August of 2011- a major Resistance that has not yet been tested. 

As we can see from the graphs below, this Resistance was formed when the strong 2-year rally came to an end and led to the formation of a large Pennant setup. Any Resistance or Support price formed when a major trend comes to an end is likely to lead to sharp reversals when tested for the first time. Whenever such a test is close to taking place, the market tends to hesitate ahead of this test-partly due its significance and partly because of the growing expectations of the trend reversal to follow.

DAILY CHART

  

 DAILY CHART

 

Assuming that the market will rally to hit this Resistance, let´s see what is likely to take place thereafter. This pullback would take us back inside of the Range where it could continue to oscillate between Support and Resistance, moving by 230 Pips on each occasion.

DAILY CHART

If the Candlestick Signals are strong enough with little volatility, trading within this Range can be very profitable. ABC Signals, Consolidation breaks and Trend Line breaks are possible signals that could provide entry signals inside of this setup.

Alternately, instead of continuing to move inside of the Range, the pullback at Resistance could lead to an even stronger breakout that breaches the Support, the Resistance of the large Pennant and an Uptrend Line. This would take us down to the 0,7900 area of Support over the next few months, as the US Dollar recovers lost ground of over 900 Pips.

DAILY CHART

Trading this breakout would also involve the use of ABC Signals, Consolidation breakouts as well as Counter Trend Line breaks. Trades can be held for a much longer period over the course of weeks or months, with less monitoring required compared to trading within Ranges. 

Under both scenarios, the signals and the corresponding setups given on the Daily and 4 Hour Charts need to be strong and clear enough. Once these are provided and the trade meets the other criteria established to justify entry, consecutive gains will be realized by traders.

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