Category: Forex Technical Analysis

This section covers all educational articles on technical analysis. it is the root category for the different categories related to TA. We will cover everything needed to master technical analysis. Articles on Price action, Elliott Wave, harmonic, Technical Indicators will be covered and placed in its own category.

Categories
Forex Elliott Wave Forex Market Analysis

AUDUSD Consolidates its Gains Expecting the US Employment Data Ahead

The price of AUDUSD reached a fresh yearly high at 0.74496 on the Thursday trading session expecting the last employment data release of the year for the US labor market corresponding to November. 

(Source: tradingeconomics.com)

Technical Overview

This year, as illustrated in the previous chart, Australia’s unemployment rate peaked at a record high of 14.7% in April, mainly boosted by the coronavirus lockdown. In this context, the analysts’ consensus expects the unemployment to drop to 6.8% for November, from 6.9% reported last October.

The mid-term Elliott wave perspective displayed in the 12-hour chart below reveals the upward progression in an incomplete five-wave sequence of Minor degree labeled in green. This bullish impulsive move began on March 18th when the Aussie found fresh buyers at 0.55063.

The previous chart also shows the Aussie’s advance in a third extended wave, suggesting that the price action could be moving in its fourth wave in green, still in development. 

This scenario considers that the Aussie moves in its internal wave (c) of Minuette degree labeled in blue, developing an ending diagonal pattern. Likewise, the wave of the upper degree corresponding to wave ((b)) of Minute degree identified in black should correspond to an expanded flat pattern, and the price should realize a new decline,

The alternative count considers the advance in the fifth wave of Minor degree in green is developing an internal ending diagonal pattern. In this case, the Aussie should start a decline corresponding to wave A in green.

Technical Outlook

The short-term Elliott wave for AUDUSD exposed in its 4-hour chart shows the advance in an ending diagonal pattern, which looks developing its fifth wave of Subminuette degree labeled in green.

Although the ending diagonal pattern suggests completing the fifth wave or wave (c), the Aussie must confirm its completion through the breakdown of its base-line that connects the waves ii and iv, in green. Also, the price should confirm the close below the intraday demand zone between 0.73492 and 0.73571.

Finally, if the price confirms its downward correction, the potential target area for this movement is from 0.7265 and 0.7144. If the area fails to hold, and the bearish pressure extends this downward movement, the Aussie could visit the base of its sideways channel on the psychologically key level of 0.70.

Categories
Forex Elliott Wave Forex Market Analysis

Is GBPUSD Preparing a Reversal Move?

The GBPUSD pair is seen advancing in an ending diagonal pattern inside an incomplete flat pattern of Minor degree, identified in green, which is in progress since September 01st when the Sterling found resistance 1.34832. 

The GBPUSD pair is seen advancing in an ending diagonal pattern inside an incomplete flat pattern of Minor degree, identified in green, which is in progress since September 01st when the Sterling found resistance 1.34832. 

The GBPUSD pair is seen advancing in an ending diagonal pattern inside an incomplete flat pattern of Minor degree, identified in green, which is in progress since September 01st when the Sterling found resistance 1.34832. 

 

Technical Overview

The previous 8-hour chart exposes the advance in a potential flat pattern (3-3-5), which currently develops its wave B of Minor degree identified in green. In this context, once the current corrective rally ends, the next potential move, according to the Elliott Wave theory, could correspond the wave C. This movement should follow an internal structure subdivided into five wave segments.

Analyzing wave B’s internal structure, currently, we see the price advancing in its wave ((c)) of Minute degree labeled in black. In this context, according to the textbook, the pattern identified in the current wave ((c)) has the shape of an incomplete ending diagonal pattern.

On the other hand, looking at the price and time relationship presented in the first chart, it is interesting to compare the elapsed time of the current wave B with wave A. This comparison suggests that the current wave B can be thought of as a corrective rally; thus, the next move could become an aggressive decline. 

Nevertheless, considering that the current wave B remains in progress, the short-term bias is still on the bullish side.

Technical Outlook

The next 8-hour chart shows the GBPUSD advance in its fifth wave of Minuette degree, labeled in blue, which belongs to the wave ((c)), in black, suggesting a terminal movement.

In this context, the price’s test of the upper sideways channel trendline suggests that the Pound Sterling could develop an expanded flat pattern. This Elliott Wave pattern’s implication makes us consider a strike over the origin of wave A located at 1.34832, where the pair should start to decline, developing its wave C in green.

Finally, both the ending diagonal pattern and the expanded flat pattern requires the pair to confirm the breakdown below the demand zone between 1.33135 and 1.32876. If the pair’s price action confirms this breakdown, it could move down up to the level of 1.29144.

Categories
Chart Patterns Forex Daily Topic

Chart Patterns: Ascending Triangles

[caption id="attachment_57083" align="aligncenter" width="3338"] Ascending Triangle[/caption]
Ascending Triangle
Ascending Triangle
[caption id="attachment_57083" align="aligncenter" width="3338"] Ascending Triangle[/caption]

Of all the bullish continuation patterns that exist, few are as sought after as the ascending triangle. Like all triangle patterns, their development and construction are dependent on two trendlines that intersect and form an apex. The two primary identifying conditions of an ascending triangle I a flat, horizontal top and an upward sloping trendline.

Ascending Triangle
Ascending Triangle

In addition to the two trendlines, there is a specific kind of behavior that the candlesticks must perform. The upper trendline and the lower trendline must be touched at least twice. Ideally, and according to Bulkowski, there should not be much open space inside the triangle. The same volume behavior that occurs in other triangles occurs here in the ascending triangle: price often breaks out in the final 2/3rds of the triangle, and volume decreases before the breakout. The psychology behind the formation of the ascending triangle is essential to understand. The pattern represents an apparent battle between longs and shorts. Short traders are under the impression that because the resistance level has been tested and has held, it will remain stronger. Long traders are under the impression that prices will move higher because of the formation of higher lows and an upward sloping trendline. Ultimately, shorts cover very quickly, just before or immediately after the breakout of the upper resistance.

Bulkowski recorded that, in equity markets, the breakout direction of an ascending triangle is upwards 64% of the time. Dahlquist and Kirkpatrick recorded that upwards breakouts occur 77% of the time. Interestingly, the performance of this pattern is roughly average across all patterns – this is contrary to the belief of many traders who self-report a high positive expectancy of upwards breakouts. Dahlquist and Kirkpatrick did warn that there are many false breakouts and that failure rates are between 11% and 13%.

As with any pattern, it is essential to pay attention to price action first and then find tools to help you filter whether an entry at the breakout is appropriate. Additionally, be wary of throwbacks as they are frequent over 50% of the time – many conservative traders wait for a retest of the breakout to confirm a valid break from the ascending triangle.

Sources:

Kirkpatrick, C. D., & Dahlquist, J. R. (2016). Technical analysis: the complete resource for financial market technicians. Upper Saddle River: Financial Times/Prentice Hall.

Bulkowski, T. N. (2013). Visual guide to chart patterns. New York, NY: Bloomberg Press.

Bulkowski, T. N. (2008). Encyclopedia of candlestick charts. Hoboken, NJ: J. Wiley & Sons.

Bulkowski, T. N. (2002). Trading classic chart patterns. New York: Wiley.

Categories
Forex Market Analysis Forex Technical Analysis

NZDJPY Fills the Gap Unfilled Since May 2019

The NZDJPY advanced 5.70% in November, consolidating the price in the extreme bullish sentiment zone. Likewise, as illustrated in the following daily chart, during December’s kickoff trading, the cross reached the yearly high of 73.831, filling the gap that opened on May 06th, 2019.

The NZDJPY advanced 5.70% in November, consolidating the price in the extreme bullish sentiment zone. Likewise, as illustrated in the following daily chart, during December’s kickoff trading, the cross reached the yearly high of 73.831, filling the gap that opened on May 06th, 2019.

The NZDJPY advanced 5.70% in November, consolidating the price in the extreme bullish sentiment zone. Likewise, as illustrated in the following daily chart, during December’s kickoff trading, the cross reached the yearly high of 73.831, filling the gap that opened on May 06th, 2019.

Technical Overview

The previous chart also exposes the cross advancing in a mid-term uptrend drawn in blue, which remains active since last March 18th, when the price found support at 59.490. Likewise, we distinguish an accelerated short-term bullish trend plotted in green, which began in early November. 

The 2.774 reading observed in the EMA(60) to Close Index leads us to suspect that the impulsive bull market developed in the NZDJPY cross seems to be in an exhaustion stage. Therefore, the cross is likely to develop a reversal movement in the following trading sessions.  

Nevertheless, before taking a position on the bearish side, the price action must confirm the reversal movement. 

Technical Outlook

The following 12-hour chart presents the mid-term Elliott Wave view or the NZDJPY cross. The drawings reveal the cross advancing in an incomplete fifth wave of Minuette degree, labeled in blue that belongs to the fifth wave of Minute degree, in black.

NZDJPY’s price movements reveal an impulsive five-wave sequence of Minute degree identified in black, which began last March 18th, when the cross found fresh sellers after the massive sell-off developed in the global stock market. 

Likewise, once the extended third wave (in black) ended, the cross developed a sideways movement as a flat pattern, which found fresh buyers at 68.633. In this context, considering the Elliott Wave theory and that wave ((iii)) was the extended wave, the next impulsive wave ((v)) (in black) can’t be extended and should look similar to wave ((i)), also in black. 

On the other hand, watching the fifth wave’s internal structure (in black), the wave (ii) (in blue) looks like a complex correction, and the third wave is the extended movement. In this context, the current wave (v) (in blue), which is still in development, shouldn’t be an extended rally.

Consequently, the cross could complete its fifth wave of Minute degree in the area defined by the psychological levels between 74.00 and 75.00. Finally, until the cross shows evidence of a reversal, such as a bearish engulfing candle, we should consider the cross’ trend as bullish.

Categories
Forex Elliott Wave Forex Market Analysis

EURJPY Advances Toward Key Supply Zone

In our latest EURJPY analysis, we commented on its advance in an incomplete corrective structure identified as a triangle pattern, which remains in development since mid-2014.

In our latest EURJPY analysis, we commented on its advance in an incomplete corrective structure identified as a triangle pattern, which remains in development since mid-2014.

In our latest EURJPY analysis, we commented on its advance in an incomplete corrective structure identified as a triangle pattern, which remains in development since mid-2014.

Technical Overview

Also, we saw that the mid-term trend looks like an incomplete corrective structure, which seems to advance in a wave B of Minor degree, labeled in green. Moreover, the structure observed previously unveiled the progress in an incomplete wave ((b)), identified in black, which should develop a bounce toward the supply zone between 125.285 and 126.123.

The price action is currently seen advancing in its wave (c) of Minuette degree, labeled in blue, which has now reached the supply zone between 125.285 and 126.123 forecasted in our previous analysis.

On the other hand, the current wave (c), in blue, that remains in development could extend its gains toward the psychological barrier of 126, where the cross could start to decline to the wave ((c)), in black. This bearish sequence, possibly developed with five internal segments, should complete the wave B of Minor degree, in green.

Short- term Technical Outlook

The EURJPY in its 2-hour chart reveals the internal structure created by the wave (c), in blue, which shows the intraday ascending channel plotted in green. The price action that has surpassed the ascending channel’s upper line suggests the rise of the third wave of Subminuette degree labeled in green that is in progress.

In this context, according to the Elliott Wave theory, once the EURJPY completes the advance of the third wave, in green, the cross should experience a limited decline corresponding to the fourth wave in green. This drop could reach the demand zone between 124.931 and 125.128, where the price could find fresh buyers expecting the price to head toward new highs.

The fifth wave’s potential target zone, in green, is located between 125.939 and 126.497. In this area, the cross could complete the wave ((b)) of Minute degree in black. 

Finally, the invalidation level of this intraday bullish scenario is found at 124.566, which corresponds to the top of the first wave of Minute degree.

Categories
Forex Elliott Wave Forex Market Analysis

Is AUDUSD Turning Bearish?

In our previous technical analysis of the AUDUSD pair, we mentioned the potential corrective formation that was developing. In particular, we warned about the progress of an incomplete fourth wave of Minute degree identified in black, in which the pair was advancing on the wave (b) of Minutette degree in blue.

In our previous technical analysis of the AUDUSD pair, we mentioned the potential corrective formation that was developing. In particular, we warned about the progress of an incomplete fourth wave of Minute degree identified in black, in which the pair was advancing on the wave (b) of Minutette degree in blue.

In our previous technical analysis of the AUDUSD pair, we mentioned the potential corrective formation that was developing. In particular, we warned about the progress of an incomplete fourth wave of Minute degree identified in black, in which the pair was advancing on the wave (b) of Minutette degree in blue.

Technical Overview

As the previous chart shows, the price action seems moving in a mid-term sideways channel. This formation has been evolving since early September, when the price topped at 0.74134. In terms of the Elliott Wave theory, the figure shows the progression of a likely incomplete flat pattern (3-3-5).

In this context, the bearish rejection below September’s high of 0.74134 should confirm the end of wave (b), in blue, and the beginning of wave (c). Also, according to Elliott’s textbook, the coming wave (c) should follow an internal sequence subdivided into five waves.

The big picture of the AUDUSD pair currently reveals the gray box’s rejection suggested in our previous analysis. From here, the Aussie could start to decline in a five-wave sequence corresponding to the already mentioned wave (c) of Minuette degree, labeled in blue. 

Moreover, after wave (c) completes, the Australian currency should also end its wave ((iv)) of Minute degree in black and giving way to a new impulsive wave corresponding to the fifth wave of the same degree.

Short-term Technical Outlook

The AUDUSD price exposed in the next 2-hour chart reveals the completion of wave c of Subminuette degree identified in green, which topped at 0.74076 on November 30th, as the price action developed an ending diagonal pattern.

Once the price touched the psychological barrier of 0.74, the price began to decline, developing a breakdown below the baseline of the ending diagonal pattern, piercing the demand zone between 0.73492 and 1.73571, where the Aussie started a consolidation in the current trading session.

Considering that the pair started to consolidate, we expect an intraday sideways formation, likely a flag pattern. In this context, if the price breaks and closes below the baseline of this flag pattern, the AUDUSD could confirm the bearish continuation, which could make it drop to the next demand zone between 0.72654 and 0.72801.

Likewise, the price could extend its declines toward the next demand zone between 0.71449 and 0.71651. The movement, developed into a five-wave sequence, should complete the wave (c) of Minuette degree identified in blue, which, at the same time, could confirm the end of wave ((iv)) of Minute degree labeled in black, as we said earlier.

The invalidation level corresponding to this downward scenario is placed at the high of wave c, in green,  0.74076.

Categories
Forex Elliott Wave Forex Market Analysis Forex Signals

Is EURNZD Developing a Terminal Formation?

The EURNZD cross presents a downward sequence in its 12-hour chart that began on August 20th when the price found fresh sellers at 1.82238. This sequence formed three internal segments and, recently, is likely forming a reversal movement in the following trading sessions.

Technical Overview

The previous chart illustrates the bearish primary trend identified with the descending trendline, drawn in blue. Moreover, the secondary trend, plotted in green, reveals an aggressive decline that is happening since October 20th when the cross found resistance at 1.80212. But we see all that the EURNZD price seems to have found support on November 23rd on 1.69472. Currently, the price action appears consolidating in a narrow range between 1.69622 and 1.70645.

In Elliott Wave theory terms, the cross is advancing in an incomplete downward corrective sequence of Minute degree identified in black, which currently is drawing its wave ((c)). Likewise, its internal structure suggests the progress in the fifth wave of Minuette degree labeled in blue.

The following 2-hour chart reveals the EURNZD cross is moving mostly sideways following a descending wedge breakout, or in terms of the Elliott Wave theory, an ending diagonal breakout. 

Nevertheless, the bullish reversal is still unconfirmed as long as the cross keeps moving below the level of 1.70486.

Short-term Technical Outlook

The EURNZD cross shown in its 2-hour chart below presents a sideways movement below the pivot level of 1.70486, which could correspond to the fifth wave of Minuette degree, labeled in blue. 

Considering that the cross remains in a consolidation structure, there are two potential scenarios:

  • The first scenario occurs if the price action breaks and closes above the 1.70486 pivot level. In this case, the EURNZD could develop an upward movement. According to the Dow Theory, the cross should make an upward motion to the area between 1.73016 and 1.76560. Likewise, the invalidation level for this reversal scenario is seen on 1.69472, which corresponds to the low made on November 24th.
  • The second scenario calls for the price to drop and close below the 1.69472 level. If that happens, the cross could continue its decline toward the lows zone made in January, near the 1.6650 level. The price could find support and complete the wave ((c)) of Minute degree labeled in black. In this scenario, the invalidation level would be located above the last relevant swing high of 1.70961.

However, let’s remember that as long as the price doesn’t confirm any breakout, bullish, or bearish, the bias should be kept neutral.

Categories
Forex Elliott Wave Forex Market Analysis Forex Price Action Forex Technical Analysis

Is EURGBP Ready for a Fresh Rally?

In our latest EURGBP technical analysis, we commented on the cross moving in an incomplete sideways corrective formation of Minor degree, identified in green. Its internal structure suggested the completion of a double-three pattern of Minute degree.

In our latest EURGBP technical analysis, we commented on the cross moving in an incomplete sideways corrective formation of Minor degree, identified in green. Its internal structure suggested the completion of a double-three pattern of Minute degree.

In our latest EURGBP technical analysis, we commented on the cross moving in an incomplete sideways corrective formation of Minor degree, identified in green. Its internal structure suggested the completion of a double-three pattern of Minute degree.

Also, we saw the pierce and bounce of the September 03rd low at 0.8658, when EURGBP dropped to 0.88610, found fresh buyers there, and created an intraday impulsive move identified as the first wave of Minute degree, labeled in black.

As the next 4-hour chart shows, once the EURGBP cross completed its first wave, in black that belongs to wave C, in green, it reacted mostly bearish, developing a correction, extending the move below our forecasted area, and testing the lows of the previous bullish impulsive move.

The breakout of the short-term descending trendline confirmed the end of wave ((ii)) of Minute degree and the beginning of the third wave of the same degree, which remains in progress.

Likewise, in the last chart, we distinguish the advance of the third wave of Minuette degree identified in blue in its internal structure.

Short-term Technical Outlook

The short-term Elliott Wave view of the EURGBP cross, unveiled in the below 4-hour chart, reveals the breakout of the descending trendline that follows the wave ((ii)) identified in black, which suggests the beginning of a new rally.

Once the price found fresh buyers at 0.88998, the cross began to advance mostly bullish in an impulsive sequence of Minuette degree, identified in blue, that remains in progress. This upward move corresponds to the internal structural series of wave ((iii)) of Minute degree that belongs to wave C of Minor degree, in green.

Furthermore, considering the reduced period it took for the first stage of wave (iii) to complete, It is plausible that the third wave in progress will be the extended wave, as the Elliott Wave theory states that only one extended wave would occur in an impulsive structure. 

In this context, the current upward move could advance to the next supply zone between 0.90446 until 0.90686. But, if the cross maintains its bullish momentum, it could strike the next potential target zone between 0.91260 and 0.91464.

Finally, the current bullish scenario’s invalidation level is 0.88610, which corresponds to the origin of the wave C in green.

 

Categories
Forex Elliott Wave Forex Market Analysis

EURJPY Advances from Demand Zone Forecasted

In mid-November, we commented about the technical market context of the EURJPY cross, as its big picture displayed in its weekly chart revealed a technical formation identified as a triangle pattern, which continues progressing since mid-2014.

Moreover, our previous mid-term Elliott wave analysis in its 12-hour chart revealed the advance of an incomplete corrective structure of Minor degree, which currently advances in wave B in green.

In this regard, our main outlook anticipated the progress in its wave ((b)) of Minute degree identified in black. The internal structure also suggested a limited decline toward the demand zone between 122.951 and 122.317. Once reached, the price could have completed the internal wave (b) of Minuette degree labeled in blue. 

Once the cross completed its wave (b), in blue, the cross should begin its wave (c), in blue, with a potential target in the supply zone between 125.285 and 126.123.

Technical Outlook

Currently, the EURJPY cross in its 12-hour chart reveals the bounce from the previous demand zone forecasted, where the price began to advance in its wave (c) in blue.

In the previous chart, we distinguish wave (c)‘s upward progress, which should evolve in a five-wave sequence according to the Elliott Wave theory. The figure also shows the potential target zone between 125.285 and the psychological barrier of 126.

This price landscape brings us three potential scenarios for the current upward movement:

  • First scenario: The EURJPY cross reaches the supply zone between 125.285 and 126.123, completing its wave ((b)) in black, and the price starts to decline in an internal five-wave sequence corresponding to wave ((c)).
  • Second scenario: The cross’ short-term rally fails to surpass the end of wave (a), in blue, and begins to decline. This scenario should be indicative of strong bearish pressure.
  • Third scenario: EURJY price action surpasses the invalidation level located on 127.075. In this case, the cross could be creating a bullish breakout of the long-term triangle, suggesting the continuation of the long-term bullish trend.

Nevertheless, before placing any position on the bearish side or continue on the bullish side, the price action must confirm the end of wave ((b)) in black.

Categories
Forex Elliott Wave Forex Market Analysis Forex Technical Analysis

AUDNZD: Potential Bounce among Overall Weakness

This analysis discusses AUDUSD’s overall Elliott Structure, the likelihood of a short bounce in the AUDUSD, and its potential continuation.

This analysis discusses AUDUSD’s overall Elliott Structure, the likelihood of a short bounce in the AUDUSD, and its potential continuation.

This analysis discusses AUDUSD’s overall Elliott Structure, the likelihood of a short bounce in the AUDUSD, and its potential continuation.

Technical Overview

In our last AUDNZD technical analysis, the Oceanic cross was moving in an incomplete complex corrective sequence corresponding to wave (c) of Minuette degree labeled in blue, which belongs to wave ((y)) of Minute degree identified in black. 

As illustrated in the following 8-hour chart corresponding to our previous mid-November analysis, we commented on the broadening corrective formation the cross develops, which implies an acceleration of the downward sequence. Also, the move that pierced below the wave (a) in blue suggested further declines in the following trading sessions.

Likewise, we observed the potential bearish reaction areas for the decline until two potential demand zones. The first one located between 1.05186 and 1.04870, and the second one bounded between 1.03511 and 1.02864.

On the other hand, according to the Elliott wave theory, a complex corrective formation as a double-three pattern follows an internal sequence subdivided into 3-3-3, where each “three” corresponds to a single complete corrective wave.

Once completed, the current corrective structural series of wave 2 or B of Minor degree, the AUDNZD cross should give way to the start wave 3 or C, in green.

Technical Outlook

The AUDNZD cross in the next 8-hour chart exposes the price action advancing in its wave iii of Subminuette degree labeled in green, which belongs to the incomplete wave (c) of Minuette degree identified in blue. 

Considering the acceleration present in wave (c), the cross could develop an internal upward corrective movement corresponding to wave iv, in green. This move could find resistance in the adjacent supply zone between 1.0457 and 1.05603, where the cross could resume its downward movement, leading it to complete the wave ((y)) of Minute degree and, in consequence, wave 2 or B, in green. 

Once the current downward sequence finishes, the Oceanic cross will be ready for a new long-term rally corresponding to wave 3 or C, in green, which according to the Elliott wave theory, should be the largest wave of the impulsive sequence.

Finally, the invalidation level for the short-term bearish scenario is found at 1.07029, above the end of wave ii in green.

 

Categories
Forex Elliott Wave Forex Market Analysis

Beware of these Supply and Demand Zones on the GBPJPY

The short-term overview for the GBPJPY pair reveals the sideways movement in a trading range bounded by its 90-day high and low range between levels of 133.040 and 142.714. The cross recently developed a rally that found resistance in the bullish sentiment zone resistance located on 140.296, where the GBPJPY presents a set of scenarios.

The short-term overview for the GBPJPY pair reveals the sideways movement in a trading range bounded by its 90-day high and low range between levels of 133.040 and 142.714. The cross recently developed a rally that found resistance in the bullish sentiment zone resistance located on 140.296, where the GBPJPY presents a set of scenarios.

The short-term overview for the GBPJPY pair reveals the sideways movement in a trading range bounded by its 90-day high and low range between levels of 133.040 and 142.714. The cross recently developed a rally that found resistance in the bullish sentiment zone resistance located on 140.296, where the GBPJPY presents a set of scenarios.

Technical Overview

The following 12-hour chart illustrates the short-term market participants’ sentiment bounded by the 90-day high and low range. The figure presents a bullish bias that remains active since the GBPJPY found fresh buyers on 133.040.

After the cross found resistance at 140.296, the price action retraced it until a neutral zone located on 137.877, forming an intraday sideways channel that suggests a pause in the short-term bullish cycle.

On the other hand, the following figure unveils that the retail traders’ market sentiment is positioned on the bearish side. As the chart shows, 75% of retail traders hold their positioning on the sell-side, which is contrarian.

(source: myfxbook.com)

In this context, we can see that numerous retail traders are expecting a downward movement, while the price action remains moving in the bullish sentiment without exposing a reversal pattern. Thus, it is plausible the GBPJPY pair could develop a new upward movement.

Short-term Technical Outlook

The short-term Elliott Wave view shows a movement inside an incomplete corrective wave of Minor degree, labeled in green, which could be in its wave C. 

The following chart shows the price action developing an upward corrective rally, which could correspond to a wave (ii) or (b) of Minute degree identified in green. In this context, the following movement should correspond to wave (iii) or (c).

Under this scenario, if the supply zone between 139.831 and 140.315 confirms the end of the current second segment, in blue, GBPJPY should begin a decline to the first demand zone between 137.594 and 137.196. Moreover, the market action could extend its down move toward the next demand zone between 134.997 and 134.404.

An alternative scenario considers the possibility of the price extending its advance beyond the 140.315 level. In this case, the GBPJPY could find fresh sellers in the next supply zone between 141.759 and 142.714. The pair could complete its wave B in green and start to weaken, developing the wave C subdivided into a five-wave sequence with a potential target in the demand zones identified in green.

Finally, the invalidation level of the bearish scenario is set above the origin of wave A in green at 142.714

Categories
Forex Elliott Wave Forex Market Analysis Forex Technical Analysis

Would you Trade this CADJPY Pattern?

The CADJPY cross moved up in the Tuesday trading session, boosted by the stock market’s risk-on sentiment. Although the cross advances 2.25% during the current month, the price is under -4% (YTD).

The CADJPY cross moved up in the Tuesday trading session, boosted by the stock market’s risk-on sentiment. Although the cross advances 2.25% during the current month, the price is under -4% (YTD).

The CADJPY cross moved up in the Tuesday trading session, boosted by the stock market’s risk-on sentiment. Although the cross advances 2.25% during the current month, the price is under -4% (YTD).

Technical Overview

The CADJPY prices represented in the next 12-hour chart reveal the short-term market participants’ sentiment moving in the 90-day high and low range. The figure illustrates the cross advancing mostly upward in the bullish sentiment zone.

On the other hand, the previous chart presents a contracting triangle, which began in early June when CADJPY found fresh sellers on 81.909, followed by a first support level at 77.614. According to the classic chartist theory, the triangle pattern distinguishes itself as a continuation formation. In this case, this contracting triangle suggests further upsides.

In this regard, the likely next move could lead to a test of its intraday resistance of 80.591: this level corresponds to the bullish sentiment zone’s resistance, as well. If the price overcomes it and extends its upward advance, the cross could reach its supply zone between 80.985 and 81.424, a level that matches the triangle pattern’s upper trendline.

Conversely, a downward correction could drop it to its demand zone between 79.468 and 79.237.

Short-term Technical Outlook

The short-term Elliott Wave view for the CADJPY cross displayed in the next 4-hour chart reveals the advance in an incomplete internal structural series of a contracting triangle pattern, which currently advances developing its wave (e) of Minuette degree, labeled in blue.

The previous chart presents the price advancing in the wave b of Subminuette degree, identified in blue, which belongs to wave (e), also in blue. According to the Elliott Wave theory, the triangle pattern follows an internal sequence subdivided into 3-3-3-3-3 waves. In this context, and observing its advance in the triangle formation, the cross could develop its latest decline before starting a rally that corresponds to wave ((c)) of Minute degree, labeled in black.

The current downward move, corresponding to wave c, in green, could reach two potential demand zones. The first one is located between 79.468 and 79.237, whereas the second one is seen from 78.878 to 78.394.

Once CADJPY starts to get fresh buyers, the cross could experience a strong rally and test June’s high zone of 81.909.

Finally, the bullish scenario has its invalidation level below the wave (a) of Minuette degree in blue located at 77.585, under the contracting triangle pattern limits.

Categories
Forex Indicators

What is the Best Forex Trading Software?

Several software categories could fit into this question, depending on if you are looking for a platform that connects to a broker market feedback, automated trading software, trade analysis software, standalone or web-accessible, or some other utility with a specific role such as the one that copies trading signals. Forex trading software that brings the […]

Several software categories could fit into this question, depending on if you are looking for a platform that connects to a broker market feedback, automated trading software, trade analysis software, standalone or web-accessible, or some other utility with a specific role such as the one that copies trading signals. Forex trading software that brings the […]

Several software categories could fit into this question, depending on if you are looking for a platform that connects to a broker market feedback, automated trading software, trade analysis software, standalone or web-accessible, or some other utility with a specific role such as the one that copies trading signals. Forex trading software that brings the market to your screen is also called a trading platform or a client. To other people trading software is an automated solution that trades autonomously, commonly known as trading robots. However, we are going to give you some insight into what software might be the best for you if you are starting with forex trading. 

Firstly, you need to know that MetaTrader 4 and 5 from MetaQuotes is the most supported trading platform and probably the only one you will ever need. Metatrader platforms are at the top of the market share in their category. There is no need to tell you about the history of how this came to be, but more about why. 

MetaTrader platforms pushed to the top for several reasons. Their products are easy to use and set up. Metatrader is supported by Microsoft operating systems, Apple OS and it is also developed for Android. Additionally, to completely leave no uncovered space, Metatrader is also available through the web browser. So if you do not have it installed, you only need an internet connection and trading account credentials. Metatrader platform is also free. When you have this combination of availability and no barriers to entry it is very easy to conquer the market. Although that software needs to cope with the traders’ needs and also be supported in various ways.

Metatrader developed great options for analysis such as their Strategy tester module, good customizability of charts, a good overview of the trades, markets, and easy orientation. The platform became popular and the network of supported broker grew to the point almost all brokers have this platform offered. The main advantage of the Metatreder platforms is their ability to have custom indicators and scripts. The MQL language is easy to learn and is a no brainer for established coders. MQL language paved the way to make so many indicators and utilities for the MetaTrader platforms traders can make specialized strategies and chart analysis not possible with any other software.

Modified MT4 or MT5 with these utilities can become unrecognizable from the default looks. Many traders have gathered together to create forums, coders enjoyed the demand to create customized indicators but also customized automated scripts. MetaTrader platforms allowed Expert Advisors or EAs to be plugged in like any other indicator or utility. Everything became big enough to form a completely new marketplace for these products, some are free while some are sold for a couple of thousand dollars. MetaTrader platforms became the mainstream and there is no sign anyone new will come in to replace all this.

The platform locked down and denied the competition with this huge support and network. Metatrader 5 is the newest iteration and it is not very well received. Mostly because it does not deliver a much better experience and the huge support is slow to adopt the MQL5 language. MQL4 made indicators and tools are not compatible with the MT5, they have to be rewritten. This problem created an adaptation gap to the point MetaQuotes stopped issuing new MT4 licenses to brokers to force the shift to the new MT5. MT4 is still the most used platform and most supported yet the MT5 is slowly taking over. 

MT4 and MT5 are not that different, you will barely notice the difference, however, MT5 has better options and follows new developments in the technology, but nothing revolutionary. As a new trader, it is better to start with these platforms right away than to get accustomed to broker proprietary software.

Proprietary trading software is developed with ease of use as the primary goal. When you look at the MetaTrader platform the first impression is that you do not want to mess with its unattractive layout. There are a lot of details, numbers, lines and everything is crammed into a few windows. It will seem you will have to face a steep learning curve to trade with this platform while the proprietary platform is very easy. Brokers will want to get you into trading quickly, before you lose interest, as many do. That is why everything is hidden that seems too complex, sometimes even missing key trading information such as the spreads. Proprietary platforms partially serve as marketing more than as a functional trading platform. Furthermore, even they look better, they may not perform better. 

Not all brokers offer their own platforms, and not all proprietary platforms are inferior to the Metatrader. Two such examples are with the OANDA and Forex.com brokers. OANDA has a very beginner-friendly platform with good utilities and presentations about the position sizes. If you are starting with a demo account and find Metatrader just too much, consider this proprietary platform for practice. You will get a feeling about proper money management as it has more calculation options. Forex.com also has a proprietary platform that has a lot of advanced features not found in Metatrader.

The analysis is more advanced, has more modules and news plugged in, and many more options. Additionally, the Forex.com platform has an incredible array of markets and assets. Simply, Forex. Com is a large broker brand and can afford to develop such platforms. On the other hand, know no proprietary platform allows custom made indicators and utility as the MetaTrader. If you really want to dive into forex charting and analysis tailored to your strategies, Metatrader will probably suffice even when you get advanced. 

When we talk about other, web-accessible trading platforms, TradingView is unavoidable. This is a subscription, web-based portal that offers a great way to charting and advanced technical analysis. It is packed with tools, it is easy on the eyes, and has a good structure. Definitely more attractive than the Metatrader, however, it does not quite match the tools range Metatrader has with its vast community. TradingView also supports indicator making, has some other abilities Metatrader simply lacks but is not quite trading oriented. It is more an analysis platform than trading. In that sense, you can do many useful things such as making your own currency baskets, indexes, advanced chart comparisons, and so on. Most experienced traders use this platform as an additional analysis utility. If you are new to trading, try it as you learn the basics. 

Other trading platforms are also good and in some aspects more advanced than the Metatrader. One such standalone platform is the Nninjatrader. The platform surpasses the analysis potential however it still cannot match Metatrader’s third-party add-ons availability. If you want to trade live with this platform, you will also have to purchase it. 

Now, if you do not want to spend time learning forex trading, you have other investment options, options where you invest your capital into managed portfolios or use copy trading platforms. One such popular platform is ZuluTrade. Copy-trading became popular and is still booming for people who just want to copy what good traders are doing, so they can copy their performance too. Copy-trading also requires some research on how to recognize a good trader.

Typically, you will want to seek out long term consistency, steady growth, and noting extreme like triple-digit percentages in a single month. People get hooked on performance rates, neglecting the long term risk. Drawdown and trading frequency are also parameters you will need to pay attention to with this platform when copying others. Also, consider diversifying and follow different traders or strategies as this platform also supports aggregated subscriptions. 

Categories
Forex Elliott Wave Forex Market Analysis

Is the US Dollar Index Ready for a Bounce?

The US Dollar Index (DXY) advances in the extreme bearish sentiment zone finding an intraday support on Monday’s trading session at 92.016. During this intraday bounce, the price jumped to the extreme bearish zone’s resistance, where the price action started to consolidate. Even considering this intraday recovery, the Greenback accumulates losses of nearly 4.40% (YTD).

The US Dollar Index (DXY) advances in the extreme bearish sentiment zone finding an intraday support on Monday’s trading session at 92.016. During this intraday bounce, the price jumped to the extreme bearish zone’s resistance, where the price action started to consolidate. Even considering this intraday recovery, the Greenback accumulates losses of nearly 4.40% (YTD).

The US Dollar Index (DXY) advances in the extreme bearish sentiment zone finding an intraday support on Monday’s trading session at 92.016. During this intraday bounce, the price jumped to the extreme bearish zone’s resistance, where the price action started to consolidate. Even considering this intraday recovery, the Greenback accumulates losses of nearly 4.40% (YTD).

Technical Overview

The US Dollar Index, represented in its 8-hour chart, shows the market sentiment’s participants moving within its 90-high and low range, and it reveals the bearish pressure on the Greenback. In this regard, as long as the price keeps moving below 92.663, the short-term trend should stay mostly bearish.

On the other hand, the big picture under the Elliott Wave perspective illustrated in its 8-hour chart reveals the progress in an incomplete corrective formation, which could correspond to a flat pattern.

According to the wave theory, the flat pattern follows an internal sequence subdivided into 3-3-5. In this case, the Greenback should advance in a rally in a wave ((c)) of Minute degree identified in black subdivided into five segments.

An alternative scenario considers the possibility of a triangle pattern (3-3-3-3-3) or a double-three (3-3-3) in progress. However, the structure observed until this point doesn’t allow us to confirm or discard any of these potential Elliott wave formations.

Short-term Technical Outlook

The Greenback in its 4-hour range unveils the completion of the wave ((b)) of Minute degree labeled in black in the demand zone between 92.019 and 91.750, where the price bounced from on Monday’s trading session until 92.800.


Once the price reacted mostly upward, the US Dollar Index began to decline in a wave ii or B of Subminuette degree identified in green. In this regard, a bullish confirmation should lead us to expect further upward movements that could boost the price toward the next supply zone between 93.343 and 93.545.

If the Elliott wave formation corresponds to a Flat pattern, the price could surpass the supply zone level of 94.303 and seek to test the end of wave ((a)) located on 94.742.

On the other hand, we should be aware that a rally in the US Dollar Index implies a potential drop in the pairs against the US Dollar, for example, EURUSD or GBPUSD.

Finally, the return to a  bullish scenario holds its invalidation level at 92.016, which corresponds to the bottom of the first upwards move identified in green.

Categories
Forex Elliott Wave Forex Market Analysis

NZDUSD Reaches a Fresh 90-Day High

The NZDUSD pair ends the last trading week reaching its seventh fresh 90-day range high soaring to 0.69507. This advance brought the Oceanic currency to a close in the extreme bullish sentiment zone. 

The NZDUSD pair ends the last trading week reaching its seventh fresh 90-day range high soaring to 0.69507. This advance brought the Oceanic currency to a close in the extreme bullish sentiment zone. 

The NZDUSD pair ends the last trading week reaching its seventh fresh 90-day range high soaring to 0.69507. This advance brought the Oceanic currency to a close in the extreme bullish sentiment zone. 

Technical Overview

The next chart unveils the NZDUSD pair in its 8-hour timeframe, which shows the market participants’ sentiment in the 90-day high and low range. The figure illustrates the previous 90-day high and low range located at 0.67978 from September 18th. In this regard, the latest rally started on November 02nd created seven fresh 90-day highs.

On the other hand, the EMA(60)-to-Close index shows a bearish divergence that suggests both the bullish trend’s exhaustion and the price’s potential reversion to the moving average. However, a price breakdown and close below the recent lows is needed to confirm the current bullish trend’s correction.

Short-term Technical Outlook

The short-term view of the NZDUSD cross displayed under the Elliott Wave perspective reveals the intraday upward movement advancing in an incomplete Ending diagonal pattern of Minuette degree labeled in blue. Likewise, the advance of the fifth wave in blue should correspond to the ending of the fifth wave of Minute degree identified in black. Nevertheless, the Elliott Wave formation still doesn’t confirm it.

The next4-hour chart reveals the bullish sequence developed by the NZDUSD pair since October 20th when the kiwi found fresh buyers at 0.65555. Until now, the price action advanced in an incomplete upward five-wave sequence, which reached the potential target zone forecasted in a previous analysis.

According to Elliott wave theory, the Ending Diagonal pattern follows an internal sequence subdivided into 3-3-3-3-3 waves. In this context, the previous chart exposes the terminal formation of the bullish impulsive structure advancing in its fifth wave of Subminuette degree labeled in green, which provides two potential scenarios.

  • First Scenario: The price breaks below the base-line that connects the waves ii and iv, confirming the end of the Ending Diagonal pattern and starting a corrective upper degree structure.
  • Second Scenario: The price advances slightly over last Friday’s high and starts to decline below the base-line between waves ii-iv, from where the NZDUSD should begin to develop a correction of upper degree.

In both scenarios, the confirmation of the ending diagonal completion comes from the breakdown and closing below the base-line that connects the end of waves ii and iv.

Finally, the downward scenario will have its invalidation level once the ending diagonal pattern confirms its completion.

Categories
Forex Technical Analysis

The Core Principles of Technical Analysis

Most of the content about the technical analysis will try to give you a narrow view of how we approach this analysis. And there is a reason for that. People will want what they can understand, masses are not amused with complex analysis, only a handful of people will really dive into what this analysis […]

Most of the content about the technical analysis will try to give you a narrow view of how we approach this analysis. And there is a reason for that. People will want what they can understand, masses are not amused with complex analysis, only a handful of people will really dive into what this analysis […]

Most of the content about the technical analysis will try to give you a narrow view of how we approach this analysis. And there is a reason for that. People will want what they can understand, masses are not amused with complex analysis, only a handful of people will really dive into what this analysis has to say. Therefore, limiting the technical analysis to line drawing, pattern recognition, and candlesticks is also a limitation to what you can learn unless you do your own research. 

Learning technical analysis is not hard to do, it can be as deep and complex as you want or very simple. Interestingly, technical analysis guides and books tend to repeat the same ways and tools of doing it even though it is a very wide concept. When we talk about the basics, the most dominant technical analysis methods are the Price Action patterns, candlesticks, pivots, support and resistance lines, and trend lines. They are regarded as basic since they are derived directly based on what is seen on the chart. We would also like to add they are mostly subjective even with the “rules” that define them. Technical indicators are the second method of chart analysis, also called secondary indicators by some professionals as they calculate based on the original price action data.

Volume or volatility is the third technical dimension, often missed by some analysts but very important to professionals. The last technical analysis dimension we would like to add is the timeframe or time scope. As we move on to each of these concepts, you can find traders who are successful using just the price action or only indicators without much regard to fundamental analysis. The main idea behind this is that they do not want to be distracted by the news that may not be as important or true and only want to keep the analysis based on factual data – historic price movements represented as charts. 

PA patterns are created by the price movement on the y-axis and time on the x-axis. As these shapes and patterns repeated, analysts collected them, making several most popular patterns regarded as most reliable. The patterns serve to predict the future price action once they are formed, all of these patterns point the price will likely go up o down. The most common patterns are double tops and bottoms forming the letter W and M, cup and handle, ascending and descending triangles, and the head and shoulders.

There is no good statistical record of how reliable are these patterns as they are subjective, one analyst can see the pattern others do not, or the patterns can stack one inside the other. However, they are used in conjunction with other tools and timeframes. All this can make you wonder if there is any reason to believe patterns exist or the movement is random, at the end of the day it is just another element to help you decide. The final judge of your technical analysis is the account balance. 

Candlesticks have more information about the price movement than a single line. They have several structural elements: the body color, the wick, and the top and bottom body levels. Based on these, analysts have created a plethora of patterns that aim to predict when a trend or reversal is about. Similar to price action patterns, candlestick patterns reliability cannot be tested objectively, only you can test and fit them in with other indications. Candlesticks are essential to creating pivot points, moments where the price turned in another direction. 

Pivot points consist of at least three candles and they mostly serve to draw lines, be it support and resistance, trend, channel, or Fibonacci retracement lines. Some traders will draw lines where others would not, thus a definitive support or resistance line cannot be drawn for all. The same applies to trend lines and other constructs where their form will depend on the beholder. While support and resistance lines indicate likely price direction reversal once they are reached, their interpretation can also help breakout strategies.

Now traders can get confused about whether they should enter a trade on an S/R line breakout or wait for a reversal. Of course, the price will not exactly break through the support or resistance line or bounce right off it, you will mostly see something in between. Consequently, this presents a question of how reliable can such analysis be. If we use multiple questionable elements for one comprehensive analysis, one can wonder would multiple more reliable elements result in better technical analysis and therefore trading. 

These basic technical analysis elements form the complete picture for a pure PA trader, with the addition of volume. Volume cannot be represented by a candlestick alone, nor by observing PA patterns or any other basic technical analysis element. Volume is measured and is represented as a special tool. Traders mostly use it to confirm a trend is emerging, to confirm a breakout, and also to exit any trades if the market is not active enough. Some trading strategies rely on low volume markets or sessions to avoid surprise movements. If we combine volume with other technical analysis tools, the result is almost always beneficial. Some strategies use volume or volatility to filter losing trades, others use volume for entries. 

Secondary indicators are derived from the price action statistics, numbers. At its base, they are formulas that give out a number of values. These values can be presented on a chart or in some other form in a separate plane. The basic secondary indicator is the Moving Average. MAs are very common and can be calculated in so many ways to reflect a specific price action interpretation. They can also contain other measurement values in an effort to be more reliable, lag less, and so on. One such example is the Volume Weighted MA where volume is also included in the calculation.

How a trader will use MAs depends on his goals and imagination, adding more different MAs can produce various uses, or, as some professionals do, use the MA and the price on the chart to produce trade signals when they cross. Indicators can be very complex to include many factors derived from the price action, to the point they represent complete trading solutions. Unlike PA patterns, support and resistance lines, and other subjective basic technical analysis tools, indicators are exact since they are based on data numbers. However, this does not mean they are reliable as reliability depends on the formula and how it is interpreted. 

The basic principle of technical analysis is the combination of several indicators. Some professionals just rely on how the chart looks to them and make trade decisions based on that. They do not need anything exact. Others need exact points, values, signals to the point their complete money management is based on this analysis. There are also mixed type analysis, PA lines, and patterns combined with Moving Averages and volatility indicators. The goal is to use the right combination that collectively gives meaning to a particular trader.

It is not only about combining several tools but also combining timeframes. The analysis will likely be more reliable if other time scopes are included. This will help traders to pinpoint optimal trade exits and entries and also see the bigger picture of what is going on in the market. Some strategies may require lower timeframes such as 5 minute or 15-minute candles, while other systems may work only on the daily timeframe. After all, technical analysis will become unique to a particular trader, aimed and aligned to his goals and personality. Also, be wary of over-optimizing and overcomplicating technical analysis, it is not going to result in the best performance.

Categories
Forex Elliott Wave Forex Market Analysis

GBPJPY Consolidates in the Bearish Sentiment Zone

The GBPJPY cross continues moving by its seventh session in a row in a sideways channel turning in the neutral zone. However, since the last Thursday trading session, the price is consolidating in the bearish sentiment zone.

The GBPJPY cross continues moving by its seventh session in a row in a sideways channel turning in the neutral zone. However, since the last Thursday trading session, the price is consolidating in the bearish sentiment zone.

The GBPJPY cross continues moving by its seventh session in a row in a sideways channel turning in the neutral zone. However, since the last Thursday trading session, the price is consolidating in the bearish sentiment zone.

Technical Overview

 

The following 8-hour chart illustrates the 90-day high and low range, which exposes the market participants’ sentiment. The figure shows the price action moving around the pivot level at 137.877. Nevertheless, the close below the pivot level pulled the price toward the bearish sentiment zone.

Additionally, the strong bearish rejection in the price action decreasing from the extreme bullish sentiment zone of 140.296 toward the pivot level leads to suspect that the intraday upward movement developed on November 09th couldn’t be as strong as it seemed.

On the other hand, both the positive EMA(60) to Price Index and the 200-period moving average moving below the price, leads to the conclusion that the mid-term sentiment remains on the bullish side. In this regard, the short-term sideways channel’s breakdown could confirm the turning bias from bullish to bearish.

Short-term Technical Outlook

The GBPJPY cross short-term view and under the Elliott Wave perspective reveals the sideways progress in an incomplete corrective sequence that corresponds to wave B of Minor degree labeled in green.

The next 4-hour chart illustrates the advance in a broadening structural series that could correspond to a possible double-three pattern that ended once the price topped at 140.315 on November 11th.

If this scenario is correct, then the pair’s action should be advancing in wave C of Minor degree labeled in green. In this context, the GBPJPY cross should confirm the end of its internal corrective wave corresponding to wave (ii) of Minuette degree identified in blue. In this scenario, the bearish pressure could drag the price toward the end of wave A zone located between levels 133.70 and 133.

The alternative count considers the possibility that wave B of Minor degree remains incomplete and the internal structural series corresponds to a triple-three pattern. In consequence, the current downward move would correspond to the second wave ((x)) of Minute degree. If this scenario is valid, the wave (c) of Minuette degree in blue should have a limited decline, likely until the previous lows located between 135 and 134.

Finally, the invalidation level for both short-term scenarios locates at 140.315, which corresponds to the end of wave ((y)) in black.

Categories
Forex Elliott Wave Forex Market Analysis

Is NZDJPY ready for a New Upward Move?

The Elliott Wave perspective of the NZDJPY pair reveals it is moving in an incomplete impulsive sequence that began on March 18th when the price found fresh buyers at 59.49.

The Elliott Wave perspective of the NZDJPY pair reveals it is moving in an incomplete impulsive sequence that began on March 18th when the price found fresh buyers at 59.49.

The Elliott Wave perspective of the NZDJPY pair reveals it is moving in an incomplete impulsive sequence that began on March 18th when the price found fresh buyers at 59.49.

Elliott Wave Landscape

In its 12-hour chart, NZDJPY is seen progressing in its fifth wave of Minute degree labeled in black. Its internal structure reveals a sideways action corresponding to the fourth wave of Minuette degree identified in blue. Looking at this context, the cross would likely develop a new upward movement, which should correspond to the fifth wave of Minuette degree of the fifth wave of Minute degree,  following the Elliott Wave theory.

In this regard, the next movement corresponding to the fifth wave in blue of the fifth wave in black should be a terminal move. However, this potential sequence will not necessarily be an ending diagonal pattern.

On the other hand, as exposed in the previous chart, the third wave of Minute degree corresponds to the extended movement of the complete impulsive sequence of Minute degree. Therefore, under the EW rules, the fifth wave cannot be an extended move.

Finally, considering that the fifth wave doesn’t reveal a reversal formation, the current uptrend is likely to continue mostly bullish.

Short-term Technical Outlook

The short-term Elliott wave outlook for the NZDJPY cross displayed in the following 4-hour chart reveals the incomplete internal sequence that currently appears advancing in its fourth wave of Minuette degree identified in blue. At the same time, the corrective wave in progress is running in wave b of Subminuette degree labeled in green.

Once NZDUSD completes its wave b (labeled in green), it could develop a new decline corresponding to wave c. This intraday downward movement, subdivided into five internal segments, could fail below the latest lows, with its potential support on 71.411, where the NZDJPY cross could find fresh buyers expecting to boost its price toward the potential target zone located between 72.569, even till the psychological barrier at 73.002. This likely decline could be a “bear trap,” the big market participant could use to incorporate their long positions.

On the other hand, looking back in our first 12H chart, considering that the third wave is the extended wave,we can perceive two potential scenarios for the wave (v), in blue.

  • Scenario 1: Wave (v) doesn’t surpass the end of wave (iii) located at 72.791 and starts to decline, unveiling the bearish pressure for the cross. In this case, the price likely would pierce and close below level 71.411.
  • Scenario 2:  Wave (v) exceeds the end of wave (iii). In this case, the bullish pressure continues; therefore, the cross retracement could find support above the recent low located at 71.51.

Finally, the invalidation level corresponding to the intraday bullish scenario is 70.511, corresponding to the end of wave (i) identified in blue.

Categories
Forex Elliott Wave Forex Market Analysis

Is EURGBP Ready for an Elliott Wave Rally?

Technical Overview

Technical Overview

Technical Overview

The EURGBP cross develops an incomplete Elliott wave correction of Minor degree labeled in green, which began on September 03rd when the price found fresh buyers at 0.88658 and rallied until 0.92916, in where the cross completed its wave A in green. 

The following 4-hour chart illustrates wave B completion.  We see that its internal structure looks like a double-three pattern. This second leg started on 0.92916 on September 11th and ended on November 11th when the price found fresh buyers that boosted the cross in a move that looks like an impulsive intraday rally.

According to the Elliott Wave theory, the double-three pattern is a complex correction that follows an internal structure subdivided into 3-3-3. Likewise, in a corrective formation subdivided into three-wave movements, the segment corresponding to wave C should hold five segments inside it.

On the other hand, considering the Elliott wave theory’s alternation principle, the price likely could advance in an aggressive rally after an extended complex movement.

The cross is advancing in its wave ((ii)) of Minute degree labeled in black that belongs to wave C of Minor degree. In this context, the descending channel’s upper line’s breakout would confirm the potential bullish continuation of wave (iii).

Short-term Technical Outlook

The next 4-hour chart shows the second wave of Minute degree’s internal corrective structure, which could be advancing in its wave (c) of Minuette degree labeled in blue. 

From the previous chart, if the cross finds support in the demand zone located between 0.8917 and 0.8901, opens the likelihood of a new rally corresponding to wave ((iii)), which could advance toward the first supply zone between 0.9126 and 0.91464. The next potential target zone resides between 0.9200 and 0.9218.

On the other hand, both the breakout of the intraday descending trendline that connects the end of waves ((i)) in black and (b) in blue and the surpassing of the end of wave ((i)) will confirm the advance in wave ((iii)) of Minute degree.

Finally, the bullish turning scenario’s invalidation level locates at 0.88610, which corresponds to the origin of wave ((i)).

Categories
Forex Indicators

All You Need to Know About Manual Trading Vs. Copy Trading

These days, there are a lot of different ways that you can trade, two of the main ways that people trade include manual trading the art of performing all the market analysis yourself and then placing the trades, ad copy trading, the simple act of finding a trader that you believe has a good strategy, […]

These days, there are a lot of different ways that you can trade, two of the main ways that people trade include manual trading the art of performing all the market analysis yourself and then placing the trades, ad copy trading, the simple act of finding a trader that you believe has a good strategy, […]

These days, there are a lot of different ways that you can trade, two of the main ways that people trade include manual trading the art of performing all the market analysis yourself and then placing the trades, ad copy trading, the simple act of finding a trader that you believe has a good strategy, and simply copying their trades onto your own account. The latter is fastly becoming one of the more popular ways to trade with multiple platforms appearing allowing people to copy other traders’ trades. We are going to be looking at the advantages and disadvantages of both so you can compare which method of trading may be best suited for you.

Manual Trading

If we start by looking at manual trading, this is the traditional style of trading that you see in the movies or have most likely read about online. This form of trading involves you looking at the markets, working out the direction of your trade, and then placing your trade in line with your strategy and any risk management plans that you have in place. There are a number of different advantages when it comes to manual trading, the first point to make is that when you are trading in a manual manner, you are less susceptible to certain events such as economic news, simply because you are in control of your trades and can decide not to put any trades on during these times.

You are also able to perform better than a computer in regards to placing trades, simply due to the fact that you have experience, your own intuition, and are able to make decisions based on real-world events that a robot may not be able to. The other main advantage is simply the fact that as a human trader you have the ability to analyse more variables that influence the markets whereas a computer will not be able to.

Having said that, there are also some disadvantages to trading in a manual manner, this includes the fact that as a human, you are prone to emotions, these emotions can have an effect on your trading and can potentially cause you to make mistakes. Trading can also take a long time, time that you do not always have and so you may need to make sacrifices to other parts of your life to trade properly. Due to this, he may also have to sit at the computer for long periods of time, making it a little boring if nothing is happening. Your trading will also be limited to your availability, you can only trade when you are there at the terminal, so this will be limited by things like sleep and work.

So that is manual trading, but what exactly is copy trading? There are actually a few different versions of copy trading including, signals, mirror trading, and social trading. Each one has a similar concept, you are finding a trader and then simply taking their trades and putting it onto your own account, hence the term copy trading. It takes a lot of responsibility, but you are putting your accounts and trades in the hands of someone else. So let’s take a quick look at the different versions and advantages of these trading methods.

Copy Trading

Specifically for copy trading, there is a master account that is controlled by a person. Then there are then a number of copy or save accounts that are linked to that original account. When a trade is placed on the master account, it is automatically copied to the copy accounts. The advantages of this sort of trading include that you can trade with very little knowledge of forex, there is no need for you to monitor your trades all day long, you won’t miss any trades as you are taking the same ones as the trader is, you have the opportunity to learn from the taker by watching what they are doing, you are also able to diversify your portfolio while at the same time keeping your risk low.

There are of course some downsides to copy trading, these include the fact that your account is out of your control, you are automatically copying trades, so if bad trades are made, you will make them too. You also can’t make any decisions based on your own findings or initiatives. Finally, you won’t gain as much knowledge and experience simply copying someone rather than doing the work yourself.

Mirror Trading

There is also mirror trading. It probably sounds pretty similar due to the names of copy and mirroring. The main difference is that with copy trading you are copying from a single trader, with mirror trading, you are taking trades from a basket of traders, you don’t necessarily have a choice of which traders and which trades to mirror, just that you will get some from that basket of traders.

Some of the advantages of this style are the fact that it does not take a lot of time at all, the trades and analysis are done by other people. There is a reduced risk when compared to copy trading due to there being a choice of multiple traders rather than just one. The potential for consistent profits are higher and can be expected due to the trading models generated from mirror trading, there are also no emotions when trading like this as they cannot affect the trades that are being put on.

There are of course some disadvantages too, including the fact that you are not in control of the trades that your account is making, the algorithms used to choose the trades are also often not known which can make it hard to know why certain trades are being made. It is also important to note that this form of automated trading is not recommended for beginners, as you need some form of understanding when choosing which traders to have in your basket.

Social Trading

The other style of trading is social trading, this is a mix between the other two, this is where there is a kind of marketplace where you can view other traders or trades and choose which ones to copy, it gives little more control over what you trade and copy.

The advantage of this style of copy trading is that you have more control over what you are trading. You are also able to engage with other traders, getting and giving ideas on trades, and working out different reading strategies. There is often more information available on the traders so you can better analyze their trading strategy to work out exactly what you want to trade.

There are once again some downsides, including the fact that it can take a long time to work out who to follow due to the amount of analysis that you will need to perform, you may also miss opportunities for trades if you are not at your computer, some traders and news events can have more hype than expected, giving a false sense of confidence in certain traders and some of the social trading platforms can have transparency issues, keeping their workings and costs hidden from the copiers.

So that is manual trading and copy trading, there are advantages and disadvantages both, you need to work out which one will work for you, or maybe even try a little bit of both. There Is no harm in trying multiple methods, as a beginner, copy trading is perfect, but it is always good to learn on the side so that you can later be an independent trader with the ability to trade fully yourself and not have to rely on others.

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Forex Elliott Wave Forex Market Analysis

NZDUSD: Is the Rally Over?

The NZDUSD pair continues consolidating in the extreme bullish sentiment zone, as is revealed on its 8-hour chart. The chart comprises its 90-day high and low range. Currently, the cross remains testing the psychological barrier at 0.6900.

The NZDUSD pair continues consolidating in the extreme bullish sentiment zone, as is revealed on its 8-hour chart. The chart comprises its 90-day high and low range. Currently, the cross remains testing the psychological barrier at 0.6900.

The NZDUSD pair continues consolidating in the extreme bullish sentiment zone, as is revealed on its 8-hour chart. The chart comprises its 90-day high and low range. Currently, the cross remains testing the psychological barrier at 0.6900.

In the previous chart, we can observe the five new highs in the 90-day range reached by the NZDUSD each trading day after the last range maximum, which stood at level 0.67978. This market context leads us to expect a euphoric bullish movement followed by an imminent retracement.

On the other hand, the bearish divergence in the MACD oscillator moves us to recognize the current uptrend’s exhaustion, although it remains in progress.

The next 4-hour chart shows the upward incomplete impulsive sequence, which corresponds to the fifth wave of Minute degree identified in blue that began on October 20th at 0.65555.


Currently, the price action reveals the advance in its fourth wave of Minuette degree labeled in blue. At the same time, we can distinguish the NZDUSD pair’s price running in the wave c of Subminuette degree identified in green. In this context, the intraday decline could lead the price to develop a new short-term rally subdivided into a five-wave sequence.

Short-term Technical Outlook

The short-term Elliott wave view for the NZDUSD pair unfolded in its 4-hour chart foresees further upsides, which could advance to the area between 0.6926 and extend its gains until 0.6972. This upward movement could complete its fifth wave of Minuette degree labeled in blue.

An alternative scenario considers the possibility that the NZDUSD pair could achieve a limited decline to the demand zone between 0.68452 and 0.68281, where the pair could find fresh buyers and complete its fourth wave of Minuette degree identified in blue.

On the other hand, the limited correction corresponding to wave (iv) in blue could advance toward the ascending channel’s base-line, where the cross could find its dynamic support. Once the price finds fresh buyers, the pair may advance on its fifth wave of Minuette degree into five internal segments.

Lastly, the bullish scenario’s invalidation level is at 0.67242, which corresponds to the end of wave (i) of Minuette degree.

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Forex Elliott Wave Forex Market Analysis

Is GBPJPY Brewing a New Decline?

Is GBPJPY Brewing a New Decline?

Is GBPJPY Brewing a New Decline?

Is GBPJPY Brewing a New Decline?

The GBPJPY cross in its 4-hour chart exposes an upward movement corresponding to an incomplete corrective structural series of Minute degree labeled in black that began at 142.714 on September 01st. In terms of the Wave Theory, the Elliott Wave formation in progress could agree with an incomplete flat pattern. This flat pattern may follow an internal sequence subdivision into 3-3-5 internal waves.

The previous figure shows a corrective rally corresponding to wave ((b)) of Minute degree labeled in black. This structural series shows the breakdown that the GBPJPY cross did after the price found resistance on 140.315. Moreover, the breakdown and consolidation below the intraday upward trendline suggest the completion of the wave ((b)) identified in black.

On the other hand, according to the Elliott Wave Theory, the next move that would correspond to wave ((c)) should follow an internal sequence subdivided into five movements of the Minuette degree labeled in blue.

The current consolidation sequence that is still in progress could correspond to wave (b) of the Minuette degree. However, while the price action doesn’t confirm the breakdown below the low of the November 13th at 137.541, wave (ii) will remain incomplete.

Finally, the wave ((c)) could extend its drops until the short-term ascending trendline that connects the end of waves ((a)) and (b).

Technical Outlook

The intraday Elliott wave view unfolded in the following 2-hour chart illustrates the sideways movement corresponding to an incomplete wave (ii) of the Minuette degree identified in blue. At the same time, the internal structure reveals the price action developing its wave b of Subminuette identified in green.

The previous chart suggests that GBPJPY could develop a limited recovery until the supply zone bounded between 138.65 and 138.965. Likewise, the price action could extend its gains until level 139.32. The cross could find fresh sellers expecting to incorporate their limited short positions with a potential profit target zone of the third wave of Minuette degree in blue locates in the demand zone between 136.45 and 136.03.

The bearish scenario’s invalidation level locates at 140.315, which corresponds to the downward sequence’s origin that remains in progress.

 

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Forex Elliott Wave Forex Market Analysis

EURCAD Advances in an Incomplete Triangle Pattern

The EURCAD cross reveals a mid-term consolidation formation that looks like an incomplete triangle pattern. This pattern continues in development since March 18th, when the price topped at 1.59914. In this context, this chartist pattern suggests the continuation of the previous movement, in the

The EURCAD cross reveals a mid-term consolidation formation that looks like an incomplete triangle pattern. This pattern continues in development since March 18th, when the price topped at 1.59914. In this context, this chartist pattern suggests the continuation of the previous movement, in the

The EURCAD cross reveals a mid-term consolidation formation that looks like an incomplete triangle pattern. This pattern continues in development since March 18th, when the price topped at 1.59914. In this context, this chartist pattern suggests the continuation of the previous movement, in the

The following 12-hour chart depicts the EURCAD action consolidating after a sharp rally, the cross began on February 19th when it found fresh buyers on 1.42637 and ended on 1.59914 on March 18th.

In terms of the Elliott Wave Theory, the corrective pattern presents a three-wave subdivision; the last downward move of Minute degree identified in black began at 1.59791, and current advances in its wave ((c)) in black. Likewise, its internal structure unveils four internal moves of the Minuette degree labeled in blue. 

Considering that the wave ((c)) in blue looks unfinished, the EURCAD cross could develop a new decline corresponding to its fifth wave. On the other hand, the breakout of the line that connects the end of waves (ii) and (iv) should confirm the new upward sequence that could boost the price likely toward the psychological barrier of level 1.59.

Short-term Technical Outlook

The short-term Elliott wave view unfolded in the following 4-hour chart, reveals the incomplete descending wave ((c)) of Minute degree labeled in black, which could start to advance in its fifth internal leg marked in blue.

In this context, the price could decline and found fresh buyers in the demand zone between 1.5471 and 1.5451; it even could extend its retracement to the area of 1.5408 and 1.5389, where the EURCAD cross could start to bounce.

If the price reacts mostly upward and surpasses the supply zone between 1.5538 and 1.5549, the EURCAD bias should start to turn primarily bullish. Likewise, the short-term bullish target can be found in the supply region bounded by 1.5718 and 1.5739.

Finally, if the price penetrates and closes below 1.5312, the bullish scenario will be invalid, and likely, the cross could extend its declines in “free fall.”

 

Categories
Forex Elliott Wave Forex Market Analysis

Is the EURJPY Ready to Develop a New Decline?

The EURJPY cross advances in a long-term consolidation structure, which began in early December 2016. The short-term Elliott wave view predicts a limited decline in the following trading sessions.

The EURJPY cross advances in a long-term consolidation structure, which began in early December 2016. The short-term Elliott wave view predicts a limited decline in the following trading sessions.

The EURJPY cross advances in a long-term consolidation structure, which began in early December 2016. The short-term Elliott wave view predicts a limited decline in the following trading sessions.

Market Sentiment

The EURJPY cross closed the last trading week, cutting Monday’s session gains when the cross jumped from 122.835 until 125.136, mainly supported by the stock market’s post-election rally.

The following figure shows the EURJPY in its daily timeframe, revealing the mid-term big-market participants’ sentiment exposed by the 90-day high and low range. In this context, the cross is entering into the bearish sentiment zone. However, the 60-day weighted moving average still doesn’t confirm the short-term bearish bias.

After a rally that carried the cross to advance over 11% since May 07th (when the EURJPY bottomed on 114.397 and then soared, reaching the highest level of the year at 127.075 on September 01st), the cross began to retrace, turning its mid-term market sentiment from extremely bullish to bearish.

Nevertheless, the price action still doesn’t confirm the bearish sentiment. In this regard, the short-term sentiment remains neutral until the price confirms the bias.

Technical Overview

The big picture of EURJPY illustrated in the following daily chart exposes a long-tailed yearly candlestick mostly bullish. However, the upper shadow hints at a bearish pressure near the psychological barrier of 127. Moreover, the next resistance is placed at 127.502, which corresponds to the high of 2019.

The EUJPY long-term trend under the Dow Theory perspective and exposed in the next log scale weekly chart reveals the primary trend identified in blue that remains slightly bullish.

At the same time, the secondary trend exposes the sideways movement developing as a pennant pattern, which began in early December 2016 when the price found resistance at 149.787 and could break soon.

According to the classic chartist theory, the pennant pattern is a technical figure that calls for the continuation of the previous movement. In this case, the pennant could resume the rally developed since late July 2012 at 94.114 ended at 149.787 in early December 2014.

Short-term Technical Outlook

The short-term Elliott wave view for EURJPY shows in its 12-hour chart advancing in an incomplete corrective sequence that began on May 06th at 114.397, where it completed its wave A of Minor degree labeled in green.

Once the price found fresh sellers at the highest level of the year, the cross started to advance in its wave B, still in progress. In this context, the previous chart unveils the intraday upward sequence corresponding to the incomplete wave ((b)) of Minute degree identified in black.

The price action could boost the cross until the next supply zone, located between 125.285 and 126.123, where the EURJPY could start to decline in an internal five-wave sequence corresponding to wave ((c)), in black, that may drop to 120.271, though, the price could extend its drops until 117.124.

The short-term bearish scenario’s invalidation level locates above the end of wave A in green at 127.075.

Categories
Forex Elliott Wave Forex Market Analysis

Is GBPUSD Ready for a New Decline?

Overview

Overview

Overview

The GBPUSD pair advances in an incomplete bearish corrective formation that corresponds to a wave B of Minor degree. In this context, the completion of wave B could lead to a new decline, which could drag the price below Septembers’ low.

Market Sentiment

The GBPUSD pair suffered another drop for the second day in a row, falling from the extreme bullish to a bullish sentiment zone, where it found support in the psychological barrier of level 1.31.

The following daily chart illustrates the 90-day high and low range, revealing the mid-term market participant’s sentiment. The figure shows the price action moving mostly sideways in a range that oscillates between the bearish and bullish sentiment zones; that is, between 1.27204 and 1.32289.

Furthermore, the 60-day weighted moving average is seen moving below the Pound’s price, which confirms the short-term bullish bias that carries the price.

Considering the indecision, the cable is exhibiting since last August. The intraday bias will stay neutral until the GBPUSD pair confirms its next movement, for example, through a breakout.

Technical Overview

The GBPUSD price reveals a yearly long-tailed candlestick that suggests the price will continue being dominated by the upward bias. As exposed in the following 2-day chart, the Pound erased the first 2020 quarter losses that reached up to 13.89%. The cable currently eases 0.67%(YTD).

The big picture of GBPUSD and under the Dow Theory unfolded in the next daily chart illustrates the cable developing a primary upward trend in progress, which currently could be forming a corrective secondary trend.

In this context, according to Dow Theory, the price retraced below 33% of the first upward movement, which accomplishes with the minimum requirement for a correction of the previous move of a similar level.

Nevertheless, considering that the price remains in a short-term downward trend, the price could continue developing a new bearish sequence.

Short-term Technical Outlook

The short-term Elliott wave outlook for GBPUSD unfolded in its 8-hour chart reveals the corrective rally that corresponds to an incomplete wave B of Minor degree identified in green, which leads us to expect a decline in a five-wave sequence for the following trading sessions.

 

The previous chart exposes a corrective structural series that began on September 01st when the price found fresh sellers at 1.34832 and dragged the cable until 1.26751 on September 23rd, where the pound started to advance in its wave B that remains in progress. 

In this regard, the current upward movement could find resistance in the first supply zone between 1.32069 and 1.32280. If the price extends its previous progression, creating a bull trap, it could climb until 1.33195. There, the price could start to decline in a five-wave sequence corresponding to wave C identified in green.

The potential next wave C could extend until the demand zone between 1.25658 and 1.24796, which corresponds with the mid-term descending channel’s base.

Finally, the bearish scenario’s invalidation level locates at 1.34832, which agrees with the origin of wave A in green. Nevertheless, before positioning on the downward side, the GBPUSD pair should confirm (or discard) the bearish entry. 

 

Categories
Forex Elliott Wave Forex Market Analysis

AUDNZD Continues Under Bearish Pressure

Overview

Overview

Overview

The AUDNZD cross remains moving mostly bearish in the bullish sentiment zone. It alters the price surpassing the 1.10 psychological barrier and begins a corrective sequence that remains in progress; however, this downward movement could end soon.

Market Sentiment

The AUDNZD moves mostly downward in the bullish sentiment zone, piercing July’s low area at 1.056. The Oceanic Cross advances over 1.5% (YTD).

The following figure exposes the AUDNZD cross in its daily timeframe. The chart reveals the long-term market participants’ sentiment bounded by its 52-week high and low range. The price action began a downward sequence; after that, the cross surpassed its last 52-week high of June 02nd, located on 1.08807 in a rally that elapsed six sessions in a row.

 

Moreover, the 60-day weighted moving average confirms the downward short-term bearish bias that favors the price action. Nevertheless, considering that the cross moves in the bullish sentiment zone, the AUDNZD cross’s decline could be a correction of the upward cycle that began last mid-March.

Technical Overview

The AUDNZD cross under the Dow Theory perspective reveals that the price has started to develop a bullish primary trend that began on March 18th when the price found fresh buyers at 0.99906.

The following chart illustrates AUDNZD in its daily timeframe. The figure exposes the demand incorporation below the parity, which carried up the price until 1.10438, from where the price started to decline in a secondary trend.

The retracement developed by the Oceanic cross beyond the 33% leads us to confirm that the latest decline in progress corresponds to the rally’s corrective movement that began on March 18th.

The mid-term Elliott wave view of the AUDNZD cross illustrates in its 12-hour chart the downward move in a complex corrective structure that looks like an incomplete double-three pattern (3-3-3).

The previous chart reveals the price action is moving in its wave (c) of Minuette degree labeled in blue, which belongs to wave ((y)) of Minute degree in black. Likewise, this entire move corresponds to wave 2 or B, which retraces the upward five-wave sequence that began on March 18th at 0.99906.

Technical Outlook

Once the AUDNZD found sellers at 1.07565, the Oceanic cross began its wave (c) of Minuette degree labeled in green that remains in progress.

As illustrated in the following 8-hour chart, the price could extend its declines to the area between 1.05186 and 1.04870, where the price could find support. Likewise, if the price extends its drops below 1.03511, the next movement’s strength could be limited to a re-test of the August 18th high located on 1.103.

On the other hand, if the price action breaks and closes above the supply zone between 1.06456 and 1.06718, there exists the possibility of a new rally. This new bullish leg could surpass the 1.103 mark.

Finally, the invalidation level for the short-term bearish scenario is located at 1.07565.

Categories
Forex Elliott Wave Forex Market Analysis

Is USDCAD Ready for a Short-Term Rally?

The USDCAD pair reveals a strong bearish movement that seems have found a short-term bottom. In this regard, the price could start a rally that could boost the price toward October’s highs zone.

The USDCAD pair reveals a strong bearish movement that seems have found a short-term bottom. In this regard, the price could start a rally that could boost the price toward October’s highs zone.

The USDCAD pair reveals a strong bearish movement that seems have found a short-term bottom. In this regard, the price could start a rally that could boost the price toward October’s highs zone.

Market Sentiment

The USDCAD pair continues moving in its extreme bearish sentiment zone, erasing the gains reached during the first quarter of the year when the price advanced over 13%. Currently, the Loonie gains a modest 0.67% YTD.

The next figure illustrates the USDCAD pair in its daily timeframe. The chart exposes the long-term market participants sentiment bounded by the 52-week high and low range. 

The chart reveals the price action continues developing fresh lower lows, which leads us to observe that market participants continue holding bearish positions on the pair. Furthermore, the 60-day weighted moving average continues above the price, which confirms the bearish bias that advances the price.

On the other hand, as long as the USDCAD price remains below 1.33631, the Loonie will stay under bearish pressure.

Technical Overview

The USDCAD pair exposes a bearish reversal formation that erased the progress developed during the first quarter of the year. The following weekly chart reveals a powerful bearish long-tailed candle in terms of a yearly candlestick, suggesting that the price would continue developing more declines in the long-term.

 

On the other hand, the big picture exposes a long-term sideways formation that persists since mid-2015. Likewise, the last downward movement that began at 1.46674 appears to have found a bottom on 1.29238 the current trading week. 

In this regard, if the price starts to develop a corrective rally, according to the Dow Theory, the USDCAD pair should advance to 1.35022 and up to 1.40761; this upward sequence would correspond to a valid correction of the same degree that the last bearish move developed by the pair since last mid-March.

The mid-term Elliott wave view of USDCAD illustrated in the next 12-hour chart reveals an incomplete corrective sequence that looks like a double three pattern (3-3-3) of Minor degree labeled, in green, which began on March 18th at 1.46674.

Currently, the USDCAD develops its wave ((b)) of Minute degree identified in black, which belongs to wave Y in green. In this context, the wave ((b)) looks like an incomplete flat pattern (3-3-5), which subdivides into a 3-3-5 sequence. Moreover, the actual structural series suggests that the Loonie started to develop its wave (c) of the Minuette degree labeled in blue. 

Short-term Technical Outlook

The short-term Elliott wave view of the USDCAD unfolded in the following 8-hour chart, anticipates its progress in an incomplete flat pattern, which could be starting to advance on its wave (c) of Minuette degree labeled in blue.

If the Loonie find fresh buyers in a retracement to the demand zone between 1.30433 and 1.30086, and the price breaks and closes above 1.31473, then the price could confirm the potential rally that corresponds to wave (c) of Minute degree with a potential target in the supply zone between 1.33970 and 1.34592.

Lastly, the invalidation level for the intraday bullish scenario locates at 1.29283

Categories
Forex Elliott Wave Forex Market Analysis

Euphoric Market’s Sentiment Pushes GBPCHF Up

Overview

Overview

Overview

The GBPCHF cross began the current trading week, advancing over 1.30%, boosted by the U.S. post-election rally and Pfizer’s Covid vaccine upbeat results. However, the Elliott Wave view anticipates that the euphoric rally could soon end, and the cross could reverse its course toward new lows.

Market Sentiment

The week started with a risk-on U.S. Presidential post-election stock market rally, driving the risk-off currencies to drop. In this context, the GBPCHF cross advances over 1.30% to its highest level since late September.

The following 8-hour chart displays the intraday market sentiment. Although the sideways movement predominates since late September, the strong bullish move developed in the Monday trading session takes the GBPCHF cross to the extreme bullish sentiment zone.

Likewise, we can see the price action developing above the 60-period weighted moving average, which confirms the intraday upward bias that could hold during the following trading sessions.

On the other hand, the euphoric sentiment bolstered by news media’s coverage of the U.S. elections and the continuation of the stock market rally added to the news of the promising vaccine results developed by Pfizer and BioNTech leads us to expect a limited upside in the risk-on currencies.

Technical Overview

The big picture of the GBPCHF under the Elliott wave perspective reveals its progress in a descending broadening formation. Its latest downward sequence began on December 13th, 2019, when the price found fresh sellers at 1.33113. We can see, as well, that this leg still remains in progress.

The following daily chart unveils the advance in the fifth wave of Minute degree labeled in black, which started on 1.22224, where the price action declined in a bearish impulsive movement reaching a new lower low. This decline that ended on 1.15989 completed the first wave of Minuette degree labeled in blue.

Currently, the GBPCHF cross moves in its second wave (in blue). Nevertheless, the psychological barrier of 1.20 could represent a significative intraday resistance.

Technical Outlook

The intraday outlook of the GBPCHF cross reveals the bullish continuation of the current upward momentum. The next 2-hour chart exposes the supply and demand zones according to the potential next move that the cross could develop in the coming trading sessions.

On the one hand, the price advances in its wave c of Subminuette degree identified in green, developing the third internal wave. Likewise, the retracement that should correspond to its fourth internal wave could retrace to the area between 1.19292 and 1.19694. This zone could back the possibility of a new rally that would boost the price toward 1.21012 and 1.21306. 

On the other hand, our first scenario considers the bearish continuation. In this case, if the price action penetrates and closes below 1.1803, the cross could see further declines toward the zone of 1.1650.

Finally, our second scenario considers that if the GBPCHF cross continues its advance beyond 1.22224, the cross could extend its gains toward the descending upper- trendline shown in the daily chart.

Categories
Forex Elliott Wave Forex Market Analysis

AUDJPY Could Develop a Limited Upside

Overview 

Overview 

Overview 

The AUDJPY cross advances in an incomplete upward sequence that belongs to a corrective structural series backed by Monday’s trading session’s euphoric sentiment. The Elliott Wave view unveils the likelihood of a limited upside before resuming its declines.

Market Sentiment

The AUDJPY cross retraces on the overnight Tuesday trading session after the surprising weekly kick-off, which jumped the price over 2.2%, climbing until 77.037, its highest level since September 18th.

The AUDJPY 8-hour chart illustrates the 30-day high and low range, which exposes the participants’ intraday market sentiment. The figure distinguishes the price action consolidating in the extreme bullish sentiment zone, backed by the stock market’s euphoric rally on Monday’s trading session.

The breakout of the last 30-day high of 76.274 during Monday’s trading session raised the participants’ extreme bullish sentiment, expecting further upsides on the cross. Moreover, we see that the price action remains above its 60-period linear weighted moving average, which confirms the bullish bias on the AUDJPY.

Nevertheless, the AUDJPY found resistance below mid-September’s consolidation zone. This market context expects a significative retracement or a consolidation movement before continuing the rally experienced in Monday’s session. Finally, a retracement below the 75.087 level would turn the market sentiment from bullish to bearish.

Technical Overview

The AUDJPY cross advances in an incomplete upward bullish sequence of a lower degree, which belongs to a descending structure that began on August 31st when the price topped on 78.462.

The below 8-hour chart exposes the price action running in an upward wave ((b)) of Minute degree labeled in black, which currently advances its fourth wave of Minuette degree identified in blue. Likewise, according to the Dow Theory, considering that the AUDJPY cross advanced over 66% of the bearish decline, the price should develop a bearish connector corresponding to wave ((b)).

In this context, following the Elliott Wave theory and considering the third internal segment of the intraday rally, the price could produce a limited upside toward the supply zone bounded between 77.295 and 77.497. Finally, the bearish divergence on the MACD oscillator may mean a confirmation of the upward movement’s exhaustion corresponding to wave ((b)).

Short-Term Technical Outlook 

The incomplete bullish sequence of the AUDJPY cross unfolded in its 4-hour chart exposes the progress in its fourth wave of Subminuette degree labeled in green. Likewise, considering that the third wave is the extended wave of wave (c), the fifth wave in green should not be extended.

On the other hand, considering that the second wave in green is a simple correction, the fourth wave should elapse more time than the second wave. Additionally, the fifth wave in green could extend itself between 77.140 and 77.654. The price could find fresh sellers expecting to open their shorts on the bearish side of wave ((c)) of Minute degree labeled in black. The invalidation level of the bearish scenario locates at 78.462. 

 

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Forex Indicators

Parabolic Sar Need Not be Complicated – Read these Best Practices Today!

In forex trading, some indicators are a case study in making sure you’re using the right tool for the right job and what can go wrong when you take something at face value without doing your own research. The Parabolic SAR is a great example of an indicator that absolutely crushes some traders – particularly […]

In forex trading, some indicators are a case study in making sure you’re using the right tool for the right job and what can go wrong when you take something at face value without doing your own research. The Parabolic SAR is a great example of an indicator that absolutely crushes some traders – particularly […]

In forex trading, some indicators are a case study in making sure you’re using the right tool for the right job and what can go wrong when you take something at face value without doing your own research.

The Parabolic SAR is a great example of an indicator that absolutely crushes some traders – particularly beginners and traders who aren’t properly testing their tools. Like a lot of forex trading tools out there, the SAR is advertised as being good at one thing but it turns out that this superficial understanding of it leads you down a dead-end and can cause your portfolio serious harm if you use it wrong. And, just like a lot of other indicators out there, there may well be legitimate and effective uses for it that lurk beneath the surface but that you will never discover if you just use it out of the box, without taking the time to examine it properly.

This is precisely why the parabolic SAR merits a closer look. That means both that we’re going to talk about it here but also that you should put in the work and properly test how it can fit in with your trading setup.

What is it and Why is it?

There’s a recurring theme in the forex world and the world of trading in any kind of securities more broadly and that’s that the people who dream up and develop indicators and tools are just downright bad at naming them. So many times you’ll come across a tool or method or indicator and you’ll think it’s good at doing one thing because of what it’s called but, on further examination, you’ll realize that it’s actually no good at that thing and you end up using it for something completely different – sometimes you’ll straight up use it for the opposite of its intended application.

That’s kind of the case with the parabolic SAR, which is an acronym of Stop and Reverse. The indicator was the brainchild of pretty much the daddy of a whole host of technical trading indicators – you may have run into him before but if you haven’t, his name will still crop up often enough that you’ll end up remembering it anyway: Welles Wilder Junior. He came up with some of the most-used indicators out there, the Relative Strength Index (RSI), the Average True Range (ATR), the Average Directional Index, and, among them, the Parabolic SAR.

Now, it’s true that he came up with a lot of these indicators to assist equities traders rather than forex traders – they were mostly developed in the 1970s and 80s, well before spot forex trading was even a thing – but the fact that they are still so familiar to us today speaks to the fact that there is often still some value in them. And there is potentially some value in the parabolic SAR, it’s just that it may not be in using it as it was originally intended.

Wilder developed the SAR because he was looking for a way to measure an asset’s momentum in such a way that it would be possible to calculate the point at which it becomes more likely than not that the momentum would switch direction. The idea he had was that a strong movement in the momentum takes on the shape of part of a parabolic curve. A parabolic curve looks a little like a graph of exponential growth and traces a gentle arc from the near horizontal to the near-vertical. In the SAR, the momentum doesn’t always follow through the whole curve and might only mark out a section of it – nonetheless, that’s where the first part of its name comes from.

Wilder also noticed that when the price catches up to the curve mapped out by the momentum, the odds that it would change direction became higher than the chance of it continuing in the same direction. This meeting point of the momentum arc and the price is then the stop point and a reversal here becomes likely – hence stop and reverse.

Reversal Hunting

There’s one great thing about the Parabolic SAR that’s immediately obvious to everyone who comes across this thing and that draws traders into actually using it and that is that it’s almost ridiculously easy to read.

Now, to the more seasoned traders out there that might seem like a bit of a nonsensical thing to say, they would immediately see that as a red flag and be like, “well, you know what, just because something is easy to read doesn’t automatically mean that it’ll actually work the way it’s intended”. And they’d be right of course but once you’ve been trading a while it becomes kind of difficult to take yourself back in time and put yourself in the mindset of someone who’s just starting out.

Traders who have never seen anything like the SAR before will be immediately impressed with how clear and simple it is and how straightforward the signals it sends you are. And that’s its initial appeal – it looks like it does exactly what it was advertised to do and there’s zero input required from you the trader. You just plug it in and it’s ready to go.

On the surface of it, the SAR was developed as a reversal indicator that tracks momentum and then tells you, “hey, momentum has bumped up against price here, there’s a reversal unfolding”. And if you don’t look at it in any greater depth than that, this superficial approach to it is going to lead you down a blind alley where you could find yourself embroiled in some very serious losses.

The first thing to point out here is that reversal trading is a very dangerous, high-risk business and if you’re not 100% sure of what you’re doing, it is very hard to be in the small, elite club of traders that can make it reliably and sustainably work for them. If you are new to trading or even if you have a couple of years of experience under your belt and you decide to go hunting reversals using the parabolic SAR, you are doubly in trouble. Not only will you almost certainly run into big losses running reversal trading without an array of measures and systems (such as risk assessment, money management, and a thoroughly tested and evaluated toolkit of indicators and strategies) designed to cut back on bad trades, you will also be applying the wrong tool to the wrong job.

Reversal trading is not for the faint-hearted and it most definitely is not for beginner traders. But more than that, the parabolic SAR just isn’t a good indicator for the job. It will, almost without fail, call out reversals that are immediately followed by retracements – go test it out, it’s almost uncanny.

Alternative Uses

So if it sucks at doing what its name says it’s good at, what is the SAR actually good for? Well, those of you who have by now become accustomed to taking indicators for a spin around the testing range will be familiar with this one phenomenon that crops up all the time.

What happens, even with quite experienced traders, is that you’ll take a tool or an indicator and start backtesting it, and when you see it takes you into a trade, you’ll measure out how much of a win that trade would have been. So, if you see it take you into a trade that runs for, say 600 pips, you’ll say to yourself, “awesome, this thing is great, I just took home 600 pips!” Well, no, no you didn’t. If you were really making that trade in real-time, there’s no way that you would have taken all 600 pips of that run. Your trade entry and exit just cannot be that perfect in the real world. If you’re lucky, you might have grabbed half of it and taken a 300 pip win but more likely you’ll only have been able to realize something like a third of the whole movement and taken 200 pips.

Now, of course, the reverse is also true and you might have seen that move switchback early on just far enough to blow out your stops so you would have to count it as a loss. One would hope that you have the right money management approach to cut down on that loss by ensuring that you are going into the trade with the right stake that allows you to set your stops at a point that allows a bit of leeway in the price movement. The other thing that you can do here to maximize your win is to apply the right technical trading tools to ensure that you can reap as much of the reward as possible.

This is where the SAR comes in. Not, probably, as your primary entry indicator but more as a secondary, confirmation indicator that helps you to see out a trade to the maximum possible point. In short, you can use it as a trailing stop.

On your chart, the SAR will appear as a series of dots above and below the price that appears as lines – those are the sections of the parabolic curve that we talked about before. When the lines of dots cross the price line, they will flip across to the other side. In reversal trading, this is supposed to be a signal that a reversal is happening but – as we saw – that’s not the best way to use these things.

Context

It’s important to know when to use the SAR because, like a lot of other indicators, it only works in certain market conditions. The main thing to remember is to absolutely never use the SAR when the market is choppy. If you see that the market is ranging or heading sideways or even if there’s a weak trend then you are not going to want to use SAR because it will throw up lots of little false signals that will make it impossible for you to make any money out of the trades it leads you into.

So, the best way to approach the SAR is to use it once you have already identified a strong trend in the market and in conjunction with a primary indicator (or set of indicators) that will lead you into a trade. Under these conditions, the SAW can really shine.

When your system identifies a trade entry on a strong trend and you make the decision to pull the trigger, you can use the SAR as a continuation indicator to lead you down the movement to the point at which you can exit and still walk away with as many pips as possible.

To get accustomed to how this might actually function out in the real world, you will have to put in the work and try this thing out on your historical charts and through a demo account – making sure you combine it carefully with the tools you already use.

Round-Up

In short, the main things to take away from the SAR are that you should never ever use it in either of the following scenarios: a) as any kind of reversal indicator – it does not do this job well and it will lose you money; b) in any way shape or form if the market is not in a clear, strong trend – if there is any fuzziness to the market or even a weak, watered-down trend, don’t use the SAR.

But in its capacity as a secondary or confirmation indicator that you use as a trailing stop or continuation indicator that leads you through a trade you are entering (when the market is already in a strong trend), it has the potential to help maximize your wins.

Finally, make sure you test it for yourself and that it works in the system you have set up to suit your trading needs and preferences. If it doesn’t fit into this, never fear, there are plenty of other trend indicators out there that will do a similar or better job and all you have to do is get out there and find them.

 

Categories
Forex Indicators

What You Need to Know About Trading with the Williams %R Indicator

Do you trade using indicators? Still do not know this indicator created by Larry Williams? The Williams %R indicator, although less popular than others, is worth studying.

Do you trade using indicators? Still do not know this indicator created by Larry Williams? The Williams %R indicator, although less popular than others, is worth studying.

Do you trade using indicators? Still do not know this indicator created by Larry Williams? The Williams %R indicator, although less popular than others, is worth studying.

Introduction

The Williams %R is an impulse indicator developed by Larry Williams. It moves between 0 and -100, providing information about the weakness or strength of a financial instrument, i.e., stocks, currencies, or commodities. It can be used as overbought/oversold levels, impulse confirmations, and trading signals. Readings from 0 to -20 are considered overbought. Readings from -80 to -100 are considered oversold levels.

Calculus

The formula used to calculate the Williams %R is:

% R = (Maximum – Closing) / (Maximum – low) * -100

Minimum = lowest minimum over the period analysed.

Maximum = highest maximum in the period analysed.

The default setting for the Williams %R is 14 periods. It can be days, weeks, months, or an intraday period of time. An R %of 14 periods would use the most recent closure, the maximum of the last 14 periods and the minimum of the last 14 periods. The Williams %R has only one line by default.

When the indicator is:

-Near zero shows that the price is quoted near or above the maximum during the period analysed.

-If the indicator is close to -100, the price is traded near or below the minimum of the analysed period.

-Above -50, the price is traded within the upper part of the period analysed.

-Below -50, the price is traded at the bottom of the period analysed.

If we look at the daily chart, AAPL shows overbought at the -4 level. Back sessions were at the -80 oversold level.

Interpreting

Williams’ interpretation of %R is very similar to that of the Stochastic Oscillator, except that %R is traced backward and the Stochastic Oscillator has internal smoothing. Williams’ interpretation of %R is very similar to that of the Stochastic Oscillator. Values in the range of 80% – 100% want to tell us oversold, while readings in the range of 0 to 20% suggest that it is overbought.

Like other overbought indicators – oversold, the most favorable thing will always be to wait for the price to change direction before trading. The over-purchase may remain for an extended period of time. For example, if an overbought indicator – oversold (such as Williams’ Stochastic Oscillator or %R) shows an overbought condition, it is advisable to wait for the price to fall, before selling if you already have a long position or a stop loss.

Often, the %R indicator helps to find a turnaround in the stock market almost at the right time. The indicator usually forms a peak and then turns offa few days before the value price turns. Similarly, the %R usually creates a drop and goes up a few days before the price resumes.

Like the vast majority of overbought indicators – overbought, it is much better that we wait for the price to change direction before trading.

Using the William %R Indicator Correctly
  • To identify over purchases in an Index or stock.
  • Centre line of the WILLIAMS %R indicator.
  • Divergences

Let’s look at each of them in the most detail.

To identify levels of over-purchase:

The indicator ranges from 0 to -100. No matter how fast action moves or falls, the Williams %R indicator fluctuates in this range. Oversold and overbought levels can be used to make an identification price extremes, which appear to be unsustainable.

-Williams %R above the threshold of -20 is considered overbought.

-Williams %R below the threshold of -80 is considered to be oversold.

As is known, a market may remain overbought for an extended period of time. Trends with some strength usually present a problem in these oversold levels – overbought already classic. WILLIAMS %R can be overbought (> -20) and prices can simply continue to rise when the uptrend is strong. In contrast, the WILLIAMS %R may be oversold (-80) and prices may simply continue to fall when the trend is strong.

Amazon has a WILLIAMS %R at 14%, in a daily chart. Seeing, from left to right, Amazon came to overbought at -3 in early December, when it traded around 696. Amazon did not reach the peak level as soon as the overbought reading appeared. It took a few days but then we saw a drop of almost 149 points. 19%. From overbought levels of -3.1, the WILLIAMS %R moved around -98 in mid-January towards the oversold terrain. Despite this oversold reading, Amazon continued to fall to the ground on January 20. Traders must always confirm the WILLIAMS %R indicator with price action or price action. On 20 January a Hammer sail was formed with the oversold WILLIAMS %R. This confirms that the short-term soil was reliable and recovered up to $638 a share. The WILLIAMS %R indicator was overbought and again we saw drops. Overbought and oversold levels are marked on the charts.

Centre line of indicator WILLIAMS %R:

The WILLIAMS %R indicator detects bullish and bearish movements in the market by observing when crossing above or below the WILLIAMS% R-50 level. After being overbought and oversold, if the Williams %R crosses the -50 line, it usually indicates a change in movement.

If you can find the Microsoft chart from April 20, the DOJI formed by Microsoft suggests a trend change. It also broke -50 which also suggests a change. In the example illustrated above, the %R of MSFT was overbought, then the share price began to fall and the %R crossed below the -50 line quickly, before most of the bearish movement occurred.

It is advisable to use the price stock with this Williams-based %R strategy to increase the odds of success. . As you may have observed, in the above example, the bar that pushed the reading of the Williams %R, below -50, was a DOJI. This usually warns of a change of trend if the next candle is also bearish. Traders should open short positions in MSFT with Stop Losses just above the DOJI sail. The trader would have entered the market when the bearish momentum was at its highest. Therefore, you could have managed to place a tighter stop loss, which in turn would increase your risk/reward advantage in this particular operation.

It is possible to use this strategy to be able to open a long position when the %R is above -50after it has been oversold for a period of time.

It is highly recommended to use price action in combination with this Williams-based %R strategy to increase the odds of success.

Divergences:

The WILLIAMS %R divergence occurs when there is a difference between what the price action indicates and what the WILLIAMS %R indicates. These differences can be interpreted as a sign of an imminent turn. There are two types of divergences. Bearish and bullish.

Bullish divergence WILLIAMS %R:

A bullish divergence occurs when the WILLIAMS %R is oversold, below -80, increases above -80, remains above -80 in recoil, and then breaks over its previous reaction at a higher level. A bullish divergence forms when prices move to a lower minimum, but the indicator forms a higher maximum.

WILLIAMS% R bearish divergence: when the price reaches a new maximum, but the WILLIAMS %R reaches a lower maximum.

If you can see a Facebook chart, the price dropped to 77.22 on May 5. WILLIAMS %R went straight to the oversold area. It moved up and up even further, but the price dropped to 76.79 on May 12. Once the WILLIAMS %R moved above -80 and we had a bullish enveloping pattern, as shown above, we marked the turn. The price recovered up to $83.

Conclusion

The WILLIAMS %R index is a unique impulse indicator that has stood the test of time. The WILLIAMS %R is best suited to identify possible spins in overbought/oversold levels and bullish/bearish divergences. As with most indicators, WILLIAMS %R should be used in combination with another indicator or with the price action. It is possible and positive to perform the combination of using WILLIAMS %R with price patterns with the objective of increase signal robustness. If you operate intelligently, by combining price action, and use the Williams %R to confirm the momentum in the market, your likelihood of ending a profitable trade would greatly increase.

Categories
Forex Elliott Wave Forex Market Analysis

GBPCAD Advances in a Double-Three Pattern

Overview

Overview

Overview

The GBPCAD cross advances in a sideways sequence corresponding to an incomplete double-three pattern. The mid-term Elliott Wave view foresees a potential rally that could boost the cross toward last March’s highs.

Market Sentiment

The mid-term market sentiment overview of the GBPCAD cross unfolded by the 90-day high and low range and illustrated in its daily chart, reveals the price action moving in the bearish sentiment zone (SZ).

The previous chart reveals the sideways movement bounded between the extreme bullish SZ located at 1.76759 and the extreme bearish SZ at 1.69214. Likewise, the 60-Day moving average looks flat, suggesting the balance between supply and demand, or bull and bear traders, which in turn, is indicative of sideways action.

On the other hand, considering the year’s opening price at 1.71923, we distinguish that the yearly candlestick pattern corresponds to a narrow body candle identified as a doji, revealing the next direction’s market participants’ indecision that the price will take.

In consequence, while the GBPCAD cross remains moving mostly sideways, the primary bias will continue neutral.

Elliott Wave Overview

The long-term Elliott Wave landscape of the GBPCAD cross reveals the price action is developing an incomplete three-wave sequence of Intermediate degree labeled in blue, which currently advances its wave (B). The internal structure unfolds in a double-three pattern as it exposes the next weekly chart on a log scale.

The previous chart reveals that the double-three pattern in progress looks incomplete. According to the Elliott wave theory, this complex formation follows an internal structural series subdivided as 3-3-3. In this context, the GBPCAD cross advances in its last “three” or the third component of the double-three pattern identified as wave Y of Minor degree labeled in green.

The internal structure of wave Y subdivided into another “three” sequence, which advances in its wave ((b)) of Minute degree labeled in black. Likewise, the wave ((b)) follows the arrangement of a triangle pattern. Thus, the GBPCAD cross should develop an upward movement subdivided into five-waves, corresponding to its wave ((c)) of Minute degree identified in black.

Elliott Wave Outlook

Considering the progress of the GBPCAD cross into a triangle pattern, the following 12-hour chart unveils that the price completed its wave ((b)) with the failure of reaching a new lower low at 1.69014, where the cross began to advance in an upward sequence that corresponds to its wave ((c)) of Minute degree identified in black.

The previous chart illustrates the end of the wave (e) of Minuette degree identified in blue and the upward sequence of a potential leading diagonal pattern, which could follow a 5-3-3-3-3 internal sequence. Simultaneously, the price seems to be advancing in its fifth wave of Subminuette degree labeled in blue, which belongs to the first wave of Minuette degree in blue. 

The first impulsive wave of Minuette degree could find resistance in the supply zone between 1.73665 and 1.74341, from where the cross could start to retrace until the demand zone is located between 1.71151 and 1.70262. Once GBPCAD completes its second wave, the third wave could become the upward cycle’s extended wave. This upward movement could drive the pair toward 1.77356 and continue until 1.79911.

The bullish scenario’s invalidation level locates at 1.69014, which coincides with the wave’s origin ((c)) that remains in progress.

Categories
Forex Technical Analysis

Forex and Elections: Opportunity or Uncontrollable Risk?

Forex and all other markets surge with volatility during the US elections. Many promote this event as an opportunity to earn quick money although, in the end, it is the promoter who wins in some way. Traders who have an understanding of how we approach uncontrollable risk coming out from election events know we choose to avoid rather than to bet. The plan we put in place for such occasions is adequate for those who follow our trading ways and systems, however, the tips we are about to present are for everyone. Traders should take these recommendations as they fit, they are just a part of one technical prop trader group researching an experience. One is certain, only when we have a plan or rulebook we also reduce the risk of completely busting our accounts during elections. In our case completely protected since such uncontrollable risk is avoided by simply not trading. We will tackle different markets where buy and hold strategies are applied and a plan for all major 8 currencies regarding elections or other significant events such as Brexit. 

Forex and all other markets surge with volatility during the US elections. Many promote this event as an opportunity to earn quick money although, in the end, it is the promoter who wins in some way. Traders who have an understanding of how we approach uncontrollable risk coming out from election events know we choose to avoid rather than to bet. The plan we put in place for such occasions is adequate for those who follow our trading ways and systems, however, the tips we are about to present are for everyone. Traders should take these recommendations as they fit, they are just a part of one technical prop trader group researching an experience. One is certain, only when we have a plan or rulebook we also reduce the risk of completely busting our accounts during elections. In our case completely protected since such uncontrollable risk is avoided by simply not trading. We will tackle different markets where buy and hold strategies are applied and a plan for all major 8 currencies regarding elections or other significant events such as Brexit. 

Forex and all other markets surge with volatility during the US elections. Many promote this event as an opportunity to earn quick money although, in the end, it is the promoter who wins in some way. Traders who have an understanding of how we approach uncontrollable risk coming out from election events know we choose to avoid rather than to bet. The plan we put in place for such occasions is adequate for those who follow our trading ways and systems, however, the tips we are about to present are for everyone. Traders should take these recommendations as they fit, they are just a part of one technical prop trader group researching an experience. One is certain, only when we have a plan or rulebook we also reduce the risk of completely busting our accounts during elections. In our case completely protected since such uncontrollable risk is avoided by simply not trading. We will tackle different markets where buy and hold strategies are applied and a plan for all major 8 currencies regarding elections or other significant events such as Brexit. 

Losing a major part of your hard and slow gains in just a few election days is also very discouraging for traders. But, as our prop traders used to say, you have a decision to make. Decide if you want to have control over your account or leave it to somebody else. By somebody else we mean the big banks, news, how people interpret the news, “experts”, and so on. Technical traders dislike fundamentals, everything out of their technical analysis is detrimental and a risk to change trends before they hit their first targets. Whatsmore, according to this trader group, fundamentals do not always drive the market in a logical way. Fundamentals info will just mess with your trading and this is very amplified during elections. We want as much control over our account as possible and for that we need caution some might consider as too conservative. However, now we are here for the steady long-term trading returns, and the election period does not deserve a chance to ruin that work. So instead of entering the storm and trying to drive through, we just stop and wait for it to pass. If we enter the storm we are leaving the majority of control to its mercy. 

Let’s start with the non-USD currency pairs plan. Elections are one of the biggest market disruptors but other events can also have a similar impact, like viruses, wars, or Brexit, for example. In all such scenarios stop trading all currency pairs that contain that country currency involved. So if New Zealand is having elections, stop trading all NZD pairs. Trades already going should be closed, be it on breakeven, in profit or loss. Stop trading 4 days prior to the event, and 4 days after. Still, if you see things are not calming down, consider waiting some more. 

USD currency pairs are largely dominated by the USD movements. If elections or other major events are related to the United States, shut down all of your trades, from all currency pairs. The avoidance plan also involves 4 plus 4 trading days (not weekends) before and after the event. Now you may wonder why this 4+4 plan. Well, before elections there is a lot of positioning by the big banks, investors, algo traders, and other market participants and prepare to enter the event. This may not shake the market as the election trading itself but still can shake our trades off the direction. You do not want to let others control the trends so you avoid them altogether. Hopefully, revenge trading is not your thing, especially during elections, it is an easy way to bust the account.

So this is why 4 days before the elections and of course, during the elections spreads are extreme, movements do not make any sense and you see some strategies to pop up how to trade this event on social media. These strategies do not follow any trends, in any timeframe because they do not exist. Extreme spikes can crush any predictions or trades you may have in a single candle. Four days after the election the markets exhibit reactionary price action or the shakeout. All this is uncontrollable, the big banks can force the move wherever they see fit and have the media to explain the move with whatever reason tied to elections. 

Market manipulation by these big players in the forex is very present during elections. Let’s take a look at the charts on election day in November 2016:

The ATR (14) value on a daily time frame on the day before the elections (candle marked by a yellow circle) was 65 pips. Election day candle moved down about 100 pips on this EUR/USD pair at price close. This movement pip value does not imply anything unusual. It is the spike that knocked out every possible Stop Loss levels in the emerging downtrend. The spike is about 275 pips on the upside and about 100 down to close the day. The price action like this reminds of flash crashes except this one is on election day we all know when it is going to happen. Interestingly, the price action does not make any deviations if we take into account the range from open to close. It is the intraday action that wreaks havoc. We use the daily timeframe for reasons already explained in previous articles so the indicators used in our algorithm structure do not get thrown off on this chart. But let’s get onto another currency pair without the USD – EUR/GBP.

The same US election day in 2016 is not the flash crash a few weeks before but the day marked in a yellow circle. Notice similar price action on this non-USD currency air, a Stop Loss spike to the up, and then candle close like normal. Flash crashes on the GBP might have thrown some indicators off to the point they are not reliable until they get normal values in balance. According to the ATR (14), volatility before the election day was 67 pips. The move down was about 120 pips and the spike up 121 pips. Even on cross pairs unrelated to the US elections, the big banks have a free pass to whipsaw Stop Losses. Exactly the reason why technical prop traders suggest shutting down all trades before and after US elections on all currency pairs. If we go far away from the USD and pick, for example, AUD/NZD, the situation is the same: 

The election day candle is marked in a yellow circle and has the same properties – with a big Stop Loss hunting wick. The day after has a long wick to the upside in case anyone went short. The next example is on the S&P 500 index, it is not only present on forex. 

Here we see a Stop Loss triggering with an extremely long wick for anyone in a long position on this emerging bullish trend. Even on a weekly timeframe, this push would trigger concentrated Stop Loss levels all traders considered to be at optimal positions. These pending orders were created before the election day since the markets were closed for trading. Traders could just observe how their far Stop Loss gets triggered only to return everything to normal before day close. It is logical to put Stop Loss orders some distance below the last candle lows, in case the equities market crashed. However, this scenario did not happen, yet traders took the loss as it had. The trend continued but without long positions in it. The avoidance plan protects traders from this risk if you are trading on daily and weekly charts. 

Understand that every election is different. This date is specific because Trump won the elections he was not supposed to. In previous elections, Obama was expected to win and he did without much drama. Chaos during the last elections was caused by several drivers and the one in 2020 is going to be for other reasons. If we get very big candle bodies during the next elections, depending on the system you have made, traders may need some time before the elements get back into nominal reading, maybe even more than our proposed 4 days. Accordingly, you will have to adapt to new conditions. Your ATR, confirmation, and volume indicators get out of normal reading consequently setting you money management out of optimal ranges. 250 to 350 pip candles during elections will definitely do this, since ATR is set to 14 periods, you may need to wait for a week to get into normal. Similarly to when flash crashes happen, the procedure is the same. 

These rules might test your patience if you have a habit to have more trades open. Patience will reward you, it is just 8 days out of the 4 years after all. Apart from the good setups for trading during the elections, you might be tempted to trade by social media too. The networks will be full of strategies on how to profit from the election’s hyper movements, causing the fear of missing out on many amateur traders. Prop traders have mastered how to manage feelings like this long ago, and you should follow despite what you read on social networks. This is not the long term game we play. 

Elections in 2020 are going to be very specific also because it seems the final results will be known several days after the election day. According to certain headlines, North Carolina is allowed by Federal court to accept mail-in ballots nine days after polls close. If the results are tight and these polls are decisive we will have chaotic price action on more than one day. How the big banks and investors will react to all this fundamental stimulus is unknown. So even a 4 plus 4 days plan might not be enough since every election is different. Technical traders will have to pay attention to fundamentals too now, adapt to the specifics of every election. After all calms down, usual trading may resume. 

Twitter is a good source to follow like-minded investors who do not involve election trading. If you are not really well informed or follow headlines, follow people that are. Tweeter has several groups that know about the risks and are well informed fundamentally. YouTube can be a second source although you will have to dig through the more popular all-in election trading top lists. 

In other markets, precious metals, oil, crypto, and the like, most of the assets are expressed in the USD, meaning the same avoidance plan applies to them too. However, you may wonder should you make any adjustments to buy and hold strategies investors usually apply to precious metals and crypto. These strategies have such long term goals elections are just an abysmally small period and volatility spark does not affect them at all. If you are true to your buy and hold strategy, you are not going to change anything, elections will be a temptation. These strategies should be designed to last for years. Do not try to make sense to invest more into gold or crypto during elections, chaotic periods logically should drive these safe assets higher, but elections moves do not follow any logic.

If for some reason gold or other non-fiat safe heavens drop more than 10% in the coming weeks, this is actually a good time to average down, look to buy more of these assets as they are likely setting up for a long-term bull rally. Averaging is not something you do in forex trading, however, long term strategies like buy and hold are very good for averaging down. Of course, this is just an opinion from prop traders who are into investing, you can do whatever you want. As a general tip for elections, stay out of trading with a plan, be patient, and know every election is different. Forget what social networks and portals are saying, stay patient, and prudent in your investing. The long game result will prove you are right even if it does not seem so at the moment.

 

Categories
Forex Elliott Wave Forex Market Analysis

Can EURUSD Re-Test the Level 1.20?

The EURUSD pair advances in an unfinished impulsive formation that raised the common currency from 1.06359 till 1.20114. The price action started to develop a corrective sequence, still progressing, corresponding to its fourth wave of Minor degree. Explore with us what should be the target of the fifth impulsive wave.

The EURUSD pair advances in an unfinished impulsive formation that raised the common currency from 1.06359 till 1.20114. The price action started to develop a corrective sequence, still progressing, corresponding to its fourth wave of Minor degree. Explore with us what should be the target of the fifth impulsive wave.

The EURUSD pair advances in an unfinished impulsive formation that raised the common currency from 1.06359 till 1.20114. The price action started to develop a corrective sequence, still progressing, corresponding to its fourth wave of Minor degree. Explore with us what should be the target of the fifth impulsive wave.

Market Sentiment

The long-term market sentiment of the EURUSD pair based on the 52-week high and low range unveils the price moving in the extreme bullish zone. 

The following daily chart illustrates the common currency moving above the 60-day linear weighted moving average, confirming the extreme short-term upward bias prevalent in the current price action.

Likewise, the consolidation formation bounded between 1.16121 and 1.18566, appearing after the rally from mid-May to early September, leads us to anticipate the take-profit activity of big market participants. In other words, the price could begin a new movement toward the 52-week high zone, creating a euphoric sentiment for the euro before developing a corrective move.

Elliott Wave Overview

 EURUSD pair’s long-term outlook under the Elliott Wave perspective reveals the upward advancement of the common currency in an unfinished impulsive wave, which currently progresses in its fourth wave of Minor degree, suggesting further highs.

The following daily chart exposes de uptrend developed by the EURUSD since the March 23rd low located at 1.06359, where the price found fresh buyers, who remain in control of the long-term uptrend.

The Elliott Wave point of view illustrates the EURUSD pair developed and completed a third extended wave of Minor degree labeled in green when the price reached 1.20114 on past September 01st. Once the common currency found resistance at 1.20114, the EURUSD started to develop its fourth wave of Minor degree identified in green.

Considering that the second corrective wave was simple in terms of price and time, by the alternation principle of the Elliott Wave theory, the fourth wave should be a complex correction. In this regard, the complexity could be in terms of price, time, or both.

If the correction were complex in price, the formation could be a flat pattern like an irregular flat. If the complexity were in terms of time, the corrective pattern could be a triangle formation. Finally, if the correction develops a combination of price and time complexity, the structural series could be a double three or a triple three pattern.

Short-term Elliott Wave Outlook

Once the fourth wave ends, the common currency should advance in its fifth wave, shown in green in the following chart. Considering that the third wave is the extended wave, two potential scenarios exist for the fifth wave target.

The first scenario considers the advance slightly higher than the top of the third wave, which could reach the area between 1.2065 and 1.2257.

The second scenario may arise if the fifth wave’s bullish pressure fails and finds resistance in the supply zone, which is located between 1.19361 and 1.20114.

To conclude, the invalidation level corresponding to this bullish scenario is a close below 1.11639.

Categories
Forex Forex Elliott Wave Forex Market Analysis

Is CADJPY Ready for a New Rally?

Overview

Overview

Overview

The CADJPY cross advances mostly sideways in an incomplete triangle pattern. The corrective structure that remains in progress suggests the possibility of further upsides in the coming trading sessions.

Market Sentiment

The market sentiment on the CADJPY cross looks neutral, although during the overnight trading session, although the US presidential election is driving up volatility.

The following daily chart shows the long-term market participants’ sentiment unfolded between the 52-week high and low range. The figure reveals the price action currently moving on the neutral zone, which moves near the level of 79.274. 

In this context, the neutral sentiment is confirmed by the sideways channel, which began in early June, and the price action moving below the 60-day moving average Nevertheless, the bullish wide range candle of November 02nd leads to expect further upsides in the following weeks.

Technical Big Picture

The CADJPY cross moves in a sideways upward structure that belongs to an incomplete upward sequence that began last March 17th when the price found fresh buyers at 73.803.

The 2-day chart shown below illustrates the big picture of CADJPY under the Elliott Wave analysis perspective. The figure reveals the pair’s action advancing in an incomplete third wave of Minute degree labeled in black.

The consolidation structure of the CADJPY cross, in progress, suggests the possibility of a bullish continuation. Likewise, in terms of the Elliott Wave theory, if the current upward sequence corresponds to an incomplete impulsive sequence, the price could develop an extended wave. Nevertheless, a signal of confirmation of the potential new rally will occur if the price breaks and closes above the pivot level located at 79.823.

The short-term supports and resistance levels are as follows:

  • Resistance 1: 80.542
  • Resistance 2: 81.448
  • Resistance 3: 82.634

Pivot Level: 79.823

  • Support 1: 78.502
  • Support 2: 77.573
  • Support 3: 76.526

Short-term Technical Analysis Outlook

The CADJPY cross in its 4-hour chart unveils the course in a corrective structure that resembles a triangle pattern (subdivided into 3-3-3-3-3). This potential triangle pattern remains unfinished and could be developing its wave (d) of Minuette degree labeled in blue.


From the previous chart, both the breakout and close above the descending trendline connect the top of wave (b) of Minuette degree with the end of wave b identified in green as the close above the level 79.872 could confirm the turning bias from neutral to bullish.

The advance in its wave (d) identified in blue could find resistance between 81.448 and 81.909. Once the potential triangle pattern completes, the price could advance toward 84.739 and even extend its gains until 86.677.

Finally, the upward scenario’s invalidation level is located below the end of wave (a) of the Minuette degree labeled in blue.

Categories
Forex Elliott Wave Forex Market Analysis

EURJPY: Can we Profit Short-Term?

Overview

Overview

Overview

The EURJPY cross advances in a corrective sequence that began on September 01st; this corrective movement looks incomplete. The short-term Elliott wave outlook foresees a limited recovery prior to its a coming decline corresponding to its fifth wave.

Technical Big Picture

The EURJPY cross, in its 12-hour chart, illustrates an incomplete downward sequence that began on September 01st when the price found fresh sellers at level 127.075. 

The previous figure exposes an upwards structural series subdivided into three-wave identified in Minute degree and labeled in black, which began on the May 06th low located at 114.397 and ended on the September 01st high when the price topped 127.075. 

Once the price found fresh sellers at 127.075, the cross started to retrace, developing a three-wave sequence identified in the Minuette degree labeled in blue. Until now, wave (c) doesn’t show bullish reversal signals, which lead us to expect further declines.

The short-term key supports and resistance levels are as follows:

  • Resistance 1: 123.160
  • Resistance 2: 124.233
  • Resistance 3: 124.999
  • Pivot Level: 122.377
  • Support 1: 121.144
  • Support 2: 120.271
  • Support 3: 119.311

Technical Outlook

The short-term outlook for EURJPY illustrated in its 3-hour chart reveals the intraday consolidation, which coincides with the progress of its fourth wave of Subminuette degree labeled in green.

In this regard, the market participants could mostly drive the price toward the supply zone between 122.550 and 122.890, from where the EURJPY cross could start developing the next decline corresponding to its fifth wave identified in green.

The potential target zone of the next decline locates between 121.038 and 120.051, which coincides with the base-line of the descending channel that extends from the September 01st high to date. 

Finally, the invalidation level of the downward scenario locates at 123.402.

Categories
Forex Technical Analysis

Forex Technical Trading – Basic Algorithm Guide

You may feel that you have explored every possible source on indicators, learned about the best ways to combine them, and actually even started trading real money. However, you can always explore some new and innovative approaches to trading that may seem like an entirely new dimension despite having experienced success in the past. Whether […]

You may feel that you have explored every possible source on indicators, learned about the best ways to combine them, and actually even started trading real money. However, you can always explore some new and innovative approaches to trading that may seem like an entirely new dimension despite having experienced success in the past. Whether […]

You may feel that you have explored every possible source on indicators, learned about the best ways to combine them, and actually even started trading real money. However, you can always explore some new and innovative approaches to trading that may seem like an entirely new dimension despite having experienced success in the past. Whether they are beginners or whether they have already accumulated some experience, traders may still find some intriguing, refreshing, and stimulating facts and tips that can help them to collect more pips and considerably save time.

Lack of knowledge on some of these areas can even be held responsible for your previous losses or the fact that you might not have progressed as fast as you had hoped. Primarily, what we are going to be focusing on in this article is the proper way to read charts and manage the trades you are already in. As the title suggests, today’s advice will heavily rely on indicators, as the right use, aside from proper selection, directly influences a trader’s success and prosperity levels. 

We will first start with the general algorithm structure, which some traders are already aware of as it contains various measured trading categories. It is just an example you can follow right now for swing trading. Such an algorithm consists of six different indicators: the ATR is taking the first spot and the confirmation indicator holding the third one, while the exit indicator is positioned last. As this is an unfinished list, you should, upon extensive research and testing, make your own selection of indicators that can take the available places and complete the algorithm, as this article will not focus on it. What is more, you can keep searching for better options to adjust your current list, but make sure that you are confident regarding each tool’s purpose.

The ATR indicator is the very foundation of every trade that you will ever enter and since there is an extensive body of research on this particular tool, you should definitely put effort into learning as much as possible. It covers the volatility category and therefore also solidifies our position management. Next, the confirmation indicator’s job is to provide a signal so that you would know whether to go short, go long, or simply stay put and do nothing. The last one, the exit indicator, allows for you to exit trades before it knocks off any of your stops. However, even with this knowledge and after extensive research and use, traders can make fundamental mistakes that can outweigh the potential of the algorithm they have worked towards completing.

The ATR Indicator

The first step is to understand what the correct way of reading the chart is. We will first analyze the ATR indicator and pay special attention to where we want to focus on the chart to obtain the most accurate items of information. The image below is the example of the GBP/CAD daily chart, which can be considered as one of the more volatile currency pairs there are. The previous candle closed approximately an hour ago and this fact is the one piece of information you will always want to record and rely on in your trades. Some professional traders start analyzing the chart a little before the close of the daily candle as they can still discover information that will hardly change at that point, although the approach we are suggesting today is also equally important for everyone looking to enter a trade one hour after. Whether you choose to start assessing your options right before or slightly after the daily candle closes, what you should truly concentrate on is the candle that gives you data that you will be using in your next trade.

GBP/CAD Daily Chart: The Penultimate Candle

As the chart above reflects how one trading day ends and a new one begins, the place where we need to look is the penultimate candle in this chart or the candle which was last complete. Since the last candle that closed is not the last candle in this chart, make sure that you do not get confused as to where your focus of attention should be. We should not be then interested in the tiny candle indicating a day that has not ended yet (compare the last two candles marked by the yellow circle pointer), as it has only been one hour upon closing of the daily candle. The differences between the two will be valuable for your trading analysis and will still be relevant for other indicators as well.

The ATR of the currency pair in question equals 158 pips according to the indicator information provided on the left side of the chart below the white line. Nevertheless, forex experts insist that this is not the most relevant information, as the ATR value can be much higher. The reason for this lies in the data that is factored in the calculation of this value, so we need to pay attention to which 14 periods (ATR default setting) we are actually including in the average. Therefore, we should not make this ATR value on the left our focal point, but the value we get from the last candle that closed, which is the penultimate candle we marked yellow in the previous image. Since the trading day has just begun an hour ago, the last candle will never sufficiently add to the 14-candle average, throwing it off lower than should truly be. To obtain the information we need, we need only move the cursor over to the last closed candle for the white text box to appear, showing in this case the expected higher value of 162 pips. Therefore, this is the number we need to take into consideration to be best prepared to enter a trade.

This approach is how every trader can read the ATR properly regardless of whether they started trading slightly before or after the close of the daily candle. Some professional traders prefer to enter trades approximately 20 minutes before the candle closes due to the fact that they feel certain about having all the information they need at that point. Even if some changes occur, these experts point out that differences in terms of numbers would not be greater than one or two ATR pips maximum. Also, in the hour following the daily close spreads turn out to be changing drastically, so experts choose to start trading prior to these circumstances. This is an excellent perspective because it allows traders not to have to constantly worry about incorrect data or go back to find accurate information. This way you can access all relevant data and see it for what it truly is. 

In case you are ever unable to start trading at the time around the close of the daily candle, you can always rely on the ATR value shown on the left side of the chart. This data is far from incorrect because it is very close to the penultimate candle’s value. Therefore, you should not feel stressed about timing if your job-related duties or place of living, among other factors, do not allow you to be present at the time when you should factor in the data we discussed above.

Other Indicators 

What you should definitely pay attention to is the correct interpretation of other indicators, which involves several steps you need to understand properly. Many professionals lay emphasis on waiting for the candle to close in order to be fully able to read any indicator. If you allow yourself to be drawn up and down across the chart before a candle closes, your data will vary quite significantly. Some indicators may provide too many signals telling you to buy or sell several times in one day while the candle is forming. However, the only data you should be concerned with is the data you can access once this formation process is over, on the candle close. You can still choose to look at the numbers slightly before the close, but strive to be fully focused so as to be looking at the right candle and the right data.

The EUR/USD daily chart added below uses the Stochastics indicator, which is not a general recommendation but only a useful tool for a case study. If you focus on the blue and red lines in the following chart, you will see the yellow circle over the point where the blue line crosses downward the red one. When this phenomenon occurs, Stochastics is giving a trader an official signal to go short. Here, however, you may be surprised if you looked for the proof of the signal upon the close of the candle – the lines are close, but not actually crossing just yet. This is a clear indication that you should not be entering a trade at this point and you need to be very careful with how you interpret the chart. You will also not be including the last unfinished candle because, again, it would affect the 14-period average. The line connecting the candle with the red and blue lines of the Stochastics indicator below cannot be drawn perfectly straight, but it is a crucial point for traders to see how they, in fact, never received a real signal. 

The catch here is always to wait for the candle to close first because you need every piece of information pertaining to the candle and we can only obtain it upon candle close. From the perspective of now, we cannot know exactly what would happen with the price the following day – it might even go up really fast. Nonetheless, without having both conditions met – the signal and the candle close – you need to sit out and wait, refraining from taking any action at that point. In this case, as we noticed how the candle above the two-line cross was not a real signal, we would need to wait out for the next candle to close. Therefore, if you look below at the EUR/USD chart, the penultimate candle really does show the blue line crossing down beyond the read on, which is an official signal to go short. This information is only available upon candle closing or, what some professional traders do, trade 20 minutes prior to the close of the daily candle when you can expect little to no changes, and have a real chance of seeing how the lines would move next. Remember that your indicator is not really telling you the truth until a candle closes or is close to this point.

EUR/USD Daily Chart: Signal or No Signal?

How to Read Your Charts Fast

After accumulating knowledge on how to analyze what your charts and indicators are telling you, the very next step is to learn the ways in which you can quickly zoom through your trades. Professional traders, for example, can be trading as many as 28 currency pairs at the same time, but this does not in any way imply that they take more time to do so. Contrary to what one may expect, experts have actually managed to create a routine of trading approximately 15 minutes a day. Some of them claim to only trade 20 minutes before the close of the daily candle and many also trade across different markets too (e.g. forex and metals).

You may be wondering how a quarter of an hour can suffice with such a staggeringly high number of trades and information to read and process. The experts, in fact, manage their trades in a very similar fashion as everyone else with regard to the action they take – they observe the charts to see if they should make any changes, checking whether any trade should be closed out, half of the position taken off, or a stop loss adjusted, etc. Sometimes, your daily trade need not include any action as none is required, and being at peace with this is also a very important skill.

Professional traders also look for the opportunity to enter new trades every day, which can be done easily right after taking care of the trades they are already in. Here they advise traders to ensure that they are using the best possible confirmation indicator and invest time in looking for one should this step still pose as a challenge. The confirmation indicator is perceived as the backbone for almost every step of trading and is vitally important for increasing your efficiency in managing your trades. 

If your number one confirmation indicator is telling you not to proceed and enter a trade, any other indicators you are using will not be relevant. Since your main confirmation indicator is not giving you a signal to either buy or sell, you should stay put and accept this information. You should not at this point look elsewhere to find additional confirmation for what has already been confirmed, as it will only deplete your energy and waste your time. Any further clarification will only confuse you especially since this happens extremely rarely that your confirmation indicator does not give out any buy/sell signals.

Should your number one confirmation indicator tell you to enter a trade, you can look at the remaining parts of your structure. Here is where you can actually make use of other indicators to find additional proof that you should proceed and start to trade. If every indicator is telling you to go long or short, it is time for you to enter a trade. The process is, therefore, very simple as long as you follow these steps. 

To observe how this approach functions in reality, we will rely on the EUR/USD daily chart below. Here we are using the RSI indicator, which is another tool we do not recommend that you use despite its popularity among forex traders. The relevant information you are looking for when you are using the RSI essentially comes from a price moving into the oversold/overbought territory and returning to the middle area. This is the only signal this indicator will give you so focus on the line coming up/down and then coming back to the middle of the chart. One such example is surely the curve we see below the white pointer. However, should you ever get a signal of a few candles before the end of the chart, you should not pay attention to that. Rather focus your attention on the penultimate candle, which is this chart does not show any signals.

EUR/USD Daily Chart: RSI

You can also experience situations in which you happen to see the line going below the middle, for example, and you can tell that there is a high probability of it crossing back into the middle despite the daily candle being just about an hour old. From this standpoint, we can only predict based on the potential of the line crossing back some time later on that day, but we should never focus our actions based on prediction. If you use the RSI indicator, always wait for the daily candle to close, for it will generate real clues of where the line is going to end up eventually. Always remember that a false signal, despite how strongly we feel about it, is not a signal at all and we should not enter a trade based on impression or emotion but actual, real signal.

The steps provided above comprise the typical daily trading responsibilities of every professional trader. What you should do is simply apply these when going through your charts and there is no need for it to last long. If you start debating whether a signal is truly a signal or not and start giving in to your emotions, your trading experience will neither be fast nor lucrative. Look for the information your main confirmation indicator is offering and decide on your next step according to the signal, or the lack thereof. 

By following this approach, your trading should not last more than 10—15 minutes each day. The part where you assess the trades you are already in should approximately last up to two minutes, while the remainder is generally consumed by entering into new trades. Sometimes you will not initiate any new trades at all and just manage the existing ones. This mentality and these practical steps are absolutely the way to save your time and be more efficient in every respect.

To conclude, you should always make sure that you wait until the candle closes or start interpreting the chart just about 20 minutes before it happens in order for you to be able to get the most accurate information. Should you find time to be a precious commodity as well, always lock on your main indicator on each chart you are looking at. Should the number one confirmation indicator endorse you to move forwards, consult with your other tools. This is the easiest and the fastest approach to entering new trades and handling the existing ones, which will take only up to a quarter an hour of your time each day. 

Finally, do not give in to your impulses and desires, hoping for something to be a signal when it actually is not. Prevent any future failure with your firm reliance on technical support, clear rules, and discipline and stay away from predicting potential. Forex trading can be exceptionally easy if we leave out self-sabotaging tendencies and apply strict strategies that are supported by a fine selection of tools. Therefore, in order for you to use your indicators the best possible way, you really need to put effort into finding the right ones to complete these elements of the example algorithm, as well as use the facts and advice we shared with you today to propel your trading skills and maximize your rewards as a result. Other indicator categories that should be included in your algorithm is Volatility/Volume, on chart Baseline, and additional confirmation indicator belonging to a different theory. These elements and their function will be covered in another article, but the current basic algorithm example should point you in the right direction already.

Categories
Forex Daily Topic Forex Price Action

How to Professionally Deal with Fake Breakouts!

In today’s lesson, we are going to demonstrate an example of an H4 breakout at the weekly low. The price consolidates after the breakout and produces a bearish reversal candle right at the breakout level. It is a matter of time for the sellers to go short and drives the price towards the South. Let us find out what actually happens.

In today’s lesson, we are going to demonstrate an example of an H4 breakout at the weekly low. The price consolidates after the breakout and produces a bearish reversal candle right at the breakout level. It is a matter of time for the sellers to go short and drives the price towards the South. Let us find out what actually happens.

In today’s lesson, we are going to demonstrate an example of an H4 breakout at the weekly low. The price consolidates after the breakout and produces a bearish reversal candle right at the breakout level. It is a matter of time for the sellers to go short and drives the price towards the South. Let us find out what actually happens.

The chart shows that the price makes a good bearish move. It finds its support where the pair is traded for a while. The pair closes its week by producing a bearish candle. By looking at the chart, it looks that the sellers are going to keep their eyes on the chart next week.

The pair produces a bullish engulfing candle to start its trading week. The buyers on the minor charts may push the price towards the North. However, the H4 chart is still bearish biased.

The chart shows that the price may have found its resistance. The price has been in consolidation for a while. The last candle comes out as a bearish engulfing candle. The price may make its move towards the South now.

The chart produces consecutive bearish candles and makes a breakout at the last week’s low. The pair is traded below the breakout level for two more candles as well. The sellers are to wait for the price to consolidate and produce a bearish reversal candle followed by a breakout at the consolidation support to go short in the pair.

The chart produces a bullish engulfing candle closing within the breakout level. The next candle comes out as a bearish inside bar. The sellers would love to get a bearish engulfing candle closing below the bullish candle’s low. However, a breakout at the consolidation support would signal the sellers to go short in the pair. By drawing Fibonacci levels on the chart with Fibonacci extension, we see that the price finds its support at the level of 38.2% and finds its resistance at the level of 23.6%. In a word, the stage is getting ready for the Bear to make a move.

The chart produces a bullish candle. It is not a good sign, but the sellers still have hope. If the chart produces a bearish reversal candle again followed by a breakout at the level of 38.2%, the game is on for the sellers.

Now, the chart produces another bullish candle and heads towards the North. The sellers must be very disappointed since it seemed such a nice trade setup for them. The reality is it often happens to all traders. No point in being disappointed, but it must be dealt with professionalism.

Categories
Chart Patterns

Pullbacks – How Prop Traders Manage Discounts

Pullbacks we will talk about are described as a correction candle (or bar) after a bigger, sudden price movement candle (period) on any asset chart. When you apply a technical trading system and all signals it is time to trade after a pullback, traders enter at a more favorable price. This is a great way […]

Pullbacks we will talk about are described as a correction candle (or bar) after a bigger, sudden price movement candle (period) on any asset chart. When you apply a technical trading system and all signals it is time to trade after a pullback, traders enter at a more favorable price. This is a great way […]

Pullbacks we will talk about are described as a correction candle (or bar) after a bigger, sudden price movement candle (period) on any asset chart. When you apply a technical trading system and all signals it is time to trade after a pullback, traders enter at a more favorable price. This is a great way to get more pips out of a trend although if you love this discount too much, you can easily become a discount hunter. In forex, this habit will only cut down your account. Professional traders play a very careful game with pullbacks, they are hard to gauge, and once they happen the odds are not as great as without them. The trend may not continue with the same momentum. We will address how proprietary traders manage pullbacks using their technical system and their ruleset. This example can be taken as is, although there are many ways to manage the risk of pullbacks and their psychological effect. 

Discount shoppers should not apply the same principles in forex. Entering at a better price is what we should aim for, there is a time and place for this but it does not happen often in forex. If we wait for a pullback every time, the benefits of pullbacks become a losing waiting game. Our example in this article will use technical system elements explored in previous articles to pinpoint the time and place a pullback can be used for a better price entry. With a rule addition once they happen. The element in question is the Baseline and the volatility measurements. We will also address why professional prop traders avoid them in all other circumstances. Most of the time pullbacks will not be inline with the rule set and the technical system signals, but on some occasions, they will add up and in the long term will have significance to your account. 

The pullback hunting concept is not easy to grasp for a beginner, especially if not yet accustomed to custom indicators, technical systems, and the base Moving Average element. In case you do not understand how to use pullbacks using our example, you can completely disregard this concept and move on with other strategies. Pullbacks setups do not happen often and they do not always end with benefits. Some traders will not enter a trade unless they get a pullback. This also means they miss out on 99% of other trends worth taking. But let’s see how a pullback is used in our trading system. 

Big candles happen on any currency pairs, and we are not talking about the flash crash candles like the one after the Swissy peg removal. Big candles that are unusual can be measured as the ones that break the 1.5 ATR (14) value. These candles are caused by several phenomena in the forex. Most of them are after News events, such as Non-farm payroll, GDP, rates, elections, and so on. Also, these can happen in low liquidity periods, be it brokerage, liquidity providers, or other market drivers. Stop-loss hunting by the big banks is something that happens in between these, and are more common on popular trading currency pairs. Stop-Loss hunting is deliberate price manipulation by the big banks with huge volume to trigger visible clusters around specific price levels set by traders.

This is not a conspiracy theory but a fact we can even read about in the newspapers once the fines are announced to familiar bank names. Stop hunting is not the only manipulation but this is part of forex and it is not always a bad thing. These candles are mostly in counter-trend direction and overshoot a few before it. If these movements are not caused by news, it is mostly bank dumps or a combination of both. Trends can also move like this when there is a huge trading pressure or volume but it is not that often to see it without any catalyst before. The news and big bank manipulation moves are exaggerated, and when the price is deviating so much what usually follows is a correction or a completely new trend in opposite direction – reversal. This is a point where we can take advantage of a pullback, but using elements and rules to increase our odds. 

The rules a pullback can be utilized are applied only when the price cross-closes our baseline element. This is a signal we have a good trend to enter when all other indicators agree on this. Now, we will use the ATR(14) last pip value on our target, daily chart, and see if the current candle which is about to close in a few minutes is past this ATR pip value, measured from our baseline. In MT4/5 this is quickly measured by clicking the middle mouse button or ctrl+f and dragging from the top/bottom of the candle to the baseline. The rule for pullbacks is that only trade the pullback if in the price level is back into the ATR value range from the baseline. If we do this step by step it would be like this: 

  • We use the daily chart for our trading. 
  • The candle or trading day is a few minutes before closing.
  • The price has crossed our baseline.
  • Pull up the ATR (14) indicator and see what the current pip value does it sit. 
  • Measure the range from the current price level of the candle to the baseline.
  • See if the pip range measured is higher than the ATR pip value.
  • If it is, wait for tomorrow to see if we have a pullback candle at the end of the day.
  • We measure the pullback candle current price level range from the baseline a few minutes before the day close.
  • If the measured pip range is below the current ATR pip value we enter the trade. 
  • Our system gives a trade entry signal and other rules allow for it. 

This procedure may look complicated but it is easy after a few times. Some tools which can be downloaded for free from the MQL5 market can draw the ATR range channel on the chart making it easy to see if the pullback has qualified for entry, no need to measure the distance. 

Now we will give a few pullback examples using MT4 included indicators. In the picture below we have the EURUSD pair on the daily timeframe, 20 period SMA as our baseline example, Chaikin Money Flow indicator as our trend confirmation indicator, and the ATR on the default settings (14 periods). 

Notice the big candle in the middle of the picture that close-crossed our 20 SMA baseline colored yellow. Below, our confirmation indicator signals the long trade as it is above the horizontal zero line. The ATR below the Chaikin Money Flow gives us a value of 1005 points (100 pips) when we hover over the line (take the decimal number as a whole). 

When we measure the price level distance from our baseline, we get 101 pips – bigger than our ATR value so we do not take this trade (see picture below). 

If you want to be precise, you can hove over the candle and the baseline to see the values and calculate the pip distance, although when you trade real time this precision is not important unless it is hard to tell. The next candle pulled back. Our confirmation indicator is still signaling the long trade, the closing price level is now inside the ATR range from the baseline – 33 pips.

So now we are entering this trade at a discount, 68 pips better price entry does matter plus we have a better risk as our Take Profit point is lower. Pullback situations like this are not common, but you should be ready once they do. Remember that the one candle rule is applied here. If the next candle is not in the ATR-Baseline zone you do not take that trade. We do not count later candles and qualify them as pullbacks, only the first after a big candle. Interestingly, this one candle rule is applied to some lagging indicators to give them a chance to catch up with the rest of the system, however, this is just one example of a trading system used by a prop trader. The picture below shows price action we do not qualify as a pullback, the second candle after the exaggerated one is not a correction while the third is not accountable. 

On some occasions, your confirmation indicators may be lagging so you do not catch a baseline crossing candle or the one after. If this happens and the price is already past the ATR range from the baseline, you pass on that trade. There is no waiting for any kind of a pullback. The baseline element cannot play its role if you take trades too far from it. The baseline is there to show the “balance” point to which the price comes back to after deviations. Entering a trade in the middle of the deviation decreases the odds it will continue to move away. The baseline element is also a protective function from losses. Of course, you can try other ATR settings or levels for this rule if it proves to be more effective in the testing. 

The ATR range rule is applied to normal trading signals too in our system example. Any deviation which is too far away once the baseline is crossed does not qualify for an entry. There is one exception though – when you encounter continuation trades. More on these situations is presented in another article. 

Pullbacks can work well, so well it can make you skip the rules you have set. The hype of success can lead you to seek pullbacks wherever you can, adjusting the system to only catch them as much as it can. This change will lead you into a losing spiral not only to your account but to your morale too. It is easy to get into the pullback hype and much harder to get out of it. There are no indicators that predict pullbacks and even less the ones that predict trends after it. You may rely on your hunches whenever you see a big candle, and this is a dangerous practice for your account. When your ATR is just one pip lower to qualify a pullback, there is no tolerance, you pass on that trade.

The rule discipline will get you out of the losing trades and, more importantly, you will not wait for pullbacks and miss out on winner trends just because the price kept going. These winners are what make a difference to your account after everything, missing them out is not an option. The choice between five 300 pip winners per year and one 350 pip winner with a pullback entry is very easy to make, but the hype of getting a discount cloud our judgment. Discount shopper patience does not apply to forex when it comes to pullbacks. Waiting for a high-percentage trade is not similar. Here, you are missing out on a signal from your system and your rulebook just because you want a better price to enter after a pullback. Do not mix this with high-percentage trading which is actually what you should do all the time. 

As you may have noticed, this example is based on measurements, indicators, and strict rules in conjunction with them. It is a technical system that may not be an appropriate way of trading for everyone. Some traders trade without any indicators, or as they might describe – secondary technical indicators. The primary indicator for them is Price Action. What they see on the chart is the base for their decision making. Identifying pullbacks is not exact practice, they might wait for a pullback every time with pending orders or wait for a Price Action pattern to unfold before making an entry. However, these skills are unique to them and cannot be replicated in any technical system. On the other side, by having something you can measure, you have an easy-going decision-making system ready for anyone who can just follow their signals to be successful.

Categories
Forex Indicators

The ATR Indicator and Volatility in Trading

Have you ever considered how to use volatility in your trading? How to apply some filters according to their behavior? The ATR indicator can help you with this. In this article you will be able to show you a lot of information about the Average True Range (ATR), an indicator unfairly forgotten in trading systems. […]

Have you ever considered how to use volatility in your trading? How to apply some filters according to their behavior? The ATR indicator can help you with this. In this article you will be able to show you a lot of information about the Average True Range (ATR), an indicator unfairly forgotten in trading systems. […]

Have you ever considered how to use volatility in your trading? How to apply some filters according to their behavior? The ATR indicator can help you with this. In this article you will be able to show you a lot of information about the Average True Range (ATR), an indicator unfairly forgotten in trading systems.

Index
  • What are technical indicators and how can I use them?
  • What is the ATR?
  • How did ATR come about?
  • How to calculate the ATR – Average True Range
  • Find true range (True range)
  • Calculation of the ATR indicator
  • Graphic representation of the Average True Range
  • Uses of ATR
  • More frequent strategies using ATR
  • Momentum strategies
  • Böllinger bands
  • Supports and resistors
  • Conclusion
What are technical indicators and how can I use them?

The technical indicators, among those found in Average True Range (ATR) is based on a series of calculations on price action (some also on volume). I am sorry to say that the use of technical indicators does not always work. But they can be useful tools for detecting patterns of market entry and exit.

There are a number of technical indicators that have been developed, some show us when the market enters an overbought or oversold situation, others show us when a trend can be exhausted, if a movement is reliable and how much travel it can have.

The ATC shows us the volatility in a market, as well as its variations.

What is the ATR?

ATR stands for the name of this technical indicator: Average True Range. This indicator was developed by J. Welles Wilder. It is no more than an average of the price ranges (in fact, its name in Spanish corresponds to the average of the true range). A true range is the measure of volatility that can exist between two successive time periods (for example, two stock market sessions, two weeks, two hours, etc.).

To the point, it is a technical indicator of volatility. Volatility shows the strength they have, have had and can have (based on estimates) price movements. This can be useful both to calculate the risk and to filter market entries and exits (later we will delve into the importance of all this for our trading). The ATC simply reflects the periods in which the market has behaved more violently (is more volatile) and whether volatility increases or decreases.

How did ATR come about?

Wilder, the creator of this and other technical indicators (such as the Relative Strength Index; RSI or the Parabolic SAR, among others), was a commodity market operator. This trader used financial futures for its operations. Futures are leveraged instruments (like trading with Forex and CFDs) and are therefore very sensitive to strong price movements. For this reason, he discovered that it would be useful to have a tool that would allow him to know the range in which the market can move in a day.

However, it may be that the market opens at a different price than the previous session (what is known as a gap or gap) and does not move much further during the present day. In this case, the behavior in a day is not very volatile, but if we take into account the variation with respect to the previous closure, in fact, there may have been volatility.

For this reason, Wilder developed a calculation formula that allowed not only to see the volatility of a single day but in contrast to the previous day. Similarly, by averaging this calculation, you can observe how volatility in the market evolves over a period of time. His idea, which remains in force, was that after a period of high volatility he was continued from a period of low volatility; and vice versa.

All the technical indicators developed by J. Welles Wilder can be found in his book “News Concepts in Technical Trading Systems” (1978).

How to calculate the ATR – Average True Range

Like all other technical indicators, the Average True Range (ATR) is based on calculations of past price movements. To calculate this volatility indicator we must start from the True Range of the current period (True Range). The periods to be taken as the basis for the calculation (i.e., the number of immediately preceding sails or rods taken into account) must also be configured.

As a general rule, the period used is 14 (can be daily, weekly or monthly periods). Wilder, its creator, used this value for its development (in addition, on a daily basis). However, there are traders who use a very different trade from the father of the ATR and for this reason, the period is configurable.

Find true range (True range)

As I mentioned before, the ATR indicator is only an average of the true range calculated over the periods indicated. It is taken as a value to define the range (True Range), the highest value of these three:

  • The maximum price for the current period – minimum price for the current period.
  • The maximum price for the current period – closure of the previous period.
  • Previous period closure – the minimum price for the current period.

The difference between prices (in other words, the range of movement they have had) shows whether the market has been more or less volatile. The higher the range means the more volatility there has been.

Thus, the true range includes gaps that may arise in a market. This price difference, by taking the stock exchange session, better reflects the strength of the swings and helps us measure volatility in a more reliable way. As a last point, when creating an average on these values, we can observe the volatility changes. In other words, whether it goes up or down.

Calculation of the ATR indicator

The formula for calculating the ATR indicator is as follows:

ATR= [(previous ATR * n-1) + True range of the current period]/n

Wherein is the current period.

In any case, the default configuration of the ATR, which Wilder left us, was done over a period of 14 days. As discussed above, periods are taken on a daily basis (i.e., to calculate the ATR we take the price movements from the previous 14 sessions).

Thus, the original ATR would read as follows:

ATR= [(ATR previous period *13) + True range of current period] /14

Although this is the formula that its creator used to operate in the commodity market and know its volatility, the ATR can be configured according to the market, your trading style (scalping, swing, etc.), or strategy that you can use.

Graphic representation of the Average True Range

To make it easier to use the ATR indicator, it is graphically displayed at the bottom of our quotation chart (although there are platforms that allow you to place it at the top). The vast majority of trading platforms have this indicator and you just have to select it in the corresponding section and insert it. They also allow configuring of the number of periods on which we want to do the calculation. The ATR is represented by a linear graph, in which you can see the peaks and valleys of volatility. Increases and decreases in value are seen at a glance.

Uses of ATR

ATR has different uses in our trading. It can be useful both in designing strategies and in calibrating risk. As I mentioned at the beginning of this article is one of the most useful technical indicators, but, curiously, the least used.

Some of the uses we can give the Average True Range (ATR) are:

To calculate the size of the position in our trading account: dividing our risk according to the existing volatility (taken as a multiple of the ATR), we are in a position to limit the size of our trade.

Define the stop loss level: this is one of the most widespread uses of the ATR indicator. Sometimes you don’t know if the stop-loss order is too close to the price. Volatility can give you the answer. Knowing the violence with which the financial asset can move, we can calculate a safety margin to place our stop.

Set profit targets: just as we can limit risk based on the potential range of price movements. The ATR indicator will be useful to determine how far a movement has traveled. This way we will have an idea of what we can gain with an operation and set our take profit order.

To create strategies based on breaks: when the price goes through a trend, a channel, support or resistance, we must ask ourselves is this break reliable? If the price breaks with force, that is, with an increase in volatility, the break is more likely to be valid.

Select assets to trade: with the ATR you can create a filter to select which assets to trade on. You may want to exclude those in which volatility has been low and an explosion in price is expected. Assets that have excessive or very low volatility can also be discarded. To be able to compare the volatility of the assets, you just have to divide the ATR by its price and get a percentage (multiply it by 100).

More frequent strategies using ATR

Another of the most common uses of ATR is to use it as a criterion or filter within our trading system. For example, we can define that market entries occur “when volatility is greater than… (Usually a multiple of the ATR is taken).

Momentum Strategies

The ATC may indicate a change in the direction of prices. Bullish trends tend to occur in a less volatile way than market declines. If it is applied in an uptrend (in the long run) and there is an increase in volatility, it is possible that there will be a possible increase in panic and, therefore, a change in the direction of prices. Similarly, it is possible to exploit a bearish trend that is ending if we observe a decrease in volatility.

Böllinger Bands

A trading system could be, for example, combining the ATR with Böllinger Bands. If the price reaches the upper band and there is an increase in volatility, it is possible that we are facing a variation.

On the contrary, given that price falls occur with greater volatility, when the price reaches the bottom band and there is a decrease in the price, it could be interpreted as the end of the decline. As always this should be seen through a backtest. But I can tell you already that some of my strategies use ATR as an entry and exit criterion.

Supports and Resistors

This strategy has been outlined above when discussing the uses of ATR. However, it should be recalled that a strong price movement is more reliable as it better reflects market sentiment. The ruptures of supports and resistances must be validated and this indicator can help us to confirm it.

Conclusion

As you will have seen, the ATR (Average True Range) is a complete technical indicator that can be useful to exploit inefficiencies or improve your trading systems. Volatility is one of the most important aspects of the market and should be taken into account in your strategies. The ATR indicator can be incorporated into other systems and strategies. But it can also be an important element in determining risk and establishing proper risk management.

Categories
Forex Price Action

Weekly High/Low Breakout Trading: Importance of Candles’ Body before Making a Breakout

In today’s lesson, we are going to demonstrate an example of an H4 chart that seems promising to make a breakout at the last week’s low. It produces a strong bearish candle as well at last, but the price does not head towards the South. We try to find out the possible reason behind that. […]

In today’s lesson, we are going to demonstrate an example of an H4 chart that seems promising to make a breakout at the last week’s low. It produces a strong bearish candle as well at last, but the price does not head towards the South. We try to find out the possible reason behind that. […]

In today’s lesson, we are going to demonstrate an example of an H4 chart that seems promising to make a breakout at the last week’s low. It produces a strong bearish candle as well at last, but the price does not head towards the South. We try to find out the possible reason behind that.

It is an H4 chart. The chart shows that the price heads towards the South with good bearish momentum. The price bounces twice at a level of support. The pair closes its trading week by producing a bearish candle.

The pair starts its next week by producing a bullish engulfing candle. It means the breakout length gets bigger, which attracts the sellers more. The sellers are to wait for the price to make a bearish reversal candle followed by a breakout at the weekly low.

The price finds its resistance and produces two consecutive bearish candles. The sellers are to keep their eyes on the chart closely. It seems that the Bear is going to make a breakout soon. Let us proceed to the next chart to see what happens next.

The chart continues to produce bearish candles. However, it has not made a breakout at the weekly low yet. The last candle comes out as a spinning top closing within the weekly low.

The chart produces a spinning top followed by a bullish engulfing candle. The price then consolidates within the last week’s low and a new resistance. The last candle comes out as a bearish engulfing candle closing just below the weekly low. The question is whether it should be considered as a breakout. It is a breakout, but the H4 traders should skip taking entry on this chart based on a weekly high/low breakout. The reason behind that is the chart takes too long to make the breakout. Once the price starts trending, it must make a breakout without producing any reversal candle. It means if the chart produced the last candle right after the first spinning top; it would be a hunting ground for the sellers. Since it produces four bullish reversal candles before making the breakout, the chart does not belong to the H4 traders based on the weekly low anymore. We must not forget that it must consolidate after a breakout, though. It means it must produce bullish reversal candle/candles in case of a bearish breakout, but it must make a breakout only by producing bearish candles and vice versa.

Categories
Forex Elliott Wave Forex Market Analysis

Hang Seng Moves in an Incomplete Flat Pattern

Overview

Overview

Overview

The Hang Seng Index continues advancing mostly sideways in an incomplete bearish sequence, corresponding to a flat pattern sequence, still in progress. Once the current corrective formation ends, the Chinese benchmark will likely start developing a new long-term bullish cycle.

Market Sentiment Overview

The Chinese benchmark Hang Seng Index (HSI) shows a drop of over 12% (YTD). However, even when it has recovered 16 percent from the lows reached after the massive sell-off occurred during the first quarter of the year, the market sentiment of the Chinese benchmark index continues dominated by the bearish side. 

In the following Hang Seng’s daily chart, we can spot its 90-day high-low range. The figure exposes the index developing in a sideways movement happening since the second quarter of the year. On the other hand, the rejection of the 24,953.4 points suggests that the mid-term market sentiment is slightly bearish. 

Besides, considering that the Hang Seng Index moves on the 60-day weighted moving average, a short-term upward pressure is observed.

In conclusion, the Chinese benchmark’s market sentiment seems neutral, waiting for the price action to unveil the next trend’s direction.

Elliott Wave Outlook

Under an Elliott Wave perspective, Hang Seng’s big picture reveals the incomplete corrective movement from the end of a bullish cycle the Hang Seng Index initiated in mid-February 2016 from 18,278.8 pts. This bullish sequence ended its five-wave structural series when the Chinese benchmark reached its all-time high of 33,484.1 pts in late January 2018.

The next figure illustrates the HSI log chart on a 2-day timeframe. The price pattern reveals the Chinese benchmark moving mostly bearish on its wave (C) of intermediate degree labeled in blue, which seems incomplete. In this context, although HSI reached the minimum requirement for this movement: 100% of equal waves between waves A and C, the internal structure of its C wave is unfinished.

The following 4-hour chart exposes the internal structure of wave 4. We distinguish that the corrective structure has created two Minute degree segments, labeled in black on the figure. Considering that each leg follows an internal sequence subdivided into three waves, the Elliott Wave Theory leads us to expect its progression on a regular flat pattern.

On the other hand, short-term, the Hang Seng Index could develop a new upward movement subdivided into a five-wave sequence, which should complete the ((c)) wave of Minute degree labeled in black. Once this move ends, the Chinese benchmark could develop a new decline corresponding to a wave 5 of Minor degree, which should complete the (C) wave of Intermediate degree.

Finally, considering that the third wave of Minor degree labeled in green was the extended move, and considering the amplitude of wave 4, the fifth wave of Minor degree should not penetrate below the low of wave 3 located at 21,139.3 pts. In other words, the wave (C) of Intermediate degree identified in blue is likely not to end below 21,139.3 pts.

Categories
Forex Price Action

Disobeying the Breakout

In today’s lesson, we will demonstrate an example of a chart that makes a breakout, consolidates, and produces a reversal candle. However, it does not make a breakout at consolidation support. Thus, it does not offer an entry. Nevertheless, it makes a move towards the breakout direction later. We try to find out whether breakout traders find an entry from that move or not.

In today’s lesson, we will demonstrate an example of a chart that makes a breakout, consolidates, and produces a reversal candle. However, it does not make a breakout at consolidation support. Thus, it does not offer an entry. Nevertheless, it makes a move towards the breakout direction later. We try to find out whether breakout traders find an entry from that move or not.

In today’s lesson, we will demonstrate an example of a chart that makes a breakout, consolidates, and produces a reversal candle. However, it does not make a breakout at consolidation support. Thus, it does not offer an entry. Nevertheless, it makes a move towards the breakout direction later. We try to find out whether breakout traders find an entry from that move or not.

The chart shows that the price makes a long bearish move. It finds its support where it bounces twice. The chart ends its trading week by producing a Doji candle. The next week should be interesting.

The chart produces a bullish engulfing candle. The buyers may wait for the price to make a breakout at the last swing high. On the other hand, the sellers are to wait for the price to make a breakout at the last week’s low.

The chart produces a spinning top, and the price heads towards the South. It makes a breakout at the last week’s low. Thus, the sellers may keep an eye on this chart for the price to consolidate and produces a bearish reversal candle to offer them a short entry.

It produces a bullish engulfing candle. It is a strong bullish candle. However, the breakout level is still intact. If the level produces a bearish reversal candle followed by a breakout at consolidation support, the Bear may keep dominating in the pair.

The chart produces a Doji candle followed by a spinning top right at the breakout level. The sellers may go short below consolidation support. It looks it is a matter of time for the Bear to make a long move towards the South.

The chart produces a bullish candle breaching the breakout level. It spoils the sellers’ party. The weekly low is disobeyed by the H4 chart. Thus, the H4 sellers may skip taking entry on this chart. The chart becomes no hunting zone for both the buyers and the sellers as far as the H4 chart is concerned. Let us proceed and find out what happens next.

The price makes a bearish move. The pair is trading below the last week’s low. Look at the momentum. The price has been rather sluggish to head towards the South. It is because the pair is traded on other minor charts. As mentioned, if the price disobeys breakout on a chart, it is better not to trade based on that chart. The price may go either way, which makes things difficult for the traders to trade.

Categories
Forex Daily Topic Forex Price Action

Fibonacci Extension: How It Helps Traders

In today’s lesson, we will demonstrate an example of an H4 chart that makes a breakout heading towards the North. However, the chart does not offer entry. We try to find out the reason behind it.

In today’s lesson, we will demonstrate an example of an H4 chart that makes a breakout heading towards the North. However, the chart does not offer entry. We try to find out the reason behind it.

In today’s lesson, we will demonstrate an example of an H4 chart that makes a breakout heading towards the North. However, the chart does not offer entry. We try to find out the reason behind it.

It is an H4 chart. The chart shows that the price makes a good bullish move. Thus, the weekly candle ends up being a bullish candle. Let us proceed to the next chart to see how the price starts next week.

The first candle comes out as a bearish engulfing candle. However, the support level where the price had a bounce and headed towards the North is intact. The buyers may eye on the chart for the price to have a bounce and make a bullish breakout at the weekly high.

The chart produces a bullish inside bar. The candle is produced right at the level of support. It is not a strong bullish reversal candle, but things look good for the buyers.

The chart produces three more bullish candles breaching the level of resistance. The buyers are to wait for the price to consolidate and produce a bullish reversal candle to offer them a long entry.

The price keeps heading towards the North without having consolidation. In naked eyes, it seems that the price has traveled a long way. If it consolidates now, should the buyers go long?

The chart produces a bearish candle. It means the price may consolidate now. The breakout level is far away. If the price makes a bearish correction up to the breakout level, it will come out as a long bearish wave. This often changes the trend or makes the price get choppy, at least. Let us draw a Fibonacci Extension and explain it with the Fibonacci levels.

We know when the price makes a breakout; Fibonacci Extension can be used to determine the wave’s length. The breakout length is measured at 23.6%. The best level for the price to consolidate within 23.6% to 38.2% or 38.2% to 50.0%. Over here, the price consolidates within 61.8% to 78.6%. It means the price does not have much space to travel. Thus, the buyers may skip taking entry on this chart as far as the risk-reward ratio is concerned. The price may go up to the level of 100.0%, but it often ends up being choppy or makes a reversal in such cases. This is when Fibonacci Extension comes out as a handy tool with what traders can determine the trend’s potential length and calculate whether they should take an entry or not.

Categories
Forex Elliott Wave Forex Market Analysis

NZDUSD Short-Term Wave Analysis

Overview

Overview

Overview

The NZDUSD pair advances in a sideways corrective formation suggesting the progress in an incomplete short-term flat pattern. The completion of its move could give way to a new bearish movement of the upper degree; however, this incomplete correction could be temporary.

Market Sentiment Overview

The New Zealand Dollar moves slightly bullish this Thursday, 22nd advancing 0.13%, expecting the inflation data released by New Zealand’s Statistics, Stats NZ, in the upcoming overnight session. The data corresponds to the third quarter of 2020, and surveyed analysts expect an increase that could rise to 1.7% (YoY), being 0.2% more than the previous reading published in July.

The New Zealand Dollar futures market sentiment, presented in the following daily chart, unveils the price moving in the extreme bullish sentiment zone. In the chart, we can distinguish  0.6463 as support the level and 0.6797 as the resistance level. A level that corresponds to the 52-week high. 

On the other hand, the chart highlights the price action is moving mainly sideways, consolidating around the weighted moving average of 60 days. This context of price action suggests we can expect a corrective move before continuing its bullish trend.

Concerning the evolution of the Commitment of Traders Report, the previous chart exposes the institutional positioning on the bullish side. In consequence, although the current consolidation calls for a corrective move, the primary trend is bullish.

The next figure unveils that 73% of retail traders currently hold their positions on the bearish side, confirming a contrarian long-term upward bias to this pair.

 

Elliott Wave Outlook

The NZDUSD short-term outlook under the Elliott Wave perspective unveiled in its 3-hour chart exposes the kiwi’s sideways advance since the oceanic currency topped at 0.67978 on September 18th, where the pair started to develop a corrective structure that remains in progress.

Considering that a corrective structure is subdivided into a three-wave sequence, we can notice in the previous figure that the NZDUAD action progresses in its second wave, identified as wave B of Minor degree, and labeled in green. This segment corresponds to a flat pattern (3-3-5), which currently develops its wave ((c)) of Minute degree identified in black.

At the same time, the internal structure of the wave ((c)) reveals that the price action could be advancing in its wave (v) of the Minuette degree labeled in blue. This market context suggests the possibility of a limited upside before start developing a downward sequence, corresponding to wave C of Minor degree. 

In summary, the short-term outlook for the NZDUSD pair, under the Elliott Wave perspective, foresees a downward move, which corresponds to a wave C of Minor degree. This potential next move may subdivide into a five-wave sequence. Once this corrective formation completes, the Kiwi should begin to develop a new upward impulsive sequence of upper degree coinciding with the long-term institutional bias.

Categories
Forex Daily Topic Forex Price Action

Price Action Trading: Reasons to Skip Entries on Charts with Price Gap

Forex charts often have price gaps. It usually occurs in minor time frames. However, it sometimes occurs in time frames such as the H1, H4, daily chart as well. Since price movement is the key factor determining its next move for the price action traders, thus price gap creates confusion in price action trading. Thus, it is best to skip taking entries on charts with a price gap. Let us demonstrate an example and find out the reason behind it.

Forex charts often have price gaps. It usually occurs in minor time frames. However, it sometimes occurs in time frames such as the H1, H4, daily chart as well. Since price movement is the key factor determining its next move for the price action traders, thus price gap creates confusion in price action trading. Thus, it is best to skip taking entries on charts with a price gap. Let us demonstrate an example and find out the reason behind it.

Forex charts often have price gaps. It usually occurs in minor time frames. However, it sometimes occurs in time frames such as the H1, H4, daily chart as well. Since price movement is the key factor determining its next move for the price action traders, thus price gap creates confusion in price action trading. Thus, it is best to skip taking entries on charts with a price gap. Let us demonstrate an example and find out the reason behind it.

It is an H4 chart. The chart shows that the price produces a bullish engulfing candle right at a support level, where the price has several bounces. Thus, the H4-H1 combination traders may flip over to the H1 chart to go long in the pair.

The H1 chart shows that the price heads towards the North with good bullish momentum. The buyers are to wait for the price to consolidate and produce a bullish reversal candle to offer a long entry.

The chart produces a bearish engulfing candle. It is a strong bearish candle. However, the buyers may wait for the price to be held at a key level and produce a bullish reversal candle. Let us proceed to find out what happens next.

The chart produces a bullish reversal candle. It is an inverted hammer. Moreover, it is produced with a bullish price gap. Technically, the H4-H1 chart combination traders may trigger a long entry above the level of resistance. Here is an equation that must be considered if they are to determine risk-reward by using Fibonacci retracement. We find this out soon. Let us see how the price reacts now.

What a good bullish move it is! The price heads towards the North with very good momentum. The last candle comes out as a bearish candle. It suggests that the price may make a bearish correction. Let us now draw Fibonacci levels and explain the chart with some Fibonacci numbers.

Categories
Forex Technical Analysis

Statistical Concepts for Traders: Probability Distribution

Understanding statistics is one of the fundamental skills required for quantitative analysis. Today’s article discusses two basic concepts: Distribution and probability. The two concepts are closely related. The concept of probability provides support for mathematical calculations and distributions help us visualize what is happening with the data.

Understanding statistics is one of the fundamental skills required for quantitative analysis. Today’s article discusses two basic concepts: Distribution and probability. The two concepts are closely related. The concept of probability provides support for mathematical calculations and distributions help us visualize what is happening with the data.

Understanding statistics is one of the fundamental skills required for quantitative analysis. Today’s article discusses two basic concepts: Distribution and probability. The two concepts are closely related. The concept of probability provides support for mathematical calculations and distributions help us visualize what is happening with the data.

Frequency Distribution and Histograms

Let’s start with the simplest part: A distribution is simply a way to describe the pattern of the data.

A simple example: we think of the daily performance of a stock exchange or the results of a backtest. These returns are our sample data.

To have a clearer view of these yields or returns we can classify them in intervals with an identical size and also count the number of observations of each interval. If we represent these results in a graph we will get what in statistics is called a frequency histogram. Histograms allow us to have an overview of how returns have been distributed.

In addition, from this frequency distribution, we will be able to know its measures of the central trend of our sample.

– The value at the center of our histogram indicates the arithmetic mean of the data (the mean yield).

– The median part of the distribution in two leaving the same amount of values aside.

We can also see how variable the results have been (dispersion measures). Volatility of returns is measured with standard deviation or standard deviation. Finally, we can also see the shape of the distribution: if it is a symmetrical distribution, if it has “fatter tails” (read more extreme results) than it should, etc.

Let’s analyze these features in detail:

  • Characteristics of a distribution
  • Statistical asymmetry

A very important aspect is the symmetry of the distribution. “If a distribution is symmetrical, there are the same number of values on the right as on the left of the mean, hence the same number of deviations with a positive sign as with a negative sign.

We say there is positive asymmetry (or right) if the “tail” to the right of the mean is longer than the left, that is if there are values more separated from the mean to the right. We will say that there is negative (or left) asymmetry if the “tail” to the left of the mean is longer than the one to the right, that is, if there are more separate values from the mean to the left. (Wikipedia)

When we talk about trading systems, a system can have a negative or positive asymmetry according to its characteristics. For me, the most obvious example is when we analyze the distribution between the results of a trend system compared to the results of a reverse-to-mean system. In the first case, our sample would have a positive symmetry (when it succeeds it gains a lot and returns move away from the average mean value when it misses little and the values to the left of the mean are not far from it). In the second case, it would be the other way around.

Tannosis

Tannosis is a statistical measure that determines the degree of concentration of the values of a distribution around its mean. The tannosis coefficient indicates whether the distribution has “heavy” tails, that is, whether or not the extreme values concentrate a high frequency. The coefficient measures the “degree of pointing or flattening of the tails” with respect to the normal distribution. So if we take the normal distribution as a reference, a distribution can be leptocúrtica, platicúrtica, or mesocúrtica.

Probability Distribution

So far we have simply been analyzing our sample data (in the example, the results of operations) using descriptive statistics. However, when working with data we look for more than just describing it. We’re looking to predict how that dataset will behave in the future. For this, we use probability theory and inferential statistics. From the results of a sample, we seek to draw conclusions for the total population.

Formal Definition: What is a Probability Distribution

If we go to Wikipedia, we can learn that:

In probability and statistical theory, the probability distribution of a random variable is a function that assigns to each event defined on the variable the probability that such an event will occur. The probability distribution is defined over the set of all events and each of the events is the range of values of the random variable. It can also be said to have a close relationship with frequency distributions. In fact, a probability distribution can be understood as a theoretical frequency, as it describes how results are expected to vary.

The probability distribution is completely specified by the distribution function, whose value in each real x is the probability that the random variable call is less than or equal to x. (Source: Wikipedia)

How can we interpret this on a practical level? If the returns in our sample match the normal distribution, then the mean and standard deviation is all we need to calculate probabilities about profitability and risk. A little further down in the article, we explain this in more detail.

Normal Distribution and Probability Models

There are numerous types of variable distribution. In this article, we will only talk about the normal distribution, which is the most known type of distribution and on which most probability models are based. Only 2 parameters are needed to describe it: the arithmetic mean (which defines the central value) and the standard deviation (which describes the width of the bell).

In order to model the risk, it is only necessary to know the mean and the standard deviation. This is because the probability distribution assigns a probability to each possible outcome of an experiment. The probability function mentioned earlier in the Wikipedia extract is a mathematical concept that allows us to use the area below the curve to represent the probability space.

We can intuitively understand that those values that are more distant from the average are repeated less often, while those values closer to the average are much more frequent. In this way, probability intervals can be defined within which we can find the profitability of the total sample. This type of analysis uses the VaR (Value at Risk) model to assess the probability of an investment’s risk.

Volatility, which in this case is measured by the value of the standard deviation, is a measure of uncertainty (risk). This uncertainty is directly related to the probability of obtaining a return equal to the expected return (the average).

For the same expected yield, the curve flattens when volatility is greater while it becomes thinner and higher when volatility decreases. An asset whose profitability has a higher standard deviation is considered more volatile, and therefore riskier than an asset with lower volatility.

Other Notes

When we talk about the distribution of the entire population, the properties (mean, standard deviation, etc.) are parameters. When we talk about the distribution of the sample, the properties are statistics.

Why use statistical distributions to measure risk, if in the end, the results do not conform to a distribution model? Because you’re working with models. Having a theoretical framework in which to base a quantitative investment strategy adds solidity to the whole.

Categories
Forex Fundamental Analysis Forex Technical Analysis

Cryptocurrency Negotiation Strategies for Fundamental and Technical Analysis

In this article, we summarize negotiation strategies for fundamental and technical analysis, telling you about the specific characteristics of cryptocurrency pairs in relation to fiduciary money and each other. You will learn: what news reacts more to cryptocurrencies, what are the prospects of start-ups, how to negotiate with patterns and resistance levels, and familiarize yourself […]

In this article, we summarize negotiation strategies for fundamental and technical analysis, telling you about the specific characteristics of cryptocurrency pairs in relation to fiduciary money and each other. You will learn: what news reacts more to cryptocurrencies, what are the prospects of start-ups, how to negotiate with patterns and resistance levels, and familiarize yourself […]

In this article, we summarize negotiation strategies for fundamental and technical analysis, telling you about the specific characteristics of cryptocurrency pairs in relation to fiduciary money and each other. You will learn: what news reacts more to cryptocurrencies, what are the prospects of start-ups, how to negotiate with patterns and resistance levels, and familiarize yourself with how to use the correlation dependency of cryptocurrency pairs with each other.

Cryptocurrency has become the most profitable asset of recent years. The strong side of cryptocurrencies: their high volatility, allowing them to win up to 30-50% in a successful operation in 1-3 days. No asset can show a similar result. However, high volatility carries great risks. If losing half the position in currency pairs in a day is only possible with the use of leverage, in cryptocurrencies it is possible to lose and without it. But the desire to win in the strong fluctuations of currencies does not stop. As the market moves in waves, there is always a chance to recover the previous loss without problems.

Cryptocurrency Trading Strategies

Compared to trading cryptocurrencies of exchange houses, Forex has a number of advantages:

Here you can open short positions. The high volatility indicates that currencies have long alternating ups and downs. This means that in case of an erroneous prognosis of the price direction it is necessary to simply open an opposite position, and in the case of an already open, or close in loss, or be patient until the quotes are not reversed. The undulating nature of the quotes is well visible in the weekly chart LTC/USD (Litecoin vs US Dollar). In addition to frequent intraday zigzags, the intra-week wave is clearly visible.

The speed of opening and closing of a position is several milliseconds. The purchase and sale of cryptocurrencies through purses can last several hours.

Perfect deposit protection. Nobody hacks into the broker’s accounts. Firstly, there is no sense (trading is done by CFDs), secondly, it is controlled by the regulator (exchanges are not controlled by anyone).

Trading According to Support and Resistance Levels

Graphical analysis in cryptocurrencies shows quite good results. Firstly, these are the psychological levels represented by the rounded figures. For example, for a ВТС is 6000, 7000, etc. coins often repel from rounded levels. It is easier for buyers to place a target sales level on a rounded number, in which a downward shift occurs. Below is the monthly graph of the pair DSH/USD (DASH vs US Dollar).

Also in the cryptocurrency market will be influenced by the general news: bankruptcy of cryptocurrency exchange houses, tightening of control over the trading of cryptocurrencies in China and South Korea, which represent the largest volume of sales, the loyalty of the legislation and the big corporations.

Trading According to Technical Analysis

As in currency trading, fundamental and technical analysis can be applied in the cryptocurrency market. Cryptocurrency is too young an instrument, in which there are a lot of speculative components. That’s why both options have advantages and disadvantages. Let’s look at the fundamentals of trading in technical and fundamental analysis.

Trading According to Fundamental Analysis

The cryptocurrencies presented are representatives of three types of projects. Payment systems (ВТС, LTC, XRP), decentralized networks for creation based on applications (ETH), anonymizer, payment systems with a high level of anonymity (XMR, DSH, ZEC). Consequently, they will influence the course of the news.

For example:

ETH/USD (Ethereum vs US Dollar). This pair will first be influenced by Vitalik Buterin’s statements regarding the effectiveness of the fork being performed, which includes the transition from the PoW algorithm to PoS. And although little information comes from him. However, ethereum is considered one of the most optimal currencies in the long run due to the potential interest of new projects on its platform.

XMR/USD (Monero vs US Dollar). Cryptocurrency encounters fierce resistance from legislation. Used for the gaming market and other online services, the currency is completely anonymous. This problem was one of the reasons the project lost its place in the Top 10 on the Coin Market Cap website. However, at the end of January, information appeared about the possible future merger of XMR and LTC. It is possible that developers are just filling in information. But if this happens, the hybrid will be able to turn the cryptocurrency market upside down.

Knowing there’s a perfect touch of levels, you can see. The yellow circle highlights the characteristic sections of the corridor. The first section is quite extensive, limited by the levels of 600 and 1000 US dollars. The second section that already shows the flat offensive is marked with a red circle and is at the level of 800 US dollars. The third section shows how the price has rebounded from the level of 400 US dollars, approaching 600 US dollars, almost stopped.

Rules for Building Support and Resistance Levels

-The level built by two points is not clear. Ideally, you should have at least three points. Let the price not reach the level or lose it slightly, it is not important for an overview.

-The ideal is the combination of the levels found in the short term and the long term, comparing how much they coincide.

-There are interesting indicators for MT4 that automatically draw levels. For example, PowerDynamiteAreas, ATR Levels.

Conclusion: In long term levels look pretty good due to the fact that traders basically don’t hold coins for long, winning on local raises. This is a psychological moment and must be taken into account in the development of the strategy. Some traders try to build strategies at Fibonacci levels, but for cryptocurrencies, this pattern is dubious, again due to psychology.

Trading According to Patterns

The psychology of traders is reflected in the cryptographic currency chart in the form of patterns, figures that indicate the possible reversion or origin of flat. Examples of the most common patterns in cryptocurrencies:

Pin bar. A candle with a very small body relative to the previous ones, a long shadow in the direction of the trend, and a short (or absent) reverse shadow. The model says that the price in the current term had a break forward, but at its end, it returned almost to the same positions. For a long position is a sign that the bulls stopped and a reversal is possible. The shade of a candle should be at least 2 times longer than the shade of the previous candle.

“Three soldiers on the move”. It is a model consisting of three consecutive sails (ascending or descending), each of which is larger than the previous one. The model shows that the trend has a pronounced direction. Generally, after them, there is a minor correction of 3-4 small candles. In the next sail of the main direction, one position can be opened.

For other more rare and less accurate patterns, but still useful, it is worth noting the following:

Double bottom (double vertex): Represents a double rebound of the support or resistance level. The first reverse can only be a correction before the level break. But if a second background (vertex) is formed and a rebound occurs, the trend will most likely develop.

Head and shoulders: A reverse figure, which is often found after a strong trend. It represents three consecutive peaks, of which the average is the highest (head). The first shoulder is characterized by a peak and a slight correction, the lowest point of which is not lower than the current price line. The head is a strong price boost, followed by recoil to the shoulder correction level. Then the third shoulder is formed, which means the attenuation of the trend and then you can safely open a short position. The second shoulder looks very confusing, but in the end, the price continues to fall.

Triangles, Flags, and Banners: Figures of consolidation, after which, as a general rule, follow the break of the limit of the figure.

Another interesting technical analysis tool is fractals. As practice shows, graphical analysis in the cryptocurrency market works under the same principles as in currency pairs. It will only be necessary to have the capacity to recognize the models in time and combine them with fundamental analysis and support levels.

If we are talking about technical indicators, in cryptocurrencies the classical stochastics, MACD, RSI, Momentum, ZigZag, sliding, give quite precise signals. The recommended period for the analysis, which mitigates volatility, is no less than H4.

Trading with Correlative Cryptocurrency Pairs

Compared to pairs, where the second currency is the US dollar, correlative pairs are less volatile. The strength of the coin in a pair, as practice shows, is determined by the enthusiasm of the market and its confidence in the project. A clear example is the strong outbursts of the last month. At the time of cascading growth, the “dinosaurs” ВТС and ETH grew more slowly. But at the time of a recession, they fell less.

At the time of growth of the entire cryptocurrency market, Ripple grew relative to both currencies, i.e., Bitcoin versus the dollar grew slower, than Ripple. But at the time of the reduction, the green line fell below the yellow line. This means that Bitcoin depreciated slower than Ripple. This is confirmed by Bitcoin’s share in capitalization. On January 10-13, it was 32-32.5% with a total capitalization of 750 billion US dollars, now the share of BTC is 35% with a capitalization of 400 billion US dollars. Very similar graphics in the other cryptocurrencies. The pair LTC/BTC (Litecoin vs Bitcoin) depreciated in the same proportion.

A stronger reduction in relation to BTC is the pair DSH/BTC (DASH vs Bitcoin) and ZEC/BTC (ZCash vs Bitcoin).

Conclusion: At the time of the rapid growth of the market it makes sense to bet on the reduction of ВТС in relation to other more recent projects, but at the time of the market fall “overflows” in ВТС. This can be explained as follows: Bitcoin is a payment system too old with many problems of scale and transaction speed. At the time of general growth, investors prefer to rely on young BTC analogs (this explains the drop in BTC’s share in capitalization from 60% in December 2017 to 35% by the end of February 2018). But in the moment of panic, the confidence towards BTC is much more due to its status in the world economic community.

Technical analysis can also be used in these pairs. And finally, some tips on trading cryptocurrencies on Forex:

-Do not use leverage or use it very carefully. Remember that because of volatility positions can be closed by stop out.

-Give preference to intraday trading, save on swaps.

-Limit the use of business advisors and better operate manually. The market is more subject to psychological and fundamental factors.

Categories
Forex Indicators

How to Trade with Sentiment Indicators

Can sentiment indicators help us make good investment decisions? When is the best time to use them? In this article, we will see three of the main sentiment indicators used by traders. A market is efficient if the prices of the assets listed therein reflect all available information. In addition, whenever new information appears, the […]

Can sentiment indicators help us make good investment decisions? When is the best time to use them? In this article, we will see three of the main sentiment indicators used by traders. A market is efficient if the prices of the assets listed therein reflect all available information. In addition, whenever new information appears, the […]

Can sentiment indicators help us make good investment decisions? When is the best time to use them? In this article, we will see three of the main sentiment indicators used by traders.

A market is efficient if the prices of the assets listed therein reflect all available information. In addition, whenever new information appears, the price should be collected quickly. In such a market, value and price would match all assets. As all participants would have the same information, it would be impossible to obtain a consistent performance over the average, except by pure chance.

In order for this market to exist, certain characteristics should be given, in addition to all participants having the same access to information. Primarily, market participants should act rationally on the basis of any new information they receive.

You don’t need to be any great expert on behavioral finance to realize that human beings are far from acting rationally. Emotions are very important in the decision-making process, in all areas. Also in investments. There are all the discoveries of behavioral finance to prove it.

The logical consequence of accepting this is that markets should not be efficient. However, the vast majority of studies show that markets are indeed efficient (or at least quite efficient). News is quickly reflected in prices (both macro and business results, etc.). And the reality is that there are not too many managers able to beat their benchmarks, consistently, is also proof of that. And the truth is that even among those who beat them, almost none can truly be considered an outlier.

Emotions are very important as they significantly affect our decision-making process, in all areas. Also in investments.

Obviously, the topic gives for much more than a brief article, but it is relevant to keep it in mind when carrying out an analysis, whatever the type. In this context, it seems wise to ensure, inspired by Andrew Lo’s ideas, that markets that tend to efficiency but are not fully efficient are most likely. In other words, no investment strategy will generate results on average consistently over time and it will therefore be necessary to adapt to the changing environment. That is why it is so necessary to diversify strategies.

We have developed three ideas so far: that the market is quite efficient, that it should not be so because human beings do not always act rationally, and that the same strategies do not always work. A consequence of all three could be that there are times when the irrationality of market actors reaches such an extreme that price and value do not coincide. This could be used to beat the market for a while until irrationality returns to normal levels. And it is in this context that indicators of market sentiment make sense.

Sentiment indicators are those that try to measure market expectations, to find out if they are rational or not.

The best indicator of feeling is, without a doubt, the price itself. As Homma, father of Japanese candles, said, “To know about the market, ask the market”. The problem is that at all, the market will tell us if the value matches the price. We have to compare the price with something: with oneself (current price versus historical, basis of technical analysis) or against balance sheet data of the companies that compose it, as for example against its profits or sales (the basis of fundamental analysis).

In this sense, any analysis can be considered an analysis of feelings. For example, if we use the PER (sometimes that the benefits are contained in the price of a stock) as an indicator, we will know that the valuations are useful in long periods, but it is a bad idea to use them to make market timing. Therefore, it can be thought that there are market moments where it is rational that valuations are above average until they reach a certain level that is unsustainable.

Pure sentiment indicators, in any case, are those that compare current prices with other assets (for example fixed income against equities through the EYG, but also the evolution of assets refuge against cyclical, etc.), with their own components (number of companies doing maxima) or with the investor positioning (Ratio Put/Call or the American Investors survey).

Sentiment Indicators: VIX Index

One of the best-known sentiment indicators is the VIX. In short, it measures the volatility that traders expect in the next 30 days. It usually picks up when markets fall and that’s why it’s called the fear index. Investing in VIX, up or down, is complex and should be reserved only for more sophisticated investors who understand well the characteristics of the products available.

As an indicator, VIX is an example of how to benefit from “opposing opinion theory”. This philosophy defends that, in very extreme moments, it is worth positioning against the majority of the market. It is interesting to observe the strong VIX rebounds (when it is about 1.5 deviations typical of its mean)

For VIX it is interesting because although its negative correlation coincides with the S&P 500 is very high (when the S&P 500 has negative returns the VIX usually rebound), its correlation with future returns is zero or even positive. So, it’s very interesting to observe the strong VIX rebounds (when it is about 1.5 deviations typical of its mean). These moments have often given interesting buying opportunities.

We must stress that the strategy we are citing has not worked on the other side: historically low VIX levels have not been followed by S&P 500 drops. VIX exhibits some asymmetry in its average returns and is usually faster when above-average than when below average.

Sentiment Indicators: Ratio Put/Call

Another well-known sentiment indicator is the Ratio Put/Call. This ratio simply measures the volume of Put options between the volume of Call options. Broadly speaking, Put options are often used to take bearish positions and Call for bullish positions. If this indicator picks up means that there is either more volume of Puts or less of Calls and therefore the risk perception of operators increases. Similarly, if the indicator falls, it usually indicates greater complacency.

This ratio simply measures the volume of Put options between the volume of Call options.

It should be noted that the back-tests I have done on this indicator show quite poor results. For example, a strategy based on being 100% in Equities in bullish extremes, 100% in bonds in bearish extremes, and 50%/50% in the rest of the scenarios, is not able to beat a simple strategy of 50% Equities, 50% Bonds.

The above strategy is done using the CBOE aggregate indicator (known as Put/Call Ratio Composite or Total). Includes stock and index options. It is sometimes criticized for including indices because many investors use indices to make hedges and relative value strategies, which distorts it somewhat as a measure of positioning. However, using the Equity Put/Call Ratio results do not vary much.

Finally, it should be added that such indices are also calculated on other organised markets, such as ECI. However, the most often followed are those of the CBOE.

Sentiment Indicators: American Association of Individual Investors Survey

The last sentiment indicator I wanted to talk about in the article is the investor sentiment analysis conducted by the American Association of Private Investors. It is true that it can be criticized that sentiment indicators based on surveys could be less reliable than those based on the market, but the truth is that it is interesting to see a combination of both and their possible divergences, both between them and vis-à-vis the market.

Since 1987, AAII members are asked the same question every week: Do you think the stock market will rise, fall or stay as it is in 6 months? And every Thursday the results are published.

There are many ways to process published data, but perhaps the most interesting results can be found in the so-called Bull/Bear Ratio. This indicator is as simple as dividing the percentage of bullies among the bearings. Some add neutrals to bullies, but the results do not change significantly. The backtests on this indicator are surprisingly good.

In general, when the indicator reaches bearish extremes (fear) it would have been a good idea to add, giving good results even in the longer periods, and reduce in the bullish extremes.

Again, it is not a strategy in itself, nor an infallible indicator. But it proves a certain tendency that gives basis to the theory of opposing opinion. In line with what is seen in the VIX, it proves the initial theory: although markets tend to be efficient, there are times when they are not and the irrationality of investors overcomes. And these are just the moments to act.

Categories
Forex Daily Topic Forex Price Action

Importance of Choosing the Right Chart

In today’s lesson, we will demonstrate an example of a chart that makes a breakout at the weekly low, consolidates, and produces an excellent bearish engulfing candle. It looks like a good short entry for the sellers. However, things do not go as the sellers would love to see. We try to find out what may be the reason behind it.

In today’s lesson, we will demonstrate an example of a chart that makes a breakout at the weekly low, consolidates, and produces an excellent bearish engulfing candle. It looks like a good short entry for the sellers. However, things do not go as the sellers would love to see. We try to find out what may be the reason behind it.

In today’s lesson, we will demonstrate an example of a chart that makes a breakout at the weekly low, consolidates, and produces an excellent bearish engulfing candle. It looks like a good short entry for the sellers. However, things do not go as the sellers would love to see. We try to find out what may be the reason behind it.

It is the H4 chart. The chart shows that the price action has been choppy for the last three weeks. The price has been roaming around within two horizontal levels. Ideally, the price action traders would love to skip eying on such a chart to trade at. Let us proceed and see the H4 chart of the last week.

The chart shows that the price makes a bullish move to start its trading week. Then, it makes a bearish move and closes around the level where it started its week. It seems that the minor time frame sellers are driving the price down.

The chart produces a bullish engulfing candle right at the last week’s swing low. The minor time frame traders may push the price towards the North. The H4 sellers, on the other hand, may wait for the price to make a breakout at the swing low to go short on the chart. This is what the breakout traders usually do. However, the question is whether they should do it on this chart or not? We find it out in a minute.

It seems that the Bear is about to make a breakout at the last week’s low. The last candle comes out as a bearish engulfing candle closing right at the level of support.

The price makes a breakout at the weekly low. The last candle comes out as a bearish candle closing well below the level of support. The breakout traders are to wait for the price to consolidate.

The price consolidates. The last candle comes out as a bearish inside bar. If the price makes a breakout at the last swing low, the breakout traders usually trigger a short entry. Let us proceed and see what the price does.

The chart produces a bearish engulfing candle. It is an A+ signal candle as far as the breakout trading strategy is concerned. The sellers may want to trigger a short entry right after the last candle closes.

The chart produces a bullish engulfing candle and heads towards the North instead. The Forex market is unpredictable. The price could go either way anytime. However, it looks strange after the chart producing such a nice signal candle. There is nothing wrong with the entry apart from the fact that the chart has been choppy for the last three weeks. It means either the pair is waiting for a high impact news event to find its new direction or traded based on a bigger time frame. In a word, the price action traders may skip eying on such a chart to trade at. For them, choosing the right chart plays a vital role. Today’s example proves it again.