Possible Breakout - Daily Candle Chart GBP/USD 1st February 2010

If you are a technical currency trader, then support and resistance levels can provide excellent longer term forex trading opportunities in the spot markets, and the pound vs dollar daily chart is now approaching one of these key levels. For the last few months the currency pair has been bouncing between the 1.67 price point to the upside and 1.58 to the downside, creating a deep level of price congestion, which in turn has created the upper and lower levels of the sideways channel. To date these levels have held, but with the strong sell off in the UK pound of the last few days, we are now approaching the lower level, which to date has provided a platform of support, which has seen daily prices for the pound to dollar pair bounce higher on each occasion that the level has been tested. With the gbp/usd now falling fast, and approaching the 1.58 level once again, and break below here could signal a much deeper move, possibly as far as 1.50 in due course, which should present us with some excellent longer term trading opportunities. The key of course is to wait for the level to be broken by at least 2%, and once achieved then we can enter our trades, confident that any reversal higher now has potential resistance above, which should provide a barrier to any longer term recovery. The pound dollar daily chart is in a classic phase at present with all technical traders now waiting for the break below, whilst swing traders will be anticipating a bounce back higher once again, which is why we need to wait for a confirmation that the support level has been broken.

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Spot Gold Price Chart - Gold Breakout Daily Chart

This is a classic example of a breakout from a pennant pattern which we had been following in the spot gold market for several weeks, and is covered in more detail on my daily market commentary for the spot gold market. As we can see from the daily gold chart, spot gold prices had been consolidating in an increasingly narrow trading range, forming the pennant pattern as a result which is outlined with the two lines above and below which give the pattern it’s name. Such trading is typified by prices moving in a ever small range day after day, until one day we see the explosive breakout that occured in the spot gold market recently, with the breakout on this occasion coming to the upside. There are two things to note in order to trade such breakouts, and the first is simply that the longer the sideways consolidation continues, then the greater will be the force and speed of the breakout when it does occur – much like a tightly coiled spring. The second point to note is that generally the breakout will be in the same direction as that which the market was taking before the start of the consolidation, so in this case we were expecting a break to the upside as the more likely for spot gold prices in this case.

The question of course, is whilst we can see the pennant forming on the daily chart, how do we benefit as traders, and the simple answer is in two ways. First we can trade the breakout before it happens by placing a long straddle in position using options. This is known as a directionless trade, as we benefit whichever way the breakout comes, but ONLY if the trade is in place when the breakout occurs. Should the market continue to consolidate sideways, then this trade will lose, unless you sell any remaining option value back to the market. So the key to success with this trade is in the timing, and you must therefore allow sufficient time for the trade to develop such that the options do not expire before the breakout occurs, and my suggestion for such trades is normally around 3 months, which I suggested on this occasion to my regular readers. The second trading option is to wait for the breakout and then to trade in the direction the breakout has occurred once the market has settled – more risky as we often see considerable volatility following the breakout from the trading range, but nevertheless this is a second way to trade – however, my preferred trading strategy for breakouts is always to use the straddle option strategy wherever possible, and if you would like further details please just follow the link here which explains this in more detail.

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The MT4 platform from ODL offers all the above with the choice of either mini or standard trading accounts so you can begin to trade with as little as 500 euros so why not download your free demo copy of the metatrader 4 software by clicking on the following link – download metatrader free -  and get started today, and don’t forget to follow my daily posts for updates and analysis of the forex markets to help you with your forex trading – so good luck and good trading.

EUR GBP 10 Minute Chart - 27th March 2009

This particular chart, which I have taken from this morning’s trading session on the euro pound currency pair, provides a classic example of how to make money scalping in short term currency pairs. The chart is based on ten minutes, and as we can see, at 9.30 this morning, three consecutive shooting star candles arrived, one after the other, indicating weakness in the market and a possible trading opportunity. I took a chance at this point and placed a wide stop loss above my short position, but had I been more patient I would have waited until 11 am for the confirming bearish engulfing candle to arrive, at which point I would have gone short, yielding a nice return. Now the key thing to note, is that it is very easy to take the first signal that arrives and to enter the market too early – in this case I waited for the third shooting star, a clear sign that the market is weak, before entering. The key to success in scalping is to be patient and to wait for the opportunities to come to you, and not to try to force the trades. Just be patient. Scalping is an excellent way to improve you technical analysis skills, and also forces you to be disciplined with your stop loss placement and management. Even if you only practice in a demo account, it is well worth the effort as these signals arrive every day across all the pairs, and if one is not providing anything of interest, simply change to another time frame or another currency pair, and it is an excellent way to ‘paper trade’ by honing your skills – yes I know it is always harder when real money is at stake, but practice, practice, and more practice will make you a better trader!

You can keep up to date with all the latest currency news, live currency charts, fundamental news, and ofcourse if you are looking for a good fx broker or ECN broker, please just follow the relevant link.

FTSE 100 Daily Index Chart

I wanted to share this chart with you, as it is a trade I am suggesting for this week, and the analysis is based on a combination of volume spread analysis and Japanese candlesticks – the perfect combination of the Western indicator reinforcing the Eastern Japanese candlestick, and don’t forget you can find the latest live currency charts, index charts, fundamental news, and latest currency news in the navigation bar above, along with help in finding a good ECN broker.

If we look at the volume, the first point to note is that the index is going up, and yet the volume is falling which in volume spread analysis is always a warning signal. When a market rises then this should be accompanied by rising or increasing volume, and equally when a market falls, then this should also have increasing volume. To move a market takes effort ( whether up or down ) and if the volume ois falling, then this suggests that the move is running out of momentum for the simple reason that the market makers are no longer participating in the move. The market makers are the professional money, and the one activity they cannot hide is volume, which is why we use it as one of our primary indicators when studying markets which provide true volume. The market makers will take every and any opportunity to catch you out, but provided you use volume spread analysis techniques combined with your chart reading skills, you should always have a good idea of what they are planning next!

In this case we are seeing a move up, on falling volume which provides us with the first early warning signal that we may see a reversal in the trend shortly. The market makers are not taking part, and nor should we, but instead start to look for a selling opportunity. Friday’s candle provides the ideal signal – a shooting star after a rally, suggesting weakness to follow. The daily price has tried to rise, but falling back on selling pressure in the market. The market makers are withdrawing and not buying into the upwards move, and the price on the candle has failed to penetrate the resistance immediately above indicating weakness. If we do indeed see prices fall on Monday then this candle will be a classic morning star, three candle reversal. Finally in the last two months we have seen a series of lower highs and lower lows, of which this could be the next, again adding weight to our analysis.

CHF/JPY - Daily Candle Chart 9th March 2009

I wanted to share this chart with you, as it highlights some important issues regarding timing, and in particular the need to be patient and not rush in and open a position as soon as we see a signal. Candlestick analysis is all about waiting for the signal to be confirmed as true or false – once this has happened then we have a much better chance of success, rather than rush in at the first opportunity without bothering to wait, frightened that the move will get away from us.

In this case we are looking at the daily chart for the CHF/JPY currency pair, and let’s start with the bearish engulfing signal on the 21st December 2008, following a shooting star candle. Had you been looking at this chart without the benefit of hindsight you would have seen the signal, and been waiting for prices to fall the following day, and no doubt rushed in to open a short position based on one candle. Your position would have closed at a loss, as prices moved higher in the day. On the other hand had you waited, then by the end of the day’s trading you would have known that the signal was false, as the charts were now telling you, loud and clear. Six days later we see another bearish signal, a shooting star after a long rally – a sign of weakness, when combined with the earlier bearish signal, this now starts to create a picture. Finally on the 5th January 2009, we receive a bearish engulfing signal which now confirms the weakness, and we would now be looking to trade short with a much better chance of success. Being patient is one of the hardest lessons to learn in trading, but it is one you need to learn, and learn fast. Chasing the market is the quick way to lose all your capital! So be patient and wait for the signal to be confirmed, and if it isn’t just remember that the signal is still there, and could be the first sign of a change, but only the FIRST sign!

Now the second example is really confirming the above in reverse with a bullish engulfing signal on the 27th February – a great signal and we open our position on the 28th February and go long – well in this case we may have survived, or we may not, depending on how tight our stop loss was, but again we are too early because we have been too impatient, and frightened that the move will get away from us. Had we waited, six days later we see another bullish engulfing candle, which when added to the first signal gives extra weight to our decision, and therefore a better chance of success. Now that bull rally is still continuing today, over one month later. So the moral is, be patient – I know it can be hard at times, but if you are constantly chasing the market you will lose – be patient and wait, and then use the earlier signal as a confirmation of a later one, adding weight to the decision. You may still be wrong, but at least you have waited and not rushed in at the first opportunity.

In order to help you with your trading I have added several new services to the site. First there is an economic calendar which provides details of all the fundamental news items from around the world, including details of the forecast and previous figures, but if you prefer your news on video, then the latest currency news is the place to go, with updates three times a day. In addition there is a live news feed, and for the latest prices, live currency charts covering over 70 of the world’s most popular traded pairs. Finally if you would like help with choosing your ECN broker, I have provided some guidance and suggestions for you, which I hope you find useful.

EUR/USD 5 minute Candle Chart - 3rd March 2009

I just thought I would pop this chart up for you, which is from this afternoon’s trading on the 3rd March 2009, and is on the five minute chart for the euro dollar which was a great signal and an excellent trading opportunity. As you can see on the chart, we had a two hour rally from 12 until around 2 pm, and at this point we get a great signal, an up candle, followed by a gapped up ‘evening star’ sometimes called a spinning top, followed by a wide spread down bar – a classic reversal signal. At this point we are paying full attention, and waiting for any confirming signals which duly arrive on the next two bars with two consecutive shooting stars, signalling weakness, and confirming the earlier signal. Note also that both are contained within the body of the down bar. At this point we enter our short position and close out on the bullish engulfing candle at 16.30! They don’t come any better than that I can assure you, and a classic example of how candle patterns provide the clues to the market direction, but you always have to wait for the confirmation. I just wanted to share this one with you, as it is almost ‘text book’ analysis.

In order to help you with your trading I have added several new services to the site. First there is an economic calendar which provides details of all the fundamental news items from around the world, including details of the forecast and previous figures, but if you prefer your news on video, then the latest currency news is the place to go, with updates three times a day. In addition there is a live news feed, and for the latest prices, live currency charts covering over 70 of the world’s most popular traded pairs. Finally if you would like help with choosing your ECN broker, I have provided some guidance and suggestions for you, which I hope you fin useful.

First we have added live currency charts, which cover a huge range of currency pairs, including all the majors, the crosses, the exotics and many that you may never have come across. In all there are over 70 pairs to choose from including many of the Arabian currencies. To change the timescale of the chart simply hover your mouse over the chart and in the right hand corner the options menu will appear, from which you can select the options required. Next we have added an economic calendar which provides all the daily economic and fundamental news for the day and the next few weeks. Major news announcements are highlighted with an explanation and link to the issuing authority. Checking which markets are closed can be an issue, so we have added a page which provides a list of all the national holidays for every country for the year, making it easy to check which markets are open and which are closed.

For the latest currency news we have added a TV video channel, which is updated twice a day, with a morning briefing session, followed by a lunchtime review. The morning session covers the main economic news of the day, and the later session reviews the markets with volume trends, bullish or bearish sentiment, and likely moves in the currency markets. For more general news we have added a live news page, which provides streaming news across a variety of markets. Finally if you need help in choosing your fx broker, we have added a new page to help you, and my own personal view is always to have your currency trading account with an ECN broker if possible, as this allows you to trade against the market, and not against the broker.

USD/SGD Weekly Candle Chart - 2nd March 2009

Sometimes when we are analysing charts we tend to forget some of the basics, so I thought I would show you a great chart this morning which I hope demonstrates the point. The chart we are looking at is the weekly for the US dollar and Singapore dollar, not one I trade very often, but it does illustrate the point, which is simply this – with the wide spread up bar from last week, and clear breakout above the resistance at 1.5300, we should be very confident that a long position should make us money in the next few days as all the signals are good. First we have strong up candles with wide spreads indicating momentum in the move. Secondly we have a support area immediately below providing protection in the event of any reversal, and finally we have all three moving averages pointing higher. All these factors illustrate the point that Japanese candlestick analysis only works when combined with Western indicators, a fact we often forget in our analysis. I just wanted to remind you in case you had forgotten!!

USD/CHF Daily Candle Chart - 27th February 2009

I wanted to show you this candle chart, as again it has some extremely important lessons for us as traders, using technical analysis as our primary trading tool. The first aspect of this chart which I think is a perfect example is the waterfall effect, seen in mid-December 2008. In any down move, increasingly wide spreads indicate that the move is gaining momentum, and as you can see here, the spread of the down bar increases, creating the so called “waterfall”, which describes the pattern perfectly. Now if you have volume on your trading system, then this is an excellent tool to validate the move as we would expect to see increasing volume with the increasing spreads as the market bears take control. So in any move, if you see widening spreads, in either a down move, or an up move, then this is an indication that the move is gaining momentum, and therefore provides us with a trading signal.

The second aspect of this move, is at the bottom of the waterfall, where we see a classic hammer candle, hammering out the bottom which we have discussed before. With such a deep hammer, after such a strong down move, there is only on way for prices to move, and that’s back up, but only temporarily, and this is the key point. As traders we have to be patient and wait for the confirming signal to appear. Whilst we might have made money trading the first hammer, we might have got stopped out in any reversal. The second hammer which appears six days later, is a much stronger signal as it confirms the first, and therefore we can trade with much greater confidence that the reversal is a genuine one, and not a temporary move higher. The lower wick of the candle is re-tests the same level as for the first hammer candle, adding more weight to the signal. Having seen the second signal we would then wait until prices moved up and through the moving averages which then provide us with added confidence as the move develops. I am still in this one and waiting for prices to reach the resistance above before closing out, or alternatively if a reversal occurs then trigger my stop loss below the 1.15 level.

Dollar Yen Chart ( USD/JPY) - Daily 25th February 2009

This is a great chart and a currency pair I am trading at the moment, so it is very relevant and has three excellent signals on the daily chart, all of which I have used to identify reversals in the last few weeks. The first of these occurred just before Christmas last year, with a great bullish engulfing signal following a sharp sell of which is a pre-requisite for this signal – in other words we must see a strong move before the signal in order for it to carry enough weight. In this case it did, and prices rose accordingly supported by the moving averages. The next signal occurred early in January again after a strong rally, with a classic shooting star above the 40 day moving average, indicating possible weakness in the market. The bulls have been in charge for the last few weeks, but the bears have now won the battle on the day forcing prices off their highs and back down to the open. With a confirming down bar the following day, this gave us an excellent signal to sell and to profit from the short side of the market.

Finally we have the third signal in the third week of January, a deep hammer with a narrow body and long lower wick. The important aspect to note here is that the lowest price on the day was identical to those of the bullish candle – a real giveway for us as traders and one which gives us extra confidence in the trade. Whilst this took some time to take effect, it was the first signal that a bottom had been reached and one that I have been trading ever since with last nights rise fueled by the awful economic news for Japan’s export markets. I actually entered the trade 5 days after the signal first appeared, once the wide spread up bar of the first week in February had appeared, and bought the following day on the reaction lower, a position I have held ever since. I am now looking for a target of 98.50 for the position in the short term. So in summary, three great candles, all of which gave us signals of a reversal.