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.

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.

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.

If you are considering trading in the forex or commodities markets it is essential to use the best trading platform and in my view there is only one platform worth considering, and that’s Metatrader 4.  As one of the most advanced, yet intuitive, trading platforms available MT4 offers sophistication combined with simple order entry, execution and stop loss management and can be used with a host of expert advisors.   Secondly, of course, it is so important to have an account with a reputable forex broker who offers ECN execution -  in other words your trades are entered automatically into the market with no dealer or broker intervention, a huge benefit which allows you to scalp or trade in your preferred style, with no worry of slippage or of broker intervention on trading positions.

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.

Continuation Candle Pattern - Falling Window

The Japanese have some wonderful descriptions for their candle patterns, and one of these is called the window. In the West we call this a gap up or gap down and whilst not common in forex markets, they occur much more frequently in stocks where prices close in the evening, and then open with a gap the following morning, due to some overnight breaking news. This of course rarely happens in the forex market, so I have taken an example from the futures market and WTI oil contacts with a great example for you to see. The Japanese call this phenomenon an window, and in essence there are two kinds, namely a rising window which is a bullish signal and the falling window, which is the bearish signal.  Both signify the same thing, namely that they confirm that the move is likely to continue for the time being. Now the important point to note, and this is where many traders and chartists become confused, is that it the price of the following day, enters the price of the previous day, even if this is only the shadow of the candle, then this is not considered to be a window in Japanese candlestick analysis. This is an important point and one which is often misunderstood. So let’s look at our example above.

As you can see on the 22nd of July we had a wide spread down bar, with small shadows top and bottom which was followed the day after ( 23rd July) by a narrow spread down bar with no bottom wick and only a tiny top shadow. This is then followed by our ‘falling window’  with a clear gap between this candle and the following day’s candle. As you can see the upper shadow of the candle on the 24th July has not penetrated back into the previous day’s candle in any way, and therefore we can say that this is a true falling window and a bearish signal which confirms that the move is likely to continue for some time. Had the upper shadow breached the candle of the previous day, in any way, then we would have to discount the signal. The window concept is also important from another view ( sorry for the pun) and this is that it provides a natural break to any reversal, rather like a firebreak in controlling the spread of fires which are much in the news at the moment. In order to control a fire, deep channels are dug making it much harder for the fire to jump the gap – well the same principle applies here with a window providing a gap across which prices have to jump in order to move higher ( or lower ). This is where the Eastern Japanese candle philosophy joins with the Western support resistance philosophy which make candlestick analysis so powerful, provided you take the time to understand all the nuances and subtleties of the methodology. So keep your eyes open for falling and rising windows, as these are great signals for a continuation of the move.