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.

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.