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.

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.