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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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!

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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.

Shooting Star & Hammer Candles In The CAD/JPY Daily Chart

The reason I have chosen this chart, is not because it is a currency pair I trade regularly, but simply because it has two excellent examples of a reversal that we can benefit from, provided we are paying attention and understand these classic candles. If we start with the top reversal at 78.50 on the 7th January 2009, following two wide spread up bars, we have a strong signal that prices are about to reverse with a shooting star, a candle with a small body and a long upper shadow or wick as in this case. This is the first signal that the move upwards has run out of steam. The bulls are in control initially and prices rise quickly, but gradually the bears begin to take charge, and bring pressure to bear in the market forcing prices back lower to close at or near the opening price. This is followed the day after by a wide spread down bar which confirms that we now have weakness in the market and therefore provides us with a possibility opportunity to short the market. Whilst one never trades one candle on it’s own, or indeed without the confirmation of Western Indicators, this is a classic candle that you can see in all markets in all time frames, and is one I trade more than any other. I will refer to this many, many, times as it is key to your success. Whilst Japanese candlesticks are a fantastic trading tool, you simply cannot use them in isolation, but have to be read with Western indicators which them confirm the signal. Whichever indicators you use, please remember this point, as it is key to the success of your charting skills. Personally I use simple moving averages, support and resistance, and trend lines.

To be honest, if you simply learnt how to trade using this one candle alone, you would probably make more money with this than any other. You do of course have to be patient and wait, but when they do arrive, they are one of the best candles I know, for being the first signal to a reversal and for us to make money. Now the other reason for showing you this chart is that this signal is then followed by another classic, the hammer, so called as the Japanese believe it is hammering out a bottom which we can see on the 23rd January 2009. This is identical to the shooting star, but in reverse. In this case it is the bears who have early control of the market, forcing prices lower, only for the bulls to take charge later, forcing prices to rise from the day’s low, leaving a candle with a small body and deep lower shadow or wick. Clearly the bulls have won the day, but will this continue? We do ofcourse have to wait and se, but this is the first sign that we are possibly looking at a reversal of prices in the daily chart, and to therefore pay attention. So there you have it – two great candles, the shooting star, and the hammer, both in the same chart and both indicting possible turning points for us to make money in our trading.