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.