GBP/JPY continued to stay in converging range last week. The development argues that such range trading is part of the whole corrective rise from 126.73 only and such rise is not completed yet. Initial bias remains neutral this week. Break of 135.99 will target 61.8% retracement of 145.94 to 126.73 at 138.60 and above. On the downside, break of 131.23 will revive the case that recovery from 126.73 has completed already and will flip bias back to the downside for retesting this low.
In the bigger picture, the choppy nature of the fall from 163.05 is mixing up the outlook a bit. But in any case, such decline is still in progress as long as 145.94 resistance holds and further fall should be seen to retest 118.18 low first. Break will confirm that whole down trend from 2007 high of 251.09 has resumed for 61.8% projection of 215.87 to 118.81 from 163.05 at 103.06 next, which is close to 100 psychological level. However, break of 145.94 will indicate that fall fro 163.05 is finished. Also, this will suggest that such fall is merely the second wave of the whole consolidation pattern from 118.81 and will bring another rise to 163.05 and above before resuming the longer term down trend.
In the longer term picture, fall from 251.09 is treated as resumption of multi decade down trend. Note that the fall from 215.87 is not treated as the fifth wave, but the third wave inside the third wave that started at 241.35. Another long term decline is still expected after completion of the correction from 118.81.
Showing posts with label Gbp. Show all posts
Showing posts with label Gbp. Show all posts
Saturday, July 10, 2010
Friday, July 9, 2010
GBP/USD Is Range Bound– Will it Fall?
GBP/USD is trading in an almost perfect range in the past week. The longer the range – the stronger the explosion, but in which direction? Here are some reasons for it to go down.
Last Friday, GBP/USD enjoyed the weak Non-Farm Payrolls in the US to rise to new levels. Since then, it has traded in an almost perfect range – from 1.5080 to 1.5240. This 160 pip range saw three tops and three bottom throughout the week, without breaking out. But the situation doesn’t look good for the Pound:
Recent economic data is mostly negative. British Services PMI disappointed with a drop to 54.4 points, worse than expected. Halifax HPI, which shows the change in house prices, fell by 0.6% instead of rising by the same scale. Manufacturing Production fell short of expectations as it rose by only 0.3%, and last month’s drop was revised – 0.8% instead of 0.8% – double.
But the biggest disappointment came from interest rate issues. First, the Bank of England didn’t raise the rates. While this was the consensus, this came after we saw that one member voted to raise the rates last month – Andrew Sentance’s vote came on rising inflation that missed the government’s target month by month.
The decision not to raise the rates was later backed with the PPI figures – producer prices dropped last month by 0.2% when expectations stood on a rise of 0.1%. So, maybe the inflationary pressures aren’t too strong?
Similar to the Euro, it seems that the British Pound mostly enjoyed the US dollar’s weakness rather than its own strength. A drop will find immediate support at 1.5050, followed by 1.4870 and 1.4780. A breakout to the upside will meet resistance at 1.5350, followed by 1.5530 and 1.5833.
Last Friday, GBP/USD enjoyed the weak Non-Farm Payrolls in the US to rise to new levels. Since then, it has traded in an almost perfect range – from 1.5080 to 1.5240. This 160 pip range saw three tops and three bottom throughout the week, without breaking out. But the situation doesn’t look good for the Pound:
Recent economic data is mostly negative. British Services PMI disappointed with a drop to 54.4 points, worse than expected. Halifax HPI, which shows the change in house prices, fell by 0.6% instead of rising by the same scale. Manufacturing Production fell short of expectations as it rose by only 0.3%, and last month’s drop was revised – 0.8% instead of 0.8% – double.
But the biggest disappointment came from interest rate issues. First, the Bank of England didn’t raise the rates. While this was the consensus, this came after we saw that one member voted to raise the rates last month – Andrew Sentance’s vote came on rising inflation that missed the government’s target month by month.
The decision not to raise the rates was later backed with the PPI figures – producer prices dropped last month by 0.2% when expectations stood on a rise of 0.1%. So, maybe the inflationary pressures aren’t too strong?
Similar to the Euro, it seems that the British Pound mostly enjoyed the US dollar’s weakness rather than its own strength. A drop will find immediate support at 1.5050, followed by 1.4870 and 1.4780. A breakout to the upside will meet resistance at 1.5350, followed by 1.5530 and 1.5833.
Sunday, June 6, 2010
GBP/USD Weekly Technical Analysis (June 7-11 2010)
A very busy week awaits the British Pound, with the rate decision being the highlight. Will Mervyn King tackle inflation? Here’s an outlook for the events that will rock the Pound, and an updated technical analysis for GBP/USD.
GBP/USD chart with support and resistance lines on it.
The Pound enjoyed the failure of the Prudential -AIG Asia deal. This deal would have sent billions of pounds overseas, and its failure strengthened the Pound. That wasn’t enough to hold the Pound after Friday’s Non-Farm Payrolls though. Let’s see the British events:
BRC Retail Sales Monitor: Published on Monday at 23:00 GMT (midnight UK). This figure is a great indicator for the official retail sales release. The British Retail Consortium showed a drop of 2.3% in the retailers that belong to its organization. This came after two months of neat rises. Another drop is predicted this time.
Nationwide Consumer Confidence: Published on Tuesday at 23:00 GMT. This survey of 1,000 consumers is a highly regarded barometer for the mood of consumers and of MPC members that meet later in the week. After steadily climbing to 81, this indicator dropped and now stands on 74 points. This is the first survey for the new government and also the first one after the escalation of the European troubles. Economists expected a rise to 78 points, but given the worries, a drop under 70 won’t be very surprising.
Trade Balance: Published on Wednesday at 8:30 GMT. After making a surprise drop two months ago and boosting the British Pound, the trade deficit jumped once again to 7.5 billion pounds, weakening the currency. It’s expected to squeeze down to 7 billion this time.
Rate decision: Published on Thursday at 11:00 GMT. The BoE is trapped between the desire to stimulate the economy by leaving the interest rate unchanged, and by the rising inflation. Mervyn King dismissed the rising inflation and said it’s only oil prices, but the new Prime Minister, David Cameron, doesn’t buy this, and made it clear that he wants the issue to be tackled. The consensus is for an unchanged Official Bank Rate – at 0.5%. If there isn’t a rate hike, traders will watch the MPC Rate Statement – if they express worries about inflation, the Pound will rise. If they focus on economic troubles, it will weaken.
Manufacturing Production: Published on Friday at 8:30 GMT. This major indicator always rocks the Pound. Last month’s release was a big surprise – output grew by 2.3%, far better than expected.The forecast for this release is more modest – 0.6% growth. Note that manufacturing is part of the overall industrial production, which is predicted to rise by 0.5% after a 2% rise last time. Manufacturing is more closely watched.
PPI: Published on Friday at 8:30 GMT. Following a leap of 3.8% in producer prices two months ago (3.8%), prices grew by only 0.6% last month, and they;re expected to drop by 0.1% this time, showing that inflation is still under control, at least with the PPI Input figure. The complementary number, PPI Output, is expected to rise by 0.6% after rising by 1.4% last time.
NIESR GDP Estimate: Published on Friday at 14:00 GMT. Last but not least, the NIESR institute usually provides accurate estimations about the GDP, and they release it on a monthly basis. ast month’s figure was positive – it showed a growth rate of 0.5% in the three months ending in April. A weaker growth rate is expected now, when May is added and February omitted from the calculation.
GBP/USD Technical Analysis
After some range trading between 1.44 and 1.4610, the Pound made a breakout and reached 1.4770, just 10 pips below the 1.4780 resistance line. Friday’s mess sent the pair back down to 1.4450.
Note that many lines have changed since last week’s outlook. The pair is bound by 1.44 and 1.4610 once again. Both lines aren’t very strong.
Looking down below 1.44, the next line is the year-to-date low of 1.4230. This was also a line of support last year. Below, 1.4130 was a swing low and now provides minor support.
Even lower, 1.38 is a strong line, working as a support line at the beginning of 2009. It’s followed by 1.3660, and by the ultimate multi-decade support line of 1.35.
Looking up above 11.4610, strong resistance is found at 1.4780. This is the line that the Pound collapsed to a few months ago, and it was tested successfully just this week.
A break above this line will send the pair to 1.5065, followed by 1.5130, which was a strong support line. There are more resistance lines higher above, but they are too far now.
I am neutral on the GBP/USD.
On one hand, the British economy is still growing slowly and it suffers from the debt issues in continental Europe. But on the other hand, rising inflation can trigger a rate hike, that will probably come sooner than later.
GBP/USD chart with support and resistance lines on it.
The Pound enjoyed the failure of the Prudential -AIG Asia deal. This deal would have sent billions of pounds overseas, and its failure strengthened the Pound. That wasn’t enough to hold the Pound after Friday’s Non-Farm Payrolls though. Let’s see the British events:
BRC Retail Sales Monitor: Published on Monday at 23:00 GMT (midnight UK). This figure is a great indicator for the official retail sales release. The British Retail Consortium showed a drop of 2.3% in the retailers that belong to its organization. This came after two months of neat rises. Another drop is predicted this time.
Nationwide Consumer Confidence: Published on Tuesday at 23:00 GMT. This survey of 1,000 consumers is a highly regarded barometer for the mood of consumers and of MPC members that meet later in the week. After steadily climbing to 81, this indicator dropped and now stands on 74 points. This is the first survey for the new government and also the first one after the escalation of the European troubles. Economists expected a rise to 78 points, but given the worries, a drop under 70 won’t be very surprising.
Trade Balance: Published on Wednesday at 8:30 GMT. After making a surprise drop two months ago and boosting the British Pound, the trade deficit jumped once again to 7.5 billion pounds, weakening the currency. It’s expected to squeeze down to 7 billion this time.
Rate decision: Published on Thursday at 11:00 GMT. The BoE is trapped between the desire to stimulate the economy by leaving the interest rate unchanged, and by the rising inflation. Mervyn King dismissed the rising inflation and said it’s only oil prices, but the new Prime Minister, David Cameron, doesn’t buy this, and made it clear that he wants the issue to be tackled. The consensus is for an unchanged Official Bank Rate – at 0.5%. If there isn’t a rate hike, traders will watch the MPC Rate Statement – if they express worries about inflation, the Pound will rise. If they focus on economic troubles, it will weaken.
Manufacturing Production: Published on Friday at 8:30 GMT. This major indicator always rocks the Pound. Last month’s release was a big surprise – output grew by 2.3%, far better than expected.The forecast for this release is more modest – 0.6% growth. Note that manufacturing is part of the overall industrial production, which is predicted to rise by 0.5% after a 2% rise last time. Manufacturing is more closely watched.
PPI: Published on Friday at 8:30 GMT. Following a leap of 3.8% in producer prices two months ago (3.8%), prices grew by only 0.6% last month, and they;re expected to drop by 0.1% this time, showing that inflation is still under control, at least with the PPI Input figure. The complementary number, PPI Output, is expected to rise by 0.6% after rising by 1.4% last time.
NIESR GDP Estimate: Published on Friday at 14:00 GMT. Last but not least, the NIESR institute usually provides accurate estimations about the GDP, and they release it on a monthly basis. ast month’s figure was positive – it showed a growth rate of 0.5% in the three months ending in April. A weaker growth rate is expected now, when May is added and February omitted from the calculation.
GBP/USD Technical Analysis
After some range trading between 1.44 and 1.4610, the Pound made a breakout and reached 1.4770, just 10 pips below the 1.4780 resistance line. Friday’s mess sent the pair back down to 1.4450.
Note that many lines have changed since last week’s outlook. The pair is bound by 1.44 and 1.4610 once again. Both lines aren’t very strong.
Looking down below 1.44, the next line is the year-to-date low of 1.4230. This was also a line of support last year. Below, 1.4130 was a swing low and now provides minor support.
Even lower, 1.38 is a strong line, working as a support line at the beginning of 2009. It’s followed by 1.3660, and by the ultimate multi-decade support line of 1.35.
Looking up above 11.4610, strong resistance is found at 1.4780. This is the line that the Pound collapsed to a few months ago, and it was tested successfully just this week.
A break above this line will send the pair to 1.5065, followed by 1.5130, which was a strong support line. There are more resistance lines higher above, but they are too far now.
I am neutral on the GBP/USD.
On one hand, the British economy is still growing slowly and it suffers from the debt issues in continental Europe. But on the other hand, rising inflation can trigger a rate hike, that will probably come sooner than later.
Monday, May 31, 2010
GBP/USD Technical Analysis (June-01-2010)
The GBPUSD had a bullish momentum yesterday, but still unable to move consistently above 1.4527 region so far. On h4 chart below we can see that price is now struggling around to bullish channel lower line indicating critical technical point. A clear break below the bullish channel could trigger further bearish momentum towards 1.4350 before re-testing 1.4240 region. On the other hand, as long as price able to move inside the bullish channel, the upside correction scenario remains intact with 1.4608 and 1.4715 as technical target.
Sunday, May 30, 2010
GBP/USD Weekly Technical Analysis (May 31- June 04 2010)
The British Pound is closely tied to the Euro, and didn’t manage to close higher. The upcoming week has many important events that will shake the Pound. Here’s an outlook for those events and an updated technical analysis for GBP/USD.
GBP/USD graph with support and resistance lines marked. Click to enlarge:
Britain’s growth rate for the first quarter of 2010 was upgraded to 0.3%, but this didn’t seem to help the Pound. After a bank holiday on Monday, we have British figures coming in every day. Let’s start:
Halifax HPI: Publication time unknown at the moment. This is a highly regarded house price index, as HBOS calculates the changes in prices using its wide internal data. After many months of rises, prices became more unstable. A drop in prices three months ago was followed by a neat rise, but last month’s drop undermined the thought that the drop wasn’t a one time event. The forecast is for a small rise of 0.3%.
Manufacturing PMI: Published on Tuesday at 8:30 GMT. Purchasin managers in Britain’s manufacturing sector are quite optimistic – the index rose to 58 points last month – the highest level sine the outbreak of the financial crisis, and it also beat expectations. This survey of 600 managers is likely to drop this time, but remain above 50 – the line that separates optimism and pessimism.
Net Lending to Individuals: Published on Wednesday at 8:30 GMT. After a few strong months, the Bank of England showed that borrowing dropped to 0.6 billion, from the highs of 2 billion. This indicates a more cautious attitude from consumers. This trend will probably continue, and a negative figure won’t be surprising.
Construction PMI: Published on Wednesday at 8:30 GMT. The second purchasing managers’ release for this week concerns the housing sector. Also here, a big leap was seen last month to 58.2 points. These numbers follow many months of scores under 50, so this fast jump might be followed with a downside correction.
Nationwide HPI: Published on Thursday at 6:00 GMT. This important house price index fell only in one month and then returned to strong rises. This is different than the Halifax HPI. But this time, prices are expected to rise by only 0.5%, half of last month’s rise.
Services PMI: Published on Thursday at 8:30 GMT. The last PMI figure is different from the first two. It fell in the past two months, and isn’t at record numbers anymore. From 55.3 points last month, the forecast is for a small rise to 55.6 points.
GBP/USD Technical Analysis
Cable began the week with a dip towards this year’s low of 1.4227, but remained far enough. A rally sent all the way to 1.4611, but these gains didn’t hold, and the pair closed at 1.4451, not far from last week’s close.
Some lines have changed since last week’s outlook. The Pound’s range is now between 1.44, a minor support line, and 1.4520, a pivotal line in the past week. It’s quite far from stronger lines.
Looking up, the stubborn peak of 1.4611 provides the next resistance line for the pair. This is followed by 1.4780, a very important line that stopped the previous collapse of the Pound, and now works as a resistance line.
Higher, 1.4975 is another minor line, and it’s followed by 1.5140, which worked as a strong support line, before the recent collapse. The next lines are 1.5350 and 1.5520, but they’re quite far away now.
Looking down, the 2010 low of 1.4227 is a strong line of support. It was approached several times, and wasn’t breached. Not yet. The next support line is quite close – 1.4130, serving as a support line at the beginning of 2009.
Even lower, 1.38 also worked as a support line at the beginning of 2009. Below, 1.3514 is the ultimate line of support, being the lowest level in over two decades. This is still very far.
I remain bearish on GBP/USD.
The European debt issues have a very strong impact on Britain. The Pound will probably suffer from the deteriorating situation. The contagious disease is on the doorstep of the UK.
GBP/USD graph with support and resistance lines marked. Click to enlarge:
Britain’s growth rate for the first quarter of 2010 was upgraded to 0.3%, but this didn’t seem to help the Pound. After a bank holiday on Monday, we have British figures coming in every day. Let’s start:
Halifax HPI: Publication time unknown at the moment. This is a highly regarded house price index, as HBOS calculates the changes in prices using its wide internal data. After many months of rises, prices became more unstable. A drop in prices three months ago was followed by a neat rise, but last month’s drop undermined the thought that the drop wasn’t a one time event. The forecast is for a small rise of 0.3%.
Manufacturing PMI: Published on Tuesday at 8:30 GMT. Purchasin managers in Britain’s manufacturing sector are quite optimistic – the index rose to 58 points last month – the highest level sine the outbreak of the financial crisis, and it also beat expectations. This survey of 600 managers is likely to drop this time, but remain above 50 – the line that separates optimism and pessimism.
Net Lending to Individuals: Published on Wednesday at 8:30 GMT. After a few strong months, the Bank of England showed that borrowing dropped to 0.6 billion, from the highs of 2 billion. This indicates a more cautious attitude from consumers. This trend will probably continue, and a negative figure won’t be surprising.
Construction PMI: Published on Wednesday at 8:30 GMT. The second purchasing managers’ release for this week concerns the housing sector. Also here, a big leap was seen last month to 58.2 points. These numbers follow many months of scores under 50, so this fast jump might be followed with a downside correction.
Nationwide HPI: Published on Thursday at 6:00 GMT. This important house price index fell only in one month and then returned to strong rises. This is different than the Halifax HPI. But this time, prices are expected to rise by only 0.5%, half of last month’s rise.
Services PMI: Published on Thursday at 8:30 GMT. The last PMI figure is different from the first two. It fell in the past two months, and isn’t at record numbers anymore. From 55.3 points last month, the forecast is for a small rise to 55.6 points.
GBP/USD Technical Analysis
Cable began the week with a dip towards this year’s low of 1.4227, but remained far enough. A rally sent all the way to 1.4611, but these gains didn’t hold, and the pair closed at 1.4451, not far from last week’s close.
Some lines have changed since last week’s outlook. The Pound’s range is now between 1.44, a minor support line, and 1.4520, a pivotal line in the past week. It’s quite far from stronger lines.
Looking up, the stubborn peak of 1.4611 provides the next resistance line for the pair. This is followed by 1.4780, a very important line that stopped the previous collapse of the Pound, and now works as a resistance line.
Higher, 1.4975 is another minor line, and it’s followed by 1.5140, which worked as a strong support line, before the recent collapse. The next lines are 1.5350 and 1.5520, but they’re quite far away now.
Looking down, the 2010 low of 1.4227 is a strong line of support. It was approached several times, and wasn’t breached. Not yet. The next support line is quite close – 1.4130, serving as a support line at the beginning of 2009.
Even lower, 1.38 also worked as a support line at the beginning of 2009. Below, 1.3514 is the ultimate line of support, being the lowest level in over two decades. This is still very far.
I remain bearish on GBP/USD.
The European debt issues have a very strong impact on Britain. The Pound will probably suffer from the deteriorating situation. The contagious disease is on the doorstep of the UK.
GBP/USD Weekly Technical Analysis (May 31- June 04 2010)
The British Pound is closely tied to the Euro, and didn’t manage to close higher. The upcoming week has many important events that will shake the Pound. Here’s an outlook for those events and an updated technical analysis for GBP/USD.
GBP/USD graph with support and resistance lines marked. Click to enlarge:
Britain’s growth rate for the first quarter of 2010 was upgraded to 0.3%, but this didn’t seem to help the Pound. After a bank holiday on Monday, we have British figures coming in every day. Let’s start:
Halifax HPI: Publication time unknown at the moment. This is a highly regarded house price index, as HBOS calculates the changes in prices using its wide internal data. After many months of rises, prices became more unstable. A drop in prices three months ago was followed by a neat rise, but last month’s drop undermined the thought that the drop wasn’t a one time event. The forecast is for a small rise of 0.3%.
Manufacturing PMI: Published on Tuesday at 8:30 GMT. Purchasin managers in Britain’s manufacturing sector are quite optimistic – the index rose to 58 points last month – the highest level sine the outbreak of the financial crisis, and it also beat expectations. This survey of 600 managers is likely to drop this time, but remain above 50 – the line that separates optimism and pessimism.
Net Lending to Individuals: Published on Wednesday at 8:30 GMT. After a few strong months, the Bank of England showed that borrowing dropped to 0.6 billion, from the highs of 2 billion. This indicates a more cautious attitude from consumers. This trend will probably continue, and a negative figure won’t be surprising.
Construction PMI: Published on Wednesday at 8:30 GMT. The second purchasing managers’ release for this week concerns the housing sector. Also here, a big leap was seen last month to 58.2 points. These numbers follow many months of scores under 50, so this fast jump might be followed with a downside correction.
Nationwide HPI: Published on Thursday at 6:00 GMT. This important house price index fell only in one month and then returned to strong rises. This is different than the Halifax HPI. But this time, prices are expected to rise by only 0.5%, half of last month’s rise.
Services PMI: Published on Thursday at 8:30 GMT. The last PMI figure is different from the first two. It fell in the past two months, and isn’t at record numbers anymore. From 55.3 points last month, the forecast is for a small rise to 55.6 points.
GBP/USD Technical Analysis
Cable began the week with a dip towards this year’s low of 1.4227, but remained far enough. A rally sent all the way to 1.4611, but these gains didn’t hold, and the pair closed at 1.4451, not far from last week’s close.
Some lines have changed since last week’s outlook. The Pound’s range is now between 1.44, a minor support line, and 1.4520, a pivotal line in the past week. It’s quite far from stronger lines.
Looking up, the stubborn peak of 1.4611 provides the next resistance line for the pair. This is followed by 1.4780, a very important line that stopped the previous collapse of the Pound, and now works as a resistance line.
Higher, 1.4975 is another minor line, and it’s followed by 1.5140, which worked as a strong support line, before the recent collapse. The next lines are 1.5350 and 1.5520, but they’re quite far away now.
Looking down, the 2010 low of 1.4227 is a strong line of support. It was approached several times, and wasn’t breached. Not yet. The next support line is quite close – 1.4130, serving as a support line at the beginning of 2009.
Even lower, 1.38 also worked as a support line at the beginning of 2009. Below, 1.3514 is the ultimate line of support, being the lowest level in over two decades. This is still very far.
I remain bearish on GBP/USD.
The European debt issues have a very strong impact on Britain. The Pound will probably suffer from the deteriorating situation. The contagious disease is on the doorstep of the UK.
GBP/USD graph with support and resistance lines marked. Click to enlarge:
Britain’s growth rate for the first quarter of 2010 was upgraded to 0.3%, but this didn’t seem to help the Pound. After a bank holiday on Monday, we have British figures coming in every day. Let’s start:
Halifax HPI: Publication time unknown at the moment. This is a highly regarded house price index, as HBOS calculates the changes in prices using its wide internal data. After many months of rises, prices became more unstable. A drop in prices three months ago was followed by a neat rise, but last month’s drop undermined the thought that the drop wasn’t a one time event. The forecast is for a small rise of 0.3%.
Manufacturing PMI: Published on Tuesday at 8:30 GMT. Purchasin managers in Britain’s manufacturing sector are quite optimistic – the index rose to 58 points last month – the highest level sine the outbreak of the financial crisis, and it also beat expectations. This survey of 600 managers is likely to drop this time, but remain above 50 – the line that separates optimism and pessimism.
Net Lending to Individuals: Published on Wednesday at 8:30 GMT. After a few strong months, the Bank of England showed that borrowing dropped to 0.6 billion, from the highs of 2 billion. This indicates a more cautious attitude from consumers. This trend will probably continue, and a negative figure won’t be surprising.
Construction PMI: Published on Wednesday at 8:30 GMT. The second purchasing managers’ release for this week concerns the housing sector. Also here, a big leap was seen last month to 58.2 points. These numbers follow many months of scores under 50, so this fast jump might be followed with a downside correction.
Nationwide HPI: Published on Thursday at 6:00 GMT. This important house price index fell only in one month and then returned to strong rises. This is different than the Halifax HPI. But this time, prices are expected to rise by only 0.5%, half of last month’s rise.
Services PMI: Published on Thursday at 8:30 GMT. The last PMI figure is different from the first two. It fell in the past two months, and isn’t at record numbers anymore. From 55.3 points last month, the forecast is for a small rise to 55.6 points.
GBP/USD Technical Analysis
Cable began the week with a dip towards this year’s low of 1.4227, but remained far enough. A rally sent all the way to 1.4611, but these gains didn’t hold, and the pair closed at 1.4451, not far from last week’s close.
Some lines have changed since last week’s outlook. The Pound’s range is now between 1.44, a minor support line, and 1.4520, a pivotal line in the past week. It’s quite far from stronger lines.
Looking up, the stubborn peak of 1.4611 provides the next resistance line for the pair. This is followed by 1.4780, a very important line that stopped the previous collapse of the Pound, and now works as a resistance line.
Higher, 1.4975 is another minor line, and it’s followed by 1.5140, which worked as a strong support line, before the recent collapse. The next lines are 1.5350 and 1.5520, but they’re quite far away now.
Looking down, the 2010 low of 1.4227 is a strong line of support. It was approached several times, and wasn’t breached. Not yet. The next support line is quite close – 1.4130, serving as a support line at the beginning of 2009.
Even lower, 1.38 also worked as a support line at the beginning of 2009. Below, 1.3514 is the ultimate line of support, being the lowest level in over two decades. This is still very far.
I remain bearish on GBP/USD.
The European debt issues have a very strong impact on Britain. The Pound will probably suffer from the deteriorating situation. The contagious disease is on the doorstep of the UK.
Monday, May 24, 2010
GBP/USD Daily Technical Forecast (May 25-2010)
With 4 hours MACD crossed below signal line, GBP/USD's recovery might be completed at 1.4527 already. Intraday bias is cautiously on the downside for the moment. Break of 1.4230 will confirm down trend resumption and should target 100% projection of 1.6456 to 1.4783 from 1.5521 at 1.3848 next. However, break of 1.4527 will suggest that a short term bottom is formed and bring stronger rebound towards 1.5053 resistance before staying another fall.
In the bigger picture, our bearish view remains unchanged. Fall fro 1.7043 is tentatively treated as resumption of the whole down trend from 2007 high of 2.1161. Such fall should target 61.8% projection of 2.1161 to 1.3503 from 1.7043 at 1.2310 after taking out 1.3503 low. On the upside, break of 1.5521 resistance is needed to be the first signal of bottoming. Otherwise, outlook will remain bearish.
In the bigger picture, our bearish view remains unchanged. Fall fro 1.7043 is tentatively treated as resumption of the whole down trend from 2007 high of 2.1161. Such fall should target 61.8% projection of 2.1161 to 1.3503 from 1.7043 at 1.2310 after taking out 1.3503 low. On the upside, break of 1.5521 resistance is needed to be the first signal of bottoming. Otherwise, outlook will remain bearish.
GBP/USD Daily Technical Forecast (May 25-2010)
With 4 hours MACD crossed below signal line, GBP/USD's recovery might be completed at 1.4527 already. Intraday bias is cautiously on the downside for the moment. Break of 1.4230 will confirm down trend resumption and should target 100% projection of 1.6456 to 1.4783 from 1.5521 at 1.3848 next. However, break of 1.4527 will suggest that a short term bottom is formed and bring stronger rebound towards 1.5053 resistance before staying another fall.
In the bigger picture, our bearish view remains unchanged. Fall fro 1.7043 is tentatively treated as resumption of the whole down trend from 2007 high of 2.1161. Such fall should target 61.8% projection of 2.1161 to 1.3503 from 1.7043 at 1.2310 after taking out 1.3503 low. On the upside, break of 1.5521 resistance is needed to be the first signal of bottoming. Otherwise, outlook will remain bearish.
In the bigger picture, our bearish view remains unchanged. Fall fro 1.7043 is tentatively treated as resumption of the whole down trend from 2007 high of 2.1161. Such fall should target 61.8% projection of 2.1161 to 1.3503 from 1.7043 at 1.2310 after taking out 1.3503 low. On the upside, break of 1.5521 resistance is needed to be the first signal of bottoming. Otherwise, outlook will remain bearish.
Friday, May 7, 2010
Forex Intra-Day Trading Strategy
Overview
This forex day trading strategy will focus on one of the best analysis method for forex trading - the use of multiple time frames.
Basically, in this strategy, we will use the longer timeframe (chart #1) to define our support and resistance price levels and the shorter timeframe (chart #2) for our trading entry, stop-loss and exit levels.
Also, for confirmation and momentum measurement we will use slow stochastic oscillator indicator (one of the best momentum indicators).
Forex day trading strategy rules:
- We use two time frames, long time frame - 4 hour and short time frame - 15 minute.
- We identify the support and resistance price levels on the longer timeframe a day before.
- We apply the stochastic indicator in both time frames to determine if we enter long or short position in our next intraday trading.
Case study - Forex (Foreign Exchange) USD/JPY Multiple Time Frame Bar Charts
USD/JPY 4 Hour Bar Chart (Chart #1)
Indicators and Parameters:
Support and Resistance Price Levels (Gray) - we use the swing pivot points of the previous day (yellow rectangle); 116.15,116.27,116.43,116.70 and 116.76.
Slow Stochastic Oscillator (lower window) - we set the stochastic indicator parameters for both time frames, as follow: %K period = 8, %D period = 3, Slowing = 3 (optional).
Forex day trading strategy practical analysis:
Chart #1 displays the 4 hour timeframe for the previous day (14 August).
What we can learn from this chart?
1. Resistance and Support price levels for the next day, our trading day, 15 August.
- High = 116.73 (bar 6)
- Low = 116.15 (bar 1)
- The High of the swing move 0-1 = 116.43 (also the high of 11 August)
- The High and Low of the swing move 4-5 = 116.70 (high) and 116.27 (low)
Note: as an opposite from calculated pivot points our price levels are generated from actual swing trading on this day.
2. What type of trading position we will favor the next day; short or long?
As you can see, the stochastic oscillator create diversion with this currency pair price (green line), i.e. the momentum is weakening; plus the stochastic indicates on an overbought situation (above 80 level). So, the next day (15 August), we will try to find conditions to enter a short position.
USD/JPY 15 Minute Bar Chart (Chart #2)
Forex day trading strategy - our trading day, 15 August:
At Chart #2 we can see the previous day - 14 August (yellow rectangle), our support and resistance price levels that we already identify, and the open price of our trading session at 116.62 (bar 1).
Because the open price of this day (116.62) is contained within a support/resistance horizontal channel, 116.43-116.70, and we want to place a short position, we have two options:
- We can enter short at 116.70, when the price retrace toward the resistance line.
- We can enter short at 116.38, when the price penetrate the support line (5 pips to confirm breakout).
In this case, USD/JPY currency price carried out the 116.70 short order (point A). As always, we placed immediately a stop-loss order at 116.81, 5 pips above the upper resistance price level; and a profit target order at 116.43, the next support level (point B).
Forex Day Trading Strategy Implementation
You can implement this forex day trading strategy on any fx currency pair. The mentioned setup and rules can be found almost everyday in the foreign exchange market. Good trading...
Friday, April 30, 2010
Advantages of the Forex Market...
What are the advantages of the Forex Market over other types of investments?
When thinking about various investments, there is one investment vehicle that comes to mind. The Forex or Foreign Currency Market has many advantages over other types of investments. The Forex market is open 24 hrs a day, unlike the regular stock markets. Most investments require a substantial amount of capital before you can take advantage of an investment opportunity. To trade Forex, you only need a small amount of capital. Anyone can enter the market with as little as $300 USD to trade a "mini account", which allows you to trade lots of 10,000 units. One lot of 10,000 units of currency is equal to 1 contract. Each "pip" or move up or down in the currency pair is worth a $1 gain or loss, depending on which side of the market you are on. A standard account gives you control over 100,000 units of currency and a pip is worth $10.
The Forex market is also very liquid. When trading Forex you have full control of your capital.
Many other types of investments require holding your money up for long periods of time. This is a disadvantage because if you need to use the capital it can be difficult to access to it without taking a huge loss. Also, with a small amount of money, you can control
Forex traders can be profitable in bullish or bearish market conditions. Stock market traders need stock prices to rise in order to take a profit. Forex traders can make a profit during up trends and downtrends. Forex Trading can be risky, but with having the ability to have a good system to follow, good money management skills, and possessing self discipline, Forex trading can be a relatively low risk investment.
The Forex market can be traded anytime, anywhere. As long as you have access to a computer, you have the ability to trade the Forex market. An important thing to remember is before jumping into trading currencies, is it wise to practice with "paper money", or "fake money." Most brokers have demo accounts where you can download their trading station and practice real time with fake money. While this is no guarantee of your performance with real money, practicing can give you a huge advantage to become better prepared when you trade with your real, hard earned money. There are also many Forex courses on the internet, just be careful when choosing which ones to purchase.
When thinking about various investments, there is one investment vehicle that comes to mind. The Forex or Foreign Currency Market has many advantages over other types of investments. The Forex market is open 24 hrs a day, unlike the regular stock markets. Most investments require a substantial amount of capital before you can take advantage of an investment opportunity. To trade Forex, you only need a small amount of capital. Anyone can enter the market with as little as $300 USD to trade a "mini account", which allows you to trade lots of 10,000 units. One lot of 10,000 units of currency is equal to 1 contract. Each "pip" or move up or down in the currency pair is worth a $1 gain or loss, depending on which side of the market you are on. A standard account gives you control over 100,000 units of currency and a pip is worth $10.
The Forex market is also very liquid. When trading Forex you have full control of your capital.
Many other types of investments require holding your money up for long periods of time. This is a disadvantage because if you need to use the capital it can be difficult to access to it without taking a huge loss. Also, with a small amount of money, you can control
Forex traders can be profitable in bullish or bearish market conditions. Stock market traders need stock prices to rise in order to take a profit. Forex traders can make a profit during up trends and downtrends. Forex Trading can be risky, but with having the ability to have a good system to follow, good money management skills, and possessing self discipline, Forex trading can be a relatively low risk investment.
The Forex market can be traded anytime, anywhere. As long as you have access to a computer, you have the ability to trade the Forex market. An important thing to remember is before jumping into trading currencies, is it wise to practice with "paper money", or "fake money." Most brokers have demo accounts where you can download their trading station and practice real time with fake money. While this is no guarantee of your performance with real money, practicing can give you a huge advantage to become better prepared when you trade with your real, hard earned money. There are also many Forex courses on the internet, just be careful when choosing which ones to purchase.
Sunday, April 25, 2010
Characteristics of Murray Math Line for Trading....
Since, according to Gann, prices move in 1/8's, these 1/8's act as points of price support and resistance as an entity's price changes in time. Given this 1/8 characteristic of price action, Murrey assigns properties to each of the MML's in an a given octave. These properties are listed here for convenience.
8/8 th's and 0/8 th's Lines (Ultimate Resistance)
These lines are the hardest to penetrate on the way up, and give the greatest support on the way down. (Prices may never make it thru these lines).
7/8 th's Line (Weak, Stall and Reverse)
This line is weak. If prices run up too far too fast, and if they stall at this line they will reverse down fast. If prices do not stall at this line they will move up to the 8/8 th's line.
6/8 th's and 2/8 th's Lines (Pivot, Reverse)
These two lines are second only to the 4/8 th's line in their ability to force prices to reverse. This is true whether prices are moving up or down.
5/8 th's Line (Top of Trading Range)
The prices of all entities will spend 40% of the time moving between the 5/8 th's and 3/8 th's lines. If prices move above the 5/8 th's line and stay above it for 10 to 12 days, the entity is said to be selling at a premium to what one wants to pay for it and prices will tend to stay above this line in the "premium area". If, however, prices fall below the 5/8 th's line then they will tend to fall further looking for support at a lower level.
4/8 th's Line (Major Support/Resistance)
This line provides the greatest amount of support and resistance. This line has the greatest support when prices are above it and the greatest resistance when prices are below it. This price level is the best level to sell and buy against.
3/8 th's Line (Bottom of Trading Range)
If prices are below this line and moving upwards, this line is difficult to penetrate. If prices penetrate above this line and stay above this line for 10 to 12 days then prices will stay above this line and spend 40% of the time moving between this line and the 5/8 th's line.
1/8 th Line (Weak, Stall and Reverse)
This line is weak. If prices run down too far too fast, and if they stall at this line they will reverse up fast. If prices do not stall at this line they will move down to the 0/8 th's line.
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Murrey Math Line X MetaTrader indicator — a pivot line indicator that will definitely help every trader that know how to trade with support, resistance and pivot lines. It displays 8 different lines (with possible additional lines) on the main chart, helping you to find the best points to sell, buy and exit the positions.
It's easy to use Murrey Math Line X. 0/8P and 8/8P lines are the ultimate resistance and support lines — they are very hard to break. 1/8P and 7/8P lines are weak support and resistance lines, but if the price stopped near them, it will reverse and change direction. 2/8P and 6/8P lines are strong reverse points. 3/8P and 5/8P are the bottom and the top of the average trading range respectively; it is very likely that the price will either pierce this range fast or will remain inside it for a long time. 4/8P is a major support and resistance line; sell and buy when the price crosses it for a certain profit. The blue arrow marks the final calculated bar.
Murrey Math Line X in .zip
Murrey Math Line X in .mq4
8/8 th's and 0/8 th's Lines (Ultimate Resistance)
These lines are the hardest to penetrate on the way up, and give the greatest support on the way down. (Prices may never make it thru these lines).
7/8 th's Line (Weak, Stall and Reverse)
This line is weak. If prices run up too far too fast, and if they stall at this line they will reverse down fast. If prices do not stall at this line they will move up to the 8/8 th's line.
6/8 th's and 2/8 th's Lines (Pivot, Reverse)
These two lines are second only to the 4/8 th's line in their ability to force prices to reverse. This is true whether prices are moving up or down.
5/8 th's Line (Top of Trading Range)
The prices of all entities will spend 40% of the time moving between the 5/8 th's and 3/8 th's lines. If prices move above the 5/8 th's line and stay above it for 10 to 12 days, the entity is said to be selling at a premium to what one wants to pay for it and prices will tend to stay above this line in the "premium area". If, however, prices fall below the 5/8 th's line then they will tend to fall further looking for support at a lower level.
4/8 th's Line (Major Support/Resistance)
This line provides the greatest amount of support and resistance. This line has the greatest support when prices are above it and the greatest resistance when prices are below it. This price level is the best level to sell and buy against.
3/8 th's Line (Bottom of Trading Range)
If prices are below this line and moving upwards, this line is difficult to penetrate. If prices penetrate above this line and stay above this line for 10 to 12 days then prices will stay above this line and spend 40% of the time moving between this line and the 5/8 th's line.
1/8 th Line (Weak, Stall and Reverse)
This line is weak. If prices run down too far too fast, and if they stall at this line they will reverse up fast. If prices do not stall at this line they will move down to the 0/8 th's line.
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Murrey Math Line X
Murrey Math Line X MetaTrader indicator — a pivot line indicator that will definitely help every trader that know how to trade with support, resistance and pivot lines. It displays 8 different lines (with possible additional lines) on the main chart, helping you to find the best points to sell, buy and exit the positions.
Input parameters:
- P (default = 64) — period in bars or in other periods (set by MMPeriod), on which the lines will be calculated. The lower is the number the more current but less accurate calculations will be.
- MMPeriod (default = 1440) — a basic period in minutes (60 — for hourly pivots, 1440 — for daily pivots, 10080 — for weekly and 43200 — for monthly); if greater than zero, indicator will use P amount of MMPeriod minutes to calculate its lines. If zero, indicator will use P amount of the current chart bars to calculate its lines.
- StepBack (default = 0) — a shift back for calculating the lines (in the current bars or in number of MMPeriod (if set) minutes).
- Other parameters — affect only visual parameters of the lines.
It's easy to use Murrey Math Line X. 0/8P and 8/8P lines are the ultimate resistance and support lines — they are very hard to break. 1/8P and 7/8P lines are weak support and resistance lines, but if the price stopped near them, it will reverse and change direction. 2/8P and 6/8P lines are strong reverse points. 3/8P and 5/8P are the bottom and the top of the average trading range respectively; it is very likely that the price will either pierce this range fast or will remain inside it for a long time. 4/8P is a major support and resistance line; sell and buy when the price crosses it for a certain profit. The blue arrow marks the final calculated bar.
Downloads:
Murrey Math Line X in .zip
Murrey Math Line X in .mq4
Use of Technical Analysis in Forex and Stock Trading...
Technical analysis is the science or skill of forecasting of the future movements of the price using the past movements and data.
Obviously the past movements can not guarantee the future movements and so technical analysis is not a hundred percent accurate and surefire forecasting but if you learn the technical analysis properly, you can make more correct predictions and so you will be in profit at the end.
Technical analysis rules, techniques and tools
are 99% the same in the stock and forex market. So if you learn technical analysis,
you can use it both in stock and forex market.
It is impossible to cover everything about the technical analysis in one article. So here I just try to talk about technical analysis in general but write more detailed articles about it.
If you read my daily forex market analysis reports, you will see that technical analysis is the main thing that I use in the market analysis.
I do not use indicators in the big time frames like 4 hours, daily and weekly charts because I believe indicators are too delayed to be used on big time frames. They show the signals far after a breakout and a big move happens. So it can be too late to enter to any trade.
In technical analysis we work on the price charts. The price chart is a two dimensional chart. The vertical axis shows the price and the horizontal axis shows the time.
We have different kinds of price charts:
1- Tick chart
2- Line chart
3- Candlestick chart
4- Bar chart
5- Heikin-Ashi chart
6- Kagi chart
7- Renko chart
8- Point & Figure Chart
There are some other kinds of charts but as they are not common, I have not mentioned them in the above list. Even Heikin Ashi, Kagi, Renko and Point & Figure are not very common too but as I like to talk about them because I believe some of you will become interested in using them.
Line, candlestick and Bar charts are very common and I think candlestick chart is the most common chart and it becomes more popular everyday.
Technical analysis is based on the analysis of the charts. Finding the trends, support and resistance levels and also consolidations like triangles, wedges, pennants, double and triple tops and bottoms, head and shoulders and … can be done through the technical analysis rules and when you can achieve to find these things on your charts, you will be able to predict the next direction and movement and so you can take the proper position.
Technical analysis becomes even more helpful and valuable when you enrich the result with some other tools like candlesticks and Fibonacci levels. You can do your technical analysis on a simple line chart. It will not make any difference because you will find the same trends and formations but when you do in on a candlestick chart and pay enough attention to the candlesticks’ signals, your analysis will be stronger.
If you don’t know about the candlesticks’ signals, please read one of my other articles which is about reading the candlesticks’ signals:
Learn to read the candlesticks signals
Also read my Fibonacci article to learn how to use Fibonacci levels on the charts:
How To Use Fibonacci Numbers in Forex and Stock Trading
1- Trend:
Trendlines are the general direction
of the price. When the price goes up, we have uptrend and when it goes down,
we have downtrend.
You can find several small trends inside a big trend. Additionally each time frame can have its own trends which can be different from other time frames. For example while you have an uptrend in the daily chart, you can have a downtrend in the one hour chart.
Finding the trends is the first thing we do in technical analysis.
Look a this big uptrend we have in EUR-USD since the end of the 2005:
Now look at the small uptrends and downtrends inside the same big uptrend:
2- Support:
Support is a level that doesn’t let the price go lower.
Look at the strong support that we have had in EUR-USD since 2006. As you see the price has gone up any time that it has touched this support level:
However a support level can be broken down. Usually when a support line becomes broken down, the price goes much lower but it is important to know that when a support level becomes broken down it will act as a resistance and sometimes the price goes up several times to retest the broken support.
Look at the broken support in the below chart:
The same chart with a higher magnification:
See how a broken support was retested as a resistance in the Eur-USD one hour chart:
3- Resistance:
Resistance is a level that doesn’t let the price go higher.
Like the support level, the resistance level can be broken up and then act as a support.
Look at the resistance level (the red line) in the below chart.
And see how this resistance became broken up and then was retested as a support line:
It is time to tell you that finding support and resistance levels is the foundation of technical analysis. Everything that we do in technical analysis is based on the support and resistance levels we find on the charts. Even patterns like triangles, wedges, pennants, double and triple tops and bottoms, head and shoulders and … are created by support and resistance levels.
Some important questions:
- Why do we have support and resistance levels in the market?
- Why do the price goes up as soon as it touches a support level and goes down as soon as it touches a resistance level?
- What causes a support or resistance level becomes broken?
These are the questions that could be formed in your mind. It doesn’t make any difference in your trades if you know the answer of these questions or not. You just need to know what a support/resistance level is and how it acts. But it is always useful to know more than the basic.
You can be a good driver even if you know nothing about the engine and gearbox but professional drivers have to know about engine, gearbox and all other parts of the car. That’s why they are called professional drivers. You can be an ordinary trader or a professional trader. Professional traders know a lot about the psychology of the market.
So why do we have support levels in the market?
We have support and resistance levels in everything. For example in the weather changes. It becomes hot in summer but it has a limit in different regions. It doesn’t go up as much as it can. There is a resistance level in different areas. Every year the temperature goes up, retests the resistance and then goes down. It is the same in Winter. The temperature goes down but it doesn’t go lower than a special level in different regions (support).
What prevents the temperature from going above or below a special level? There are different factors like atmosphere and geographical conditions.
It is the same as the forex market and all other kinds of markets.
Traders buy and buy and buy and the price goes higher and higher and higher but can the trader keep on buy for good? Or will they find a seller to sell his/her shares to them anytime that they want to buy?
Definitely not because they have limitations. They can not afford to buy more than a special limit and when most of the buyers reach their limit, they stop buying and start selling gradually and so the price will be stopped from going up and starts going down gradually. Then the other buyers who had kept their positions, becomes realized that the price will not go higher and will go down. So they sell and the price goes down much faster.
On the other hand, when you want to buy, a seller should be found at the other side of the market. Otherwise you can not buy. And it is clear that you can not find a seller at any condition and time and visa versa.
This cycle will be repeated over and over but each time when the buyers reach their limit level, they stop buying. When we have an uptrend - like the EUR-USD chart you see above - each limit will be higher than the previous one because the buyers become stronger and their buying limit goes higher because they have made profit in their previous trades. So we still have a limit level but this level is higher than the previous level.
When you connect the buying limits (tops) to each other, you will have a resistance level:
Support level has the same story. It is the level that all the buyer finish selling and then start buying and so the price goes up again. When you connect the selling limits (bottoms) to each other, you will have a support level
But what causes a support or resistance level becomes broken?
There are so many factors that cause a support or resistance level becomes broken. A positive or negative change in the economic condition is the most important factor. For example a big country like USA decides to attack Iraq. This tells the traders and investors that the economic situation of USA will be encountered with some problems because of the heavy expenses of war. So they stop investing in USA and they stop buying USD.
On the other hand, those who already had bought USD start selling because they believe if they don’t do it, they will lose a lot when the value of the USD goes down. Also some of the investors who had invested in USA, take their money out because they are fearful that the US economy will go down and so they can not make any profit or they will lose. So the value of the USD goes down against the other currencies and so several strong support/resistance levels becomes broken.
Anyway! You’d better to know what causes the price to go up and down but for trading according to the technical analysis, we just need to find the support and resistance levels and know when it is the time to buy or sell.
When you find the support and resistance levels through technical analysis, you wait for the price to retest the support. If it can not break down the support and goes up, you take a long position and if it breaks down the support, you take a short position.
Also when the price retests a resistance line and can not break it up, you take a short position and if it breaks up the resistance, you take a long position.
When the price goes up or down for a while, it just stops going up or down and makes some small fluctuations. All these events has physiological reasons related to buyer (Bulls) and sellers (Bears). For example buyers stop buying and wait for the other traders. If other traders keep on buying, the price will go up and so those who have been waiting, start buying too. This waiting period in the market makes a consolidation in the price charts and when the price goes up again, the consolidation will be known as a continuation signal.
Consolidations show the uncertainty of the market. The price doesn’t know if it should go up or down. It is the time that we have to plot the support and resistance levels and wait for the breakouts.
Consolidations makes different shapes and patterns. I just mention some of the patterns that becomes formed by the support and resistance levels but I will write different articles for each of them.
Double Tops
Triple Tops
Double Bottoms
Triple Bottoms
Head and Shoulders
Ascending, Descending, Symmetrical Triangles
Ascending and Descending Wedge
Flags or Pennants
Some of the consolidations work as continuation signals. For example flags or pennants are continuation signals. It means the price will keep on moving to the same direction that it has been moving before the formation of the flag.
Some other patterns are reversal signals. For example Head and Shoulders and Double Tops that are formed at the top of an uptrend are reversal signals and the price should go down after these patterns but sometimes they fail to act as reversal and so the price keeps on moving to the same direction.
Use of Technical Analysis in Forex and Stock Trading...
Technical analysis is the science or skill of forecasting of the future movements of the price using the past movements and data.
Obviously the past movements can not guarantee the future movements and so technical analysis is not a hundred percent accurate and surefire forecasting but if you learn the technical analysis properly, you can make more correct predictions and so you will be in profit at the end.
Technical analysis rules, techniques and tools
are 99% the same in the stock and forex market. So if you learn technical analysis,
you can use it both in stock and forex market.
It is impossible to cover everything about the technical analysis in one article. So here I just try to talk about technical analysis in general but write more detailed articles about it.
If you read my daily forex market analysis reports, you will see that technical analysis is the main thing that I use in the market analysis.
I do not use indicators in the big time frames like 4 hours, daily and weekly charts because I believe indicators are too delayed to be used on big time frames. They show the signals far after a breakout and a big move happens. So it can be too late to enter to any trade.
In technical analysis we work on the price charts. The price chart is a two dimensional chart. The vertical axis shows the price and the horizontal axis shows the time.
We have different kinds of price charts:
1- Tick chart
2- Line chart
3- Candlestick chart
4- Bar chart
5- Heikin-Ashi chart
6- Kagi chart
7- Renko chart
8- Point & Figure Chart
There are some other kinds of charts but as they are not common, I have not mentioned them in the above list. Even Heikin Ashi, Kagi, Renko and Point & Figure are not very common too but as I like to talk about them because I believe some of you will become interested in using them.
Line, candlestick and Bar charts are very common and I think candlestick chart is the most common chart and it becomes more popular everyday.
Technical analysis is based on the analysis of the charts. Finding the trends, support and resistance levels and also consolidations like triangles, wedges, pennants, double and triple tops and bottoms, head and shoulders and … can be done through the technical analysis rules and when you can achieve to find these things on your charts, you will be able to predict the next direction and movement and so you can take the proper position.
Technical analysis becomes even more helpful and valuable when you enrich the result with some other tools like candlesticks and Fibonacci levels. You can do your technical analysis on a simple line chart. It will not make any difference because you will find the same trends and formations but when you do in on a candlestick chart and pay enough attention to the candlesticks’ signals, your analysis will be stronger.
If you don’t know about the candlesticks’ signals, please read one of my other articles which is about reading the candlesticks’ signals:
Learn to read the candlesticks signals
Also read my Fibonacci article to learn how to use Fibonacci levels on the charts:
How To Use Fibonacci Numbers in Forex and Stock Trading
1- Trend:
Trendlines are the general direction
of the price. When the price goes up, we have uptrend and when it goes down,
we have downtrend.
You can find several small trends inside a big trend. Additionally each time frame can have its own trends which can be different from other time frames. For example while you have an uptrend in the daily chart, you can have a downtrend in the one hour chart.
Finding the trends is the first thing we do in technical analysis.
Look a this big uptrend we have in EUR-USD since the end of the 2005:
Now look at the small uptrends and downtrends inside the same big uptrend:
2- Support:
Support is a level that doesn’t let the price go lower.
Look at the strong support that we have had in EUR-USD since 2006. As you see the price has gone up any time that it has touched this support level:
However a support level can be broken down. Usually when a support line becomes broken down, the price goes much lower but it is important to know that when a support level becomes broken down it will act as a resistance and sometimes the price goes up several times to retest the broken support.
Look at the broken support in the below chart:
The same chart with a higher magnification:
See how a broken support was retested as a resistance in the Eur-USD one hour chart:
3- Resistance:
Resistance is a level that doesn’t let the price go higher.
Like the support level, the resistance level can be broken up and then act as a support.
Look at the resistance level (the red line) in the below chart.
And see how this resistance became broken up and then was retested as a support line:
It is time to tell you that finding support and resistance levels is the foundation of technical analysis. Everything that we do in technical analysis is based on the support and resistance levels we find on the charts. Even patterns like triangles, wedges, pennants, double and triple tops and bottoms, head and shoulders and … are created by support and resistance levels.
Some important questions:
- Why do we have support and resistance levels in the market?
- Why do the price goes up as soon as it touches a support level and goes down as soon as it touches a resistance level?
- What causes a support or resistance level becomes broken?
These are the questions that could be formed in your mind. It doesn’t make any difference in your trades if you know the answer of these questions or not. You just need to know what a support/resistance level is and how it acts. But it is always useful to know more than the basic.
You can be a good driver even if you know nothing about the engine and gearbox but professional drivers have to know about engine, gearbox and all other parts of the car. That’s why they are called professional drivers. You can be an ordinary trader or a professional trader. Professional traders know a lot about the psychology of the market.
So why do we have support levels in the market?
We have support and resistance levels in everything. For example in the weather changes. It becomes hot in summer but it has a limit in different regions. It doesn’t go up as much as it can. There is a resistance level in different areas. Every year the temperature goes up, retests the resistance and then goes down. It is the same in Winter. The temperature goes down but it doesn’t go lower than a special level in different regions (support).
What prevents the temperature from going above or below a special level? There are different factors like atmosphere and geographical conditions.
It is the same as the forex market and all other kinds of markets.
Traders buy and buy and buy and the price goes higher and higher and higher but can the trader keep on buy for good? Or will they find a seller to sell his/her shares to them anytime that they want to buy?
Definitely not because they have limitations. They can not afford to buy more than a special limit and when most of the buyers reach their limit, they stop buying and start selling gradually and so the price will be stopped from going up and starts going down gradually. Then the other buyers who had kept their positions, becomes realized that the price will not go higher and will go down. So they sell and the price goes down much faster.
On the other hand, when you want to buy, a seller should be found at the other side of the market. Otherwise you can not buy. And it is clear that you can not find a seller at any condition and time and visa versa.
This cycle will be repeated over and over but each time when the buyers reach their limit level, they stop buying. When we have an uptrend - like the EUR-USD chart you see above - each limit will be higher than the previous one because the buyers become stronger and their buying limit goes higher because they have made profit in their previous trades. So we still have a limit level but this level is higher than the previous level.
When you connect the buying limits (tops) to each other, you will have a resistance level:
Support level has the same story. It is the level that all the buyer finish selling and then start buying and so the price goes up again. When you connect the selling limits (bottoms) to each other, you will have a support level
But what causes a support or resistance level becomes broken?
There are so many factors that cause a support or resistance level becomes broken. A positive or negative change in the economic condition is the most important factor. For example a big country like USA decides to attack Iraq. This tells the traders and investors that the economic situation of USA will be encountered with some problems because of the heavy expenses of war. So they stop investing in USA and they stop buying USD.
On the other hand, those who already had bought USD start selling because they believe if they don’t do it, they will lose a lot when the value of the USD goes down. Also some of the investors who had invested in USA, take their money out because they are fearful that the US economy will go down and so they can not make any profit or they will lose. So the value of the USD goes down against the other currencies and so several strong support/resistance levels becomes broken.
Anyway! You’d better to know what causes the price to go up and down but for trading according to the technical analysis, we just need to find the support and resistance levels and know when it is the time to buy or sell.
When you find the support and resistance levels through technical analysis, you wait for the price to retest the support. If it can not break down the support and goes up, you take a long position and if it breaks down the support, you take a short position.
Also when the price retests a resistance line and can not break it up, you take a short position and if it breaks up the resistance, you take a long position.
When the price goes up or down for a while, it just stops going up or down and makes some small fluctuations. All these events has physiological reasons related to buyer (Bulls) and sellers (Bears). For example buyers stop buying and wait for the other traders. If other traders keep on buying, the price will go up and so those who have been waiting, start buying too. This waiting period in the market makes a consolidation in the price charts and when the price goes up again, the consolidation will be known as a continuation signal.
Consolidations show the uncertainty of the market. The price doesn’t know if it should go up or down. It is the time that we have to plot the support and resistance levels and wait for the breakouts.
Consolidations makes different shapes and patterns. I just mention some of the patterns that becomes formed by the support and resistance levels but I will write different articles for each of them.
Double Tops
Triple Tops
Double Bottoms
Triple Bottoms
Head and Shoulders
Ascending, Descending, Symmetrical Triangles
Ascending and Descending Wedge
Flags or Pennants
Some of the consolidations work as continuation signals. For example flags or pennants are continuation signals. It means the price will keep on moving to the same direction that it has been moving before the formation of the flag.
Some other patterns are reversal signals. For example Head and Shoulders and Double Tops that are formed at the top of an uptrend are reversal signals and the price should go down after these patterns but sometimes they fail to act as reversal and so the price keeps on moving to the same direction.
Use of Technical Analysis in Forex and Stock Trading...
Technical analysis is the science or skill of forecasting of the future movements of the price using the past movements and data.
Obviously the past movements can not guarantee the future movements and so technical analysis is not a hundred percent accurate and surefire forecasting but if you learn the technical analysis properly, you can make more correct predictions and so you will be in profit at the end.
Technical analysis rules, techniques and tools
are 99% the same in the stock and forex market. So if you learn technical analysis,
you can use it both in stock and forex market.
It is impossible to cover everything about the technical analysis in one article. So here I just try to talk about technical analysis in general but write more detailed articles about it.
If you read my daily forex market analysis reports, you will see that technical analysis is the main thing that I use in the market analysis.
I do not use indicators in the big time frames like 4 hours, daily and weekly charts because I believe indicators are too delayed to be used on big time frames. They show the signals far after a breakout and a big move happens. So it can be too late to enter to any trade.
In technical analysis we work on the price charts. The price chart is a two dimensional chart. The vertical axis shows the price and the horizontal axis shows the time.
We have different kinds of price charts:
1- Tick chart
2- Line chart
3- Candlestick chart
4- Bar chart
5- Heikin-Ashi chart
6- Kagi chart
7- Renko chart
8- Point & Figure Chart
There are some other kinds of charts but as they are not common, I have not mentioned them in the above list. Even Heikin Ashi, Kagi, Renko and Point & Figure are not very common too but as I like to talk about them because I believe some of you will become interested in using them.
Line, candlestick and Bar charts are very common and I think candlestick chart is the most common chart and it becomes more popular everyday.
Technical analysis is based on the analysis of the charts. Finding the trends, support and resistance levels and also consolidations like triangles, wedges, pennants, double and triple tops and bottoms, head and shoulders and … can be done through the technical analysis rules and when you can achieve to find these things on your charts, you will be able to predict the next direction and movement and so you can take the proper position.
Technical analysis becomes even more helpful and valuable when you enrich the result with some other tools like candlesticks and Fibonacci levels. You can do your technical analysis on a simple line chart. It will not make any difference because you will find the same trends and formations but when you do in on a candlestick chart and pay enough attention to the candlesticks’ signals, your analysis will be stronger.
If you don’t know about the candlesticks’ signals, please read one of my other articles which is about reading the candlesticks’ signals:
Learn to read the candlesticks signals
Also read my Fibonacci article to learn how to use Fibonacci levels on the charts:
How To Use Fibonacci Numbers in Forex and Stock Trading
1- Trend:
Trendlines are the general direction
of the price. When the price goes up, we have uptrend and when it goes down,
we have downtrend.
You can find several small trends inside a big trend. Additionally each time frame can have its own trends which can be different from other time frames. For example while you have an uptrend in the daily chart, you can have a downtrend in the one hour chart.
Finding the trends is the first thing we do in technical analysis.
Look a this big uptrend we have in EUR-USD since the end of the 2005:
Now look at the small uptrends and downtrends inside the same big uptrend:
2- Support:
Support is a level that doesn’t let the price go lower.
Look at the strong support that we have had in EUR-USD since 2006. As you see the price has gone up any time that it has touched this support level:
However a support level can be broken down. Usually when a support line becomes broken down, the price goes much lower but it is important to know that when a support level becomes broken down it will act as a resistance and sometimes the price goes up several times to retest the broken support.
Look at the broken support in the below chart:
The same chart with a higher magnification:
See how a broken support was retested as a resistance in the Eur-USD one hour chart:
3- Resistance:
Resistance is a level that doesn’t let the price go higher.
Like the support level, the resistance level can be broken up and then act as a support.
Look at the resistance level (the red line) in the below chart.
And see how this resistance became broken up and then was retested as a support line:
It is time to tell you that finding support and resistance levels is the foundation of technical analysis. Everything that we do in technical analysis is based on the support and resistance levels we find on the charts. Even patterns like triangles, wedges, pennants, double and triple tops and bottoms, head and shoulders and … are created by support and resistance levels.
Some important questions:
- Why do we have support and resistance levels in the market?
- Why do the price goes up as soon as it touches a support level and goes down as soon as it touches a resistance level?
- What causes a support or resistance level becomes broken?
These are the questions that could be formed in your mind. It doesn’t make any difference in your trades if you know the answer of these questions or not. You just need to know what a support/resistance level is and how it acts. But it is always useful to know more than the basic.
You can be a good driver even if you know nothing about the engine and gearbox but professional drivers have to know about engine, gearbox and all other parts of the car. That’s why they are called professional drivers. You can be an ordinary trader or a professional trader. Professional traders know a lot about the psychology of the market.
So why do we have support levels in the market?
We have support and resistance levels in everything. For example in the weather changes. It becomes hot in summer but it has a limit in different regions. It doesn’t go up as much as it can. There is a resistance level in different areas. Every year the temperature goes up, retests the resistance and then goes down. It is the same in Winter. The temperature goes down but it doesn’t go lower than a special level in different regions (support).
What prevents the temperature from going above or below a special level? There are different factors like atmosphere and geographical conditions.
It is the same as the forex market and all other kinds of markets.
Traders buy and buy and buy and the price goes higher and higher and higher but can the trader keep on buy for good? Or will they find a seller to sell his/her shares to them anytime that they want to buy?
Definitely not because they have limitations. They can not afford to buy more than a special limit and when most of the buyers reach their limit, they stop buying and start selling gradually and so the price will be stopped from going up and starts going down gradually. Then the other buyers who had kept their positions, becomes realized that the price will not go higher and will go down. So they sell and the price goes down much faster.
On the other hand, when you want to buy, a seller should be found at the other side of the market. Otherwise you can not buy. And it is clear that you can not find a seller at any condition and time and visa versa.
This cycle will be repeated over and over but each time when the buyers reach their limit level, they stop buying. When we have an uptrend - like the EUR-USD chart you see above - each limit will be higher than the previous one because the buyers become stronger and their buying limit goes higher because they have made profit in their previous trades. So we still have a limit level but this level is higher than the previous level.
When you connect the buying limits (tops) to each other, you will have a resistance level:
Support level has the same story. It is the level that all the buyer finish selling and then start buying and so the price goes up again. When you connect the selling limits (bottoms) to each other, you will have a support level
But what causes a support or resistance level becomes broken?
There are so many factors that cause a support or resistance level becomes broken. A positive or negative change in the economic condition is the most important factor. For example a big country like USA decides to attack Iraq. This tells the traders and investors that the economic situation of USA will be encountered with some problems because of the heavy expenses of war. So they stop investing in USA and they stop buying USD.
On the other hand, those who already had bought USD start selling because they believe if they don’t do it, they will lose a lot when the value of the USD goes down. Also some of the investors who had invested in USA, take their money out because they are fearful that the US economy will go down and so they can not make any profit or they will lose. So the value of the USD goes down against the other currencies and so several strong support/resistance levels becomes broken.
Anyway! You’d better to know what causes the price to go up and down but for trading according to the technical analysis, we just need to find the support and resistance levels and know when it is the time to buy or sell.
When you find the support and resistance levels through technical analysis, you wait for the price to retest the support. If it can not break down the support and goes up, you take a long position and if it breaks down the support, you take a short position.
Also when the price retests a resistance line and can not break it up, you take a short position and if it breaks up the resistance, you take a long position.
When the price goes up or down for a while, it just stops going up or down and makes some small fluctuations. All these events has physiological reasons related to buyer (Bulls) and sellers (Bears). For example buyers stop buying and wait for the other traders. If other traders keep on buying, the price will go up and so those who have been waiting, start buying too. This waiting period in the market makes a consolidation in the price charts and when the price goes up again, the consolidation will be known as a continuation signal.
Consolidations show the uncertainty of the market. The price doesn’t know if it should go up or down. It is the time that we have to plot the support and resistance levels and wait for the breakouts.
Consolidations makes different shapes and patterns. I just mention some of the patterns that becomes formed by the support and resistance levels but I will write different articles for each of them.
Double Tops
Triple Tops
Double Bottoms
Triple Bottoms
Head and Shoulders
Ascending, Descending, Symmetrical Triangles
Ascending and Descending Wedge
Flags or Pennants
Some of the consolidations work as continuation signals. For example flags or pennants are continuation signals. It means the price will keep on moving to the same direction that it has been moving before the formation of the flag.
Some other patterns are reversal signals. For example Head and Shoulders and Double Tops that are formed at the top of an uptrend are reversal signals and the price should go down after these patterns but sometimes they fail to act as reversal and so the price keeps on moving to the same direction.
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