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.
Showing posts with label breakout. Show all posts
Showing posts with label breakout. Show all posts
Friday, July 9, 2010
Saturday, June 12, 2010
Forex Charts - Make Bigger Profits by Following These Key Points
Forex charts are a great, time efficient and proven way to make bigger profits but most traders don't use them correctly and here we will give you some key points to help you make bigger profits...
Let's look at some key points for more profitable technical analysis with forex charts.
If you look at any forex chart you will see big trends that can last for many months and trend following these can be very profitable and if you want to make money out of them you must understand this key fact:
Most big trends start and continue from breakouts to new highs and lows on the chart and you must go with these breaks - most traders don't. They want to wait for the pullback and of course it never comes and they are left behind. While it appears like you have missed the first part of the move, the odds of continuation are high so go with them.
Always be patient when using forex charts. You don't get rewarded for your efforts or how many times you trade but being right with your trading signal. I know traders who trade just a few times a month yet make triple digit gains - so wait for the right opportunities.
When you have a trend you want to hit always check price momentum is on your side and make sure that you use momentum indicators that show price acceleration in the direction you wish to trade. Two great ones, you can learn, in about 30 minutes are - the stochastic and RSI. These two combined will increase your odds of success by getting the odds more on your side.
Never believe anyone who tells you there is a mathematical formula for market movement - there isn't. If of course there was, we would all know the price in advance and there would be no market. So forget trying to predict and only trade the reality of price.
Its probabilities that you need to understand and like a successful poker player, you won't win every hand - but if you keep trading the odds, you will win long term. When using forex charts, the simpler your forex trading method the better, as simple systems tend to be very robust and have fewer elements to break, than complicated ones.
I have used a simple breakout method which uses trend lines, RSI and the stochastic and made money with it for over 20 years sure, it's simple but it works. Forex charts give you the reality of price before your eyes and you can spot areas of over valuation and under valuation. Humans create trends and they also (due to their emotions) push trends to far up or down in either direction.
You can of course ride trends - but you will also see big price spikes and history tells you they don't last long and taking trades contrary to the majority can be very profitable. Charting is an art not a science and you need to practice your art. The successful captain of a ship uses charts to navigate safely, but he also knows that use them wrongly and he will drown and it's a very similar situation in forex.
The Good News
You can learn forex charting in around 2 weeks and soon be piling up big profits in around 30 minutes a day spotting and hitting high odds trades and enjoying great profits. The good news is forex trading and using technical analysis is a learned skill and one you can master with a little practice.
Let's look at some key points for more profitable technical analysis with forex charts.
If you look at any forex chart you will see big trends that can last for many months and trend following these can be very profitable and if you want to make money out of them you must understand this key fact:
Most big trends start and continue from breakouts to new highs and lows on the chart and you must go with these breaks - most traders don't. They want to wait for the pullback and of course it never comes and they are left behind. While it appears like you have missed the first part of the move, the odds of continuation are high so go with them.
Always be patient when using forex charts. You don't get rewarded for your efforts or how many times you trade but being right with your trading signal. I know traders who trade just a few times a month yet make triple digit gains - so wait for the right opportunities.
When you have a trend you want to hit always check price momentum is on your side and make sure that you use momentum indicators that show price acceleration in the direction you wish to trade. Two great ones, you can learn, in about 30 minutes are - the stochastic and RSI. These two combined will increase your odds of success by getting the odds more on your side.
Never believe anyone who tells you there is a mathematical formula for market movement - there isn't. If of course there was, we would all know the price in advance and there would be no market. So forget trying to predict and only trade the reality of price.
Its probabilities that you need to understand and like a successful poker player, you won't win every hand - but if you keep trading the odds, you will win long term. When using forex charts, the simpler your forex trading method the better, as simple systems tend to be very robust and have fewer elements to break, than complicated ones.
I have used a simple breakout method which uses trend lines, RSI and the stochastic and made money with it for over 20 years sure, it's simple but it works. Forex charts give you the reality of price before your eyes and you can spot areas of over valuation and under valuation. Humans create trends and they also (due to their emotions) push trends to far up or down in either direction.
You can of course ride trends - but you will also see big price spikes and history tells you they don't last long and taking trades contrary to the majority can be very profitable. Charting is an art not a science and you need to practice your art. The successful captain of a ship uses charts to navigate safely, but he also knows that use them wrongly and he will drown and it's a very similar situation in forex.
The Good News
You can learn forex charting in around 2 weeks and soon be piling up big profits in around 30 minutes a day spotting and hitting high odds trades and enjoying great profits. The good news is forex trading and using technical analysis is a learned skill and one you can master with a little practice.
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Friday, April 30, 2010
Importance of Support and Resistance..
In almost every issue of the RightLine Report we refer to support and resistance levels. Indeed, many of our stock entry points are based on potential price reactions to these important junctions. So just what are support and resistance levels, and why are they so important?
In the book "Trading For A Living," Dr. Alex Elder gives a simple, but effective image of support and resistance - "A ball hits the floor and bounces. It drops after it hits the ceiling. Support and resistance is like a floor and a ceiling, with prices sandwiched between them." When a stock's price has fallen to a level where demand at that price increases and buyers begin to buy, this creates a "floor" or support level. When a stock's price rises to a level where demand decreases and owners begin to sell to lock in their profits, this creates the "ceiling" or resistance level.
Why? Because investors and traders are people and they have memories! Those that follow a particular stock just "know" that it "never (or rarely) falls below xx" and it "never rises above yy". The "floor" and the "ceiling" are not fixed barriers you can touch; rather they are psychological barriers. These psychological barriers are built when traders who bought the stock at the "ceiling" are grateful to be able to get out of their positions and just break even. They were beating themselves over the head from the day they bought it, swearing they will never be so "stupid" again, and praying that they can just get out without losing their shirts.
How To Recognize Support and Resistance
You can identify support and resistance levels by studying a chart. Look for a series of low points where a stock falls to this level, but then falls no further. This is a support level. When you find that a stock rises to a certain high, but no higher, you have found a resistance level. If you find yourself struggling to find the support or resistance levels, then those levels may be not be very strong.
Strength of Support or Resistance
The more times that a stock bounces off support and falls back from resistance, the stronger these support and resistance levels become. It creates a self-fulfilling prophecy. The more often it happens, the more likely it is to happen again. The more those historical patterns repeat themselves, the more traders "know," and the more confident they become in forecasting the future behavior of the stock. Some stocks become so entrenched in this trading range, that the stock eventually has a hard time breaking through the levels to either the up or downside.
Using Support and Resistance
Long traders will often set a stop slightly below one of the support levels, and short sellers will often set their stops just above resistance. The reason for these stop levels is because investors "know" that historically; these price points are unlikely to be violated. When either of these points is exceeded to the point that stops go into effect, then there is the potential for a powerful price move as automatic buying or selling is set into motion by the stops being triggered.
Trading Ranges
A long-term pattern of a stock's price bouncing between support and resistance levels creates what we call a trading range. Although most charts don't show a predictable pattern, many do. If you find a stock that consistently trades in a range, this may be a good opportunity to benefit from the predictable movement in the stock.
The best way to trade a "rolling stock" or "channeling stock" is to buy just after you start to see the bounce off support and sell just after you start to see it drop back off resistance. Notice that you should wait to see the beginning of the "expected" action before pulling the trigger. Many traders get in the habit of buying or selling before they actually see the stock bounce or fall, hoping to sell at the peak or buy at the low. What these traders risk is that the stock will not do what they expect it to do. By waiting to see the reversal, a trader may give up a small amount of profit, but they will also avoid the risk of selling just before a stock breaks out to the upside or buying just before a stock falls to the downside. There are many range-bound stocks that long-term "buy and hold" investors have sat on for month after month without making any money; on the other hand, the "channel surfer" has made a decent return by buying near the bottom of the pattern and selling near the top. Not all stocks are candidates for this type of trading, but you will see them from time to time.
Breakouts
We've all seen charts of stocks that traded in a range for a time, and then bust through resistance to shoot effortlessly higher. Why does this happen? Recall that the more times a stock hits a support or resistance level, the "stronger" that level apparently becomes. Being astute traders we just "know" that a stock's price is unlikely to exceed a strong resistance level. The more of us that recognize that fact, the more short sellers there are likely to be lining up to short the stock. And the more short sellers there are the more buy stops there will be set at that "unlikely" level.
But, let's say the stock receives a strong recommendation from three analysts who feel the stock is a "strong buy." The result? Demand for the stock goes up, short sellers are "squeezed" out as they are stopped out and are forced to buy the stock to cover their short positions, creating what we affectionately term a "short squeeze." Everyone who thought they knew where the ceiling (resistance) was, no longer holds a position in that stock. What once was the ceiling becomes the new floor, or support level.
Once a stock breaks out above strong resistance, it takes some time to create and recognize the new ceiling. Short sellers become less likely to step in because they can no longer anticipate where the stock is likely to "bounce back down." RightLine readers are familiar with the term "blue-sky territory" or "blue-sky breakout." We use the term blue-sky to indicate when a stock breaks above all previous resistance points.
Fallouts
Just as support can be considered the opposite of resistance, the phenomenon just described as a breakout can also occur to the downside. This is what we refer to as fallout. Traders who own a stock long will often have stops set just below significant support levels. If these support levels are broken, traders will be stopped out if the stock falls below support. The increased selling volume will normally cause a quick and decisive drop in the stock because those buyers who "knew" the floor (support) level, are now are out of the stock, leaving very few buyers until the stock hits the next level of support.
50 DMA Support Level
Before wrapping up this discussion, we want to draw your attention to the fact that many technical analysis packages are programmed with 50 DMA (Daily Moving Average) rebounds in mind. Though the behavior of each stock is unique, you will often see that as a stock falls to near the 50 DMA, buyers come in, reversing the downtrend and causing the stock to "bounce." By reviewing a few dozen stocks, you will notice that some stocks have a very predictable pattern of bouncing off support at the 50 DMA. While you won't find this same pattern among all stocks, when you do find it, it can be quite valuable. Just as in the case when traders "know" the trading range of a stock is stuck between lateral support and resistance levels (trading range or channel), they will also look to the 50 DMA to provide an indication of support. We see this happen especially on strong, trending stocks. Pre-programmed technical analysis packages have the 50 DMA built in, creating an even stronger tendency for a self-fulfilling prophecy. Many of the stocks covered in the Right Line report tend to find support at their 50 or 22 DMAs.
Understanding the concept of support, resistance, trading ranges, breakouts and fallouts can be quite valuable to all traders. Support and resistance is the one of the strongest and most dependable tools available to the trader. Remember that it is best to use any tool along with other indicators when deciding whether and/or when to take or exit a position.
In the book "Trading For A Living," Dr. Alex Elder gives a simple, but effective image of support and resistance - "A ball hits the floor and bounces. It drops after it hits the ceiling. Support and resistance is like a floor and a ceiling, with prices sandwiched between them." When a stock's price has fallen to a level where demand at that price increases and buyers begin to buy, this creates a "floor" or support level. When a stock's price rises to a level where demand decreases and owners begin to sell to lock in their profits, this creates the "ceiling" or resistance level.
Why? Because investors and traders are people and they have memories! Those that follow a particular stock just "know" that it "never (or rarely) falls below xx" and it "never rises above yy". The "floor" and the "ceiling" are not fixed barriers you can touch; rather they are psychological barriers. These psychological barriers are built when traders who bought the stock at the "ceiling" are grateful to be able to get out of their positions and just break even. They were beating themselves over the head from the day they bought it, swearing they will never be so "stupid" again, and praying that they can just get out without losing their shirts.
How To Recognize Support and Resistance
You can identify support and resistance levels by studying a chart. Look for a series of low points where a stock falls to this level, but then falls no further. This is a support level. When you find that a stock rises to a certain high, but no higher, you have found a resistance level. If you find yourself struggling to find the support or resistance levels, then those levels may be not be very strong.
Strength of Support or Resistance
The more times that a stock bounces off support and falls back from resistance, the stronger these support and resistance levels become. It creates a self-fulfilling prophecy. The more often it happens, the more likely it is to happen again. The more those historical patterns repeat themselves, the more traders "know," and the more confident they become in forecasting the future behavior of the stock. Some stocks become so entrenched in this trading range, that the stock eventually has a hard time breaking through the levels to either the up or downside.
Using Support and Resistance
Long traders will often set a stop slightly below one of the support levels, and short sellers will often set their stops just above resistance. The reason for these stop levels is because investors "know" that historically; these price points are unlikely to be violated. When either of these points is exceeded to the point that stops go into effect, then there is the potential for a powerful price move as automatic buying or selling is set into motion by the stops being triggered.
Trading Ranges
A long-term pattern of a stock's price bouncing between support and resistance levels creates what we call a trading range. Although most charts don't show a predictable pattern, many do. If you find a stock that consistently trades in a range, this may be a good opportunity to benefit from the predictable movement in the stock.
The best way to trade a "rolling stock" or "channeling stock" is to buy just after you start to see the bounce off support and sell just after you start to see it drop back off resistance. Notice that you should wait to see the beginning of the "expected" action before pulling the trigger. Many traders get in the habit of buying or selling before they actually see the stock bounce or fall, hoping to sell at the peak or buy at the low. What these traders risk is that the stock will not do what they expect it to do. By waiting to see the reversal, a trader may give up a small amount of profit, but they will also avoid the risk of selling just before a stock breaks out to the upside or buying just before a stock falls to the downside. There are many range-bound stocks that long-term "buy and hold" investors have sat on for month after month without making any money; on the other hand, the "channel surfer" has made a decent return by buying near the bottom of the pattern and selling near the top. Not all stocks are candidates for this type of trading, but you will see them from time to time.
Breakouts
We've all seen charts of stocks that traded in a range for a time, and then bust through resistance to shoot effortlessly higher. Why does this happen? Recall that the more times a stock hits a support or resistance level, the "stronger" that level apparently becomes. Being astute traders we just "know" that a stock's price is unlikely to exceed a strong resistance level. The more of us that recognize that fact, the more short sellers there are likely to be lining up to short the stock. And the more short sellers there are the more buy stops there will be set at that "unlikely" level.
But, let's say the stock receives a strong recommendation from three analysts who feel the stock is a "strong buy." The result? Demand for the stock goes up, short sellers are "squeezed" out as they are stopped out and are forced to buy the stock to cover their short positions, creating what we affectionately term a "short squeeze." Everyone who thought they knew where the ceiling (resistance) was, no longer holds a position in that stock. What once was the ceiling becomes the new floor, or support level.
Once a stock breaks out above strong resistance, it takes some time to create and recognize the new ceiling. Short sellers become less likely to step in because they can no longer anticipate where the stock is likely to "bounce back down." RightLine readers are familiar with the term "blue-sky territory" or "blue-sky breakout." We use the term blue-sky to indicate when a stock breaks above all previous resistance points.
Fallouts
Just as support can be considered the opposite of resistance, the phenomenon just described as a breakout can also occur to the downside. This is what we refer to as fallout. Traders who own a stock long will often have stops set just below significant support levels. If these support levels are broken, traders will be stopped out if the stock falls below support. The increased selling volume will normally cause a quick and decisive drop in the stock because those buyers who "knew" the floor (support) level, are now are out of the stock, leaving very few buyers until the stock hits the next level of support.
50 DMA Support Level
Before wrapping up this discussion, we want to draw your attention to the fact that many technical analysis packages are programmed with 50 DMA (Daily Moving Average) rebounds in mind. Though the behavior of each stock is unique, you will often see that as a stock falls to near the 50 DMA, buyers come in, reversing the downtrend and causing the stock to "bounce." By reviewing a few dozen stocks, you will notice that some stocks have a very predictable pattern of bouncing off support at the 50 DMA. While you won't find this same pattern among all stocks, when you do find it, it can be quite valuable. Just as in the case when traders "know" the trading range of a stock is stuck between lateral support and resistance levels (trading range or channel), they will also look to the 50 DMA to provide an indication of support. We see this happen especially on strong, trending stocks. Pre-programmed technical analysis packages have the 50 DMA built in, creating an even stronger tendency for a self-fulfilling prophecy. Many of the stocks covered in the Right Line report tend to find support at their 50 or 22 DMAs.
Understanding the concept of support, resistance, trading ranges, breakouts and fallouts can be quite valuable to all traders. Support and resistance is the one of the strongest and most dependable tools available to the trader. Remember that it is best to use any tool along with other indicators when deciding whether and/or when to take or exit a position.
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