PICKING PAIRS & STRATEGIES: Market Snapshot Example 4

Based on actual trading data from Sep 07, 2014. Using a variety of technical and fundamental analytical tools, we examine a range of major and minor currency pairs over the weekend, determining from a review of technical charts and forthcoming economic events where likely trade decision points are going to arise. Noting these points, our ongoing analysis determines which strategy should be best used in each particular case to take advantage of any trade opportunity.

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Market Snapshot Example 4

Subjects Covered:

  • Signal Candles
  • Time of Day
  • Position of Support/Resistance
  • News Impact

Weekend Review 1

I try to remind new traders that everyone views the same market information and it is up to us as individuals to interpret this information in our own way. I think it best to stick to your own opinions and come to your own conclusions.

Weekend Review 2

Most people lose because they do not follow their own rules. No matter what instruments you are trading, what your strategy is, you have to act according to these rules in order to make profit. This week, we have 2 currency pairs, gold and silver to analyze and decide what to do (or what not to do).

Weekly News Calendar

The next thing I do is to check the weekly economic calendar and find out if there are any high impact report releases which might affect the pairs I picked. Next let's inspect the charts closely.

Gold

The price pattern on the weekly chart indicates that sentiment toward gold has shifted (compared to the last couple of years) and has become more bearish. In 2013, the XAU/USD pair found support around $1180 level after its sharp decline but as you can see, bounces are getting weaker. While the broader directional bias remains weighted to the downside, the market has been following a descending channel recently. Last week, the pair created a temporary floor around the bottom of this channel.

Options:

- Open a long position, targeting the top of the channel (where would you set the stop-loss?)

- Open a short position if prices reach the 1292.70 level.

- Keep an eye on the 1280 - 1259 area and wait for a breakout.

 

 

 

EUR/AUD

Last week, the Euro took a hit after the ECB's decided to cut interest rates again. As a result we broke below the 1.4045 level which acted as a strong support and helped prices to reverse in the past. It looks like the pair is heading towards the 50% retracement (based on the bullish run from 1.1603 to 1.5830). Do you think that level will provide enough support to stop this falling knife?

Options:

- Go short targeting the 1.3720 (50% retracement) level.

- Open a long position if the pair hits the 1.3720 level

- Wait for a pullback towards the 1.4045 level to open a short position.

EUR/USD

The EUR/USD pair continued its free fall last week and closed below the 1.30 level for the first time since July 2013. Expectations that U.S. monetary policy will continue to diverge from policy in the Eurozone have been weighing on this pair for the last couple of months and there are no signs of exhaustion yet.

Options:

- Keep shorting until we reach 1.2790 (61.8 Fibonacci).

- Sell at 1.3020 (and again at 1.3120 if seen).

- Buy above 1.3120 or wait until we reach 1.2790/50 area.

Silver

Silver has been weaker than gold for some time and as a result it returned to the 19.00-18.65 support area once again. As you can see, this support has helped prices to reverse in the past. Therefore buyers are coming back to the market and hindering the bears' advance. However, now the market sentiment is different than how it was three months ago.

Options:

- Go long targeting 19.75 and 20.50; stop-loss is set to 18.64.

- Go short at 19.75...what about target and stop-loss?

- Go long if the pair touches 18.65...again target and stop-loss please!?

 

 

 

Prepare for the Week Ahead

Now check the charts again. Add your own trend-lines, S/R levels and indicators- and plan your trade(s)…keep in mind that you can create your own trading conditions/scenarios, your options are not limited.

Gold 2

Last week, wepicked 4 new instruments and applied some technical analysis methods to decide what to do (deciding what not to do is as important as what to do, if you want to be a successful trader). Today, we are going to see the results.

Gold prices have been falling steadily recently on a growing conviction that the U.S. Federal Reserve will begin altering its monetary policy sooner than previously thought. The precious metal has reacted to geopolitical headlines but these events only created temporary effects in the market.

 

 

Gold 3

I think Gold is a perfect example of why it is necessary to trade the markets as they are, not as they should be. Geopolitical risks still exist but the market is currently ignoring these issues (or we could say strength in the greenback outweighs geopolitical tensions). As we often say “it is not the news but the market reaction to news that matters”. If you picked "Keep an eye on the 1280 - 1259 area and wait for a breakout" option, you could be the winner.

(While trading in a descending channel, selling on rallies gives better results but if I went long at 1259, hoping for a rebound, I would probably place the stop around 1250/48).

 

 

EUR/AUD 2

Last week, we thought that the EUR/AUD pair might be heading to the 1.3720 level (50% retracement based on the bullish run from 1.1603 to 1.5830) as the support at 1.4045 was broken. Next, let’s check what happened:

 

 

EUR/AUD 3

The pair reversed and ended the week higher on the back of a series of worse than expected data from of Australia. So, shorting blindly would have caused big trouble. However, if you had inspected the chart yourself, you would have noticed that the 1.3800 level was also former support. Seems like waiting for a pullback towards the 1.4045 level was a better choice, but there was a red flag over that situation. The pair closed the day above that level with a very strong candle. If a pair ends the session by going 170 pips in the opposite direction and climbs back above the critical resistance you have been watching, then you should reconsider your trading plan.

EUR/USD 2

The EUR/USD pair has seen quite a sell off recently as the market conditions (fundamentally and technically) have been working against the Euro. Although there were no signs of exhaustion, the market was approaching some significant support levels. Did the pair end the week lower?

EUR/USD 3

Actually, the pair ended the week where it started. Although the bears tried to capture the support at 1.2890, the bulls managed to defend their base. Opening a short position on Monday could have given you some pips but I think leaving this pair alone would have been the best option. If a pair falls a long distance and didn't have much more room to go (i.e. the potential reward is not satisfactory anymore), I would just ignore it and find another pair to trade.

Silver 2

Silver had found some support around the 19.00 level and we were trying to understand if the market would reverse or sink deeper. Did the market end the week higher?

Silver 3

Silver initially tried to climb higher on Monday but slipped below the 19.00 level. As a result, sellers increased the pressure and the market tested the 18.65 support level. I don't think that was surprising because the market sentiment has been more bearish recently. Look at the previous price movements: during February, it took 3 weeks to reach the 21.50 level from the 19.00 level whereas the market spent 5 weeks traveling the same distance in June. During the previous downswing (March to late May) we had 2 positive candles, but this time there were none so far. In such cases, I wouldn't go against the trend unless I see a strong bullish candle (engulfing or hammer). But then again, if there is not enough room (until the next support) I don't take the risk of shorting either.

 

 

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