-
Getting Started with Moving Averages
Talking Points:
- MVAs show the average price of a currency for a specific number of periods
- As price moves so will the indicator, giving clues about the current market
- Traders can filter a trading decision based on the position of price relative to a MVA
Simple Moving Averages (MVAs) consist of some of the most versatile and widely used indicators in the market. Typically MVAs are used for filtering the trend, support and resistance levels, as well as market entries. Today we will continue our look at indicators by reviewing one of these components to get you comfortable using MVAs in your trading strategy. Let’s get started!
MVAs and the Trend
First you may be asking, “What is a moving average?” Moving averages are simple technical tools that are designed to measure the average price presented on a graph for a designated number of periods. For example the 200 period MVA is shown below. This means that the closing price has been taken for the last 200 periods, added them together then finally divided that sum out again by 200. Once this number has been established, the average is printed on the graph as a frame of reference.
Below we can see a USDCAD daily graph with price trending downward. You should notice as price trends downward, the MVA will begin moving lower as well. With price moving down faster than the 200 period MVA this is a strong signal that the market is declining.Likewise as price moves upward, the average will slowly move towards higher highs as well. Knowing this, we can now work the MVA into our trading.
https://media.dailyfx.com/illustrati..._Picture_2.png
Trading with a MVA Filter
Once a 200 period MVA has been added to your chart, you can easily decipher whether you should be considering a buy or sell position. The best trading environment for new buying positions would be in an uptrend as price moves towards higher highs, while the currency pair stays above the 200 MVA. The example below shows opportunities to buy the EURUSD as it rallies above the average. Since the trend is up, at no time should traders consider a sell based position!
This bias abruptly changes when prices move below the designated 200 period MVA. Since the price on this USDCAD daily chart is below the average traders should at no point consider new positions buying the pair. As price moves towards lower lows and stays below the average, only new sell positions should be considered. Now that you have filtered for the trend, you can focus your attention to timing new entries with the market!
https://media.dailyfx.com/illustrati..._Picture_1.png
Trading with MVAs
Filtering for the trend is just one of three key ways you can utilize the Moving Average in your trading!
---Written by Walker England, Trading Instructor
More...
-
Long-Term Chart Indicators on AUDUSD Point To One Thing
Talking Points
- The Value of Long Term Indictors
- What’s Aligning on AUDUSD?
- The AUD Outlook for Summer 2014
There has been a lot of excitement around the Australian Dollar andspecifically, the AUDUSD for most of 2014 so far. The latest Commitment of Traders (COT) report from the US CFTC shows that leveraged players continued to buy AUDUSD in the week to Tuesday April 22. This was the 6th week in a row that they have been net buyers. What’s more, the positioning between large speculators and commercial hedgers are at 52-week extremes which tip us to the fact that something is on the horizon and longer term indicators may be telling us what that could be.
Learn Forex: Large Players Have an Opposing View
https://media.dailyfx.com/illustrati...eme_in_GBP.png
The Value of Long Term Indictors
Analysis and trading are two completely different things. Trading off weekly indicators is not recommended but they can help you view where the path of least resistance may lie. Today, we’ll look at Ichimoku, long-term polarity points on the chart, and stochastics. Together, these tools can help us see that we’re at a critical juncture on the chart showing that the path of least resistance on AUDUSD may very well be to the downside.
What’s Aligning on AUDUSD?
This week aligns a lot of key economic data for the US Dollar which has been searching for a bottom of late. While we may not find the bottom for the US Dollar and could push lower, a handful of key technical indicators are showing that momentum on the bullish AUDUSD run is hitting a wall. The first indicator that looks specifically at momentum is Slow Stochastics is in dangerous territory for AUDUSD bulls.
Learn Forex: Slow Stochastics Show AUDUSD is looking Top-heavy Again
https://media.dailyfx.com/illustrati..._Picture_2.png
The chart above shows that another potential corrective rally could be running on fumes. The highlighted section shows the lack of follow through as slow stochastics top out. Another weekly chart that should bring caution is the Weekly Ichimoku Chart.
Learn Forex: Weekly AUDUSD Ichimoku with Polarity Point
https://media.dailyfx.com/illustrati..._Picture_3.png
This chart starts when AUDUSD bottomed in 2008. You’ll notice after the peak in 2011, AUDUSD has continued to slip. What’s more, a critical level was breached that is a highlighted rectangle on my chart. That box shows an intermediate top before pushing higher in 2009-2010, then caught a corrective low in late 2011 before seeing some action again around late 2013-present. What’s key is that this box that has been pivotal on the chart alight in the area that we recently pushed lower on, 0.9400.
There are a few other tools like Fibonacci Time Cycles and Elliott Wave that show a key move in the Aussie is approaching. Either way, you need to manage your risk to make sure that if this trade doesn’t pan out, you have margin left over for the next move.
The AUD Outlook for Summer 2014
Today’s article has looked at Weekly charts. Indicators on weekly charts are often respected more than intraday charts as they take into account, large amounts of data. Whether that’s true or not, you can see that AUD is either going to be bouncing off resistance or breaking through which would bring about a major move. You've likely heard of the phrase, "sell in may and go away." This phrase has surprising merit but what's more, is that the USD & JPY often out perform other G7 currencies during this time frame as well which could also put downward pressure on AUDUSD.
Happy Trading!
---Written by Tyler Yell, Trading Instructor
More...
-
Three Ways to Trade with Moving Averages
Talking Points:
- Traders can use mathematical averaging to their advantage by employing the moving average.
- Moving averages can be used to initiate positions in the direction of the trend.
- Traders can incorporate multiple moving averages to fit in their strategy to accomplish specific goals.
Indicators can be tricky tools. Knowing which ones to use and how to use them can be complicated enough; but finding out how to properly employ an entire strategy in the right market environment can be the most difficult question for traders to address.
The Moving Average is simply the last x period’s closing prices added together, and divided by the number of observed periods (x). And it’s in its simplicity lies its beauty. When prices are trending higher, the moving average will reflect this by also moving higher. And when prices are trending lower, these new lower prices will begin to be factored into the moving average and it too will begin moving lower.
While this averaging effect brings on an element of lag, it also allows the trader an ideal way of categorizing trends and trending conditions. In this article, we’re going to discuss three different ways this utilitarian indicator can be employed by the trader.
As a Trend-Filter
Because the moving average does such a great job of identifying the trend, it can be readily used to offer traders a trend-side bias in their strategies. So if price action is above a moving average, only long positions are looked at while price action below the moving average mandates that only short positions are taken.
For this trend-filtering effect, longer-term moving averages generally work better as faster-period settings may be too active for the desired filtering effect. The 200 Day Moving Average is a common example, which is simply the last 200 day’s closing prices added together and divided by 200.
After a bias has been obtained and traders know which direction they want to look to trade in a market, positions can be triggered in a variety of ways. An oscillator such as RSI or CCI can help traders catch retracements by identifying short-term overbought or oversold situations.
In the picture below, we show an example of a CCI (Commodity Channel Index) Entry with the 200 day moving average as a trend filter.
Moving Average as a Trend Filter, CCI as an Entry Trigger
https://media.dailyfx.com/illustrati..._Picture_3.png
As a trigger to initiate positions
Taking the idea of strategy development a step further, the logic of the moving average can also be used to actually open new positions.
After all, if price action is showing a trending state just by residing above a moving average, doesn’t logic dictate that the very action of crossing that moving average can have trending connotations as well?
So traders can also use the price/moving average crossover as a trigger into new positions, as shown below.
The Moving Average can also be used to initiate positions in the direction of the trend
https://media.dailyfx.com/illustrati..._Picture_2.png
The downside to the moving average trigger is that choppy or trend-less markets can invite sloppy entries as congested prices meander back and forth around a specific MA. So it’s highly suggested to avoid using a moving average trigger in isolation without any other filters or limitations. Doing so could mean massive losses if markets congest or range for prolonged periods of time.
As a Crossover Trigger
The third and final way that moving averages can be implemented is with the moving average crossover. This is an extremely common way of triggering trades, but has the undesired impact of being especially ‘laggy’ by introducing two different lagging indicators rather than just one (as is the case of using the MA as a filter or a trigger individually).
Common examples of moving average crossovers are the 20 and 50 period crossovers, the 20 and 100 period crossover, the 20 and 200 period crossover, and the 50 and 200 period crossover (commonly called ‘the death cross’ when the 50 goes below the 200, or the ‘golden cross’ when the 50 goes above the 200).
The 50 Day/200 Day Moving Average Crossover
https://media.dailyfx.com/illustrati..._Picture_1.png
This can be taken a step further with multiple time frame analysis. Traders can look to a longer-term chart to use a moving average filter as we had outlined in the (1) part of this article, and then the crossover can be used as a trigger in the direction of the trend on the shorter time frame.
While no indicator is going to be perfect, these three methods show the utility that can be brought to the table with the moving average, and how easily traders can use this versatile tool to trigger trades ahead and in front of very large, outsized moves in the market.
--- Written by James Stanley
More...
-
The Power of Confluence in the Forex Market
Talking Points:
- Psychological price levels can change trends and create swings within the market.
- Traders can combine psychological levels with other forms of Support and Resistance to find which levels may have the most potential.
- Areas of confluent support and resistance can offer entry potential for swings and new trends.
Human beings often think in round numbers and traders are no different. This means that stops and limits will often exist around these ‘rounded’ intervals on the chart, and as trends move and prices surge into these batches of waiting orders; price action can change dramatically.
Trends can be stopped dead in their tracks… and if the batch ‘sitting orders’ are large enough, a full-on reversal may be afoot.
In this article, we’re going to attempt to take this study a step further by helping traders to notice which of these levels may end up carrying more weight with future price action.
Support and Resistance Does Not Exist in a Vacuum
A common question that new traders pose is ‘which type of support or resistance should I be watching or which is most important?’
The only truthful answer to this question is that it’s impossible to know which support or resistance level may elicit a change in price behavior until it’s already happened.
But traders can attempt to see which prices may carry more power by aligning multiple permutations of support or resistance analysis, and looking for commonalities.
Let’s walk through an example together.
In EURUSD earlier this morning, selling denominated the early portion of the European session. Prices dropped from 1.3715 to 1.3650 in the first four hours of European trade.
In the first hour of trade, prices moved down to the S1 weekly pivot point (the red line on the chart at a price of 1.3771), and then selling slowed. It didn’t stop, as prices still moved lower; but it did slow.
Confluence can be powerful, in both the short and long-term
https://media.dailyfx.com/illustrati..._Picture_3.png
Over the next 3 hours, price action grinded lower until a price of 1.3650 was hit (a minor psychological level highlighted by the first yellow circle), at which point buyers began to come in. Notice how price action oscillated between the psych level, and the S1 Pivot for four hours, even attempting to move lower but reversing yet again at 3650 (second yellow circle).
After the second attempt at breaking 1.3650, sellers retreated and buyers took over, as prices then began moving higher, eventually catching resistance at the psychological level of 1.3725 (third yellow circle).
This is confluence; and while the S1 weekly pivot point wasn’t enough to turn around prices, the combined force of the S1 pivot along with a psychological support/resistance level at 1.3650 certainly was. This is why traders want to use multiple forms of support and resistance identification, because you never know which one (or which combination) will impact prices until after it’s happened.
Why/How does confluence work?
The bigger question to ask is why technical analysis might work?
The logic behind technical analysis is that if enough people are seeing something, and thus reacting to those stimuli, it can potentially become a self-fulfilling prophecy.
Take the 200-day moving average as an example. If every trader in the world were watching AUDUSD trade up to the 200-day moving average; and if enough traders sell under the premise that resistance may come in – that can change the supply and demand in that market, and that can create a reversal in price (more buying than selling means prices will move up). In the example below, we can see how the confluent level of .9750 in AUDUSD promulgated a strong reversal in the trend.
Confluence can exist between indicators and psychological levels
https://media.dailyfx.com/illustrati..._Picture_2.png
Support and resistance levels are no different. As prices approach these levels, traders observe the potential for a reversal.
And when multiple support or resistance levels exist in the same region or area, this is called ‘confluence,’ and this confluence of support or resistance can offer traders multiple reasons for prices to reverse or stall; making potential trade ideas for swings or reversals even stronger than they might be otherwise.
How to Find Confluent Levels of Support and Resistance
Just as we said in the earlier portion of this article, traders are best served by following and observing multiple forms of support and resistance analysis.
Price action can be used to validate which levels have been valuable, as traders can notice swings in prices or reactions in markets to see which price levels have elicited new behaviors.
But traders can attempt to see which levels may offer a higher chance of exhibiting support or resistance in the future by applying multiple studies.
Longer-term pivot points (weekly and monthly) will usually generate considerable interest, and the same can be said for Fibonacci retracement levels within longer-term trends.
Traders can apply these on the longer-term charts as I had in the EURUSD example, while following the more granular psychological support and resistance levels on the longer-term charts.
Traders can also look to indicators, as we had in the AUDUSD example with the 200-day moving average. Parabolic SAR, Volatility bands, or Price Channels can all be applied to the chart in the trader’s search for confluent levels of support or resistance.
How to Trade Support and Resistance Confluence
So support and resistance confluence can show us areas where reversals or swings may take place, but what’s next?
Traders should keep in mind that there is no form of analysis that will predict future price movements. If there were, there would be no reason for me to write this article, or for you to read it. Trading would be easy because we could follow this ‘holy grail’ all the way to the promise land. Unfortunately, the future is and will remain unpredictable.
Instead, trading is about probabilities. And seeing an up-trend stall at resistance, or a down-trend pause during support simply shows us an area where a reversal in price may take place.
As price action signals potential reversals, traders can look at this as an opportunity for a potential trade entry with a positive risk reward ratio. As in, if you’re right – you can look to make $2 for every $1 that you’re risking in the event that you’re wrong. This is the effort to avoid the Top Trading Mistake, or The Number One Mistake that Forex Traders Make.
Traders can use price action to signal entries after integrating Support and/or Resistance
https://media.dailyfx.com/illustrati..._Picture_1.png
You can use this in combination with multiple time frame analysis to trade retracements in ‘major’ trends on longer-term charts; or you can even include additional indicators such as I do in my short-term momentum trading strategy.
The possibilities are endless; but provided traders are focusing on risk management and risk-efficient entries, there are numerous ways that support and resistance confluence can beneficially be integrated into a trader’s approach.
--- Written by James Stanley
More...
-
USDCHF Reaches Range Resistance
Talking Points
- Range markets can provide opportunities for observant traders
- The USDCHF has reached a point of resistance in a Daily Range
- Traders can use oscillators to confirm entries for their strategy
Have you ever experienced a market that seemed to be going nowhere fast? When the market lacks direction, this may seem as a deterrent to traders. However, the opposite is quite true! Sideways markets are known as ranges and can provide trading opportunities for the observant trader. Today we examine an example of the range developing on the USDCHF and discuss techniques to trading this technical setup.
First traders must learn to identify a range. The good news is, ranges are some of the easiest to pinpoint through the use of horizontal support and resistance lines. These areas can be found by connecting a series of high and low points on your graph. Below we can see our example on the USDCHF. A line of resistance has been formed by connecting the April 4th and May 15th peaks. The lows from March 3rd and May 8th have been connected to form acting support.
Learn Forex – USDCHF Daily Range
https://media.dailyfx.com/illustrati..._Picture_3.png
Trading The Range
Once a range has been identified, traders need to develop a plan for order execution. The easiest way to go about trading a range is to wait until the market reaches the previously mentioned points of support or resistance. Since the range is a directionless based strategy, traders will look to sell resistance, and look to buy areas of support.
Once a trade has been placed, risk can be managed through a stop placed outside of the identified lines of support and resistance. That way trades will be exited in the event of a breakout. Traders can then set profit targets at the opposing point of the range. This will allow traders to complete a positive risk reward ratio while range trading by making more pips in the event of a profitable position, relative to the amount risked in the event of a loss.
Learn Forex – Trading The Range
https://media.dailyfx.com/illustrati..._Picture_2.png
Confirming Entries
One final technique for trading ranges, involves employing an oscillator on entry. This step can be added to any range trading plan to pinpoint an entry into the market. This can be done by aligning an oscillators overbought and oversold levels with the previously mentioned lines of support or resistance values. Let’s look at an example of how this may work.
Here again is our example on the USDCHF daily chart. Notice how price has tested resistance and traders may now be looking to execute fresh sell positions. Traders may choose to wait patiently and only enter a fresh order when an oscillator, such as CCI , returns from an overbought position. This signal can be a strong indicator of momentum heading back towards support, providing an additional execution trigger. Once this is done, traders may then continue setting up stop and limit orders as previously mentioned.
Learn Forex – USDCHF Range with CCI
https://media.dailyfx.com/illustrati..._Picture_1.png
Now that you are a little more familiar with trading ranges, you can begin practicing your trading.
---Written by Walker England, Trading Instructor
More...
-
The Day Trader’s Plan
Talking Points:
- Traders are often best served by having a well-thought-out plan.
- We look at the what, how, when, and why of the trading plan below.
Regardless of what you’re doing in this world, it often helps to have a plan. The harder the task, the more helpful a well thought-out plan can be.
A plan is practically a necessity for anyone with the courage and the capital to speculate in markets. In this article, we’re going to look at a template for a day-trader’s trading plan. We’re going to use the same model shared in the article, How to Build a Four-Point Trading Plan, but we’re going to focus this plan specifically on trading short-terms (day-trading). If you’d like a more detailed trading plan, we shared this type of template in the article, The Trader’s Plan.
The What
This is the portion of the plan where the trader defines the type of activities they want to perform in the market. Because this is a plan built for short-term traders, the primary options to be decided upon are the market condition to be focused on and the amount of risk that will be taken on each trade and each day.
Markets display three different types of conditions; and traders should focus their strategy on one
https://media.dailyfx.com/illustrati..._Picture_3.png
But another important component for short-term traders to add here is risk amounts. Traders can list how much they’re going to risk on any individual trade idea, as well as their maximum risk in a day.
So, for example, traders can list that they’ll risk .5% of their account on any one trade, while allowing themselves 5% for the entire day. So, if 5% of the trader’s equity is lost at any point, all trades are closed and greener pastures are sought tomorrow.
This type of model gives the trader 10 attempts, and if 10 consecutive trades get stopped out (hitting the 5% threshold), activities for the day are stopped.
This way, if a trader is having a really bad day and can’t seem to hit water if they fall out-of-a-boat, they have a safety mechanism to ensure that this one bad day doesn’t turn into a career-altering event.
The How
This is where the trader documents and defines their strategy. This is probably the portion of the trading plan that will get the most attention, and take the most time to complete.
The key to remember here is that there isn’t just one way to do this. There are no holy grails, or ‘can’t miss’ strategies, so don’t worry about trying to recreate the wheel here.
The image below depicts the entry protocol of the strategy, and you can certainly check out the article if you’d like more information on the full strategy:
https://media.dailyfx.com/illustrati..._Picture_2.png
But just because this is my strategy, it doesn’t mean that it’s the only way that a market can be traded short-term. Another popular option is to look at trading ‘swings’ or short-term reversals in price.
Regardless of how a trader is looking to speculate in a market, longer-term support and resistance levels should be a part of the strategy. These price levels can assist with grading market conditions, or managing risk for short-term trend traders; and they can be extremely important for entries in range and breakout-related strategies.
The When
This is the portion of the plan with which the trader sets their ‘working hours.’
Since the FX market is open 24 hours, the ability (and desire) to jump into trades or positions is a constant temptation. If a trader has a good morning, and they see that there are some especially attractive opportunities later on that night, they might have a hard time passing them up.
But in reality, the FX market can trade pretty differently from one session to the next, and for the day-trader or scalper these differences can be enormous; so much so that short-term traders are often best served by choosing the most amenable time-of-day to employ their strategy.
Time-of-day can have huge impacts on a market’s price action
https://media.dailyfx.com/illustrati..._Picture_1.png
From the image above, we can see that volatility is usually highest during the ‘overlap’ period when prices are coming in from both London and New York market centers (approximately 8-11AM Eastern Time).
For traders executing trending or breakout-related scalping strategies, this would be the time of day that could present the most opportunities.
On the flip side, volatility generally decreases in the Asian-trading session (which was called The Best Time of Day for FX Traders in our Traits of Successful Traders series). If a speculator is looking to implement a short-term range strategy, this could be more ideal than the more volatile London or US sessions.
The Why
This last portion of the plan is the motivation. This is where you can list the reason(s) that you want to become a better trader.
The simple act of writing down your goal can make that goal a very real thing. I realize this may sound corny, or like ‘new-age’ type-of-thinking; but trading is not easy. Traders have to learn how to lose properly; they’re going to face losing and drawdown periods that can be psychological torturous. These periods can make it difficult to get excited about opening up your platform each morning to look for new trades. This is the reason that traders fail; it’s not because profitability is impossible, it’s just that it might not be as easy as that person had initially hoped.
End your trading plan with your goals, and let those goals drive you through the difficult periods so that you can find and prosper in greener pastures.
--- Written by James Stanley
More...
-
How Highly Correlated Equity Markets Can Lead To a Currency Trade
Talking Points:
- The High Correlation of JPN225 to USDJPY
- Bullish Key Week on Nikkei 225
- USDJPY Implications
Many of the major markets are becoming increasingly correlated. In fact, it’s tough to get a feel for currencies or commodities without checking the bond market and stock market as well. While some markets are more closely related than others, one equity market has held an amazingly tight correlation to a currency pair for a very long time.
The High Correlation of JPN225 to USDJPY
https://media.dailyfx.com/illustrati..._Picture_1.png
Visually, it’s easy to see that, ‘as goes the Nikkei, so goes USDJPY’. If you’re comfortable with the correlation coefficient reading, since the beginning of May, USDJPY has been positively correlated to the JPN225 or Nikkei by a matter of 0.821. If you’re not familiar with the correlation coefficient, it is a statistical number between -1 & +1 calculated to present the linear depending of two variables. 1.0 is a perfect positive correlation and -1.0 is a perfect inverse correlation. Anything above 0.5 or below -0.5 is considered a significant correlation, including of course, USDJPY & JPN225 at 0.821.
Because traders are always working to build an edge, we can look for signs of strength in one to help us see upcoming strength in the other. Let’s breakdown some of the developments in both markets and specifically the JPN225 to see what may be on the horizon for the JPY crosses.
Bullish Key Week on Nikkei 225 & More!
A lot of bullish developments on the JPN225 were formed on the close of the weekly candle. Let’s break them down before talking about their currency implications:
https://media.dailyfx.com/illustrati..._Picture_3.png
The first thing that many traders look for on a chart is a price action signal. One of my favorite signals is known as a Bullish Key candle where the candle pushes lower than the prior low but closes higher than the prior candle’s high. This is additionally important if the low is a new low for a significant period of time or of significant support which you can see is true on JPN225 above.
Secondly, you’ll notice a cloud on the chart below price. This cloud is part of the dynamic Ichimoku indicator. In uptrends, Ichimoku’s cloud will often act as support and in downtrends, Ichimoku’s cloud may act as resistance. Given the bullish key week off the weekly cloud touch, that adds significance to the move.
Lastly, you’ll see a trendline drawn from the high from the start of 2014. Price has stayed below this trendline on a closing basis until last week’s close. Trendline breaks are simple ways to see that if nothing else, a trend is losing momentum and could soon be reversing.
Now that we’ve seen three components that argue for further upside in the JPN225, let’s see how this could apply to Forex given the high correlation earlier discussed.
USDJPY Implications
https://media.dailyfx.com/illustrati..._Picture_4.png
The USDJPY has yet to move as explosively higher in the same way as JPN225. However, upon close look, you’ll see there are budding developments on USDJPY that could bring opportunity to buyers. Let’s have a closer look on a tighter time frame.
Learn Forex: A Closer Look at USDJPY
https://media.dailyfx.com/illustrati..._Picture_5.png
USDJPY is not without its positive signs. We’ve had a bounce similar to the Oct. ’13 low which resulted in a 900+ pip push higher. Last week, the Bank of Japan Governor, Kuroda mentioned that he didn’t see JPY strengthening against the USD (read: doesn’t seeing going lower) and he commented on the “very strong” economic recovery in the US vs. the one in Japan.
However, with the evidence in favor of upside, let’s take a look at the chart resistance ahead. There is a cluster of resistance point between the May 13th high of 102.36 & the May 2nd high of 103.02. If we can have a weekly close through these levels, then a retest of the prior highs could very well be under way. If price stays below these levels, it would appear that the correction still needs to complete before moving higher.
Happy Trading!
--Written by Tyler Yell, Trading Instructor
More...
-
Chinese Yuan
Talking Points:
- USDCNH is now available to trade for FXCM traders.
- SSI is a polarizing -10 (91% retail traders are short).
- Potential buy trade based on SSI and support at 6.2340.
Unlike stock traders and their IPOs, Forex traders rarely have new instruments to trade. Except recently when FXCM added the US Dollar / Chinese Yuan pair, USDCNH, to their platforms. I've been eyeing the charts for awhile waiting for an opportunity to trade and believe there might be a trade setup on the horizon.
Adding USD/CHN onto Your Trading Platform
If you are a FXCM trader, you now have access to trade the Yuan even if you hadn't realized it yet. But you might need to add it onto your account's dealing rates window before you can trade. The Yuan can be added inside the Trading Station platform by going to Symbols --> USDCHN --> Apply. You can also follow the visual instructions below.
Learn Forex: Adding the USDCHN Pair into the Dealing Rates Window
https://media.dailyfx.com/illustrati..._Picture_3.png
Once the pair has been added, you will see it available in the dealing rates window and inside the Marketscope charts' symbol drop down list. We are now ready for analysis.
Extreme Sentiment Readings for the Chinese Yuan
More than 90% of FXCM traders with a position on the USDCNH are short. Those familiar with how the SSI works know that this presents an opportunity where we can trade against the retail crowd and Buy the USDCNH. We can see in the picture below, as the SSI has reached lower lows in the last 3 weeks, USDCNH's prices have reached higher highs.
Learn Forex: USDCNH SSI
https://media.dailyfx.com/illustrati..._Picture_2.png
We are trading based on the belief that this move will continue to the upside as long as SSI is at these extreme SSI levels, but how should we go about opening up this trade?
Technicals Line Up to Support 6.2340
The final part of my analysis on this new pair are the trend lines that have formed on a 4-hour chart. There are primary and secondary price channels, and a tertiary trend line that have affected price action throughout the last couple months. In 3 days time, we will be at a point in time where all three of these trend lines will cross, creating a strong confluence of support.
Learn Forex: Buy Setup for USDCNH (US Dollar / Chinese Yuan)
https://media.dailyfx.com/illustrati..._Picture_1.png
As pictured above, if the USDCNH were to fall near that support zone around the time when these trend lines meet, we could see a bounce back towards 6.2500, 6.2750, or beyond. This would put our entry order to buy around 6.2340. A stop loss below these levels at 6.2250 could be appropriate to cut losses quickly if the trade moves against us. Targets could be set as high as 6.2750 if USDCNH were to reach the top of the primary price channel in the next couple of weeks.
Winning With a Weak Yuan
So the table has been set. It is possible that the Yuan will not gain enough strength by Friday to hit this interesting price level, but if it does, it could be a nice way to start off trading this new currency pair with both strong sentiment and technical analysis backing it.
Good trading!
---Written by Rob Pasche
More...
-
Follow The Fractal Tool Toward Better Breakout Entries
Talking Points:
- Fractals Defined
- How Traders Can Use Fractals
- Real-Time Fractal Set-Up
“You can either buy low & sell high or trade with the trend, but you cannot do both.”
-Bill Williams
Many traders spend too much time looking for the best possible entry. However, the entry can be based on any number of technical indicators. For traders who are a fan of price-action, you could do no worse than finding triggers based on a fractal breakout in the direction of the trend.
Fractals Defined
https://media.dailyfx.com/illustrati...6759895671.png
Let’s start with an introduction to fractals. The actually are applied to trading from nature and not the other way around. It may be helpful to know that fractals are effectively a way of looking a sub-sets of large pieces of data to understand what developments are being created in real-time. From a trading / market perspective, fractals are an indicator highlighting the chart’s local highs and lows where the price movement reversed marking a 5-bar high or low. These reversal points are called respectively Fractal highs and lows.
Learn Forex: The Hand is a Perfect Fractal
https://media.dailyfx.com/illustrati...Front-Back.png
Before we take this natural reoccurrence to the market, you should see how your hand, with fingers pointing up is the perfect up fractal and with your palm facing you, is a perfect down fractal. A Market swing Fractal shows a price extreme in the middle of 5 bars whereas an up fractal has the middle bar with a highest high in the middle with two lower highs on the left and two lower highs on the right. A down fractal will have a low price extreme in the middle bar of a 5-bar sequence with the higher lows on the left and two higher lows on the right.
How Traders Can Use Fractals
Volatility is a key determinant to trading opportunities. One of the common triggers that volatility is in play is when a prior high or low is taken out and a new trend begins. Fractals can be applied to the chart so that you can see when a recent key level has broken which can lead to a price-action trading opportunity.
Learn Forex: Pinpoint Key Price Action Swings With Fractals
https://media.dailyfx.com/illustrati..._Picture_4.png
Fractals revolve around price action highs and lows and can easily pinpoint places for a breakout entry or tight price action based stop. Fractals can be used in a variety of ways. Most commonly, traders will look for a bar to close above a prior up fractal to show an upside breakout or a close below a prior down fractal to signal a downside breakout that is potentially worth trading. Another positive aspect is that when you have a comfortable view of a strong trend in play, you can use fractals as a trailing stop from a prior counter-trend move which made a fractal.
Real-Time Fractal Set-Up
For purpose of review, fractals mark price changes or pivots in the market. For reasons known or unknown, they are reaction points that can help you spot key places to place an entry order or stop. From a trader’s stand-point, they allow you to enter on a confirming view of your analysis vs. a hunch that a market is oversold or overbought and is time to enter like this trade set-up on the Australian Dollar.
Learn Forex: A Fractal Based Entry on AUDUSD
https://media.dailyfx.com/illustrati..._Picture_6.png
Every trader should embrace the following seven words:
I don’t know what will happen next
This isn’t meant to disregard your analysis but tell a simple fact about trading. Anything can happen in the market place and an infinite number of possibilities are plausible. As a trader, we can develop a strategy with set rules that work with our psychology to give us an edge but it will not predict the future. Therefore, we can use fractals as a trigger to put us into a trade or out of a trade and we may not know if the trade will end in a profit but we can now that we’re only acting on objective evidence.
Happy Trading!
---Written by Tyler Yell, Trading Instructor
More...
-
1 Attachment(s)
USDCHF Breakout Hindered by 200-Day Moving Average
Talking Points:
- The USDCHF break has run into the 200 Day Moving Average.
- Potential buyers could enter upon a confirmed break above the 200 Day MA.
- Sentiment has been indecisive all week, not giving us a clear reading.
The 200-Day Simple Moving Average
The 200-Day Simple Moving Average is one of the most popular indicators in the world. When price breaks through a 200 MA on a daily chart, it can often be seen as a topic of conversation on financial news stations, websites and newspapers.
It is primarily used to give traders and investors an overall sense of how strong or weak a currency pair is.
Typically, when a currency pair’s price falls below the 200 Day MA, it is a sign of weakness with a potential for further price decline. And when a currency pair’s price breaks above the 200 Day MA, it is a sign of strength with a potential for further price increases.
Learn Forex: USDCHF vs 200 Day Moving Average
Attachment 7503
The chart above shows the recent price action surrounding the 200 Day MA. We see a large run up in price breaking through multiple resistance levels until it met this powerful MA line. We have had 6 consecutive days where price has temporarily broke through the 200 Day MA or price has come within 10 pips of the line before retreating lower. So this level is acting as strong resistance.
If price were to remain below the MA, it could propel it lower back into the pair’s price channel. However, a breakout to the upside could add yet another reason to buy the USDCHF. Until we witness a larger price move, we are in a state of limbo.
Indecisive SSI for the USDCHF
Ever since the stalemate caused by the 200 Day Moving Average, sentiment has moved sideways as well. After the first flip in SSI in months, we have since seen 3 flips in the last week alone. This gives some insight on the uncertainty of where the USDCHF could be headed. This can be seen in the graph below where we track both price and SSI indecisiveness.
Learn Forex: Speculative Sentiment Index (SSI) on USDCHF
https://media.dailyfx.com/illustrati..._Picture_1.png
I am still partial to a long position on the USDCHF, but not as strongly as I was last week. Reducing existing trade size could be a smart money management move, or waiting for a confirmed break of the 200-Day Moving Average before buying.
Good trading!
---Written by Rob Pasche
More...
-
The 3 Step Double Top Strategy
Talking Points:
- A Double Top occurs when price tests a previous high and fails.
- Sell orders can be set just below previous high.
- Profit targets can be set at most recent swing low, stop set 33% of limit distance.
Forex market volatility is at extreme lows, meaning currency fluctuations have been relatively tame compared to other periods of the time. In order to adapt to these changing conditions, it’s a good idea to add a range trading strategy to your arsenal.
The Double Top chart pattern occurs when price tests a previous high and fails. This is then followed by a down move. Traders tend to enjoy these types of trades because we can risk a little to make a lot depending on how we want to structure our exit strategy. The Double Top is also a very popular chart formation that tends to trade better in range conditions, so if you’ve never traded it before, now is a great time to learn!
Step 1: Locate Re-Tests of a Previous High
The beginning of a Double Top formation is a well-defined swing high followed by price moving down. Another way to describe it is price bouncing off a resistance level. We want to draw a horizontal line at the highest price (wick) of the highest candle.
The image below shows a new high labeled with a yellow circle and a black horizontal line at the highest price achieved during that high. The horizontal line is important because this is how we will gauge where we put our entry.
Learn Forex: Previous High Being Tested – Triggering a Sell Order
https://media.dailyfx.com/illustrati..._Picture_2.png
Step 2: Set Entry Order to Sell Below the Initial Swing High
The Double Top formation is rarely perfect. Sometimes, price will move up to the exact previous high, bounce, and reverse. But there are also times when price will run past the previous high before reversing, or will reverse before it hits the previous high. Because of this, we have to decide where we want to get into the trade.
I elect to set my entry order a few pips below the previous swing high to give myself a better chance of getting into the trade. It’s the worst entry price of the three different scenarios, but this is made up for with the Risk Management in Step 3.
We can see the entry on the previous chart where it entered a few pips below the previous high, marked with a red circle. We sell because we think the previous high will act as resistance and cause price to bounce lower.
Step 3: Picking an Exit Strategy
The exit strategy is straight forward, but it comes in two forms. The first exit strategy involves a single trade with a single stop and limit. The second exit strategy is a two lot trade with a single stop and two limits.
Learn Forex: Double Top Strategy - Exit Strategy #2
https://media.dailyfx.com/illustrati..._Picture_1.png
For a one lot trade exit, we look to place our profit target (limit) at the previous low that occurred between each of the “tops.” We can see Profit Target #1 in the chart above. It lines up perfectly with the swing low. Our stop loss will be 33% of our limit’s distance in pips. So if our limit was set at 60 pips, we would set our stop loss 20 pips away. The stop distance should place the stop loss well above the previous high, protecting it from another test of this resistance level.
Having a limit set 3x as far as our stop loss gives us a 1:3 RRR (risk-reward ratio). This means we must only obtain a win ratio of 25% or greater to break even or to be profitable in the long run. Being wrong more than half the time and still making money sounds pretty good, and it is. Just remember that this is a lower probability trade and you are likely to have a good amount of losing trades.
The second exit strategy follows the same rules as above, with Limit #1 at the previous low and a stop set to 33% of that distance. But we add an additional limit twice the distance of Profit Target #1. This allows us to capture more profit on a true double top formation. This second exit strategy gives us an even larger RRR. You may also choose to move the stop to break on the remaining trade once Profit Target #1 is hit.
Dealing with Double Tops
This 3 step process for trading Double Tops can be used successfully during range bound markets like the markets we have seen lately. Once we identify a swing high; our entry, stop, and limit orders fall into place. With a strong RRR, it doesn’t take a very high win % to be profitable, so I believe it is worth taking a look at.
Good trading!
---Written by Rob Pasche
More...
-
Has the Stock Market Turned?
Talking Points:
- The Uk100 has failed to break over 6,900
- Price is still trading above support
- A lower low must be made for the trend to turn
Stock markets around the world have been making record runs over the past few years. However, with prices taking a pause, many traders are left to wonder if or when their favorite equities indices will turn. While fundamentally this can become a challenge, technical traders can use a series of price action clues to help them identify if indeed the market has turned. Today we will review the UK100 and identify tips to help better time the market. Let’s get started!
Learn Forex –UK100 Resistance Points
https://media.dailyfx.com/illustrati..._Picture_2.png
Support & Resistance
The first clues that a trend has turned revolve around finding levels of support and resistance. In the event of an uptrend prices must be making higher highs, which in turn suggest rising points of resistance. The chart above displays a weekly graph of the UK100 (FTSE). Even though prices have generally been rising, prices have stalled under 6,900. While the lack of a new high doesn’t suggest that the market has turned, in the absence of a new breakout the trend should be at least in the interim considered stalled.
Now to get the full story of price action, technical traders should also identify key areas of support. In order for an uptrend to be concluded price must be seen breaking down towards a series of lower lows. These areas can be identified by pinpointing areas of price support. Below we can again see the UK100, but this time we have added an advancing line of support as a series of higher lows have been printed on the chart. In the absence of a breakout or any lower lows, traders can continue to say that the prevailing trend has not changed.
Learn Forex –EURUSD Trading Blocks
https://media.dailyfx.com/illustrati..._Picture_1.png
Trading a Turn
Even in the absence of new highs or lows traders can begin looking for new trading opportunities. In these scenarios traders should consider trading a breakout. This will allow traders the opportunity to have entry orders pending in the event that price does turn and moves towards a fresh low. Entry orders can also be helpful in the event that a trend continues. If your order is set to sell the market pending a reversal under a point of support and price breaks resistance to a higher high, the order can simply be deleted. Traders will then be free to look for other opportunities.
---Written by Walker England, Trading Instructor
More...
-
What To Make of Gold
Talking Points:
-The Big Technical Picture of XAUUSD
-Trading Triangles
-Gold’s Make or Break Points on the Charts
A parabolic move is a term that defines something that moves straight up. After the FOMC decision yesterday, XAUUSD has been on a bullish parabolic move.
Learn Forex: XAUUSD Went Parabolic Close to Fibonacci Resistance
https://media.dailyfx.com/illustrati..._Picture_1.png
The Big Technical Picture of XAUUSD
XAUUSD, or Gold, has been on a steady downtrend since peaking out in late 2011. The corrections against the downtrend have been short-term in time and price relative to the downtrend. When looking at expiration of a correction or reversal of a trend, you often want to look for a break of a prior corrective high. XAUUSD has yet to do that, which brings up the potential for a resumption of a downtrend or another pattern worth discussing.
Looking for price action breaks is a key way to look to price action alone for trading signals.
Learn Forex: Weekly Gold Chart
https://media.dailyfx.com/illustrati..._Picture_2.png
Trading Triangles
Triangles can be a frustrating technical formation to trade. The main purpose of a triangle is to chew up time until either the bulls or bears take over with smaller and smaller moves until a breakout forms. If you stand back and connect the recent extremes from June ’13, you can see that XAUUSD may be tracing out a triangle. One key note about triangles is that they often correct the prior trend and provide one last breather before a move finishes. Therefore, the prior downtrend would favor a triangle break lower, but not before the potential for much higher prices in the yellow metal.
Learn Forex: Potential Triangle Formation on XAUUSD
https://media.dailyfx.com/illustrati..._Picture_3.png
Gold’s Make or Break Points on the Charts
The near-term momentum currently favors Gold bulls. However, if a triangle is truly in play then there are three key levels you should be aware of to see if XAU is soon to turn around back down or break much higher. However, there are levels below that you should know as well.
https://media.dailyfx.com/illustrati..._Picture_4.png
As you can see, the key levels are taken from a mixture of price action extremes or fractals. Fractals can be a great way to build a bias for your swing trading. Other key levels above are taken from Fibonacci levels from the past key range. Today, XAUUSD has traded at its highest levels since mid-April, which will bring about a lot of excitement but as traders, you have to keep your head straight by focusing on key levels holding or breaking on a longer-term chart.
Happy Trading!
---Written by Tyler Yell, Trading Instructor
More...
-
How High Can US Oil Go?
Talking Points
- The 5-year Wedge
- Pending Breakout?
- Key Levels Ahead
US Oil and UK Oil or Crude & Brent have been unexciting on a long-term chart since 2009, but that could change rather drastically in the near future given a few fundamental and technical developments. Recently, we’ve seen other commodities like Gold show up with very bullish moves. Given the wedge patterns across many commodity crosses, these moves are a breath of fresh air.
The Multi-year Wedge
https://media.dailyfx.com/illustrati..._Picture_1.png
If you’re unfamiliar with a wedge pattern, here’s a quick breakdown. A wedge or triangle is a technical pattern that often precedes a thrust in the direction of the prior trend. USDJPY printed a heavily watched triangle from May ’13-Oct ’13.
Learn Forex: USDJPY Triangle Followed By Thrust Higher
https://media.dailyfx.com/illustrati..._Picture_3.png
The chart above should make you familiar with two things. First, that triangles exist as a corrective move against the overall trend. Second, when a triangle expires, a move higher is often the result. Now, let’s look at both UKOil & USOil
Learn Forex: Triangles Triangles Everywhere
https://media.dailyfx.com/illustrati..._Picture_4.png
https://media.dailyfx.com/illustrati..._Picture_5.png
UK Oil looks a little cleaner for an upside push should the triangle play out as presented. However, each chart shows a triangle in play since 2011 and a correction that started in 2008, potentially coming to an end.
Pending Breakout?
By looking at the larger picture, both USOil & UKOil could be on the verge of a breakout due to exhausting triangle patterns. In order to validate the breakout, we can look to correlated markets to see if their also on the verge of a breakout. In the world of currencies, we have noticed a positive correlation to GBPUSD & UKOil.
Learn Forex: GBPUSD Overlaid on UKOil
https://media.dailyfx.com/illustrati..._Picture_6.png
GBPUSD overlaid on UKOil shows a rather clean correlation. In other words, when GBPUSD moves down significantly, so does UK Oil and vice versa. Looking to a long-term GBPUSD, a break-higher from a 5-year correction could be upon us and if that’s the case, the correlation just shown would argue upside in UKOil & likely US Oil.
Learn Forex: Long-term GBPUSD Chart
https://media.dailyfx.com/illustrati..._Picture_7.png
The red line on the chart sits around 1.7046 anchored to the pivotal corrective low in 2005 before hitting a top price of 2.1160. That level was also the corrective top in 2009 and a triple top level in the late 1990’s. If the market does have a memory and the 1.7040 level doesn’t hold GBPUSD down, then a move higher could be in store and correlations could take Oil with it.
Key Levels Ahead
US Oil is pushing long-term resistance now and could have a hard-time without a boost from a weaker USD. Last week, Janet Yellen seemed to show the Fed as a non-threatening central bank to those fearing an abrupt hawkishness at this stage. If the Fed’s tone remains the same for the foreseeable future, that could favor a weak USD and stronger commodities.
https://media.dailyfx.com/illustrati..._Picture_8.png
Indicators like Ichimoku show the Oil is gearing up for a strong move. However, in the end it’s best to look for a key price-action level to give before definitively looking for a breakout.
Happy Trading!
---Written by Tyler Yell, Trading Instructor
More...
-
A Basic USDJPY Breakout
Talking Points:
- The USDJPY has declined as much as 468 pips for 2014
- In a Downtrend, breakout traders will sell as price moves under support
- Entry orders can be used for breakout entries
Trend traders often find themselves looking for answers when a directional market comes to a screeching halt. Below is a perfect example on the USDJPY. The pair as seen below, has declined as much as much as 468 pips for the 2014 trading year, but has neglected to form a new low since February! So how can trend traders approach the market when prices have stalled?
Today we will answer that question and more by looking for breakout trading opportunities with the trend. Let’s get started!
Learn Forex – USDJPY Daily Trend
https://media.dailyfx.com/illustrati..._Picture_2.png
Trading Breakouts
After finding the current line of support in a downtrend, implementing a breakout strategy takes just a few basic steps. Below, we can again see the USDJPY daily chart, with the current line of support identified at 100.75. This point on the graph is currently acting like a pricing floor. Breakout traders will wait for price to move through this area of support, and create a new low before entering into the market. The idea behind this strategy is to enter into the market on the creation of a lower low, with the expectation of price continuing in the direction of the primary trend.
One of the most prevalent ways of preparing for a price breakout is through the use of an entry order. An entry order can be set through the FXCM Trading station and allows you to trigger an order once the market has reached a designated price. In the event that price reaches the selected value, your order will be executed and your trade triggered into the market! This method of trading is very popular with traders, primarily because you don’t have to constantly monitor charts. Regardless if you are in front of your trading screen or not, your trade is scheduled to execute as soon as a breakout occurs!
Learn Forex – USDJPY Breakout
https://media.dailyfx.com/illustrati..._Picture_1.png
Stops and Limits
While designing a breakout trade, traders should consider how to manage their risk. This can be done through the placement of a pending stop order in tandem with the previously discussed line of support. In the event that price moves back above support, traders should consider the possibility that a false breakout has occurred. Using this logic, stop values can be placed above support to exit positions in anticipation of the market turning.
Once a stop is set, traders can then manage their profit targets by using a positive risk: reward ratio of their choosing.
---Written by Walker England, Trading Instructor
More...
-
Trading Tight USDJPY Ranges
Talking Points:
- FX Volatility is at historically low levels
- Range trading strategies tend to work well in low volatility environments
- JW Ranger Strategy can help you time entries on range bound currency pairs
Forex volatility has been slowing down over the past several months. We have seen that low FX volatility is actually very good trading conditions for traders.
Prices typically don’t move fast, but levels of support and resistance tend to hold.
Therefore, if you have found your strategy not producing the amount of wins as expected, it could be that your strategy is a trend loving strategy and the market simply isn’t trending.
Today, I wanted to share with you a strategy that was presented in 2011 and how you can apply it to a range bound environment.
https://media.dailyfx.com/illustrati..._Picture_3.png
JW Ranger Strategy
The JW Ranger Strategy uses divergence readings on the Commodity Channel Index (CCI) oscillatorrelative as prices move into a support or resistance zone. In essence, we are looking for slowing momentum in price (divergence) coupled with price entering a supply or demand zone which can act as a reason to reverse short term prices.
Divergence into support and resistance is the critical element of the entry trigger on this strategy. The suggested time frame of the trading chart is 15 minute to 1 hour, with my preference being the 1 hour intraday chart.
If you would like to incorporate a portion of your own analysis, that is quite ok because, remember, the critical element is divergence into support or resistance.
Suggested Reading: The JW Ranger Strategy
Learn Forex – USD/JPY Range Strategy
https://media.dailyfx.com/illustrati..._Picture_2.png
If you are not sure how to identify support and resistance levels, one simple method is to use a 2 day high or low.
On a daily chart, identify the highest high and the lowest low for the past two days, not including the current day.
For example, if today is Thursday, then look for the highest high for Tuesday and Wednesday and note that price on your 1 hour chart. Then, look for the lowest low for Tuesday and Wednesday and note that price on your 1 hour chart.
Note, the current price on the current day, may already be outside that range noted on the 1 hour chart. That is ok; continue to look for entry signals below.
Learn Forex – USD/JPY Intraday Buy
https://media.dailyfx.com/illustrati..._Picture_1.png
Once your highest high and lowest low are notated on the 1 hour chart, then add the CCI oscillator with a 14 period input value onto the chart.
Once prices have passed above the high level noted, or once prices have passed below the low level noted on the 1 hour chart, then wait for the divergence signal to appear.
Once divergence appears, then we have our entry signal.
The stop loss is set at 50% of the daily ATR value. From the daily chart, you’ll notice the daily ATR is 43 pips. So the stop loss would be half of 22 pips in this case.
The take profit level is set at 50% of the daily ATR value. The take profit level would be the same as the stop loss at 22 pips.
This establishes a 1:1 risk to reward ratio.
With the recent tight range on the USDJPY, it would be a good candidate to trade this strategy. Other currency pairs that are trading in small ranges can be instruments to trade this strategy on as well.
---Written by Jeremy Wagner, Head Trading Instructor, DailyFX Education
More...
-
Tactics for Trading Trendlines
Talking Points
- In an uptrend, trendlines develop by connecting a series of lows
- Depending on the trend, trendlines will act as support or resistance
- Traders can use an oscillator, like CCI, to time market entries
Drawing trendlines is an important skill for every Forex trader to master. These lines of support and resistance can be drawn on virtually any graph, regardless of the timeframe which makes them incredibly useful in trend based strategies. The key is to match up a series of higher lows in an uptrend and lower lows in a downtrend.
For today’s lesson, we will be look at a detailed example of drawing and trading trendlines with the AUDUSD.
Below is an excellent example of an active trendline on a AUDUSD 1 Hour chart. Since the price trend is headed up, the trendline is created by connecting a series of lows on the chart. The key to this process is to find the first two points and connect them together. From this point, simply extrapolate the trendline. Now you will have an ascending line of support to work with when you go to execute your trading strategy.
Learn Forex – AUDUSD Trendline
https://media.dailyfx.com/illustrati..._Picture_2.png
Once the trendline is drawn, traders will begin looking for areas to enter new positions. One of the easiest solutions is to trade price as it bounces off support. This process can be aided through the use of an oscillator to time when momentum is returning in the direction of the primary trend. Let’s take a look at an example.
Below, you can again see our trendline developing on the 1Hour AUDUSD graph. However, this time we have added the CCI (Commodity Channel Index) indicator. Traders will time their entries into the market when prices bounce off our trendline and CCI crosses back above an oversold value of -100. These dips in the market often happen after a breakout, and traders will be ready to place new buy orders in expectations of price making a new high.
Learn Forex – AUDUSD Trendline and CCI
https://media.dailyfx.com/illustrati..._Picture_1.png
If you’re not familiar with the CCI indicator, that’s ok! It may be similar to other trading tools you are already using. To learn more about the indicator you can also sign up for the CCI trading course linked below. Registration is free, and the course will allow you to work through a series of videos, checkpoint questions, and access more CCI strategies. Get started using the link below.
---Written by Walker England, Trading Instructor
More...
-
Market Entries with Moving Averages
Talking Points:
- MVAs show the average price of a currency for a specific number of periods
- As price moves so will the indicator, giving clues about the current market
- Traders can filter a trading decision based on the position of price relative to a MVA
Simple Moving Averages (MVAs) are considered to be some of the most versatile and widely used indicators across markets and time frames. Typically, MVAs are used for filtering price action, as well as planning potential market entries. Today, we will continue our look at moving averages and review how they can be used for timing market entries. Let’s get started!
MVAs and the Trend
If you are unfamiliar with moving averages, don’t worry! These indicators operate exactly how they sound. Moving averages by design average out the closing price for a specific number of periods on the graph. For instance the 200 period MVA will add up the closing price for the last 200 periods, and then divide out that sum by 200. The indicator calculates the average for the trader, and then plots the point on the graph as a frame of reference.
A few of the most popular MVAs used in markets are the 10, 50, and 200 period averages. Depending on the number of periods selected, these MVAs will become more or less sensitive to changes in price. Normally, because longer term MVAs are less sensitive to any individual price change, they tend to be used as trend filters. If price is below a longer term MVA, the trend may be considered down. In the case of the GBPUSD chart seen below, price is above the 200MVA, so the trend may be considered up.
https://media.dailyfx.com/illustrati..._Picture_2.png
MVAs and Entries
Once the general direction of the market is decided, traders can begin adding a series of shorter term MVAs to decide their market entries. As stated above, the 10 and 50 Period MVAs tend to be popular choices for this task. Traders will look for the shorter term 10 period MVA to cross ABOVE the 50 period MVA to trigger a buy signal in an uptrend. Conversely, traders will look to sell a downtrend when the 10 crosses below the 50. Let’s continue our example on the GBPUSD to get an idea of how this works.
Below, we have a daily GBPUSD chart. The trend has been filtered with the 200 MVA, but this time we have included a shorter period 10 and 50 MVA as well. Since the trend is up, traders will look to buy the market when the 10 period average passes above the 50.This process can be replicated as long as the primary trend stays in place!
https://media.dailyfx.com/illustrati..._Picture_1.png
---Written by Walker England, Trading Instructor
More...
-
How to Use Alternating Waves in a Forex Strategy (Part 1)
The Fibonacci sequence provides the foundation of trading decisions for many traders through the golden ratio. This is the first part of a multi-piece sequence on trading with Fibonacci ratios in determining price projections.
Fibonacci can be a complicated subject because there are a wide variety of uses and interpretations for it. My objective of the first part of this series is to focus using Fibonacci in alternating waves. Future articles will use the length of alternating waves to aid us in determining entry and exit points of a pair.
What are Alternating Waves?
In a three wave move, the alternating waves will be wave A and wave C (or if you label with numbers, wave 1 and wave 3). So in the picture below of an uptrend, the alternating waves are the first wave of the uptrend and the 2nd leg of the uptrend which happens to be the C leg of the pattern (the waves colored in blue).
https://media.dailyfx.com/illustrati..._Picture_1.png
So when referencing alternating waves, we are referring to waves ‘1’ and ‘3’ or waves ‘A’ and ‘C’.
What are the common wave relationships?
There are many ratios that traders use. We will try to keep things simple and focus only on patterns showing a .618, 1.00, 1.618 or 2.618 relationship.
These ratios are derived from the Fibonacci number sequence. The Fibonacci sequence is a numerical series where every number is the sum of the preceding two numbers. Here is an example of the first several Fibonacci numbers:
1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, etc
The ratios mentioned at the beginning of this section are obtained by manipulating the numbers in this sequence.
.618 = Take any number of the sequence and divide it by the number to the right. As this sequence becomes larger, this ratio closes in to .618.
1.618 = Take any number of the sequence and divide it by the number to the left. This ratio closes in on 1.618 as the sequence becomes larger.
2.618 = Take any number of the sequence and divide it by the number 2 positions to the left. This ratio closes in to 2.618 as the sequence becomes larger.
More...
-
Calculating Leverage & How Much is Too Much?
Talking Points:
- How to calculate leverage in a Forex trading account
- The concept of notional value
- How much leverage we can use
Traders are drawn to the Forex for many reasons, including: being the largest market in the world, only having a few major currencies needing to be followed as opposed to 1000’s of companies, and there is a large amount of leverage available to retail traders. It’s that 3rd reason that gets most traders into trouble. So today we will learn how to calculate leverage and learn how much leverage is too much leverage.
How to Calculate Leverage
I believe leverage is one of the simplest concepts of trading that most traders misunderstand. The definition of leverage is controlling trades that have a greater value than the amount deposited into our account. So if we have $50,000 worth of trades and we have $10,000 deposited into our account, we are using 5x effective leverage ($50,000 / $10,000 = 5).
In any situation, we can figure out how much leverage we are using by dividing our total trade size by the amount of funds we have in our account. It’s pretty straightforward. The only catch is that we must convert the value of any non-USD based pairs into US Dollars. We must take into account their notional value.
So if we have a 40k EURUSD trade, it is a 40,000 Euro or $53,520 trade size (40,000 x 1.3380 = $53,520). 1.3380 equaling the current EURUSD exchange rate. If we have a 25k GBPJPY trade, it is a 25,000 British Pounds or $42,150 (25,000 x 1.6860). 1.6860 equaling the current GBPUSD exchange rate. Once all of our positions have been converted to their notional value in US Dollar terms, we then add the values for each trade altogether and divide them by our account’s equity. The result will be how much leverage we are using.
https://media.dailyfx.com/illustrati..._Picture_2.png
How Much Leverage Can We Use?
So now that we know how much leverage we are effectively using in our accounts, how much leverage should we use? The Forex market is very generous with its available leverage. In the United States, traders can use up to 50:1 leverage, in the UK, 200:1 leverage, and in some parts of the world, as much as 400:1 leverage can be used! But we don’t want to use leverage just because we can; we need to analyze how much leverage we should use just like we would analyze a trading strategy before we use it.
Luckily, DailyFX has analyzed the effect that leverage has on retail Forex accounts through our 2011 study “Traits of Successful Traders”. The goal of this study was to figure out what sets apart profitable traders from unprofitable traders, with one section of this 4-part study focused on the effect that leverage had on an account's profitability.
Effective Leverage and Profitability Ratio
https://media.dailyfx.com/illustrati..._Picture_1.png
The chart above shows that of accounts using 26 times effective leverage, only 21% of those accounts were profitable. For accounts using 6 times effective leverage, 33% of those accounts were profitable. And for the final group of accounts that used 5 times effective leverage, 37% of those account were profitable. So we can clearly see that the amount of leverage used is inversely correlated to the likelihood of being profitable. The less leveraged we used, the more likely we were to being profitable.
Our conclusion was that we want to aim to use 10 times effective leverage or less because trading with higher than 10 times effective leverage is going to dramatically reduce the likelihood of being successful over the long run.
Lightly Leveraged
Using leverage in the Forex market is common, but many traders ignore how much leverage is actually being used. We now know how easy it is to calculate leverage using notional value and the maximum amount of leverage we can use at any given time (10x).
Good trading!
---Written by Rob Pasche
-
How to Measure Volatility
Talking Points:
- Volatility is the measurement of price variations over a specified period of time.
- Traders can approach low-volatility markets with two different approaches.
- We discuss the Average True Range indicator as a measurement of volatility.
Technical Analysis can bring a significant amount of value to a trader.
While no indicator or set of indicators will perfectly predict the future, traders can use historical price movements to get an idea for what may happen in the future.
A key component of this type of probabilistic approach is the ability to see the ‘big picture,’ or the general condition of the market being traded. We discussed market conditions in the article The Guiding Hand of Price Action; and in the piece we enclosed a few tips for traders to qualify the observed condition in an effort to more properly select the strategy and approach for trading that specific condition.
Volatility is the measurement of price variations: Large price movements/changes are indicative of high volatility while smaller price movements are low volatility.
As traders, price movements are what allow for profit. Larger price variations mean more potential for profit as there is simply more opportunity available with these bigger movements. But is this necessarily a good thing?
The Dangers of Volatility
The allure of high-volatility conditions can be obvious: Just as we said above, higher levels of volatility mean larger price movements; and larger price movements mean more opportunity.
But traders need to see the other side of this coin: Higher levels of volatility also mean that price movements are even less predictable. Reversals can be more aggressive, and if a trader finds themselves on the wrong side of the move, the potential loss can be even higher in a high-volatility environment as the increased activity can entail larger price movements against the trader as well as in their favor.
For many traders, especially new ones, higher levels of volatility can present significantly more risk than benefit.
The reason for this is The Number One Mistake that Forex Traders Make; and the fact that higher levels of volatility expose these traders to these risks even more than low-volatility.
So before we go into measuring or trading volatility, please know that risk management is a necessity when trading in these higher-volatility environments. Failure to observe the risks of such environments can be a quick way to face a dreaded margin call.
Average True Range
The Average True Range indicator stands above most others when it comes to the measurement of volatility. ATR was created by J. Welles Wilder (the same gentlemen that created RSI, Parabolic SAR, and the ADX indicator), and is designed to measure the True Range over a specified period of time.
True Range is specified as the greater of:
- High of the current period less the low of the current period
- The high of the current period less the previous period’s closing value
- The low of the current period less the previous period’s closing value
Because we’re just trying to measure volatility, absolute values are used in the above computations to determine the ‘true range.’ So the largest of the above three numbers is the ‘true range,’ regardless of whether the value was negative or not.
Once these values are computed, they can be averaged over a period of time to smooth out the near-term fluctuations (14 periods is common). The result is Average True Range.
In the chart below, we’ve added ATR to illustrate how the indicator will register larger values as the range of price movements increases:
https://media.dailyfx.com/illustrati..._Picture_1.png
How to Use ATR
After traders have learned to measure volatility, they can then look to integrate the ATR indicator into their approaches in one of two ways.
- As a volatility filter to determine which strategy or approach to employ
- To measure risk (stop distance) when initiating trading positions
Using ATR as a Volatility Filter
Just as we had seen in our range-trading article, traders can approach low-volatility environments with two different approaches.
Simply, traders can look for the low-volatility environment to continue, or they can look for it to change. Meaning, traders can approach low-volatility by trading the range (continuation of low-volatility), or they can look to trade the breakout (increase in volatility).
The difference between the two conditions is huge; as range-traders are looking to sell resistance and buy support while breakout traders are looking to do the exact opposite.
Further, range-traders have the luxury of well-defined support and resistance for stop placement; while breakout traders do not. And while breakouts can potentially lead to huge moves, the probability of success is significantly lower. This means that false breakouts can be abundant, and trading the breakout often requires more aggressive risk-reward ratios (to offset the lower probability of success).
Using ATR for Risk Management
One of the primary struggles for new traders is learning where to place the protective stop when initiating new positions. ATR can help with this goal.
Because ATR is based on price movements in the market, the indicator will grow along with volatility. This enables the trader to use wider stops in more volatile markets, or tighter stops in lower-volatility environments.
--- Written by James Stanley
More...
-
FX Reversals: AUDUSD Trading Range Update
Talking Points
- AUDUSD Stays Range Bound
- R3 Resistance Sits at .9320
- Market Breakouts Signaled Over .9335
AUDUSD 30min Chart
https://media.dailyfx.com/illustrati..._Picture_2.png
The AUDUSD has continued to move in a defined trading range overnight, as well as for the first portion of the U.S trading session. Price began moving off of S3 support after a test of the .9289 price level. Price bounced and then quickly moved to R3 range resistance at .9320. At this point, price has again moved back down to support on U.S Initial Jobless Claims and then back to resistance on continued news volatility. After three daily moves between range support and resistance, range reversal traders will look for these values to hold unless market conditions change.
Traders should always be mindful of the potential for a market breakout. A move above the R4 camarilla pivot would indicate the market is attempting to break to a higher high. Conversely, a break below S4 support would signal a strong move on US Dollar strength taking the AUDUSD pair towards new lows. In either scenario, a breakout would signal an end to ranging conditions and traders should react appropriately.
https://media.dailyfx.com/illustrati..._Picture_3.png
---Written by Walker England, Trading Instructor
More...
-
The ‘Magic’ Behind Fibonacci
Talking Points:
- Fibonacci Retracement tracks the pullback after an extended move
- Traders eye 38.2%, 50%, and 61.8% retracements as possible reversal levels
- Fibonacci’s ‘magic’ comes from its self-fulfilling nature
Where to Draw the Fibonacci Retracement?
Where exactly is that? For starters, we need to identify an extended move up or down on our chart. In other words, a swing low followed by a defined high or a swing high followed by a defined low. Below, we have an example of a swing high (labeled 1) followed by a swing low (labeled 2).
Drawing Fibonacci Retracement on a Chart
https://media.dailyfx.com/illustrati..._Picture_3.png
The Fibonacci Retracement requires us to mark these two points, left-to-right. So after clicking the Fibonacci Retracement button at the top of our Marketscope charts, we would click point 1 and drag down to point 2 and release. The tool will do the rest of the work for us.
What Do the Fibonacci Lines Mean?
After drawing the two data points, we see 3 blue lines appear between the high and the low: 0.382, 0.500, and 0.618. These numbers represent how far price could retrace in percentage terms. So if price rose back to the 0.382 level, that would be a retracement of 38.2% of the original move. If price rose to the 0.500 level, that would be a retracement of 50% of the original move. If price rose to the 0.618 level, that would be a retracement of 61.8% of the original move.
We can see these levels labeled in the chart below as potential resistance levels. These are price levels that price could bounce off of.
Fibonacci Retracement Projecting Potential Resistance Levels
https://media.dailyfx.com/illustrati..._Picture_2.png
There is no exact science to determine which level price will bounce or if price will bounce off any of the levels at all. But time and time again, we will see price bounce off of one of these three retracement levels created by using Fibonacci.
Why Does Fibonacci Seem to Work?
This is probably the most popular question I get regarding Fibonacci. Why does price bounce off these levels? What is the ‘magic’ that causes this? In my opinion, there is no magic involved in it at all. What causes price to sometimes react around these levels is due to the fact that many people are watching these exact same levels.
If we have a large number of traders all looking at the same levels for a turnaround in price, they could create a cluster of orders that causes price to actually turn around at that level. It won’t always be that cut and dry, but that is the gist of using this type of tool. We are expecting other traders to be looking at these levels and cause price to react at these levels. It is self-fulfilling,
Price Bouncing Off Fibonacci’s 38.2% Retracement Level
https://media.dailyfx.com/illustrati..._Picture_1.png
The chart above shows the outcome of our example. Price retraced up to the 38.2% retracement level and stalled for a while before moving back in the direction of the original move. Traders that traded the potential bounce off of this level had a very successful trade without having to take on a lot of risk if they used a tight stop.
---Written by Rob Pasche
More...
-
A Simple Guide for Using the Popular Moving Averages in Forex
Talking Points:
-Why Moving Averages Are Popular
-Who Uses Moving Averages
-How You Can Use the Popular Moving Averages
Make everything as simple as possible, but not simpler.
-Albert Einstein
After many years of trading, you’ll be hard pressed to find an indicator as simple or effective as moving averages. Moving averages take a fixed set of data and give you an average price. If the average is moving higher, price is in an uptrend on at least one or possibly multiple time-frames.
Why Moving Averages Are Popular
https://media.dailyfx.com/illustrati..._Picture_1.png
Moving averages are simple to use and can be effective in recognizing trending, ranging, or corrective environments so that you can be better positioned for the next move. Often traders will use more than one moving average because two moving averages can be treated as a trend trigger. In other words, when the shorter moving average crosses above the slower moving average, like in the finger trap strategy, a buy signal is generated until the moving averages reverse or you hit your profit target.
One word of warning: it’s best to stick to a few specific moving averages. This will prevent you from trying to find the “perfect moving average” and rather keep you objective as to whether the trend is starting, accelerating, or slowing down.
The moving averages I often use are the 8, 21, 55 for trade triggers and a 100 or 200 for a clean trend filter. These moving averages are often used by investment banks however the 100 & 200 are the most widely used. The shorter moving average will depend on your preference and how many signals you’re looking to trade.
Who Uses Moving Averages
Moving Averages are often the first indicator that new traders are introduced to and for good reason. It helps you to define the trend and potential entries in the direction of the trend. However, moving averages are also utilized by fund managers & investment banks in their analysis to see if a market is nearing support or resistance or potentially reversing after a significant period.
GBPUSD Traded Above the 200 DMA for 261 Days Showing Exhaustion
https://media.dailyfx.com/illustrati..._Picture_2.png
Moving averages can be a simple tool to define support and resistance in the FX Market. When a market is in a strong trend, any bounce off a moving average, like the first bounce off the 200-dma in the GBPUSD chart above, can present a significant opportunity to join the trend until price closes below the 200-dma. However, if price continues to move above and below the moving average in a short period of time, you’re likely in a range and those reversals are lest significant from a trading point of view.
How You Can Use the Popular Moving Averages
There are many uses for moving averages but a simple system is to look for a moving average cross over. The moving average crossover looks for the short or faster moving average to cross above an already rising longer or slow moving average as a buy signal. When looking to sell a currency pair, you can look for the short or faster moving average to cross below a falling longer or slow moving average as a sell signal.
AUDUSD Has Shown Clean Moves Around the 21 & 55-dma
https://media.dailyfx.com/illustrati..._Picture_3.png
When looking to use moving averages, you’re ability to control downside risk will determine your success. It’s important to know that markets that were once trending, with very clean moving average signals, to a range with more noise than signals. If you can get comfortable with a specific set of moving averages, you can objectively analyze and trade the FX market week in and week out.
Happy Trading!
---Written by Tyler Yell, Trading Instructor
More...
-
FX Reversals: CADJPY Breakout
Talking Points
- CADJPY Breaks Above R4 Pivot
- R3 Resistance Sits at 96.36
- Market Reversals Signaled Under 95.91
CADJPY 30min Chart
https://media.dailyfx.com/illustrati..._Picture_1.png
Even with the Euro (EUR) and Pound Sterling (GBP) stealing the spotlight this morning, many Yen (JPY) pairs are also on the move. Currently the Canadian Dollar (CAD) is showing strength against the JPY, with the CADJPY pair breaking to higher highs this morning. This is displayed above, with the CADJPY trading well above its R4 camarilla pivot at 96.51. Knowing this, trend and momentum traders can look to take advantage of this directional move and look to find opportunities to buy the CADJPY on continued momentum.
In the event that price falls back inside of the pivot range, this would represent a false breakout for the pair. This would invalidate the markets current upward trajectory, and could signal the beginning of a new price reversals. Currently the CADJPY range measures 30 pips, and is found between R3 resistance at 96.36 and S3 support at 96.06.
https://media.dailyfx.com/illustrati..._Picture_4.png
---Written by Walker England, Trading Instructor
More...
-
FX Reversals: NZDUSD Reaches Support
Talking Points
- NZDUSD is Current Range Bound
- R3 Support Sits at .8295
- Market Breakouts Signaled Under .8274
NZDUSD 30min Chart
https://media.dailyfx.com/illustrati..._Picture_1.png
The NZDUSD starts the week supported going into the US session open. Currently price resides at range support, near the S3 camarilla pivot found at .8295. In the event price remains supported for the session, traders can look for a potential price bounce back towards range resistance. Currently resistance sits near the R3 pivot point at .8338, completing the days 43 pip trading range.
A breakout below the S4 pivot would signal a strong reversal back in the direction of the NZDUSD’s current daily trend. It should be noted that price has declined as much as 566 pip over the last two months of trading. Conversely a price break above R4 resistance at .8360, would indicate momentum shifting towards a higher high. In either of the above breakout scenarios, the range should be considered invalidated for the day with traders then positioning themselves with the markets new direction.
https://media.dailyfx.com/illustrati..._Picture_4.png
---Written by Walker England, Trading Instructor
More...
-
3 Reasons AUDUSD Could Be a Sell (Update)
Talking Points:
- AUD/USD short trade from last week triggered
- Sentiment still giving bearish signals
- Downtrend could continue towards 0.8700
AUD/USD Support Broken - Bearish
The trend line support cited in last week's article has been broken. The chart below shows that over the weekend, the AUD/USD gapped below the trend line and closed for the day. We had said we would act on a trade if the closing price was below support. That was our trigger. After a short term rebound up to 0.9100, AUD/USD then fell and closed for the day below 0.9000.
AUD/USD Breaking Through Support
https://media.dailyfx.com/illustrati...0000_i1025.png
The AUD/USD has moved sideways ever since the break which is normal following an extended move in one direction. Once price breaks out of this consolidation pattern, it then could continue to move lower.
AUD/USD Sentiment Growing More Positive - Bearish
Sentiment for AUD/USD last week showed that 66% of traders were long. Currently, SSI is at +2.25, meaning 69% of traders are long. Normally, we want to look to do the opposite of the retail trading crowd, so seeing a positive sentiment would give us a bias towards selling. This is especially true when sentiment is becoming even more positive.
This could potentially be a sign that the Aussie could continue lower as sentiment increases in the positive direction.
AUD/USD Speculative Sentiment Index (SSI) - Positive
https://media.dailyfx.com/illustrati..._Picture_2.png
Exit Strategy
As a longer term trade, an appropriate target could be as far as 0.8700 (250 pips below the current market price). This was a previous low hit back in late January that supported price. It could act as support once more. Using a 1:2 risk:reward ratio, this would require a stop loss of 125 pips or less.
AUD/USD Support at 0.8700
https://media.dailyfx.com/illustrati..._Picture_1.png
In Conclusion
The AUD/USD is definitely a pair that I would consider "in play." There are several reasons to attempt to short but there are no guarantees in trading. Make sure you are using proper money management and perform your own due diligence before placing any trades on your own account.
Good trading!
---Written by Rob Pasche
More...
-
The Importance (and Calculation) of Transaction Costs
Summary:
FXCM is changing the spread and commission structure offered to clients; and this article is designed to walk you through those changes. For more details, please read the sections below this summary.
The quick takeaway is that rather than including commissions in the spread; FXCM is offering clients ‘raw’ spreads with a commission attached. This is also coupled with an overall reduction in trading costs that can greatly benefit customers.
To calculate spreads using the new commission model with comparison to the old model:
https://media.dailyfx.com/illustrati..._Picture_2.png
The What:
Trading is much like any other business that one might embark upon. Expenses are incurred in the search of revenues; and hopefully those revenues are greater than expenses incurred so that the remainder can go into the ‘Net Profit’ category. This net profit is money in the pocket… this is income, and this is the reason that people trade or go into business… the goal of making money.
A key part of this equation is cost. Because it doesn’t matter how much you make in revenues, if your costs are greater than the amount brought in; well, you’re losing money. It’s really that black and white, and it’s really that simple.
FXCM is embarking on a massive change with the goal of helping customers in that search for profitability. FXCM is initiating a change to reduce transaction costs while also making these costs significantly more apparent. While this may sound altruistic, this is a business move and we explain the ‘why’ later in the article. For now, we want to show off some of the new spreads along with the process to calculate transaction costs.
The How:
Previously, FXCM rolled all transaction costs into the spread with the goal of making this easier for clients to manage. This was a standard operating procedure in retail FX, but was quite a bit different than other markets such as stocks, futures, or options.
Under the new pricing structure – there are two separate costs that are incurred when trading a position and this is very similar to those previously mentioned markets like stocks and options.
The first is the spread… and the big difference is the size of the spreads. The second is the commission.
The Spread
Previously, the spread on FXCM platforms included the commission or markup charged by FXCM. This is changing in the fact that FXCM’s commission is going to be split away from the spread.
Please note that spreads will still be variable based on market activity. Spreads can widen out ahead of news announcements because, like you, these liquidity providers don’t want to take a loss on a major news announcements. To compensate for the increased risk of trading/taking positions during news, those spreads can widen out. This is going to be true anytime you’re receiving access to legitimate market liquidity. To fix a spread is to make a market; and that’s indicative of a dealing desk that can take the other side of their customer’s trade.
The reduction in spreads is remarkable. Previously the average spread on EURUSD was 2.5 pips; and once again – this included FXCM’s commission.
The average spread on EURUSD under the new model is .2 pips. That’s a ‘point-two’ pips; not a full two pips.
The average spread on AUDUSD under the new model is .4 pips. Cable (GBP/USD) is .6, and USDJPY is .3. You can see the full list of average spreads under the new model at the link below:
Please click HERE to see FXCM Pricing
The Commission
The biggest change is going to be the inclusion of a separated commission that was previously included in the spread.
There are two different commission structures based on the pair being traded. Very liquid pairs such as EURUSD, GBPUSD, USDJPY, USDCHF, AUDUSD, EURJPY, and GBPJPY will be four cents per 1k, per side.
All other pairs will be under ‘commission schedule 2,’ which will be six cents per 1k, per side.
So if a trader places a 1k trade in EURUSD, the commission to enter the position would be four cents. The commission to exit the trade would also be four cents. The ‘round-trip’ cost of the transaction would be an eight cent commission for a 1k lot.
If the trade size was larger, let’s say 100k – we can simply multiply the four cents per 1k by 100; and the commission would be four dollars to enter, and four dollars to exit. The ‘round-trip’ commission of EURUSD on a 100k trade size would be eight dollars.
For less liquid pairs, let’s say AUDCHF, the commission is six cents per 1k, per side. So a 1k trade in AUDCHF would cost six cents to enter, six cents to exit for a total commission of twelve cents.
A larger trade size, such as 100k in AUDCHF would entail a commission of six dollars to enter and six dollars to exit (.06 * 100 = 6.0). So, the ‘round-trip’ commission on a 100k position in AUDCHF would carry a commission of $12.00.
Putting it all together
Spreads and commissions are being reduced with the new pricing model from FXCM.
The average spread in EURUSD was previously 2.5 pips on FXCM platforms. Now the average spread is .2 pips under the new model. The new model also introduces a commission on each trade of four cents per 1k on the most liquid pairs such as EURUSD.
A 1k trade in EURUSD previously was 25 cents (2.5 pip average spread * 10 cents per pip); and under the new model that cost would be 10 cents ((.2 pip average spread * 10 cents per pip) + (four cents per side per 1k * 2 (to enter and exit)).
A 100k trade in EURUSD would previously have entailed a cost of $25 (2.5 pip average spread * 10 dollars per pip = $25). Under the new model, the total cost for a 100k EURUSD position would be $10 ((.2 pip average spread * $10 per pip = $2) + (four cents per 1k per side * 100 = $4 * 2 (to enter and exit))).
The image below walks through the new pricing model using various trade sizes in EURUSD:
https://media.dailyfx.com/illustrati..._Picture_1.png
The Why
Point blank: FXCM wants their traders and customers to win. FXCM was a pioneer with No Dealing Desk Execution; which aligns the interests of the broker with those of their clients. With NDD execution, FXCM passes all orders received directly to the liquidity provider offering that price. This means FXCM never trades against their clients, and only receives income when traders place trades. In this relationship, the interests of the broker and client are aligned. This differs mightily from the dealing desk scenario in which the broker can take the other side of client trades… meaning if the client wins, the dealing desk could lose. This inherent conflict-of-interest was a necessity at the beginning of the retail FX market, as banks had little interest in taking a 100k (standard lot) position, much less a mini (10k) or micro (1k) lot; but today, this model is antiquated and quite frankly, potentially dangerous to clients and brokers.
The standard for retail forex execution is now No Dealing Desk.
With NDD execution, the broker does not trade against their own clients… all orders that come from FXCM customers go directly through FXCM’s platform to the liquidity provider offering that price. FXCM acts in the true essence of a broker – as a conduit between buyers and sellers, making a small amount on each transaction for the service provided. This was game-changing at a time when the standard execution model in FX was a dealing desk arrangement; whereby brokers could take the other side of a client’s trade… This is an inherent conflict-of-interest… If a broker takes the other side of a client’s trade, and the client wins – that means that the broker may lose from the simple act of their own client winning. This has led to practices such as re-quotes and/or shading.
This is precisely why DailyFX/FXCM makes a concerted effort in Education and Analysis; to try to help their clients and traders as much as possible in that quest for profitability. The new pricing model along with reduced commissions is another aim to help those traders even more.
--- Written by James Stanley
More...
-
EURUSD Mondays Reversal Range
Talking Points
- EURUSD Retraces in a Downtrend
- Range Resistance Holds at 1.2560
- Range Reversals Triggered Under 1.2416
EURUSD 30min Chart
https://media.dailyfx.com/illustrati..._Picture_1.png
After dropping as much as 174 pips during Fridays trading, the Euro has quietly retraced to a key point of resistance this morning. Currently price sits under the R3 Camarilla Pivot, depicted above at a price of 1.2560. In the event that resistance holds, trend traders will look for price to move back towards support now found at 1.2464. The distance between these two points is 96 pips, which comprise today's reversal range.
In the event of an increase in price momentum, traders can begin positioning for a breakout. A drop below the S4 pivot, at a price of 1.2416, would signal the creation of a lower low and a strong continuation signal with the trend. A move above R4 resistance at 1.2608 would create a counter trend reversal, as the EURUSD would be breaking to a higher high at this point. In either breakout scenario, traders should consider concluding any range bound positioning and trade with the markets new found momentum.
https://media.dailyfx.com/illustrati..._Picture_2.png
More...
-
EURGBP Intraday Market Reversal
Talking Points
- EURGBP Opens in a 61 Pip Range
- Range Resistance Sits at .8042
- Range Reversals Triggered Under .7950
EURGBP 2 Hour Chart
https://media.dailyfx.com/illustrati..._Picture_1.png
The EURGBP has advanced as much as 199 pips this week, as measured from its standing high and low. Currently price is trading outside of its daily trading range and attempting to break through todays S4 Camarilla Pivot. A price break below support has the potential to signal a reversal in price action as the EURGBP attempts a move toward lower lows.
At this point, price also has the potential to rally back inside of its trading range. A move back inside of todays 61 pip trading range could prove todays move a retracement in a broader trend. In the event that price moves back above range support at .7981 traders can begin to look for price to resume its trend by first testing range resistance. Current resistance stands at the R3 Camarilla Pivot, at a price of .8042.
https://media.dailyfx.com/illustrati..._Picture_3.png
---Written by Walker England, Trading Instructor
More...
-
Trading the Breakout after a Triangle Correction
Talking Points:
-What Do Triangles Mean?
-When Do Triangle Corrections Occur?
-How to Trade the Following Breakout
Have you ever felt like the market has no idea what it wants or where it wants to go? This is often seen on the chart as a trendless sideways move with a lot of overlap and no clear direction. However, if you step back, you begin to recognize a pattern that can provide clues as to the next possible move with a favorable risk reward ratio.
What Do Triangles Mean?
Triangles are a trendless or corrective pattern that allows bulls and bears to find equilibrium after a strong trend. Triangles can happen after uptrend or downtrend and they often mean there is one more punch in the direction of the trend. Another benefit to recognizing and trading the breakout after the triangle is that triangles provide very clear profit targets.
Triangles can be easily identified by drawing trendlines off of converging highs and lows until a breakout occurs. If the trendlines are not converging, then it’s best not to trade it as a triangle. If you have trouble identifying the important highs, you can use a tool like fractals. Fractals will identify the highest high or lowest low over a 5-bar period as seen on the XAUUSD chart below. One thing to ensure is that what you label as the end of the triangle or ‘e’ wave cannot surpass beyond the ‘c’ wave extreme or something else is at play.
Triangles Are Easy to Spot, Knowing How to Trade Them Is What’s Important
https://media.dailyfx.com/illustrati..._Picture_2.png
You’ll likely notice we’ll specifically discuss trading the breakout from the triangle as opposed to entering during the triangle hoping to catch the breakout because a lot of margin can be used up while waiting for a triangle to break and some triangles can take weeks, or months, or years to breakout.
Because of the drawn-out sideways price action, it’s best to label and identify key points of the triangle. For simplicity sake, let’s use Elliott Wave labeling which labels corrections with letters and triangles specifically with a-b-c-d-e for the key points.
USDMXN was a 5-year Triangle
https://media.dailyfx.com/illustrati..._Picture_1.png
When Do Triangle Corrections Occur?
Triangles often occur before the last move of a current trend and rarely in the early part of the trend. However, that doesn’t mean you should start selling into a triangle breakout thinking it will trade lower. It likely will for a short period of time but triangle could have been a fractal part of the overall trend meaning the overall trend will resume much higher. When a triangle breaks as identified by the points below, it’s best to follow and or trade with the overall trend
How to Trade the Following Breakout
Once the overall trend has been identified as higher or lower and the trendlines have been drawn, we can look to where we can place protective stops and respective profit target ranges. Once a breakout has been identified, an entry in the direction of the overall trend can be entered with a stop set to be trailed below the final higher low of a triangle, or lower high in a bearish environment with a profit target determined by the width of the triangle or a prior trend measurement.
The width of the triangle is the orthodox target when trading triangle breakouts. However, another method is to look at the distance traveled earlier in the trend and look for an equal move. For example, EURUSD has just broken out of a triangle to print multi-year lows and we can use either the width of the triangle for a target or the distance traveled on the first leg of the downtrend that begin in May to June and use that as our target.
Big Picture EURUSD – Downtrend Since May
https://media.dailyfx.com/illustrati..._Picture_3.png
EURUSD Recently Broke Lower After the Triangle Completed
https://media.dailyfx.com/illustrati..._Picture_4.png
The profit target range for the EURUSD breakdown from the triangle is from 1.2260-1.2020 but that’s not a point to start buying because an extension could be underway. Either way, the triangle helps us see that the trend is reaffirmed and we should wait for key price action pivots to break against the overall trend before adjusting our biases.
Happy Trading!
---Written by Tyler Yell, Trading Instructor
More...
-
Strategy Series, Part 6: Trend Trading with ADX
Talking Points:
- ADX can pinpoint strong currency trends
- RSI can be used to enter with market momentum
- Risk Management can use previous market highs and lows
ADX 50 trend trading strategy.
EURUSD 4Hour with ADX
https://media.dailyfx.com/illustrati..._Picture_6.png
ADX and the Trend
Finding a strong directional move is the first priority of any trend trader. However, when having to select a currency pair to trade, it can be difficult to identify the best trends. For the “ADX 50“strategy we will be using the ADX (Average Directional Index) indicator for this process. First, add a 14 period ADX to the 4Hour chart, using Daily periods. This can be accomplished through the data source options found in the properties menu. Ultimately, this will show us a Daily ADX reading on the 4Hour graph as depicted above.
Remember, ADX is not identifying the direction of the trend, only its intensity. If a currency pair’s trend is weak or if the pair is consolidating, ADX will read significantly lower than a strong directional market. For the “ADX 50” strategy, we will only be looking for currency pairs with an ADX value of over 50! If Daily ADX reads over 50, you can then begin to move to the execution phase of the strategy.
EURUSD with ADX and RSI for Entries
https://media.dailyfx.com/illustrati..._Picture_5.png
Trending Entries with RSI
Once a strong trend is found, it is time to plan an entry into the market. The “ADX 50” trend trading strategy uses an RSI (Relative Strength Index) indicator signal for this task. For today’s entry signal we will be using an RSI with a 14 period setting on a 4Hour chart. In a downtrend, new sell positions should be entered only when ADX reads over 50 and RSI closes below 30 (oversold). Conversely buy positions will be initiates when ADX reads over 50 and RSI closes above 70.
Below we see a sample EURUSD chart, which has been filtered for ADX. As ADX rises above50, traders can begin executing sell signals as RSI closes below 30. So far, during the highlighted period, RSI has signaled 3 sample entries for the graph. As ADX is now below 50, no new trading signals should be considered.
Stop and Limit Placement
Traders should always have a plan for managing their position. Eventually trends will come to an end and any existing trades should be exited. When initiating a buy order, stop orders should be placed at a 14 period low on the 4Hour chart. That way if a new low is created, all existing buy trades will be closed. Conversely if a trader is selling in a downtrend, stops can be placed at a 14 period high again using the 4Hour chart.
When it comes to profit targets, the “ADX 50” trend trading strategy will use a standard 1-2 Risk:Reward ratio. This means that your limit placement should look for twice the amount of pips relative to your stop. For example, if a sample trade has a 100 pip stop loss, a minimum 200 pip profit target is suggested.
---Written by Walker England, Trading Instructor
More...
-
USDJPY Moves on Daily Values of Support
Talking Points
- The USDJPY opens in a 39 pip range
- Price bounced from the S3 pivot at 118.85
- A break above 119.39 would signal a bullish reversal
USDJPY 30 Minute Chart
https://media.dailyfx.com/illustrati..._Picture_1.png
The USDJPY has opened Tuesday’s trading range bound, traveling between its R3 and S3 Camarilla pivots. So far, price has traversed its 39 pip trading range once, and has recently bounced from its S3 pivot in early morning trading. Currently, range support is found at the S3 pivot found at 118.85. In the event that price remains range bound, traders will watch for an advance in price back towards values of resistance starting with the R3 Camarilla pivot found at 119.24.
In the event of a price breakout, it would signal a significant shift from the present range bound market conditions.A move below the S4 pivot at 118.67, opens the possibility for the USDJPY to challenge April’s current monthly low which stands at 118.53. Likewise, a breakout above the R4 pivot would leave traders to look for a reversal back to higher highs above 119.39
https://media.dailyfx.com/illustrati..._Picture_2.png
.
---Written by Walker England, Trading Instructor
More...
-
As for me, I prefer scalping most of all. Fresh offers ECN-acconts, which have the quickest order execution time. Spread is from 0 and there are almost no re-quotes. It's quite the thing for scalping.
-
Why Forex Traders are so focused on the Next Move in USDJPY
Talking Points:
- The FX Focus is Currently on Greece
- USDJPY direction is Important for Global Risk Sentiment
- JPY is Strengthening Already
Forex trader’s eyes have been on the EURUSD over the last few months and for good reason. First, you had many traders and analyst confident that EURUSD would trade down to parity, a Forex term for 1.0000. Second, in mid-March, we had a bounce off the 1.0460 level that gave way to a selloff in the German Bund that took EURUSD up to 1.1460, a 1000 that move. Lastly, we are currently dealing with a potential ‘Grexit’ whereas Greece would leave the euro zone and many believe what continue the march to parity that we saw the beginning of the year.
EURUSD Has Grabbed Attention While Being Directionless
https://media.dailyfx.com/illustrati..._Picture_1.png
While currency traders will always be focused on EURUSD, a developing story that deserves much attention is the direction of the Japanese Yen or JPY. Historically, JPY weakness has correlated to an overall environment of speculation, which often leads to times of higher equity markets and high-yielding currencies like the AUD, NZD, & other Emerging Market FX Pairs. This relationship has a lot to do with the fact that Japan has kept historically low interest rates for decades causing one of the world’s largest economies to send money offshore seeking yield via the carry trade.
The carry trade is a favorite among institutions and includes borrowing or selling a low yielding currency in order to buy a high-yielding currency and earning the difference. Japan is famous for the strategy however, the unwinding of the carry trade is often first seen in Japanese Yen strength which can ripple throughout financial markets in a negative manner. The popularity of this trade and it's propensity to unwind quickly make the JPY a key story that few seem to be watching.
What Could Happen If JPY Strengthens?
https://media.dailyfx.com/illustrati..._Picture_2.png
More...
-
3 Different EUR/USD Elliott Wave Counts Point to 150 Pip Bounce
Talking Points
-3 different wave counts suggest a bounce of at least 150 pips
-A break below 1.0800 likely accelerates to below 1.05
-Look for short opportunities below 1.0800 or bounces to 1.1050-1.1300
Earlier today, the Fed released their statement regarding their monetary policy outlook and it created a knee jerk reaction in forex towards buying US Dollars. The subsequent move in the EUR/USD stopped at an important inflection point which could open the door to a counter trend rally higher. Though EUR/USD liquidity is typically thinner through the US afternoon session, we will get a better sense of any potential follow through Thursday morning when London arrives.
In this article, we will look at the EURUSD technical picture through the lens of Elliott Wave. In a moment, we’ll share a preferred wave count and a couple of alternatives. We never know for sure what the wave count is until the waves are finished. Therefore, we need to bring a probabilistic approach in what is likely to happen based on the patterns.
https://media.dailyfx.com/illustrati..._Picture_7.png
The patterns we’re looking at suggests a higher likelihood that the EURUSD finds support in the 1.0850-1.0900 price zone. That may lead to a rally of at least 150 pips.
The preferred Elliott Wave count we are considering is that today’s low is the end of the 1st wave of a medium term sell off. We can see this October 15 to October 28 sell off subdivide into 5 waves. Once we anticipate the end of wave 4 (which occurred this morning), we can estimate the termination point of the 5th and final wave of that sequence.
Circle wave 5 = circle wave 1 = 1.0910
Circle wave 5 = .382 * circle wave 1 through 3 = 1.0907
As you can see, this created a tight cluster around 1.0900.
Additionally, one alternate count that we’re watching (not shown) is that today’s low is actually circle wave 3. Alternating waves typically have a Fibonacci or equality relationship. In this case, circle wave 3 would be equal to 2.618 * circle wave 1 near 1.0903.
Lastly, secondary alternate count is that this October 15 to October 28 sell off would be the alternative wave to the August 24 to September 3 sell off (not shown). Alternating waves often times have an equality measurement which means the second sell off (October) would equal the first (August – September) in distance near 1.0867.
Conclusion
Bottom line, between 1.08-1.09, there is a high likelihood of a bounce forming in the EUR-USD that could spring higher to 1.1050-1.1300. A break below 1.0800 would alleviate pressure on this bounce and likely continue to below 1.05.
Though a bounce may develop, the trend is still down so we will use the bounce to short at higher price levels.
more...
-
1 Attachment(s)
Gold Prices Retest the $1263 High
Attachment 19056
"Gold prices dropped from $1227 on Friday to $1202 per ounce on Monday which was slightly above the top end of the $1190 price zone. Could it be possible Monday’s price action was the secondary reaction we were looking for? Possibly, but be mindful that it may still be coming. Therefore, the door is still open for a rejection between current levels and $1291 which may lead to a sell off towards $1167-$1190 per ounce."
"The bottom line is that the better risk to reward ratio opportunity for bulls is at lower levels and if price begins to take off higher, the secondary wave count suggests an eventual revisit back to near current levels. Therefore, chasing prices higher is the trade that produces a worse reward based on the risk and that we need to stay away from such chasing. It is preferred to buy the dip near $1167-$1190 per ounce."
more...
-
2 Attachment(s)
EUR/USD Starts Trading Inside Range
EUR/USD 30 Minute
Attachment 19696
The EUR/USD has started Mondays trading, moving inside of a 44 pip trading range. In early morning, trading prices have initially bounced off support, which is found at today’s S3 camarilla pivot point at a price of 1.1244. If prices remain range bound, it opens up the EUR/USD to test values of resistance, including the R3 pivot point, which is found at a price of 1.1288.
Attachment 19697
Traders monitoring the EUR/USD for a breakout should continue to watch today’s R4 and S4 pivot points. Bullish breakouts for the day begin over the R4 pivot point, which is found at 1.1311. Conversely, bearish breakouts begin beneath the S4 pivot, which is found at a price of 1.1221. In the event that the EUR/USD trades to either of these values, it suggests that the pair may be attempting to breakout of a larger inside bar pattern. In this scenario, traders may look for a continued directional move above last Thursdays high at 1.1341 or under the low at 1.1203.
more...
-
2 Attachment(s)
Dow Jones Industrial Average Softens on Hawkish Fed Tone
-Dow Jones Industrial Average (DJIA) trades lower on a more hawkish Fed
-DJIA current corrective pattern likely to eat up more time on sideways to lower trading
-Dow Jones Sentiment suggest continued drifting lower
Attachment 21074
DJIA is trading lower over the past 24 hours but in general there seems to be a ‘calm’ about the sell off. This is despite the more hawkish tone released in the Fed minutes Wednesday afternoon. Fed futures are pricing for a June rate hike have increased from 4% earlier in the week to 30%. Though up dramatically, if you take a step back, there is still a 70% chance of rates staying the same. As a result, DJIA is holding up fairly well at the moment.
Attachment 21073
The correction lower has retraced minimally in price, but is shallow in time. Said another way, prices may continue to move lower, but it appears to be more of a drift than a waterfall.
The next zone of technical support appears near 16,900-17,144. We will look for prices to grind lower and see how prices react in this support zone.
more...
-
1 Attachment(s)
Crude Oil Price Trades Higher for 3rd Consecutive Session
WTI Crude Oil prices are currently set to close higher for the third consecutive trading session. This bounce in price occurred immediately after Crude Oil traded to a new monthly low last week at a price of $45.81. If this rally is set to continue, traders will look for Crude Oil to move on short-term values of resistance, before challenging the June 2016 high at $51.64.
Attachment 21828
Key value of resistance sits at $49.41. This price level is represented in the graph above as a 61.8% Fibonacci retracement, which is found between the Junes high and low mentioned previously. If prices remain under resistance, it suggests that the measured move mentioned in last week’s article may still be valid. Alternatively, if prices break above this short-term point of resistance, it opens up Crude Oil to continue its 2016 uptrend. At which point traders may look for Crude Oil prices to challenge fresh yearly highs.
more...