Forex Strategies

Talking Points

• NFP historically is one of the Forex Markets most volatile news events.
• Analysts expect NFP numbers to be reported at +180k.
• Last month’s event miss created a 105 pip decline on the EURUSD.

Forex traders have had to wait patiently for this month’s release of US employment data. Due to the government shutdown earlier in October, NFP (Non-Farm Payroll) figures for the month are set to be released this Tuesday at 8:30am ET. As one of the most anticipated releases on the US economic calendar, Non-Farm Payrolls also known as NFP has been historically known to produce high levels of volatility in the Forex market. The cause of this volatility has evolved from the NFP announcement becominga proxy into the health of the US economy. So based around the number of jobs being added or subtracted to the labor force, traders can look to establish new positions.

First, NFP looks specifically at net changes in employment as jobs are created or subtracted in an economy in any given month. The term Non-Farm is used since farm / agricultural workers are not included in the employment count. The decision to not include agricultural jobs lies in these jobs being largely seasonal that could possibly produce small temporary shifts in labor reporting. Below we can see a composite of past NFP events from October 2011 through present. As you can see these numbers have been anything but consistent, causing problems for traders. So to get an idea of what to expect, let’s look at last month’s event in more detail.



Below we can see exactly what occurred with last month’s price action on a EURUSD 5 minute chart, during the NFP news release. NFP numbers were expected to be released at 180k, meaning analysts expected 180,000 new jobs to be added to the economy. However, at the time of release the NFP number was issued lower than expected at 169k. Traders were left to react to this lower number with the market immediately reacting by selling off the EURUSD. By 10:45am ET, the EURUSD had declined in value as much as 105 pips from the event high at 1.3214!

So what should traders look for this month, with NFP totals again being released tomorrow Tuesday the 21st? Expectations are set again at 180k new jobs to be created. Taking a cue from last month’s report, if expectations are missed or come out better than expected, this could again lead to another round of volatility in the EURUSD. Once a direction is established traders can then trade the news using the strategy of their choosing.

Learn Forex –EURUSD Sept. NFP Release




Regardless if you intend to trade the news or maybe just sit on the sidelines, remember NFP can be an exciting and will often bring unexpected volatility. If you do decide to trade, stick with your news trading plan and always keep an eye on risk / reward levels while minimizing the use of leverage.

---Written by Walker England, Trading Instructor

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Talking Points

• Carry Trade Potential for USDMXN
• Recent Price Action Clues on Direction
• Ichimoku Set-up on USDMXN

“The whole world is simply nothing more than a flow chart for capital.”
-Paul Tudor Jones

Carry Trade Potential for USDMXN

When traders first learn how to study the fundamental factors that influence a currency and its perceived strength, they are often steered to interest rates above all else. Naturally, If the world is simply a flow chart for capital seeking the best risk-adjusted yield then all things begin equal capital will flow to a strong country with a higher interest rate net of inflation over a country with a lower interest rate that pays little yield. This simple concept is known as the Carry Trade.

Learn Forex: MXN Central Bank Rate Continues To Hold Up VS. USD




The carry trade has long been argued to be one of the key drivers in the Forex Market because interest rate disparity plays such a key role across multiple markets. However, because the carry trade is normally traded in the spot market and the interest rate disparity is often minimal, the carry trade is traded with high leverage even among institutions. The significance is that when the underlying drivers of the interest rate disparity shift, there can be a quick unwinding as we saw in 2008 when institutions and traders alike got out of their leveraged carry trades and piled back into safe haven currencies like the JPY due to the credit bubble beginning to burst.

Learn Forex: GBPJPY had the most aggressive Carry Trade unwind in 2008




As you can see, the unwinding of the carry trade was extremely violent in 2007 – 2009 as the GBPJPY went from 251.10 all the way down to 118.80. The 52.5% drop was credited to traders ditching the carry trade and fleeing for safety. However, what’s important to note is how strong the moves can be and how they often lead to excellent trades whether it’s on the buildup or the unwinding.

As things currently stand, Banxico (Mexico’s Central Bank) has set the market rate for 3.75%. When you compare this to the United States of 0.00% – 0.25% you can see the large disparity that has attracted traders and investors alike into the MXN. What’s more, in a risk-on world that is accompanied by higher stock markets, traders also rush into strong Emerging Markets like Mexico as they can offer a more attractive return on capital due to growth vs. developed countries like the US.

Recent Price Action Clues on Direction

Learn Forex: USDMXN Strong Downtrend




USDMXN has been in a strong directional move over the last month and half in favor of the MXN. In fact, Mexico is seen as one of the most fundamentally sound emerging markets which makes is a favorable attractor of global capital flow due to fiscal problems in other emerging market currencies. As you can see, while USDMXN hasn’t been in a straight line, the price channel easily provides key reference points to see if a price action wick is forming which shows you the key signal of market indecision. In a clear directional move like we see above, selling failed temporary rallies can be a great way to enter into this longer term trend. Naturally, to assist with timing of your trade, Ichimoku is of excellent help.

Lean Forex: Ichimoku Trade of the Week: USDMXN Sell Entry on Break Below 12.8900




Ichimoku Trade: Sell USDMXN Based on price breaking below 12.8900
Stop: 13.0400 (Key Polarity Point on the Chart)
Limit: 12.700 (Monthly Pivot Support Level)

If this is your first reading of the Ichimoku report, here is a recap of the traditional rules for a sell trade as well as a guide to trading with Ichimoku:
-Price is below the Kumo Cloud
-The trigger line (black) is below the base line (light blue) or is crossing below
-Lagging line is below price action from 26 periods ago (bright green line)
-Kumo ahead of price is bearish and falling (red cloud = bearish Kumo)

An important note about trading USDMXN

If you are new to trading emerging market currencies, then you need to watch out for their ATR. USDMXN has a current Average True Range of nearly 1,300 pips. The remedy to these shocking moves is that the pip value is incredibly low however you still need to be very careful with your trade size. As with most trades, I look to keep a very conservative leverage so that if the odds of the set-up don’t play out, you’re still around to trade the following day.

Happy Trading!
---Written by Tyler Yell, Trading Instructor

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Talking Points

- AB=CD Pattern is easy to identify on the charts
- AB=CD Pattern has a structure made up of equal price legs
- The AB=CD Pattern must happen at specific Fibonacci points

Would you pay $1500.00 to learn this pattern? If you answered “No!” then would not have purchased the book with the first appearance of this pattern in 1935 written by none other than H.M Gartley, the father of harmonic patterns.

The Forex AB=CD Pattern or equal wave pattern is an impulsive move in the market. It is part of Elliott Wave theory, but you don’t have to know Elliott Wave in order to make use of this easy pattern.

The BC leg usually retraces to the 0.618 Level of AB but it should not retrace beyond the 0.786 retracement. If leg BC moves lower than the 0.786 Fibonacci retracement level then the pattern is invalid.

In addition, a shallow retracement to the 0.236 or 0.382 level shows traders are eager to end the correction and resume the uptrend as they are unwilling to wait for the 0.618 level

Learn Forex: EURJPY AB=CD Pattern



Notice in the above example of EUR/JPY on the 2-hour chart how the “A” leg was formed with the impulsive move from 131.14 and ending at 133.78 for point “B”. After a stellar run of 264 pips, traders will wait for a profit taking decline to end at a Fibonacci level. While the average retracement is to the 0.618 level or 163 pips for this move; the decline was only 100 pips from point B (133.78) to point C near 132.77. In the above trade the risk to reward was 1 to 5!

A sharp rebound from point C could have been entered on October 16th at 133.08 with five range bound candles before EUR/JPY really started moving. After entering long at 133.08, a protective stop could have been placed at 132.57 just below point C at 132.60.From there, a 264 pip limit could have been set at 135.25 which was handily hit on October 22nd.

In the above example the distance from point A and B was fairly equal to the distance from points C and D. However, an expansion of volume can lead to the D target point to move higher to other Fibonacci expansion ratios of 1.272, 1.382, 1.618 and even 2.618. Taking part of a trade off at the 1.00 expansion target and using a trailing stop for the rest of the position will allow a trader to participate in more of the move.

As you can see, the AB=CD is a useful pattern to add to your tool kit as it can provide trades with small amounts of risk in relation to the possible reward. Now you know your ABCD’s to finding good trades!

--- Written by Gregory McLeod, Trading Instructor

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Talking Points:

• Stops are a necessity because no trading strategy wins 100% of the time
• Traders can use ATR to calculate stop distances based on recent price activity
• Price Action can be used to set stops in trending, or ranging market environments

As traders, we know we need them, but it’s much like the advice of ‘get your annual checkup with a Doctor,’ where most of us simply don’t want to do it.

But in the field of trading, risk management isn’t just a preference; it’s a necessity.
And the reason for this is simple: Because you cannot tell the future. And this means that no matter how hard you try, or how great a trader you become, you will simply never be able to avoid losing entirely. And as a natural extension of that fact, since you will lose on some trades, having sloppy risk management means that one or two losers can wipe away the gains of many small winners.

I know this may sound too simplistic; but this is exactly what was found to be The Number One Mistake that Forex Traders Make: They often win more frequently than they lose - but they lose so much when they are wrong that it wipes away all of the gains from their winners and then some.

Average losses (in red) far outpace average wins (in blue)




The first step to avoiding The Number One Mistake Forex Traders Make is to set a stop. This allows you to cap the risk on any one trade, so that if it doesn’t go in your direction, you can stem the bleeding before it becomes too unbearable.

Below, we’re going to look at two popular, yet different ways of setting stops. One easy way that is often employed by professional traders for the sake of simplicity; and another more advanced method that may suit certain trading styles more adequately.

The Easy Way

First off, just because this is an easier way of setting a stop does not make it any less valid. This is classified as ‘the easy way’ simply because most traders can pick this up right now, and begin using it instantly with a minimum of instruction.

Average True Range is a favorite indicator of many professional traders, and one of the great things about it is that it’s rather simple in its design. While many indicators wear multiple hats and try to do a few different things at once, ATR is just a measure of price movements over a specific period of time.

If those movements increase in value, ATR goes up. If those movements decrease, ATR goes down (see below).

ATR measures volatility, and this allows traders to set stops based actual market behavior




There are a few nuances of ATR that traders need to know before applying. We cover these, in depth in the article Managing Risk with ATR. The first is the format with which the indicator displays values. While it looks like an oscillator like RSI, and moves similar to an indicator like ADX; the real value of ATR is in its value. It will measure the ‘Average True Range’ of the last x periods, where x is the input you choose. The default, and most common input for ATR is 14 periods. The value of ATR will read in the price format of the currency pair being analyzed. So, for instance; if a value of .00760 is shown on EURUSD, that means 76 pips (4th place to the right of the decimal is a single pip in the quote).

ATR displays values in the format of the currency pair’s price

=


There is a slightly easier option, and for traders that are using short-term techniques this can be extremely helpful. There is a custom indicator available for Trading Station desktop that automatically calculates, and displays ATR on the chart in a very easy-to-read format. This is completely free, and can be downloaded from the FXCM App Store at this link (link). As you can see below, not only does it display ATR, but it even rounds the ‘.6’ fractional pip as appropriate.

The ‘ATR_Pips’ Indicator displays Average True Range in an easy-to-read format




The Advanced Way

Price Action can have a huge impact on a trader’s performance. Inclusion of price action into an approach will often take place regardless of the trader or type of trading being done. Price action can help traders read trends, find support and resistance, and perhaps most importantly - manage risks.

Because, after all - if prices are trending higher, and we’re seeing continuous higher-highs, and higher-lows, wouldn’t it be reasonable to consider closing the trade if the trend reversed?
Remember, this is the number one mistake traders make, and this is the reason stops are so important. If the trend reverses, the trader’s best advice is often to close the trade and look for greener pasture elsewhere... because if the reversal continues against the trader, one loss can wipe away a lot of gains.

If traders are trading a trend, they can look to the previous opposing-side swing for stop placement. So, if an up-trend is being traded, we should be able to see higher-highs, and higher-lows. If we are buying to take part in the up-trend, we can look to place our stop below the prior swing-low (see picture).

During an up-trend, stops can be placed below the previous swing-low




On the other hand, if we’re selling in a down-trend, we would want to look to place our stop above the prior swing-high.

During down-trend, stops can be placed above the previous swing-high




In How to Analyze and Trade Ranges with Price Action, we look at stop placement in
range-bound markets. If a range is being traded, the ‘peak-high’ and ‘peak-low’ should be identified (see below).



Traders can look to place their stop just outside of the peak of the opposing side of their position. So, if buying, traders would look to place their stop just below the peak-low; and if selling just above the peak-high. This way, if the range turns into a breakout against the trader, the bleeding can be stopped before one loser wipes away the gains from a lot of winners.
If you’d like to become a better Price Action trader, we’ve put together the basics into a Brainshark curriculum. The link below will take you directly to the lesson, and after filling in a few pieces of information into the guestbook the session will begin.

--- Written by James Stanley

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Talking Points:

• Always wait for the current candle to close beyond the trendline to confirm the break.
• Enter into the trade when price retraces back within a few pips of the original trendline, trading in the direction of the original breakout.
• Set your Stop a few pips beyond the trendline and set your Limit at least twice as far as your Stop.

Step 1. - Locating the Trendline

As a review, a trendline is a line connecting two or more lows or two or more highs, with the lines projected out into the future. Traders than look at these projected lines and look for future prices to react around those levels. For a detailed lesson in identifying and drawing valid trendlines, check out my 3 Tips For Trendline Trading.
On the chart below is an example of a trendline that developed today on the GBP/USD on an Hourly chart. You can see how I connected the two swing lows to create a line and projected that line out into the future.

Learn Forex: Locating a FX Trendline




Step 2. – Wait For a Confirmed Breakout

Next, we need to see how the price reacts to the projected trendline. There are two potential outcomes when price comes into contact with a trendline:

• The price will bounce off the trendline
• The price will break through the trendline

This article focuses on the latter. So we wait to see if the price does in fact break through the price. But we aren’t ready to place a trade just because the price breaks through the trendline. We need to wait and see if the current candle closes beyond the trendline. We require a candle to close beyond the trendline to confirm the breakout. This is a very important rule.

Learn Forex: Watch for False Breakouts



Check out the chart above depicting a trendline on a current USD/JPY Hourly chart. There were two times in the past week where this trendline was broken, but look what happened. They were false breakouts. Sellers were not able to keep the price down below the trendline and both potential breakout candles closed above the trendline. Had we sold at either of those two opportunities, we would have been crushed two times in a row. Something we definitely want to avoid.
So even though it is tempting to get immediately into a trade as price breaks a trendline in real-time, you would be susceptible to false breaks. Patience is a virtue.
(One argument that some traders will make against this piece of advice is that if you wait for the candle to close, you run the risk of getting into the trade too late and end up entering at a less favorable price. This argument is completely valid, but I haven’t explained our simple way to get into a confirmed breakout trade and still receive a favorable price. Consider the following example.)

Step 3. Set Up The Trade

Remember the first image I showed you of the GBP/USD Hourly chart? Let’s go back to that example because it actually ended up producing a near perfect breakout setup. Soon after that snapshot was taken, the GBP/USD fell and broke through our trendline with authority. A very short time after that, the Hourly candle closed below the trendline and confirmed the breakout as well. Once this happened, it was time to get to work to setup this trade.

There are 3 things we needed to do to execute this breakout trade:

• Set an Entry order to Sell just below the original trendline.
• Attach a Stop order several pips above the trendline.
• Attach a Limit that is as least twice as large as our Stop (increase your trading profitability by learning the importance of the risk/reward ratio).

There is a saying that goes “What once was resistance, can later become support. And what once was support, can later become resistance.” This is the mantra we rely on when setting an Entry order near the original trendline. We are looking for price to retrace back to the point of support/resistance it just broke through, and then continue back into the direction of the original breakout. Take a look at how the trade was setup below. I magnified the main part of the chart so it’s easier to read.

Learn Forex: Setting Up Trendline Breakout Trade



Our Entry order to Sell was placed a couple pips below the trendline, our Stop Loss was set several pips above the trendline (approx.. 15 pips from our Entry) and our Limit was set twice as far as our stop (approx. 30 pips from our Entry). Within the next hour, the price retraced back to the original trendline, and then move back in the direction of original breakout, exactly what we wanted.

So to recap, we were able to enter into a trade on a confirmed breakout, we were able to get in at a much more favorable price than entering the break in real-time, and we were able to set an extremely tight stop (read: lower our risk) beyond what should be a valid resistance level.
As it turned out, this particular trade was a success, but that doesn’t mean every trade will be a winner. However, you should take comfort in the fact that as long as you are using a 1:2 risk/reward ratio, you only need to be correct 33% of the time to break even. If you are right more than 33% of the time, you should be a profitable trader in the long run with this strategy.

Breaking Bad

Trendline breaks can be tricky to trade, but hopefully this article gave you a clear approach to mastering them. We've learned that you should always wait for confirmation of a break by requiring the current candle to close. We also learned placing our Entry order near the trendline will give us a better entry price and reduce our risk by allowing a tighter Stop. Setting our Limit as least twice as far as our Stop should also help shift the odds in our favor. Good luck with your trading!

---Written by Rob Pasche

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A quick word of warning before you make your way through this article: In the beginning of this article, we are going to discuss some complicated subject matter. And after teaching traders the nuances of the Forex market for the past few years, I’ve noticed that many traders don’t like mathematics. For those folks, the first part of this article may be treacherous. BUT – after the first part, we offer a very simplistic way to accomplish the same goal. So, if you abhor mathematics or even if you just want to get to the ‘easy way,’ feel free to scroll down to ‘The Easy Way.’

Talking Points:

• Trading the Forex market entails taking a stance on two currencies simultaneously
• Traders are best served by focusing on matching a strong currency with a weak currency
• We cover two different ways traders can perform this analysis: Advanced, and Easy

We’ve all been there.

Cash is sitting idle in the account, and the market is moving – it’s just that we can’t find anything to trade…

This happens regardless of the market you’re in. If you’re a stock trader, well right now would be a fairly logical time to have that vantage point. While stock indexes sit at all-time highs, economic data continues to show massive weakness (hence the $85 billion capital injections that have been required JUST to prevent a major meltdown). This isn’t exactly an environment that is ‘easy’ to trade if you’re focusing on stocks and using any element of prudence in your analysis.
The Forex market can present some compelling advantages; not only in this environment but quite a few others.

You see, in stocks – there is really just two ways to trade; you either buy or sell.
Have an opinion on Apple? Ok, great – you can buy it or you can sell it. Matters are pretty simple. Same goes for any other stock that’s listed on one of the major exchanges. You can buy stocks fairly easily; and if you can find a broker to let you borrow shares, you should be able to sell it pretty easily.

In the Forex market, one of the greatest benefits is also one of the most difficult things for new traders to grasp.

Forex Lesson: Realize what you’re trading, and focus appropriately
Every trade-able asset has two sides in the FX market, and each of those two sides has two ‘scenarios (strength or weakness in each of the two currencies in the pair).’

If trading EUR/USD, you have to ask yourself…




Meaning, it’s not as simple as saying ‘The Euro looks weak, I want to sell it.’ Because you can get into a trade selling the Euro and if it doesn’t get weaker than the currency you matched it up with – you will lose. You will lose, even though your analysis in expecting weakness in the

Euro was correct.




Let’s look at an example to illustrate this point.
Let’s say that you decide you want to sell the Euro as you’re expecting additional weakness, and you match it up with the Canadian Dollar. So, you trigger the short EURCAD position, and look for the pair to trade lower. This means that you are short Euros, and long Canadian Dollars.
Perhaps, at first – the trade moves in your favor; only to be followed by news out of Canada that sparks even more weakness in the CAD than what was being seen in the Euro.
So, the Euro can still be getting weaker against US Dollars, and Australian Dollars, and even British Pounds… but if it’s not getting weaker against Canadian Dollars, well it doesn’t even really matter. Because you will lose on your trade and there isn’t much you can do about it.
Let’s flip this example around to see how this can actually be beneficial to traders…
Same example, you want to sell the Euro because you expect it to get weaker; but this time, you take matters a step further and you analyze the market to see what currency has been really strong. And in your analysis, you notice that the Japanese Yen has been one of the strongest currencies in the market.

So, rather than taking the EURCAD short position and hoping that it works out, you match up what you feel will be a weak Euro, with what has recently shown strength in the Japanese Yen.
Now, this doesn’t eliminate the risk of taking a loss; but it can assist in moving the probabilities in your favor based on what has been exhibited in the marketplace.

If the Euro weakens, as you expect it to – and if the Yen stays strong, you’re short EURJPY position looks good. But even if the Euro doesn’t weaken, and if it gets strong against US, Canadian, and Australian Dollars – as long as the Yen remains stronger, the position will move lower.




By focusing on both sides of the currency pair, the trader increases their chances of success. So the next logical question is ‘How?’

The Advanced Way: Separating the Strong from the Weak

This is a process that we’ve been teaching in the DailyFX PLUS Live Classroom for the better part of the past three years, and we’ve seen phenomenal success with helping students navigate the Forex market. This has become so popular that Jeremy Wagner regularly publishes research on this system of analysis.

We call this ‘strong-weak analysis,’ the process of which includes grading each currency to isolate the strongest individual currencies from the weakest. We outline this process in the article, How to Separate the Strong from the Weak.

We can do this with a fairly simple process by focusing on the US Dollar. We can measure the movement of each currency relative to the US Dollar so that we can look at each on an apples-to-apples basis with each other.

So, for instance, if EURUSD is up considerably, but GBPUSD is down – that shows us that Euros have been stronger than dollars; and also that dollars have been stronger than British Pounds. So, from this very simple analysis we can notice that buying EURGBP may be more amenable than buying EURUSD (since GBP was weaker than USD and we want to marry that strong Euro up with the weakest currency).

We can measure the movement of each currency against the US Dollar, and compare each to determine an order of strongest and weakest currencies.

Comparing each currency by focusing on change in USD



From this analysis, we can determine which currency has been strong, and which has been weak. Notice that the NZDUSD is showing a gain of 92 pips. By dividing this into the price of NZDUSD at the time of analysis, we can see that NZDUSD moved up by 1.156% (which also means that US Dollars lost 1.156% against NZD).

We can also see that USDJPY has moved down by 14 pips. But, because USD is the base currency in the quote (listed first), that means that the US Dollar has lost 14 pips against the Japanese Yen. But, after we divide this into the price of USDJPY at the time, we notice that it really isn’t that large of a move; as the dollar has only weakened by .177% against the Japanese Yen.

We can take all of the above information to create the following table, ordering each currency by its percentage movement against the US Dollar:




Notice that each currency in the previous table strengthened against the US Dollar, so that would mean that USD has actually been the weakest currency during the analyzed period.
This means, we can look to match up what has been a strong New Zealand Dollar with a weak US Dollar. If we want to avoid the US Dollar, that’s ok too… and we can simply choose the next weakest currency on the list as the Japanese Yen.

Or, using the earlier example in which the trader just knew that they wanted to short the Euro; noticing that it’s the 6th strongest currency could reinforce that motivation; but the trader can now instantly see that given recent price action, they would want to investigate selling Euros against New Zealand, and Australian Dollars.
And once again, this doesn’t guarantee that the trade will work out… this simply allows traders to give themselves the best chances of success based on what has happened in the market.
With a focus on probabilities, strong risk management, and a cohesive trade management protocol – traders are ready to Trade the World.

So we just went over a rather in-depth process to find some very important information that can increase our chances of success in the market. And just as I mentioned at the beginning of this article, quite a bit of mathematics and calculation is required.

The Easy Way

So we just went over a rather in-depth process to find some very important information that can increase our chances of success in the market. And just as I mentioned at the beginning of this article, quite a bit of mathematics and calculation is required but that doesn’t mean that you have to do this on your own.
After doing this analysis for a few weeks, you can get the process down to about 15 minutes of your time while doing daily chart analysis.
But we’ve seen so much popularity behind this analysis, and found so many folks that abhor math that we’ve created a tool that will do all of this for you.
This is the StrongWeak App from FXCM, and all of the calculations that we did previously are done automatically by the software.

The FXCM StrongWeak App grades currencies by strength based on 4 TFs




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Talking Points:
-Extreme SSI reading suggests further losses for USDOLLAR
-USDOLLAR losses may be outpaced by the Australian Dollar
-Sell the Australian Dollar Currency Basket

Forex and equity markets built on their current trends this week. For the past two weeks, the big theme has been broad based “Risk Appetite”. The EUR, GBP, and AUD have been strengthening while the USD and JPY have been weakening.

The USD and JPY are historically seen as safe haven currencies. When we see these currencies occupying the weak side of the analysis that has represented a risk “on” environment in the past. The big question is will this trend continue?

Forex Strategy: Matching Strong versus Weak

Currency	Up Arrows	Down Arrows	Change From Last Report
EUR	6		Higher 3 rankings
CHF	5		Higher 2 rankings
AUD	5	1	Down 1 ranking
GBP	3	3	Higher 1 ranking
JPY	3	3	Higher 1 ranking
NZD	1	5	Down 5 rankings
USD	1	5	Higher 1 ranking
CAD		7	No Change

In the last report “US Debt Ceiling Paints USDOLLAR in Corner” revealed a range and to wait for the break of that range. The Greenback did eventually break to the downside triggering our entry. The follow through of the break has been weak which means the prices are comfortable near current levels.

The biggest technical indicator suggesting this Dollar sell off may continue is FXCM’s Speculative Sentiment Index (SSI).




The SSI shows the majority of traders are currently long the USDOLLAR. SSI is a contrarian indicator which suggests the Dollar is likely to sustain additional losses.

Since the majority of traders have already bought the Dollar, then they become a future pool of potential sellers when they decide to close out their trade. This emotion is likely accelerated if they are in a losing position.

However, the lack of follow through has me concerned about broad based USDOLLAR weakness. The single currency has several reasons to weaken, yet it remains stubborn. Therefore, be careful that the oversold levels may revert back to the mean and the Buck might actually strengthen.

Forex Education: Australian Dollar Tags 200 Day Simple Moving Average



On the other hand, the Australian Dollar found strong resistance at the 200 Day Simple Moving Average. As we discussed previously in “Australian Dollar Weakness in Focus”, the Australian economy is tied closely to the performance of the Chinese economy. China is important to the worldwide economy. So if weakness begins to erupt in China, it could spill over into other major economies like the United States and Australia negatively affecting their stock markets.
As a result, the Australian Dollar is a good proxy for worldwide stock markets. With the rally we’ve
seen in equities for the past couple weeks, the Aussie has enjoyed strength as well.
Now that equities are near the top of their ranges, there is an increased probability of a dip to modestly lower levels. If the stock markets shift sideways to lower in the range, we can reasonably expect the Aussie to move lower. Therefore, the trading opportunity is to sell the Australian Dollar currency basket.

Executing the Trade

Since we don’t know which currencies the Aussie is likely to underperform against, so we will take a diversified approach and sell the Australian Dollar against a basket of currencies.
The basket allows us to trade a currency rather than a pair. Therefore, we can boil the performance of the trade down to the Australian Dollar. This trading opportunity can be traded by placing an AUD currency basket sell trade through FXCM’s Mirror Trader platform.

We recommend risking less than 5% on all open trades. As a result, risk less than 1-2% on this basket so you have additional capacity to take on other trades.

Good luck with your trading!

---Written by Jeremy Wagner, Head Trading Instructor, DailyFX Education

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Talking Points
- Many Forex traders trail stops to lock in hard fought for gains
- Keep a trade open to benefit from directional move
- Posibility of keeping some pips if price turns around

Have you ever entered a trade that was profitable by 40 or 50 pips only to have it end up as a loss?
Have you ever taken profit on a trade only to see it go hundreds of pips further?

One technique that Forex traders have employed to address these two challenges is the manual trailing stop. Traders can lock in gains as well as participate in the further rise.

Once a trade has been entered with a beginning stop below a swing point, traders will look for price to move to a new high and then pull back to a higher low. This initial move confirms that the trend is on its way as other traders begin to enter and momentum builds. After price makes this new higher high, the stop can be moved up a few pips below the new swing low.

Learn Forex: Manual Trailing Stop on 4-Hour EURUSD Chart




In the above example of a 4-hour EURUSD chart, notice how after the new high was broken, the stop was moved up or ‘trailed’ below the new higher swing low at 1.3647. Now, if price suddenly were to pull back below the swing low and trigger the stop, a profit of 79 pips would have still been pocketed.

Next, the Euro made a new swing high in the 1.3788 area before pulling back and the stop is moved up to 1.3740. The worst case scenario is that price falls below 1.3740 and we are stopped out for a 172 pip gain. Being stopped out with a profit beats being stopped out for a loss any day of the week!

Remember that no strategy or method is perfect and stop outs for loss can still happen with the manual trailing stop strategy of money management. So choosing the strongest trends is as important as the entry and money management technique that you employ. So if you want to stay with the trend longer and lock in profits along the way, manual trailing stops should be part of your money management plan.

--- Written by Gregory McLeod, Trading Instructor

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Talking Points:
*Understanding Measured Moves
*How Measured Moves Can Improve Your Trading
*USDOLLAR Correction Is Coming To A Measured Move Target
“There is nothing new on Wall Street or in stock speculation.What has happened in the past will happen again, and again, and again. This is because human nature does not change, and it is human emotion, solidly build into human nature that always gets in the way of human intelligence. Of this I am sure.” (Emphasis mine)
-Jesse Livermore

Every time a crisis comes around, you often hear the words, ‘this time it’s different’. However, the beauty of technical analysis is that the emotions behind the price often play out in a similar manner as they do historically because human nature is as a whole doesn’t vary by much. Therefore, whether you’re looking at the Panic of 1907, the Wall Street Crash of 1929, Black Monday in 1987, the 1997 Asian Financial Crisis, or the 2008 Subprime mortgage crisis the emotions behind those ‘history altering events’ were similar.
Understanding Measured Moves

One old school price action concept that holds weight today is that of the measure move. The measured move states that any given trading instrument will often impulse or correct in similar price & time pattern to how it performed in recent history. This can be applied to both time and price as the distance travels is often similar and the time it takes to reach that point is strikingly similar as well.

Learn Forex: Measured Moves in Time & Price As Shown on SPX500




What is surprising about this type of price action is in the witnessing of market rhythm. With market rhythm all the fundamental forces are still in play like CPI, NFP, FOMC and everything else that can steer and pull prices but the effect of those news events are often limited to the rhythm of historic price action. This would be similar to finding a distinct pattern in the road so that even if you were blindfolded and driving (which I don’t recommend!), you could begin to sense when you should begin preparing for the next turn.

Learn Forex: The GBPUSD Channel has displayed strikingly similar impulses & corrections



How Measured Moves Can Improve Your Trading

There are multiple ways that measured moves can assist your trading. The two that I like to utilize the most for trading is in analyzing correction exhaustion and over acceleration or blow off tops of an impulse. Regarding the exhaustion point of a correction before a trend resumes, you’ll often notice that the counter trend crowd will likely only test their efforts so much before taking their risky profits and letting the trend followers take over. When trading with Elliott Wave, this is often known as an equal wave correction which will often precede resumption of the trend.

Learn Forex: Equal Wave Corrections are simply measured moves



The second time and price aspect that I like to look for takes place when price has met the measured move objective but the market has far exceed the common time taken in prior impulses to hit the price target. When this happens, you’ll often see a measured move of 250 pips in 12 days reach a target of 250 pips in 6 days. This typically happens off a news shock like FOMC or NFP that was outside of expectations and then you’ll typically see a strong consolidation in the market until you meet a proper target for a correction like a Fibonacci ratio or a polarity point in the market to resume the trend.

USDOLLAR Correction Is Coming To a Measured Move Target

Since July, the USDOLLAR has been rocked across the board by all of its major counterparts. EURUSD is at 2013 highs, USDCHF is near 2013 lows and the GBPUSD is within an earshot of its 2013 high. As you can imagine, many traders are getting to the point where they feel like the USDOLLAR will continue falling through the floor but the measured moves concept can be of assistance here as well. As the USDOLLAR shows early signs of reversal it is also well within range of 2011 & 2012 corrections.

Learn Forex: Prior Major USDOLLAR Corrections Are In-line with what we’re experiencing




We’re approaching multiple signals that the USDOLLAR is looking for a bottom based on the measured moves technique. However, as we approach these levels or time windows that we’ve seen historically stop a correction, we begin looking at price action to tip its hat that the trend is about to resume via a reversal signal but please do not take a trade blindly on the time or price matching up to a historical level. This technique is very helpful but it isn’t magic so it’s best to look for confirmation before taking the trade.
Happy Trading!
---Written by Tyler Yell, Trading Instructor

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Talking Points

• Reasonable market expectations are a key to consistency
• A trader’s method is often projected as the market being methodical
• Learn to lose to become a better winner - trade in the smallest trade size possible

Over the next few days, we wanted to draw out some key concepts to help you manage expectations of the market to become disciplined with your forex trading.
The first part of this multi-part series is designed to remind you that trading is methodical and that markets are emotional.




It sounds simple and makes intuitive sense, yet too often many traders expect the opposite. As a result of expecting the opposite, we get roped into emotional situations that devastate our account equity.

For example, traders tend to get emotional because they think the market is methodical. Traders will have a methodical approach such as using trend lines to enter trades. Assuming this approach has worked reasonably well in the past, if the market moves against the position, the trader is surprised. There is a support trend line, the market HAS to bounce higher, yet it moved lower.

In essence, the trader has projected their methodical approach onto the market and begins to believe the market is methodical. When we believe the market is methodical, we rationalize the trend line break as a false break and hope prices return to a profitable level.

As you can see, the trader let their emotions into their trading by assuming the market was methodical. When the market doesn’t do what we expect, then we let poor trading techniques into our trading plan and account. Poor trading techniques such as adding to a losing position, using no stop loss, or widening a stop loss level are common mistakes emotional traders make.

What to Expect From Your Forex Account

As we place trades and orders in our account, remember that your strategy of when to place orders is the method and do not want over emphasize each pip, trade, or market movement. Each trade is just one of a thousand insignificant trades. Trading is a game of 3 steps forward then 2 steps backward. When you expect perfection, you will be disappointed. Therefore, expect losing trades.

You may be wondering, how many losses are needed to become a better winner?

A common misconception is that a strategy’s success hinges on a high win ratio. That is simply not true. Some of the best strategies win only 40-50% of the time.

What is a good win ratio? There is no grand formula. It is not a one size fits all approach, but determine the strategy’s edge using the win ratio. Then confidently trade your method and let the market’s emotions determine the outcome of the trade.

Lastly, expect losses to be incurred and prepare for them through low leverage so the majority of your equity is preserved.

---Written by Jeremy Wagner, Head Trading Instructor, DailyFX Education

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