Forex Strategies

Talking Points:
-More than one way to analyze and trade FX
-Chart time frame can impact the resulting trades
-Explore different styles in a demo account

One of the aspects of FX trading I love the most is how there are many different ways to trade the market. The market is large and liquid and there is not just one way to trade it.

Due to the plethora of different methods and strategies available to trade FX, there is likely a method and strategy that likely fits your personality.

Today, we’re going to explore the time frame to use on a chart when technically analyzing the market.



For example, when you create a chart, you’ll see choices from “T” (which is a tic chart) to “M1” (which is a 1 month chart).
The time frame of chart simply means how much data is included within each bar of the chart.

For example, “m1” chart represents a 1 minute chart. This implies that each bar or point on the chart will represent 1 minute of price activity. (Notice in this example a “M1” is monthly while lower case “m1” is 1 minute.)

There are different ways to represent the data on the chart. For example, you can plot a line chart, bar chart, or the more popular candlestick charts.

You can even plot data in a non-time specific format like what a range bar, renko, or point and figure chart would provide. Those types of charts are beyond the scope of this piece, so we will stick with the time based charts.

Most charting packages offer the ability to customize the time frame of your chart as well. Whether you decide to use a custom time frame or an already populated time frame is up to you.

Here is a guide to help you determine what time frame of chart might be appropriate for you. If you are not sure, try out different styles in a free practice account.

Type of Trader	Definition	Good Points	Bad Points
Short-Term or Scalper (1 hour or smaller time framed chart)	A trader who looks to open and close a trade within the same day, often taking advantage of small price movements with a large amount of leverage.	Quick realization of profits or losses due to the rapid-fire nature of this type of trading.	Large capital and/or risk requirements due to the large amount of leverage needed to profit from such small movements.
Medium-Term (1 hour to Daily time framed chart)	A trader typically looking to hold positions for one or more days (up to 4 weeks), often taking advantage of opportunistic technical situations.	Lowest capital requirements of the three because leverage is necessary only to boost profits.	Fewer opportunities because the trader seeks higher expected outcome trades.
Long-Term (Weekly to Monthly time framed chart)	A trader looking to hold positions for months or years, often basing decisions on long-term fundamental factors.	More reliable long-run profits because this depends on reliable fundamental factors.	Large capital requirements to cover volatile movements against any open position.

Still don’t know where to start, consider that shorter time frame charts generally produce more signals. Shorter time frame charts also mean more false signals.

Relatively longer term time frame charts generally equates to less frequent signals.
However, since the formation of the candle requires more time and data to collect, the signals produced tend to be stronger and meaningful to those trends.

Therefore, many traders eventually find a comfort zone in taking signals somewhere in the middle. This generally falls into the 1hr to 4hr charts while utilizing a daily time frame for trend. That is known as multiple time frame analysis and we’ll have more on that topic in future pieces.

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

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Talking Points
- The Forex Market trades 24 hours a day 5 days a week
- The greatest amount of volatility happens during market open overlap.
- Forex traders can enter and exit trades at any time during the global business day

The 24 hour 5 day access afforded to Forex traders has many unique advantages not available to traders in other markets. Forex traders’ 24 hour access to the market allow them to manage trades any time in the face of impending risks, take advantage of global trading opportunities whenever they arise, and trade during market time overlaps.



Divided in to four trading sessions; Sydney, Tokyo, London/Europe and New York, traders have their pick of trading times to meet fit their schedules. However, when sensitive global markets are rocked by overnight news or the latest “flavor” of financial crisis, Forex traders can be comforted that they can exit a trade or enter 24 hours a day, 5 days a week. Unlike their stock trading brethren who have to sit idly by while economic releases or other high impact news rocks the market, Forex traders can reduce risk by exiting positions without having to wait for an opening bell.

When the phrase “Money never sleeps” was created, the Forex market could have been the inspiration. Spanning across the globe through a vast network of interconnected banks, the Forex market provides many trading opportunities that happen around the clock. A scheduled interest rate announcement at 12 AM ET in Australia can be traded as easily as the US interest rate announcement at 2pm ET because the Forex market doesn’t close. Forex traders are not restricted by time when it comes to trading opportunities that happen after the equity markets have closed.

Learn Forex: Forex Market Overlaps



Trade Session Overlaps provide volatility and liquidity

In addition, Forex traders can take advantage of the volatility generated during times when major markets overlap. The most volatile Forex market conditions occur when the Sydney and Tokyo equity trading sessions overlap, the Tokyo/London overlap, and the London/New York overlap. By not being restricted by a closing or opening bell, Forex traders can place trades during these very liquid and volatile market times. Remember that market volatility is a trader’s life blood. The search for liquidity and volatility end here with the 24-hour/5 day a week Forex market. Traders can manage risk with time restrictions, take advantage of trading opportunities at any time and trade during trade session overlaps.

---Written by Gregory McLeod Trading Instructor

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Talking Points:

• Get Real About What We’re Trying To Do
• Entries Should Be Built Upon Evidence
• Preserve Mental Capital By Taking Money Off The Table

“The objective is not to buy low and sell high, but to buy high and to sell higher. We can never know what price is “low.” Nor can we know what price is “high.” Always remember that sugar once fell from $1.25/lb. to 2 cent/lb. and seemed “cheap” many times along the way.”
-Dennis Garman’s 4th Trading Rule of 22

Many traders understandably want to know what is going to happen tomorrow. Of course, we have no ability to know what tomorrow’s close will be or where the exact pivot in price will be.

This is why we key in on important price action and fundamental developments. Being on the front edge of this type of information can help us get an idea of whether a trend will continue or more importantly if the edge with which is entered the trade is beginning to wane and whether or not we should scale out of the trade.

Get Real about What We’re Trying to Do

Because we don’t know the future, we can only rely on one thing. We can only embrace that trading is about the odds of being in a good trade and in addition to that, increasing our odds so that we can make money trading the Forex Market. Naturally, we like to increase our odds that the trade will be successful by entering in the direction of a trend off a clean correction that is losing steam with a system like Ichimoku or moving averages.

However, we know that not every trade will be a winner so we fight to protect our trading capital. In fact, learning where to appropriately take losses which Gerald Loeb names as the most important single investment device to insure safety of capital should be referred to as the truth of trading. Therefore, what we’re really trying to do in the end is use the present information or price action as well as developing fundamental story to build up a trading idea that would allow us to profit in the market while not risking too much of our account on any one trade.

Entries Should Be Built Upon Evidence

To expand on that point, you should note that after first fighting to protect your trading capital you should enter into trades that are showing incremental evidence that the trend is continuing to build. As James P. Arthur notes in his market Truisms & Axioms, “Commandment #1: Thou Shall Not Trade against the Trend.” Knowing that we should not trade against the trend, we can look for a solid fundamental backdrop that aligns with a technical opportunity to enter in the direction of the trend at a favorable level while picking a point to protect your capital.

Learn Forex: In a Clear Uptrend like USDJPY, It’s best to be Neutral or a Buyer



The purpose of the argument to be long or neutral is that there is a driving force behind the trend. Most often, the driving force is a developing fundamental imbalance which favors the currency being bought over the one being sold. Therefore, trading against the trend is a hard and risky way to make money long-term which is our key goal. Once the evidence is clean and worth risking your capital in order to grow it, you can look to enter into the trend with decent profit targets that will likely lead to leaving money on the table.

Preserve mental Capital by Taking Money off the Table

This short article is to encourage you as a trader by improving your odds even when the future is not known. You were just introduced to the argument that because you do not know the future, you should look to enter into the direction of the trend when credible evidence presents itself at a favorable price of the market. The last key thing you should be comfortable with as a trader who doesn’t know the future is having an ability to either leave money on the table or miss a trade that doesn’t feel right to you.

Learn Forex: USDCAD Daily Exhaustion Candle Warrants an Exit but Not a Short Position



One of the most famous investors of the 21st century, Bernard Baruch made the famous and appropriate comment, “I made my money by selling too soon.” This quote backs up another saying in trading that the one who leaves the most money on the table, leaves with the most money. It’s tempting to hold onto a trade that is trending but when your target is hit, you should get out without hesitation because what you wanted out of the trade was done.

Closing Thoughts

Neither you, nor the next trader, nor the biggest bank trading desks on Wall Street know the future. Therefore is important that you stay away from chasing highs or lows because we don’t know what will be a high and what will be a low. Also, you should look to enter a trade in the direction of the trend when the proper amount of evidence according your trading system is present and be ready to exit the trade when your target is hit as opposed to being around for the big reversal when crowd psychology takes over and every one leaves the trade you were riding.
Happy Trading!

---Written by Tyler Yell, Trading Instructor

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Talking Points

• Support and resistance levels are critical areas for scalpers to identify.
• Price action, pivots, and moving averages can all be used to find these values.
• Once identified, traders can then look to employ the strategy of their choosing.

One of the most important concepts a scalper needs to master is how to find levels of support and resistance. These levels will act as price ceilings and floors which will ultimately help us determine our scalping strategy.

While there are many ways to identify support and resistance, today we are going to take a look at three of the most common methods that can be applied in our day trading.

Learn Forex – EURUSD and Price Action



Price Action

The first way of finding support and resistance is by using price action. Scalpers should become comfortable with finding swing highs and swing lows on their charts as they are natural areas of support and resistance. A swing high is identified as a peak on the graph and a swing low can be pinpointed as a valley. These extremes in price can help us prepare for either a swing or breakout trading opportunity depending on what the graph is displaying.

Above we can see today’s price action on a EURUSD 5minute chart. A price channel has been drawn by connecting a series of swing highs and swing lows. The swing highs help denote resistance and areas where scalpers may look for opportunities to sell. By connecting the swing lows, we have created an area of support where traders may wish to close existing sell positions, and potentially look for opportunities to buy.

Learn Forex – EURGBP with Cam Pivots




Pivot Points

Pivot points also make great areas of support and resistance. These lines are drawn using a preset formula and are often favored by scalpers because they can be added to virtually any chart. Above is a great example of support in action on a EURGBP 30 minute chart using Camarilla Pivot Points. Once added, you can clearly see levels of support denoted by an “S” whereas lines of resistance are marked by an “R”. It should be noted that there are a variety of pivot points to choose from. Regardless of the pivots you use, their key purpose is to find these support and resistance levels for you. With that in mind, let’s look at an example.

Looking at today’s price movement on the EURGBP, we can clearly see price remained supported at the S3 camarilla pivot point. Traders looking to purchase the pair can wait for price to bounce off this value before looking to buy towards higher highs. It should be noted that resistance lines can also be used to find areas to sell as long as price remains in the trading range. In the event that price breaks the final levels of support or resistance, this would be identified as a market breakout. Knowing this, scalpers can adapt their pivot trading strategy to any market environment.

Learn Forex – AUDUSD with 200MVA



Moving Averages

Last we will take a look at using simple moving averages (MVA) as a level of support and resistance. Most traders may be familiar with this average on longer period graphs, but is just as effective on shorter time frames such as the 30 minute and 5 minute charts. If price is above the average, traders can wait for dips and look to buy a currency pair. Conversely if price breaks below this value, the 200 moving average will change from an area of support to new resistance. Traders can then look for selling opportunities as long as price remains under the indicator.

Above we have a 200 period MVA displayed on an AUDUSD 5 minute chart. For the majority of trading on January 27th price stayed above the displayed 200 MVA. Traders could have used this as an opportunity to buy retracements or look to trade breaks towards higher highs on the AUDUSD. This morning however, support was broken with price moving through the 200 MVA. At this point, traders should consider the average as resistance while potentially changing their trading bias.

This concludes the 4th installment of The Definitive Guide to Scalping. If you missed one of the previous installments, don’t worry! You can catch up on all the action with the previous articles linked below.

The Definitive Guide to Scalping, Part 1: Market Conditions
The Definitive Guide to Scalping, Part2: Currency Pairs
The Definitive Guide to Scalping, Part 3: Time Frames

---Written by Walker England, Trading Instructor

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The first time I ever looked at a price chart, it was intimidating. There were boxes, lines, zigs and zags and I had no idea how to begin deciphering the information displayed in front of me. But once I got a grasp of the basics, charts slowly grew to become an integral step in my analysis process. Charts tell us a story about how price has moved in the past with the hope that we can use it as guidance for the future. My focus in this article will be unmasking popular chart types, explaining how time frames work, and the difference between bid vs. ask prices.

Chart Types

There are 3 types of price charts that you are likely to experience in your trading career: Candlestick, Bar, and Line charts. They are all created using the same price data, but display that data in different ways. To explain, the image below displays all 3 types of charts using the same set of price data.

Learn Forex: Three Most Popular Chart Types




Candlestick Charts

This chart type displays the opening, high, low, and closing (OHLC) prices for each period of time designated for the candle. The “body” of each candlestick represents the opening and closing prices while the candle “wicks” display the high and low prices for each period. The color of each candle depends on the applied settings. But in the image above, every candle that is blue means the price closed higher than where it opened (often called a bullish candle), and every candle that is red means the price closed lower than where it opened (often called a bearish candle). This is by far the most popular chart for trading forex.

Bar Charts

This chart type displays the opening, high, low, and closing (OHLC) prices for each period of time designated for the bar. The vertical line is created by the high and low price for the bar. The dash to the left of the bar was the opening price and the dash to the right was the closing price. You can see the similarities between this chart type and a candlestick chart when they are sitting side by side.

Line Charts

This chart type usually only displays closing prices and nothing else. You will see this type of chart used on television, newspapers and many web articles because it is simple and easy to digest. It gives you the less information than candlestick or bar charts, but is much easier on the eyes with a quick glance.

Time Frames

A chart's time frame describes the amount of time it takes to complete a single candle. If you select a 1-hour chart, that means a new candle is created every hour on the hour. If you create a daily chart, that means a new candle is created each day (at 5pm ET). If you select a 1-minute chart, that means a new candle is created every minute.


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Talking Points

• Spreads are based off the Buy and Sell price of a currency pair.
• Spreads are variable and can change during news.
• Watch for normalization of spreads, shortly after economic events.

Financial markets have the ability to be drastically effected by economic news releases. News events occur throughout the trading week, as denoted by the economic calendar, and may increase market volatility as well as increase the spreads you see on your favorite currency pairs.

It is imperative that new traders become familiar with what can happen during these events. So to better prepare you for upcoming news, we are going to review what happens to Forex spreads during volatile markets.



Spreads and the News

News is a notorious time of market uncertainty. These releases on the economic calendar happen sporadically and depending if expectations are met or not, can cause prices to fluctuate rapidly. Just like retail traders, large liquidity providers do not know the outcome of news events prior to their release! Because of this, they look to offset some of their risk by widening spreads.

Above is an example of spreads during the January NFP employment number release. Notice how spreads on the Major Forex pairs widened. Even though this was a temporary event, until the market normalizes traders will have to endure wider costs of trading.



Dealing with the Spread

It is important to remember that spreads are variable, meaning they will not always remain the same and will change as liquidity providers change their pricing. Above we can see how quickly spreads normalize after the news. In 5 minutes, the spreads on the EURUSD moved from 6.4 pips back to 1.4 pips. So where does that leave traders wanting to execute orders around the news?

Traders should always consider the risk of trading volatile markets. One of the options for trading news events is to immediately execute orders at market in hopes that the market volatility covers the increased spread cost. Or, traders can wait for markets to normalize and then take advantage of added liquidity once market activity subsides.

---Written by Walker England, Trading Instructor

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Talking Points:

• Pivot points is a popular and easy way that traders can identify potential support and resistance
• Pivot points are based on a mathematical calculation that uses the previous high, low and close of a specified period; weekly, daily, monthly, yearly
• Yearly pivots can forecast maximum and minimum price extremes for the coming year as well as areas where price can change direction.

As we learned in the previous article, many traders regard pivot points as significant areas of support and resistance. Pivot levels are points where price usually changes direction. Though technology and markets have evolved, pivots have remained a staple and cornerstone of technical analysis.

While most traders are familiar with daily, weekly, and even monthly pivots which fit their type of trading, yearly pivots can also be used to forecast future potential support and resistance areas. Buying at or near a significant area of support and selling at a key area of resistance is the main focus of any trader no matter what the market or the duration traded. Yearly pivots can be monitored for those key trading opportunities.

Learn Forex: EURUSD Yearly Pivots




As you can clearly see in the Euro chart above, forex yearly pivots have been plotted. These have been manually created as Marketscope 2.0 charts currently does not have a yearly pivot point setting. Notice how the Euro rallied up to the R2 pivot and turned around sharply falling over 600 pips in February.
Another significant area that can be easily seen showing the power of yearly pivots is the triple touch of the R1 yearly pivot at 1.2910. The third and final touch led to over a 600-pip rally back to the R2 yearly pivot to close out 2013 up over 4%.

Learn Forex: EURUSD 2014 Yearly Pivots




EURUSD 2014 Yearly Pivots

Could forex yearly pivots show traders the next move in the Euro? In the chart above the 2014 yearly pivots are plotted on the EURUSD chart. The year is just getting started and the great thing about yearly pivots is only having to draw them once a year! EURUSD is trapped between the central pivot at 1.3461 and R1 at 1.4177. As at the time of this writing, the Euro has not tested either pivot. However, forex traders may be waiting for a move down to the central pivot (1.3461) for a move back toward the R1 (1.4177) yearly pivot resistance.

Alternative scenario is for the Euro to make an immediate run for it up to the R1 level. At R1 pivot resistance, traders may look to take profit on their longs and/or short the Euro at this level. However, a close above R1 could lead to a move higher to the R2 pivot (1.4610). Traders should also consider the possibility of a close below the central pivot that could lead to a prolonged down push to the S1 (1.3028) level.

Forex traders who scalpers, position or swing traders can make use of yearly pivots to locate key areas of support and resistance. Look for future articles on other currency pairs that lay out the yearly pivot ‘landscape’ to help you navigate the forex market.

---Written by Gregory McLeod Trading Instructor

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Talking Points:

• Failing to plan is planning to fail; every trader needs a trading plan.
• This article covers the what, how, when, and why that needs to be answered in the plan.
• Sample strategies are referred for multiple trader types in the section for the ‘how.’

Trading plans are a lot like insurance: People don’t usually want it until they’ve already faced a catastrophe. But after that catastrophe; maybe it was a big loss on a single position, or perhaps even worse, a margin call from one bad trade, the trader will often recognize that something needs to be done.

But regardless how one gets there, just the fact that they arrive at the destination of realizing that a trading plan isn’t just a preference, but often a necessity is generally a positive development in the career of the trader.

The next quandary that follows is usually along the lines of, ‘well how do I go about creating a trading plan?’
What follows are suggestions for that trading plan. This is a way where traders can define their approach and strategies for approaching the market: Think of this like the personal ‘constitution’ of the trader; the document that outlines the strategies, operations and procedures with which that trader is looking to implement in the marketplace.

The ‘What’

The most important aspect of a trading plan is the definition of the type of trader that you are. And if you’re a new trader and aren’t quite sure of what type of trader you want to be, it’s ok to modify this as you see more results and get a better idea of which direction you want to move towards.

The benefit behind this is that it helps to keep you grounded. Let’s say that you’re a technical swing trader, but with an upcoming NFP report you see an especially attractive setup that you decide is worth of a quick scalp position.

Well, if that scalp doesn’t work out and a loss is taken – the ‘what’ of a trading plan serves as a reminder that you were trading outside of your comfort zone. Below is a table with various types of trader ‘styles’ that one may look to use as a portion of this section of the trading plan.

Various Trader Types and Characteristics of Each

Trader Type	Characteristics of this style
Scalper	Holds trades for a few minutes to a few hours
Day-Trader	Holds trades for less than one day; slightly longer-term focus than scalpers
Swing-Trader	Holds trades from a few hours to a few days
Intermediate-Term	Holds trades for a few days to a few weeks
Long-Term Trader	Holds trades for at least a day and, if possible, multiple years
Position Trader	Holds trades as long as need-be to build and work a position

Table of potential trader types; Created by James Stanley

The ‘How’

A trading plan is worthless without a definition of ‘how’ a trader wants to enter and manage positions. This can be as simple as ‘I’m going to scalp trends,’ to as complex as ‘I’m going to take scalps with 8 period EMA crossovers on the 5 minute chart when price is below the 34 period hourly EMA.’

It really just depends on how in-depth you want to be. The benefit of having a more well-defined strategy in this portion of the plan allows you to come back later to troubleshoot if results aren’t meeting your expectations. A more loosely-defined strategy in this section of the plan may lead to a lack of discipline when you’re actually placing trades as the trader hasn’t made the commitment to the strategy by integrating it as part of their trading plan.

An important note here – the strategy should be yours, customized for your unique risk tolerance and personality. This should also mesh with the ‘what’ of the trading plan, as this is an extension of the type of trader you are.

In the table below, we include links (under the column for ‘sample strategy’) for strategies that have been published by DailyFX for each of the types of traders that we defined above. Once again, you want to make sure that any strategy that is part of your plan is custom-fit specifically for yourself. So please feel free to take the framework of any of the below strategies and modify it as you see fit to more comfortably agree with your trading style.

The ‘When’

This part of the plan is often missed by traders; as many markets somewhat define when you’re actually able to trade. If you’re a stock trader, well you have to adhere to open market hours. Even then, many traders choose to focus on the first or last hour of the day, as this is where the majority of volatility will often take place.

But in the Forex market, there is quite a bit more flexibility available to the trader – and this isn’t always a positive thing. The FX Market moves 24 hours a day, and will often display differing characteristics based on the time-of-the-day and the area of the world that is providing liquidity. Below is a chart taken from our article Trading the World that helps to define some of these major characteristics.

The session being traded can have a massive impact on results




The importance of defining the ‘when’ of a trading plan is that it allows traders to learn and improve upon their strategies and approach with as few moving variables as possible. If a trader normally implements their strategy during the Asian session, but for some reason couldn’t get to sleep and finds themselves trading during the London open with the same strategy; they are introducing an entirely new and unfamiliar risk into their approach.

Namely, the trader is using a strategy built for a markedly different time-of-day. While the Asian session will often be slower with smaller moves, more amenable for range-trading; the London open is often highlighted by quick, violent, and sharp moves that can make a range-trading strategy look pretty bad. If you don’t believe the deviation that can be seen in a strategy based on the time-of-day or session being traded, take a look at The Best Time of the Day to Trade Forex by David Rodriguez. In the article, David took a simple RSI strategy and showed that it gave some pretty undesirable results when allowed to run all-day, every day (depicted by the red line in the chart below).

But when focused on the Asian trading session (the gold line in the below chart), the same simple RSI strategy looked significantly better.

The same strategy performed better when focused in the Asian-trading session (gold line)




Time-of-day is important in the FX market; so define when you’re going to be trading so that you can focus on improving your approach on the type of market condition that you’re speculating in.

The ‘Why’

The last part of the plan is, in my opinion, the most important. This is where you write down your goals and reasons for becoming a trader. This can be as ambitious as ‘I want to be a billionaire,’ to as reasonable as ‘I want to replace my income so that I can spend more time with my family.’ I strongly encourage you to set realistic, honest goals otherwise they’re nearly impossible to adhere to. I speak from experience.

Trading isn’t easy. It can be difficult, and tough, and costly, and frustrating all at the same time. Especially when we have fundamental environments that, as we say in Texas, ‘is about as clear as mud.’

But the fact-of-the-matter is that just having the opportunity to make money in markets is a privilege. If we look around the world right now, there are multiple areas of the world that seem to be on the brink of some type of conflict. People fight in these conflicts, and if those conflicts get bad enough people lose their lives. In the 21st century with the massive amount of technology that has made the world exponentially smaller, more opportunity is open to more people than ever before. Markets are one of the few ways that someone with little formal education, and not much start-up money can actually improve their lot in life. The FX market doesn’t care if you come from a farming family in rural China or whether you have an Ivy League MBA from The Wharton School of Business. Anyone can potentially make money, and everyone can lose money.

The ‘why’ of a trading plan serves as the reminder for why you’re willing to go through the pain; and when times get difficult or a major drawdown is seen on the account, this can help to provide perspective of ‘the bigger picture.’ This allows the trader to take a step back in order to realize that the reasons they want to become a successful trader are worth any trials or tribulations that they may go through.
If the goal doesn’t seem worth the frustration any longer, then at the least you know its time to take a step back and either re-evaluate your options, or quit.

To quote Harvey Dent in The Dark Knight, ‘The night is always darkest just before dawn.’ The ‘why’ of a trading plan serves as a reminder that the sun will still come up, regardless of how dark it may ever really seem.

-- Written by James Stanley

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Talking Points:

• Retracements are pullbacks within a trend.
• Find the trend and resistance using trendlines.
• Entries can be planned using a Fibonacci retracement.

When it comes to trending markets, traders may consider trading a breakout or a retracement strategy. Today we will review using trendlines and Fibonacci retracements to trade pullbacks in price for trending markets.
Let’s get started!

Find A Trendline

Before we can consider trading a pricing swing, we need to first be able to find market direction as well as support or resistance. This issue can be solved by creating a trendline. These areas can be found on a chart by either connecting to highs or lows, then extrapolating their direction on the chart. In a downtrend traders should look for price action to be declining under trendline resistance, while in uptrend prices should be advancing above trendline support.

Below we can see a trendline formed on the USDJPY Daily chart. As the highs for this currency pair has been declining 12 2014 we can connect these values to form a point of resistance on our graph. This line will act as our price ceiling, and as long as price remains under this value we can look to find new opportunities to sell the market. This line can be left on the chart, and will be used as we continue looking for a market retracement.

Learn Forex – USDJPY Daily Trendline Resistance




Fibonacci Retracements

Once market direction and trendline resistance is identified, we need to identify an area to enter into the market. This can be done by finding a confluence of resistance using a Fibonacci retracement. These retracement values are displayed as a percentage of the previous move as measured from swing high/low in a downtrend. Much like our previously drawn trendline, these retracements can pinpoint areas where the market may turn. Traders should look to see where these two values converge and then plan to enter the market.

Below you will find the established trendline on the USDJPY. The Fibonacci retracement tool has been added, and traders should take notice where the 78.6% retracement value meets our trendline. In the event that price retraces to this point, they can then plan to enter the market and look for price to return toward lower lows. Traders may sell the USDJPY with this strategy using market orders or utilize a preset entry order.

Learn Forex – USDJPY Trendline & 78.6% Retracement



Exiting Positions

Now that we have a plan to enter the market on a price swing, traders will need to identify when it is time to exit the market. This is always the third and final step of any successful strategy! In order to manage risk, traders should first consider where to set a stop order. In a downtrend like the USDJPY daily chart, traders should consider placing this value above resistance. On the chart below stop orders have been placed outside of resistance, above our current trendline and previous swing high.

Lastly, we need to consider a take profit point. Traders should always look to use a risk/reward ratio to earn more profit on a successful trader, relative to a potential loss. This can be done by extrapolating a preset value relative to the stop value set above. Traders may also consider setting limit orders below the current swing low. In the event that our currency downtrend is to continue, by definition, price should continue moving towards lower lows down our graph.

Learn Forex – USDJPY Stops & Limits



---Written by Walker England, Trading Instructor

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Talking Points:

• In 2013, USDJPY tested and rebounded from yearly pivot points numerous times.
• USDJPY could retest the Central yearly pivot down at 99.08
• USDJPY has traded between 102.00 and 103.50 for 6 days while other yen pairs have broken down

In this article, we will continue this examination of the not-so-often discussed USDJPY yearly pivots. Yearly pivots may show the end of this correction and reveal a potential trade setup to catch the resumption of a very powerful USDJPY uptrend in its earliest stages.

Learn Forex: USDJPY 2013 Yearly Pivots




As evident in the USDJPY daily time frame chart, that yearly pivots provided traders with several good entry points in both trending and ranging environments. The February break higher above the R1 pivot (90.33) led to the move to the New Year’s high of 105.43. However, the move higher was not in a straight but had several retracements at yearly pivots.

Since many traders are not paying attention to these invisible areas of support and resistance, they were caught off guard when USDJPY stalled in a particular areas or bounced from other areas. USDJPY behavior can be easily explained once yearly pivots are applied to the chart.USDJPY close above the R3 pivot in December 2013 at 101.09 led to over a 400 pip run into 2014.

Learn Forex: USDJPY 2014 Yearly Pivots




USDJPY Yearly Pivot Trading Plan

As you can see in the chart above, I have manually created yearly pivots using the formula found in the first article and the 2013 USDJPY high, low and closing price. Currently, USDJPY is trading at 102.30 between the central pivot at 99.08 and R1 at 111.63. If USDJPY correction continues to move down to 99.08 and rebounds from this area, we could see a move to 111.63 and beyond. The central pivot also coincides with a 61.8% Fibonacci retracement area as well. January’s US Employment report could be the catalyst. Another weak job number could spark more risk aversion and a flight into Yen.

On the other hand, a close below P (99.08) could lead to a run down to the S1 92.75 level. Notice how these pivots have several hundred pips of space between them and are ideal for longer term trading but can be very effective in short-term day trading in providing high probability entries and exits near these levels. This allows traders the opportunity to trade in and around a core position.
In sum, USDJPY yearly pivots are worth adding to your charts so you can be ready for the next leg up in USDJPY.

---Written by Gregory McLeod Trading Instructor

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