Forex Strategies

Talking Points:
-High-Leverage & Low-Cost of FX
-Intermarket Moves Keep FX Always Relevant
-24-Hour/5 Access To an Active Market

This article will give you a 10,000 ft. view of why retail or individual traders come to the Forex Market. Since the Forex Market became available to non-bank traders in 1999, the popularity relative to other markets have exploded. Even though there are too many reasons in all to list here, you will come to a better understanding to see if this market is for you.

Before we get our hands dirty and our minds working about the benefits of FX, you should keep one thing in mind. All markets, whether it is private equity, real estate, stocks, options, or FX are really about one thing. Markets are about seeking a satisfactory return of capital relative to the level of risk you’re taking on at any one time.

High-Leverage & Low-Cost of FX

The Forex Market allows you to trade with large amounts of leverage. Leverage allows to control a position or trade that is larger than your capital base. Therefore, with a $5,000 account, you could open up a trade of $10,000, $50,000, or $100,000, if you so desire.

Learn Forex: A Simple Look at How Leverage Can Affect You



Of course, there is always a trade off in any market and Forex is no different. Your profit or loss on any trade is dependent on the trade size open. Therefore, if you open a trade that is too large relative to your account balance and that trade goes against you, the effect can be more than you bargained for.

The other side of the coin to the Forex Market is the low cost to start an account. The brokerage that you decide to trade with will set the required start-up account balance. However, as a trader, less isn’t more as we found it is far better to find an appropriate balance over the lowest possible balance.

The other aspect of low costs is displayed in the transaction costs. The transaction costs in Forex is known as the spread and is found by taking the different of the bid and ask measured in pips. All things being considered, the lower the spread, the quicker you will realize a profit should the market move in the direction of your analysis.

Intermarket Moves Keep FX Relevant

In 2013, the hottest stock market in the world was the Nikkei 225. The Nikkei 225 is Japan’s stock market which was boosted by an aggressive monetary policy via the Prime Minister of Japan and the Bank of Japan. As the world becomes more and more interrelated, it shouldn’t surprise you that the JPY was similarly one of the biggest performers in 2013 which assisted in the Nikkei 225’s 57% return in 2013.

Learn Forex: FX Is Correlated To Many Markets




As you can easily imagine, because every other financial market is priced in global currencies, a shift of global capital flow into a new market in a different country would could massive buying or selling of currencies. This type of thinking or analysis is known as Intermarket analysis or Intermarket correlations. The reason that this natural occurrence is seen as a major benefit of trading this market is because it can add rocket fuel to your trade idea. Excellent trends can develop in the Forex Market for a myriad of reasons but if a global capital flow shift begins to develop, you may find the trend your trading moving faster and further than you imagined which makes this a great market to trade.

24-Hour/5 Access to an Active Market

Trading stocks isn’t kind to those who work for a living and want to actively trade. The New York Stock Exchange opens after most start their work day and almost certainly end before their day ends. Stock trading hours in the US are open from Monday through Friday 9:30 a.m. to 4:00 p.m. ET. This means that if you want to have an active trading style, you’ll likely need to pay someone else to do the trading for you.

This dilemma doesn’t exist in the Forex Market. Living in the Western Hemisphere, you can easily trade the Japanese Consumer Price Index or Reserve Bank of Australia Rate announcement in the evening. What’s more, there are three distinct zones in any given trading day with distinct trading opportunities so that regardless of your preference on how to trade, there’s likely a few opportunities a day for you to try and capitalize on.
Happy Trading!
---Written by Tyler Yell, Trading Instructor

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Talking Points:

• Gold has rebounded from the monthly 38.2% Fibonacci level
• Gold has broken above regression down channel
• Monthly CCI signals a buy

As the Euro became the official currency of twelve European Union’s members, Brazil won the 2002 World Cup, and gasoline in the U.S. was $1.61/gallon. In 2002, you could havealso bought an ounce of gold for $300/oz., for a few months at least, before the breakout that marked the beginning of a 12-year, $1600 rise.

The slow but steady ascent to new highs culminated with the 2011 high at 1920.80. With a high in place and a low, Fibonacci traders can use monthly retracement lines to establish areas of support and resistance. These levels will be help for traders in letting them known when the profit-taking decline is over and the uptrend resumes. In addition, CCI can be used to confirm a “rush” back into gold.

Learn Forex: Gold Monthly Chart Rebound



As can been seen in the chart above, gold looks to have concluded an orderly three-wave decline forming a double bottom just below the 38.2% retracement of the swing from the 2001 lows near $254.00/oz. to the 2011 highs near $1920/oz. The failed attempt to push below these levels has emboldened the gold bulls.

However, to reduce the odds of falling for a fake out, we can employ the CCI indicator to confirm this move higher. CCI is an unbanded oscillator that is helpful in identifying when prices have been trading above their average. CCI generates a buy signal when the line moves above the -100 horizontal reference line and generates a sell signal when it moves below the +100 horizontal reference line.
In the monthly gold chart above, monthly CCI has just crossed above the -100 horizontal reference line signaling a buy. We have not seen a fresh CCI buy signal in gold since 1999.

In addition to CCI and Fibonacci, the three lines of a regression channel can be drawn on the downswing as another visual aid for confirming a true bounce rather than a fake out. The regression lines form a channel, that when broken, would give a strong confirmation that prices will continue to move in the direction of the breakout. Notice the wide-ranging green candlestick outside the regression channel. With just four days before this candles is closed, it is very important for gold to hold these levels to keep the bull trend alive.

Look for the previous August 2013 highs near 1431 to be the first target before an extended rally to the 23.6% Fibonacci level at 1527.41 However, a close below the 2013 lows in the 1186-1200 region could open the door for a drop to the 50% Fibonacci retracement at $1087.35.
---Written by Gregory McLeod Trading Instructor

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Talking Points:

• Changing market conditions can create a frustrating trading environment for those unprepared
• Learn three common mistakes traders make when conditions change to trendless markets
• Learn how to avoid making those same mistakes

FX Volatility has been down recently and is challenging multi-year lows (see chart below). We’ve seen some traders get frustrated with the low volatility environment because they seek out trends or breakouts.



However, low volatility conditions can benefit traders. According to our Traits of Successful Traders Research, FX traders are more profitable during low volatile times of day. This is because levels of support and resistance are more likely to hold making a buy low and sell high strategy the preferred strategy.

Extrapolating this logic forward, this suggests that traders should also enjoy low volatile market conditions. If you find your trading has been inconsistent lately, here are three common mistakes traders make in trendless markets and how you can overcome these mistakes.

Inconsistent trading due to range bound markets could be a result of several factors. Here are 3 common mistakes made:

• Trend following strategy used in a trendless market
• Stop loss is too close
• Emotionally impatient with trades

Error #1 - Using the wrong type of strategy
Correction – Match the strategy to the current market condition

One of the most overlooked elements in creating a trading plan is matching your strategy to the current market environment. Once we find a strategy that ‘works’, we tend to stick with that strategy. There is nothing wrong with that. However, we need to realize and remember that our strategy is NOT designed to well all of the time. There are times our strategy will be out of favor with the market conditions. It is recognizing those situations and taking appropriate action which we typically miss.

We do those things which we are comfortable with. It is uncomfortable to change our strategy around or trade a different instrument. However, if the market changes tune, so do we. We need methods in place to identify when the current strategy isn’t cut out for the current market environment.

Traders will use volatility (as seen in the image above), Average True Range (ATR), or Average Directional Index (ADX) as tools to identify when volatility is down.

The key point to remember is that when you see a different market today, change your strategy to meet that condition or change your currency pair to trade. We have the DailyFX Plus strategies available for breakout, momentum, and range environments. Try them out in a free practice account.

Error #2 – Stop Loss is too close
Correction – Give your trade room to breathe for the life of the trade

Another common mistake that traders make is assuming their risk is relegated to the distance of their stop loss to their entry. The truth is the risk to your account is how much currency you stand to lose if the trade does not work out!
For example, I can have a stop loss 100 pips away and risk less than somebody else with a 10 pip stop loss. If my trade size is 100k and if my stop loss is 100 pips, I would be risking $1,000 on the trade.

Assume somebody else has a trade size of 1500k; they have risked $1,500 on the trade with a 10 pip stop loss. Clearly, my trade of $1,000 risk is less than the other trade of $1,500 risk.

It is worth repeating again. The risk to your account is how much currency you stand to lose if wrong and not the distance to your stop loss.

If you find that you internally talk to yourself and use phrases like “I can’t risk 50 pips” or “100 pips is too much to risk” then remember you CAN place the trade if your reduce the trade size to LOWER the risk on the trade.



Tightening the stop loss too close is an invitation to get stopped out. In the example above, not only are they risking more, but they are inviting the market to stop them out of the trade with a stop loss too tight.

Use the ATR indicator to give an indication of how much the market has moved over the last several days. If it might take a couple of days to reach your profit target, then make sure the stop loss is wide enough to withstand the normal ‘breathing’ of the market.

Error #3 – Getting impatient and closing trades before the stop or target is reached
Correction – Remember that trendless markets generally take longer to reach support or resistance levels

Frustration for lack of movement is a big reason traders get impatient. We live in a culture of fast food and 15 minute oil changes. We want it and we want it now! The same applies in trading.

There have been some monster trends taking place over the past year. If you have successfully traded those trends, the physiological response you’ve experienced likely has you thirsty to do it again.
Since the last monster trade you had occurred over short time line, we begin to expect all trades to resolve within a short time line.

However, there are times when the market is comfortable trading where it is at. There are not any new pieces of data or shocks to the market causing severe price dislocations. Therefore, the market bounces between high and low points creating the trading range.

One way to keep from getting impatient is to follow what was stated in #2 above…trade with smaller trade sizes and think of your next trade as the first of ten trade sequence. By doing so, you will be placing less emphasis on the outcome of the trade allowing you to relax and let the trade resolve itself by hitting your profit target or stop loss level. Trading in smaller sizes is a simple way to allow your mind to relax so you can be patient on the trade.

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

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Talking Points:

• Symmetrical triangles form when buying and selling pressure is at equilibrium
• Forex symmetrical triangles usually precede a major price move
• GBPUSD is currently trading within a symmetrical triangle and is poised to breakout

Since reaching a high of 1.6821 on February 17th 2014, GBPUSD has traded in a range that has been narrowing. Lower swing highs and higher swing lows compressing form a symmetrical triangle. Neither GBPUSD buyers nor sellers can gain an upper hand. Usually, a breakout happens a third of the way within the triangle.

Usually, a triangle occurs when there is a big fundamental news item that is around the corner. Tuesday’s Consumer Price Index (CPI) and the FOMC U.S. interest rate decision could be the catalyst needed to break GBPUSD out of its symmetrical triangle. These announcements could give either the bulls or bears the confidence they need to take control and move price in their respective directions

Learn Forex: GBPUSD Daily Chart Symmetrical Triangle




Take a look at the daily GBPUSD daily chart above. Notice that any price advance has been capped by a trend line created by the two yellow-circled swing points. In addition, any price decline has been halted by a support by a rising trend line established by two yellow-circled swing points. The latest candles is a doji which highlights the indecision of the pattern itself.

A breakout strategy is one most used to trade the symmetrical triangle pattern, although some traders may attempt to trade within the triangle buying at support and selling at resistance. In a breakout strategy, traders will wait until price moves above resistance before entering long or waiting until price moves below support to enter short.
In the GBPUSD symmetrical triangle above, buyers will want to see price close above 1.6672 before entering. Next, a protective stop can be placed a few pips below the last swing low near 1.6579. By measuring the height of the triangle, we get 216 pips. A price target can be projected at 1.6888.

On the other hand, a close below 1.6570 would be a sign for bears to jump in short. Projecting the height of the triangle of 216 pips down from the swing low we get a price target at 1.6394. If we get a bearish close below symmetrical triangle support, we would look to place a protective stop just above the pattern near 1.6672.
Symmetrical triangles can provide excellent trade setups with a well-defined risk to reward. Triangles may not be able to tell traders a specific direction of a breakout, however, they can give traders an indication of how far a move can travel.

---Written by Gregory McLeod Trading Instructor


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Talking Points:

• USDCHF has rallied 170 pips before Janet Yellen, the FOMC Fed chair announced a hike in interest rates coming next spring.
• However, worse than expected US Flash Manufacturing PMI drove USDCHF down 78 pips.
• USDCHF decline is capped at a key Fibonacci level with CCI in the oversold region signaling a bounce possible.

Never catch a falling knife” is a favorite saying shared among traders. It is a warning to traders to avoid buying a downtrend in an attempt to pick the bottom. Catching a “falling knife” both literally and figuratively can be both hazardous to your safety and to your trading account. How can traders get an edge?

Forex traders use Fibonacci retracement levels as a “catcher’s glove” that can give added confidence that a reversal is nearby. As price corrects down from making a high, traders are positioning themselves to “buy the dip”. In fact once a high is in place, traders are placing Fibonacci retracement lines on the chart in order to find their next trade hours in advance. With Fibonacci, traders can sit back and wait for price to come to their level.

Learn Forex: USDCHF Decline to Fibonacci Support




In the chart above, we can see how on USDCHF rallied from a low of 0.8700 on 3/13 to a high in the area of 0.8870. The fading effects of a hawkish FOMC and weaker US PMI drove USDCHF sharply lower. However, the decline was halted by the 38.2% and 50% Fibonacci levels. The quick snap-back recovery of USDCHF above the 0.8800 handle was a signal that buyers were ready to take the pair higher.

The addition of the Commodity Channel Indicator, CCI showed that USDCHF was oversold. However, a buy signal only generated when the indicator moved above the -100 horizontal reference line. Forex traders would have been ready for hours in anticipation of what would unfold next.

The Trade

Learn Forex: USDCHF Rally from 38.2% Fibonacci Level




In the chart above we can see how the trading plan played out as price consolidated for fourteen hours at the 38.2% Fibonacci level before launching to the first target at 0.8867. A buy signal was generated by CCI several candles before the actual move higher.

Money management is an important aspect of all trades including Fibonacci. Typically a protective stop is placed a few pips below the next Fibonacci level. Also, a limit is placed at or near the previous high. The limit was more than twice the stop. In some instances, price can breakout out to new highs. However, USDCHF was soundly rejected at the old high.

In sum, traders do not have to fear trading pullbacks of trends. They can gain more confidence and precision by incorporating Fibonacci retracements and CCI.

Written by Gregory McLeod Trading Instructor

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Talking Points:

• Major JPY crosses never broke out bearishly in Q1 2014
• Ichimoku Momentum Only Showed A Correction
• Signals For GBP/JPY Trend Continuation Abound

“Be patient and wait for the fat pitch.”
-James Montier

As fun as trends are to trade, they are rarer than many would like to admit. The number that often floats around with traders is that markets only trend about a 1/3 of the time. In other words, 2/3rds of the time, markets are in a correctionary pattern, an Elliott Wave term, or are ranging before their next breakout either higher or lower.

Today’s article is going to discuss how a multitude of JPY crosses like USDJPY, EURJPY, GBPJPY, and others are starting to show bullish signs again. Our preference for viewing an overall shift is Ichimoku which incorporates a trend filter, momentum, & a time component.

Major JPY Crosses Never Broke Out Bearishly

Many JPY crosses hit their 2014 highs on January 2nd, the first trading day of the year. This sounds like a bearish statement, however the downside lasted only a handful of weeks before the rebound began. What’s more, the JPY cross downside was limited as you can see that USDJPY only retraced ~50% from the October ’13 to January ’14 range.

Learn Forex: USDJPY & GBPJPY Weakness Was Limited in Q1 2014







Without Ichimoku, you can see that at the very least, USDJPY continues sideways or moves higher. The technical terms is that USDJPY either impulse higher or corrects sideways in a triangle formation which shows that the downside is limited. In other words, what won’t go down will often eventually go up.

Ichimoku Momentum Showed a Correction

Ichimoku allows you to grasp the entire market and its trending power in one glance. If you’d like a fuller view of the indicator, you can see the explanation here. However, with Ichimoku, when price is above the cloud and the lagging line or Chinkou Span is also above the cloud then you have both price and momentum in a trend.

Learn Forex: USDJPY is near a Bullish Breakout from Ichimoku’s Viewpoint




EURJPY & GBPJPY are also popular pairs to trade. Ichimoku has done a great job with GBPJPY to help you decipher a trend correction vs. a trend reversal. The ability to abstain from chasing a false breakout alone make Ichimoku a great tool to add to your trading. The benefit to using Ichimoku is to allow the trend filter to help you focus on price action patterns like the bullish pennant forming on GBPJPY.

Learn Forex: GBPJPY near Bullish Breakout Point at 173.56



Signals for GBP/JPY Trend Continuation Abound

The GBP has been one of the strongest currencies around the world although not as strong as the AUD. Of course, when a strong trend as present, many trades revolving around one very strong or one very weak currency be successful which is the reason behind trading the basket approach. The basket approach discussed in this article is the developing JPY weakness and specifically with the GBPJPY

Learn Forex: Levels Worthy of a GBPJPY Ichimoku Buy Signal




Entry to Buy: Price Holding > 170.5 (Base Line – Light Blue)
Protective stop: 170.35 (Below the Weekly Opening Range / Top of Cloud)
Limit: 174.42 (Conservative) / 176.89 (Extreme Trend) Based on Monthly Pivots

If this is your first reading of the Ichimoku report, here is a quick run-down on buy side rules:
-Full Candle Bodies above the Kumo Cloud
-The trigger line (black) is above the base line (light blue) or is crossing below
-Lagging line is above price action from 26 periods ago (Bright green line)
-Kumo ahead of price is bullish and rising (blue cloud = bullish Kumo)

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

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Talking Points:

• Value of Candlestick Reading
• USDJPY Bearish Pattern
• Key Focal Levels on USDJPY

“Step after step the latter is ascended”
-Japanese Proverb

For real-time market sentiment based on price alone, many experienced traders turn to Japanese candlesticks. Candlesticks are easy to understand and can alert you to shifts in market sentiment in real-time. This real-time analysis has many benefits over lagging indicators like moving averages or oscillators.

Value of Candlestick Reading

In fact, a recent article I wrote about stocks being heavy was based on a weekly candlestick pattern. That candlestick pattern was a toping formation known as a shooting star which means that bullish sentiment couldn’t hold higher prices. Since the top of that pattern, SPX500 had dropped 75 points and could be on its way to retesting the 2014 lows of 1737 or more. The low developed off a candlestick pattern known as a hammer bottom shown below.

Learn Forex: Candlesticks Can Provide Invaluable Real-Time Analysis



The chart above is on the weekly chart. However, the candlestick approach works on all time frames. Short-term traders will often look for similar patterns on hourly charts that position or swing traders will look for on daily or weekly charts. Within the Shooting Star on the weekly SPX500 chart, you can see bearish engulfing candles on the Daily SPX500 chart.

Learn Forex: Bearish Engulfing Means That Buyers Were Absent in the SPX500 Drop



USDJPY Bearish Pattern

You may be asking what these examples have to do with a warning on buying low in USDJPY. Simply put, there are a handful of warning signals in other markets that are significantly well to the USDJPY. However, one thing makes the USDJPY pattern unique and that is the number of candles involved.

Learn Forex: Bearish 3 Continuation Pattern on USDJPY



The significance of a candlestick pattern often relates to the number of candles involved. The Bearish Three Falling Method involves 5 distinct candles with a move back in the direction of the prevailing trend making it a high conviction trend continuation pattern. The key components of the Bearish Three Falling method is in the large bearish candle kicking off the move followed by three weak counter trend candles. Then a large bearish candle that closes near the lows resumes the prior pattern to a bearish move.

Key Levels on USDJPY

While the pattern is clear, there is still support that would ideally need to break before a trade is risked. The double-bottom low of 101.20 currently provides a lot of support and as you can see from the chart above, that is the low of the pattern and therefore needs to break before a trigger is given. Below 101.20, you should keep an eye on the 2014 low of 100.747 as buyers may jump in there to try and push up this multi-year trend before risking a move down to the upper 90’s.

Learn Forex: Key Levels on USDJPY Moving Forward



The chart above should help you see a few key inflection points on the USDJPY chart. Of the most important, you should focus on the weekly pivot as resistance near 102.70 and 101.20 as support. 101.20 has been singled out because that was the low at the start of the pattern and should 101.20 break, that would be the official continuation point to the 2014 low of 100.74 or the 100% expansion of the first down-leg to 99.44.

Closing Thoughts

Today’s article helped you see the value of candlestick analysis as well as a real-time example with USDJPY. You were also recently introduced to an Elliott Wave interpretation to USDJPY in a recent article. If the combined tools have helped you feel comfortable enough to begin trading USDJPY or other pairs.

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

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Talking Points:

• The Risk-On News Out of Japan
• The Risk-On Effects of CHF
• Key Levels on AUDCHF

On Tuesday, April 15th, many traders who focus on Japan heard something they wanted to here. On the surface it sounds bad for the outlook of Japan but it was enough to encourage traders around the world to look at this event as a potential trigger for the next round of QQE from the Bank of Japan.

Learn Forex: Global Equity Markets All Spike at the Same Hour on the Same News



Here was the news that shocked markets into risk-on around the world:

JAPAN TO DOWNGRADE ECONOMIC ASSESSMENT IN APRIL REPORT: NIKKEI

This was enough to keep traders focused on the same stimulus that’s been in play for a long time, Quantitative Easing. The argument went like this. Because Japan will downgrade their economic assessment, the road has been paved for the Bank of Japan to introduce another round of Quantitative and Qualitative Easing or QQE which is a powerful force to push equities higher and push down the home currency, the Japanese Yen.

The Risk-On Effects of CHF

Many traders know the Japanese Yen & the US Dollar as a risk-off currency. This means that in a risk-off environment, many institutions in Japan sell global equities and rush into Japanese Government Bonds or JGBs. In addition to the incredibly large institutional money in Japan, money managers all over the world look to safety from the US Treasuries, which are seen as some of the safest in the world and to buy US Treasuries, one must do so through the USD. Therefore, in times of extreme risk-off, you’ll often see the USD strengthen through US Treasury purchases or JPY strengthen through JGB purchases.

Another key currency to strengthen in times of duress is the Swiss Franc (CHF) In fact, the CHF strengthened so much in 2011 that the Swiss National Bank had to step in to prevent the CHF from strengthening too much and hurting their export portion of the economy. Many attribute the flat inflation figures in Switzerland that make the “Swissy” as a global risk hedge.
However, the risk-off environment that favors CHF longs makes a risk-on event favorable to sell the CHF. The question then becomes, what is a favorable currency to buy against the Swiss. This brings us to a Strong Weak comparison that shows how AUD or GBP may be a favorable set-up.

Learn Forex: Strong Weak Comparison with a H4 Chart Against the 200-dma



Key Levels on AUDCHF

While there is more than one strong currency, the strongest currency across the majors has been the Australian Dollar based on relative price action. After having a rough 2013, the Aussie is making up for lost ground. When Ichimoku is combined with AUDCHF, you’ll recognize that a bullish environment was just confirmed for the first time since Oct. 2013.

Learn Forex: AUDCHF Bulls Just Awoke From Hibernation




Before we breakdown the Ichimoku set-up, you should look at the other factors at play on AUDCHF. First and foremost, you’ll notice that the 200-dma (yellow) has currently stopped price. However, if that breaks, you’ll notice an upward channel (blue lines) as well as an Inverse Head & Shoulders (yellow circles) which is a bullish reversal pattern. This confluence of different chart patterns shows you that many traders who utilize different charting methods could be chasing AUDCHF higher in the near-term.

Learn Forex: Ichimoku Set-Up on AUDCHF



Entry to Buy: Price Close > 0.8290 (Corrective High)
Protective stop: 0.8135 (Below the Recent Corrective Low)
Limit:0.8522 - Based on Monthly Pivots (R2) & Fibo Expansion Target
Risk: Reward: 1: 1.533

If this is your first reading of the Ichimoku report, here is a quick run-down on buy side rules:
-Full Candle Bodies above the Kumo Cloud
-The trigger line (black) is above the base line (light blue) or is crossing below
-Lagging line is above price action from 26 periods ago (Bright green line)
-Kumo ahead of price is bullish and rising (blue cloud = bullish Kumo)

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

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Talking Points:

• Interest rate expectations are a major driver of currency movements
• A strong economy raises expectations of higher inflation and higher interest rates
• Three GBPUSD doji candlesticks form a narrow range channel that may precede a large breakout

Since bouncing from a low of 1.6655 on 4/15, the recent GBPUSD has stalled in three grueling days of consolidation in the 1.6800 neighborhood. Though the pair briefly poked above the recent 4/10 high of 1.6819, sellers quickly overtook the advance. Light holiday trading has left this pair in limbo.

However, the Bank of England’s release of minutes at 4:30 AM ET on April 23rd could be the catalyst needed to get the GBPUSD rally started again. With UK economic growth expanding more than what had been expected including an improving labor market, many economists and traders are expecting the Bank of England members to talk about reducing stimulus and outline a path toward interest rate normalization. Expectations of higher interest rates are a chief driver of currency movement moreso than the actual rate announcement.

Learn Forex – GBPUSD Triple Doji Price Pattern




Examining the chart above, the GBPUSD daily chart has printed three consecutive doji Japanese candlesticks. The doji represents indecision because the range within the candlestick is very narrow. In fact, doji and spinning top candles are referred to narrow range bars. These candlesticks usually precede big breakouts.

Each doji candlestick has a different height, so we would take the tallest doji to use as our breakout entry point above 1.6844. In addition, we would use the doji candlestick with the longest lower wick to establish our stop in the 1.6775 area.
Traders may find it difficult to resist the temptation of getting long on the first breakout candle even though highest doji wick has not been cleared.

Price may even move sideways within the range of the wick extremes of each of the two dojis. But with GBP within striking distance of 5-year highs against the US Dollar and a strong economic recovery, traders may push GBPUSD through the breakout area.

Learn Forex – GBPUSD 3-hour Narrow range




How to Trade this Range Breakout

Setting an entry order above 1.6845 is one way of participating in this move without having to wait around your computer. A limit can be placed at the August 2009 high of 1.7044 and a stop below 1.6775. An alternative method would be to wait until after GBPUSD breaks above 1.6845 and then look for price to return back to test the breakout point. An entry order at 1.6845 could be waiting for GBPUSD return. The extremely bullish scenario prevent the pair from returning to the “scene of the crime.”

Some of you may be asking about trading a bearish breakout below support. We can use a 200-day simple moving average filter which allows us only to take bullish breakouts when a currency pair is trading above the 200 SMA or take bearish breakouts below the the 200 SMA. GBPUSD has been in a strong uptrend and the odds are that this trend should continue. On the other hand, if GBPUSD does break down below support, then "no harm, no foul" we move to another trade and avoid the countertrend trade.

---Written by Gregory McLeod Trading Instructor

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Talking Points:

• RSI is a momentum oscillator that can help pinpoint market trends
• RSI can stay overbought for extended periods in an uptrend
• Indicator divergence can signal changes in momentum as well as entry signals

RSI is a momentum oscillator that has become a staple for technicians across markets. While most traders may know how to read RSI, there are some tactics that can be employed for trending markets. Today we will continue our look at indicators by reviewing RSI divergence in trending market. Let’s get started!

RSI and the Trend

Normally when traders first use RSI they immediately gravitate to trading every overbought or oversold crossover the indicator offers. While there are merits to considering a crossover based strategy, it is important to help filter these signals with the trend. Using the example below, we can see the EURUSD currency pair trending towards higher highs. At the same time, by the design of the indicator, RSI can remain overbought for an extended duration as price continues higher.

Knowing this, traders should avoid RSI signals to sell as prices continue upward towards higher highs. So how can traders use RSI in a strong trending market?



Positive RSI Divergence

RSI divergence is a great tool for trend traders to use to help filter RSI entry signals. The word divergence implies that we are looking at price separating from our indicator. This can easily be identified on the chart by identifying two points to begin on our graph. In an uptrend, if price is retracing and moving towards a lower low but RSI is forming a higher low this can be used to trigger fresh buy orders. The idea is to buy when momentum is returning to the market. As RSI moves higher it can pinpoint just that.

Below we have an example of positive divergence and RSI at work. There are two potential entries highlighted below. The first uses a traditional RSI crossover for entry. If stops are placed below a swing low, traders would have been exited for a loss on this position. From this point, as the market continues toward a lower low, RSI begins to form a higher low. This is a strong signal that momentum is returning in the direction of the trend. Traders then have the ability to trade the next RSI signal and enter the market upon the trends continuation.



Trading a RSI Strategy

As you can see RSI and positive divergence can be great tools for trading trending markets! Now that you are more familiar with one of the many uses for RSI, you can begin working with the indicator in your trading.

---Written by Walker England, Trading Instructor

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