End of the month and quarter
The end of the month and the quarter today certainly provided the typical market volatility that often comes with such significant endings. Profit taking came in in a big way after lackluster ADP report and Chicago PMI data, giving strength to the dollar, especially once traders realized that the GDP data was a bit better than expected. Today I was lucky: I noticed that the GBPUSD pair had risen strongly in both the Asian and London sessions with no retracement, it is very rare to see one pair rise in all three sessions, so I figured this should be a nice short opportunity. But three equally compelling reasons supporting shorts were these: price on the hourly GBPUSD chart came to hesitate perfectly at the 200ema, which was also the weekly pivot point, which was also the 50% retracement of the recent down move from 1.6460 to 1.5750: all at 1.6120. Too perfect. I knew that there was quite a bit of econ news coming out in the next few minutes, but I made the decision to enter short at the close of the 8am hourly candle which closed as a doji. I decided to try for 100 pips initially. Sure enough, as ADP news came out, my short kicked into high gear. The GDP data being dollar positive also helped my trade, and the poorer than expected Chicago PMI is what was really got the overall markets into a selling mode. I figured that end of the quarter would be a take profit day most likely. It only took two hours before my +100 pips profit was hit. All in all, it was a good month of trading: +758 pips total, 77% winners, 2.6 profit factor. Again this month I only traded GBPJPY and GBPUSD. Time to check the monthly candles closing today to see how it looks going forward. Hmmmmm, red candles, and both pairs closed monthly below their 5emas. Down continuation is expected. Good trading!
EURUSD daily doji, at a monthly reversal pivot
Friday price action has closed with a gorgeous doji on the EURUSD pair, the daily chart, at an important resistance level going back to December. All week the quickening death of the dollar catapulted the euro up and out of its recent range, a 330 pip green candle for the week, directly to touch the upper bollinger band on the weekly. Is this daily doji a signal for a reversal? Incidentally, 1.4589 is also the monthly M4 pivot, a typical reversal pivot. Nice that price closed today below it. Fundamentally I see no reason for the dollar to strengthen at this point, but this could certainly just be readying for a technical bounce. This week’s move was so strong that price has not even touched the daily 5ema for the past three days. It is very, very likely that price will pull back to at least the daily 5ema on Monday, around 1.4500. Monday’s close will be important, whether significantly below the 5ema or not, possibly confirming some sort of reversal pattern like an evening star. We may even see a similar action like what happened the beginning of August, price rounding over to retest the daily 50ema, only to resume the up trend then. Personally, I may wait for a confirming daily close below the 5ema to begin some shorting next week. Of course, price closing above the 5ema, or continuing up to higher highs negates the shorting idea. Good trading.
USD index breaks out of its triangle formation
The U.S. dollar has been enjoying a respite from its declining value over the past two months, as evident on the dollar index chart. A triangle formation has been broken this week, an important support at 80.00, as another nail bore into the dollar’s coffin when the TIC data reported that foreign demand for long-term U.S. financial assets dropped by the largest amount in four months. This after the Fed’s announcement of its dollar printing strategy earlier this year which kicked the widespread dollar selling into high gear. So, down she go. The dollar index now just needs to break the 79.00 level decisively for further weakening to really get going. Similar consolidation patterns are seen on the EURUSD and the AUDUSD, both appear to be readying for a breakout to the upside. EURUSD 1.5000 looks to be soon on the horizon. It is so nice when the fundamentals and the technicals both agree. Only seeing the dollar index claw back above 81.00 would cause me to reassess my plans of continued dollar shorting.
End of the month and quarter: confidence reigns
It is hard to believe that 2009 is half over today! For those of us who have been “the glass is half empty” because of the recession/depression/economy gone bad, maybe the second half will be better. But for intraday forex traders, this market has actually been quite nice for making consistent pips, especially this second quarter. Typically I pull in about +200 pips per week, but my average has actually increased to almost +250 per week in the past few weeks. The thing with forex trading, as soon as you start to celebrate your wins, you may get knocked down a few notches with some losses, but so far so good. In June my average weekly winning percentage actually decreased from 82% to 79% winning trades, but my losses have been lower, therefore my overall pip intakes has increased. Pretty cool. I guess I am quite a geek for being so interested in the statistics of forex trading, but truly it is just as important to track all of that each and every week, as it is to actually do the trading. The reason: it will improve your confidence immensely in order to properly act at each trade opportunity rather than second guess yourself. I “feel” better about entering a trade when I have my trade entry confirmation when I know that they past 4 weeks I have seen 80% of these exact trades do win. It makes me sweat less. Along with the confidence of consistent trading, tracking the stats week in and week out will help you determine best days of the week to trade, best times of the month and year to trade. These markets are so cyclical. I have mentioned before in another post that during different times of the year the New York session is good and easy trading, while other times the Asia and/or London are much better and smoother. One way to track your weekly/monthly/yearly trading performance is to track your profit factor. Profit factor is your Gross Profit divided by your Gross Losses. For example: if you make 10 trades in June and 7 are profitable for $15,500, and 3 are losers for $4,100, your profit factor is $15,500/$4,100 or 3.78. The goal is to keep your profit factor consistently about the same, and definitely above a 1.0 profit factor, which is break even. It will make you feel pretty good when you master your trading strategy each month with a consistent profit factor, and the cash you made will make you feel pretty good too. July here we come!
GBPJPY evening star candle pattern
The GBPJPY daily chart confirmed an evening star reversal candlestick pattern at today’s close, and into this evening’s Asia trading price has fallen quite hard on this pair already. For weeks now I have been happy to be buying up this pair at every chance but now with this confirmed reversal pattern I suspect price is ready to retest the daily 50ema, now near 151.00. The negative divergence outlined on the CCI indicator also indicates that a large retracement is looming. I like this pattern better than the recent fake out similar pattern eight days ago, which did confirm but then promptly again re-entered its upward channel the very next day, it faked me out pretty good and I took about a -50 loss on it. But the reason I like this most recent evening star pattern is that it is coupled with the negative divergence on the CCI and the CCI is already pointing down and back through the 100 line. I am thinking that the GBPJPY price action may end up making a large down pointing head and shoulders pattern, with a neckline building at the 155.00 level. If that does happen then I will be looking for price to continue to fall to the 155.00 area this week, then see if price rebounds to indeed build a right shoulder around 160.00. If price does get there, then I will enter a short trade there back to 155.00. But I am getting ahead of myself here! First, I will look for more shorting opportunities down to 155.00. I expect 155 to hold support but there is also a chance that price will knife through there and head on to the daily 50ema near 151.00. Good luck and good trading.
USD index sinks toward critical support
The US dollar index sank to 79.29 so far today, toward a critical support sitting at 78.50 that held back in December 08. The fundamentals are clearly in control of this currency for now, but contra traders are looking for an opportunity to jump into long dollar trades once the greenback finds some support around this level. The dollar should find some resilience, it cannot fall like a rock, right? EURUSD is reaching for 1.4150 - 1.4200 which was reached when the USD index hit this support level. I am watching the Dow as it may start a new dip today or next week, bringing some money back into testing the old “safe haven” drill of buying up dollars. In the longer term I am still bearish the USD, but a good retracement is likely at this point in my opinion. The weekly EURUSD 100ema is sitting daintily at 1.4225, that could be the target for longs to get out, and for shorts to get in. Cheerio.
Riding the 5ema
I like to use the 5ema on the daily chart to determine my bias at the beginning of my trading day. Since lately I have been using the GBPJPY for my intraday trading, I have included my daily chart with the 5ema in red. It is a fair assumption that if the daily candle closes above the 5ema, it is likely to continue moving up for the next day. Conversely, a close of the daily candle below the 5ema would signal the likelihood that the next day’s price action would also move down. This very simple method of determining direction is not 100%, but in my experience it does work about 80% of the time. Last week was a spectacular week on this pair for intraday trading. The white arrow shows Monday’s price action, crossing from bottom to top over the 5ema. My bias on this pair was DOWN on Monday, since Friday’s close was below the 5ema. So on Monday morning I looked for a good entry for a short and entered, but quickly price ran against me and I closed my trade for -52 pips. But with Monday’s candle closing above the 5ema, my bias then turned to upside. In fact all of my trades on this pair remained with a buy bias, and I made about +100 pips on each trade, 4 days in a row. Not too shabby. The key to this method of finding trade direction bias is to just look at the daily close in relation to the 5ema. Do not let the wicking price action during the day trick you into a contrary trade. This happened several times last week where price fell back down, reaching below the daily 5ema but only to actually end the day back above the 5ema level, signaling a continuation in the upside bias. Taking profit on this type of trading is up to you. For me, a cool 50-100 pips per trade is perfectly good. I like to look for entries at the hourly 20sma or the bottom bollinger band if I am upward biased. This way my stop loss can be placed just 40 pips below that, a good risk/reward trade. Good trading!
USDJPY perfect neckline test for further downside
The USDJPY made a perfect bounce and test of the neckline at 96.50, an excellent entry for shorts looking to cash in on the large head and shoulders pattern on the daily chart. Price is currently testing an important support at 94.50, historically an important level. Beyond that, 93.60 and 92.40 are the next supports to target before the final target at 89.50. Meanwhile price also still remains in the newly formed down channel, and if price continues downward inside this channel it will take all summer to reach the final target. Of course, with the US dollar in such bearish sentiment currently, it is likely that the USDJPY will break down through the lower channel line more quickly. All eyes are definitely watching the action on the dollar, many economists and the like have been waiting for dollar weakness to kick in in a big way ever since the US government’s stimulus actions, bank bailout, and essentially dollar printing should impact dollar based currencies profoundly. Today’s release of the FOMC minutes from last month’s meeting again prompted more dollar selling when the news showed the Fed is not against additional buying up of treasuries, a sure-fire way to kill the currency. Best bet for us currency traders: sell the dollar, sell the dollar big. Good trading.
USDJPY: brilliant week
After pointing out the two head & shoulders patterns last Friday, the USDJPY tested the neckline of the smaller inverse pattern after NFP last Friday and never hesitated, falling all week this week to break the larger head & shoulders pattern neckline near 96.50. Attached is the daily chart of this pair, with the obvious pattern in view, neckline is in blue. The nearly 400 pip move this week is surely a precursor of what is to come in the coming weeks. Since the neckline of this larger head & shoulders pattern broke, I am expecting further downside, potentially all the way to 89.60 area. The new dotted white lines outline a new down trend channel that has also emerged. Any price pop ups should be good for selling into, as long as this new down channel upper line holds. In fact, with large patterns like this one, and such a large move this week, I would not be surprised if this pair continues its fall without much retracement at all. Target for the pattern points to 89.60 area. Only price above the newly formed down channel would make me reconsider shorts.
Yens shorting finally worked out
The head and shoulders pattern that I identified several days ago on the GBPJPY finally broke through its neckline on Friday and the selling continued through Monday to the target. From neckline break near 147.00 to the target at 142.00, a cool 500 pip trade. Since the break happened on Friday, I shorted at 146.90 but price just ranged down and up until the close of the day. I chose to close my trade prior to the close of the day and week, it is one of my rules not to hold trades over the weekend. So Sunday evening I re-entered the trade and took a quick +100 pips. The AUDJPY also had a beautiful head and shoulders pattern on the 4hour chart, so I sold that pair at the break of its neckline at 70.39, taking +100 pips profit. Another clue to the potential break of the AUDJPY was the inside daily candle on Friday, breaking the low of that candle Sunday I figured it was quite likely that price would continue south. Monday continued the selling, I again sold the GBPJPY at 143.54 for another +100 pips. The GBPJPY trade was tricky: the original head and shoulders pattern that was first identified about 10 days ago actually failed when price bounced up off the neckline and broke above the right shoulder, near 149.00. But just two days later a completely new head and shoulders pattern developed, and this is the one that finally broke and gave up all the pips. Sometimes you gotta be flexible and patient to cash in on these patterns, especially when they are on the bigger time frames: 4hour and daily. By the way, am I upset that I did not keep my original sell trade and get all 500 pips? Nope. +100, +100, +100 = +300. That is just fine. Good trading!
Jennifer Shotts
Casey Stubbs has been trading for 14 years. He started trading in the stock market and moved to Forex. 
Richard draws from his extensive experience trading to write insightful trading articles for both fundamental and technical analysis.
Stay Updated with the most effictive Forex strategies and secrets with Jed & Kirk Norwood.