Trading Support and Resistance - 30 October 2016

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By: DailyForex.com

This week we’ll begin with our monthly and weekly forecasts of the currency pairs worth watching. The first part of our forecast is based upon our research of the past 11 years of Forex prices, which show that the following methodologies have all produced profitable results:

* Trading the two currencies that are trending the most strongly over the past 3 months.

* Assuming that trends are usually ready to reverse after 12 months.

* Trading against very strong counter-trend movements by currency pairs made during the previous week.

* Buying currencies with high interest rates and selling currencies with low interest rates.

Let’s take a look at the relevant data of currency price changes and interest rates to date, which we compiled using a trade-weighted index of the major global currencies:

Table 01

Monthly Forecast October 2016

This month we forecasted that the highest-probability trade would again be long NZD/USD. So far, the trade is at a loss:Table 2

 

Weekly Forecast 30th October 2016

Last week, we made no forecast.

This week, we again make no forecast, as there were no strong counter-trend movements.

This week has been dominated by relative strength in the Euro, and relative weakness in the Japanese Yen and British Pounds

Volatility was considerably less than it was over the previous week, with only 25% of the major and minor currency pairs changing in value by more than 1%. Volatility should be much greater over this coming week, as there is a very heavy news schedule with central bank input due for at least four major global economies, including the highlights of the U.S. Dollar’s regular releases as we approach the upcoming U.S. Presidential election on 8th November.

You can trade our forecasts in a real or demo Forex brokerage account.

 

Key Support/Resistance Levels for Popular Pairs

We teach that trades should be entered and exited at or very close to key support and resistance levels. There are certain key support and resistance levels that should be watched on the more popular currency pairs this week, which might result in either reversals or breakouts:

Table 12

Let’s see how trading two of these key pairs last week off key support and resistance levels could have worked out:

 

USD/JPY

We had expected the level at 105.51 might act as resistance, as it had acted previously as both support and resistance. Note how these “flipping” levels can work well. The H1 chart below shows the how the price finally hit this level during the New York/London session overlap last Friday, a time which can be crucial for this Forex market. Entry was signaled by the small bearish pin candle which formed immediately as the price was hit, marked by the down arrow within the chart below. This short trade gave a maximum reward to risk ratio of more than 4 to 1 so far, if the stop had been placed just above the high of the entry candlestick.

USDJPY

AUD/JPY

We had expected the level at 80.00 might act as resistance, as it had acted previously as both support and resistance. Note how these “flipping” levels can work well. The H1 chart below shows the how the price first hit this level right about the New York Open last Tuesday. Entry was signaled by the large bearish engulfing candle which formed immediately as the price was hit, marked by the down arrow within the chart below. This short trade gave a maximum reward to risk ratio of only about 2 to 1, if the stop had been placed just above the high of the entry candlestick. It probably would have been hard to find an appropriate profitable exit as the price turned bullish very quickly and strongly just a few hours following the short trade entry.

AUDJPY

You can trade our forecasts in a real or demo Forex brokerage account to test the strategies and strengthen your self-confidence before investing real funds.

Adam is a Forex trader who has worked within financial markets for over 12 years, including 6 years with Merrill Lynch. He is certified in Fund Management and Investment Management by the U.K. Chartered Institute for Securities & Investment.