Trading Support and Resistance

Sunday, 17 December 2017 11:08

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 16 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 101

Monthly Forecast December 2017

For the month of December, we forecasted that the best trades would be long EUR/USD, long GBP/USD, and long USD/JPY. The performance so far is as follows:Table 02

 

Weekly Forecast 17th December 2017

Last week, we made no forecast, as there were no strong counter-trend movements.

This week, there were several strong counter-trend movements, so we forecast that over the coming week, the GBP/AUD and GBP/NZD currency crosses will rise in value, while the NZD/USD currency pair will fall in value.

This week has been dominated by relative strength in the New Zealand Dollar, and relative weakness in British Pound

Volatility was slightly higher, with 29% of the major or minor currency pairs changing in value by more than 1%. Volatility is likely to be about the same over this coming week. 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:

EUR/USD

We had expected the levels at 1.1806 and 1.1848 might act as resistance, as they had each acted previously as both support and resistance. Note how these “flipping” levels can work well. The H1 chart below shows how when 1.1806, when first hit, it produced a bearish inside candlestick coming just after a previous pin candlestick. This trade made a maximum reward to risk ratio of almost 3 to 1 if profit had been taken optimally. After that trade was stopped out, later in the week the price rose to reach the resistance level at 1.1848, and immediately produced a large bearish outside candle which gave a good short trade entry, which would still be open.

EURUSD

GBP/USD

We had expected the level at 1.3456 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 this level, when first hit during the week, after a couple of candles finally produced a bearish inside candle. The formation was printed at about the same time as London opened, which can be a perfect time to enter a trade in this currency pair. This long trade would have produced an attractive maximum reward to risk ratio so far of about 4 to 1.

GBPUSD

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. Learn more from Adam in his free lessons at FX Academy.

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