Trading Support and Resistance

Sunday, 28 January 2018 10:22

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 01

Monthly Forecast January 2018

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

For the month of February, we maintain long EUR/USD and GBP/USD.

Weekly Forecast 28th January 2018

Last week, we made no forecast.

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

This week has been dominated by relative strength in the Swiss Franc, and relative weakness in the U.S. Dollar.

Volatility was much higher than it was last week, with more than 40% of the major or minor currency pairs changing in value by more than 1%. Volatility is likely to be higher still 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 one of these key pairs last week off key support and resistance levels could have worked out:

AUD/JPY

We had expected the level at 88.39 might act as support, 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 hit this level during the Asian session last Monday, which can be an excellent time of day to trade currency crosses based upon Asian currencies such as this one. A possible entry was signaled by the bullish engulfing candle which formed immediately after the price was hit, marked by the up arrow within the chart below. This long trade gave an acceptable maximum reward to risk ratio of more than 2 to 1, if the stop had been placed just below the swing low at the entry candlestick.

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

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