Trading Support and Resistance
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:
Monthly Forecast February 2019
For the month of February, we forecasted that the best trade would be long GBP/USD. The forecast’s performance so far is as follows:
Weekly Forecast17th February 2019
We made no forecast last week, as there were no strong counter-trend moves last week. We again make no forecast this week.
About 26% of the important currency pairs or crosses moved by more than 1% in value over the past week. Volatility has decreased and will probably increase over the coming week.
This week has been dominated by relative strength in the New Zealand Dollar, and relative weakness in the Japanese Yen.
You can trade our forecasts in a real or demo Forex brokerage account.
Previous Monthly Forecasts
You can view the results of our previous monthly forecasts here.
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:
Let’s see how trading two of these key pairs last week off key support and resistance levels could have worked out:
We had expected the level at 1.1256 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 rejected this level right at the start of the Asian session last Wednesday, marked by the up arrow in the price chart below, forming a clear bullish engulfing candlestick as part of a bullish v-formation. Such candlestick structures are often useful indicators of reversals when their wicks or the wick of the structure reject key levels. This trade was profitable, achieving a maximum positive reward to risk ratio of approximately 2 to 1.
We had expected the level at 0.7054 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 rejected this level during the Asian session last Tuesday, marked by the up arrow in the price chart below, forming a very large bullish outside candlestick which closed bullishly right at its high. This took a long time to push the price up further, but it eventually did. Such candlestick structures are often useful indicators of reversals when their wicks or the wick of the structure rejects key levels. This trade has been profitable, achieving a maximum positive reward to risk ratio so far of more than 2 to 1.
That’s all for this week. 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.