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 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 August 2019
For the month of August, we forecasted that the best trades would be short GBP/JPY and short AUD/JPY. The forecast’s performance to date is shown below:
Weekly Forecast 11th August 2019
Last week, we made no weekly forecast. We make no forecast again this week, as our weekly forecasts are based upon fading strong counter-trend movements, and there were no such movements over the past week.
The Forex market has continued to make quite strong price moves, with over 44% of the important currency pairs and crosses moved by more than 1% in value over the past week. Volatility is likely to be similar over the coming week, or maybe a little lower.
Last week was dominated by relative strength in the Euro, and relative weakness in the British Pound.
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 1.1244 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 how the price rejected this level towards the end of last Tuesday’s New York session (a great time to trade U.S. Dollar currency pairs such as EUR/USD) turning bearish right away with a pin candlestick marked by the down arrow signaling the timing of the turn. This trade was very profitable, achieving a maximum positive reward to risk ratio of approximately 5 to 1 so far based upon the size of the entry candlestick.
We had expected the level at 72.65 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 how the price rejected this level during last Tuesday’s Asian session (a great time to trade fully Asian currency crosses such as AUD/JPY) turning bearish right away with a pin candlestick marked by the down arrow signaling the timing of the turn. The pin candlestick had a relatively long wick, which was a good sign indicating the bearish turn had probably started with this candlestick. This trade was nicely profitable, achieving a maximum positive reward to risk ratio of a little more than 3 to 1 so far based upon the size of the entry candlestick.
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.