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 September 2019
For the month of September, we forecasted that the best trades would be short NZD/JPY and short EUR/JPY. The performance to date is shown below:
Weekly Forecast 15th September 2019
Last week, we forecasted that the AUD/JPY and NZD/JPY currency crosses would fall in value. Unfortunately, both rose in value over the week, with the AUD/JPY cross rising by 1.60% and the NZD/JPY cross rising by 0.35%.
The Forex market has become more active, with 44% of the important currency pairs and crosses moving by more than 1% in value over the past week. Volatility is likely to be even higher over the coming week.
Last week was dominated by relative strength in the British Pound, 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 1.2252 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 how the price rejected this level right at the start of last Monday’s London session (a great time of day to trade the British Pound), turning bullish right away with a large pin bar candlestick marked by the up arrow signaling the timing of the turn. This trade has been very profitable, achieving a maximum positive reward to risk ratio greater than 4 to 1 so far based upon the size of the entry candlestick.
We had expected the level at 0.9946 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 start of last Thursday’s New York session, turning bearish right away with a large inside candlestick marked by the down arrow signaling the timing of the turn. This trade has been profitable, achieving a maximum positive reward to risk ratio of approximately 1 to 1 so far based upon the size of the entry candlestick structure.
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.