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 January 2020
For the month of January, we forecasted that the best trades would be long EUR/USD and long NZD/USD. The performances to date are as follows:
Weekly Forecast 12th January 2020
We made no weekly forecast last week, and we do the same this week, as there were no strong counter-trend movements last week.
The Forex market has shown decreased activity, with only 11% of the important currency pairs and crosses moving by more than 1% in value over the past week. Volatility is likely to be higher over the coming week.
Last week was dominated by relative strength in the U.S. 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 1.3194 might act as resistance, as it had acted previously as both support and resistance. Note how these “flipping” levels can work very well. The H1 chart below shows how shortly after last Tuesday’s London session began, the price bounced strongly off that level, forming a bearish inside candlestick marked by the down arrow in the price chart below, which immediately broke to the downside. This trade has given a good maximum reward to risk ratio so far of just under 4 to 1.
We had expected the level at 107.78 might act as support, as it had acted previously as both support and resistance. Note how these “flipping” levels can work very well. The H1 chart below shows how just after Wednesday had opened for trading in Asia, the price bounced strongly off that level, forming a bullish engulfing candlestick marked by the up arrow in the price chart below, which immediately broke to the upside. This trade has given a maximum reward to risk ratio so far of just under 3 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.