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 March 2020
For the month of March, we forecast that the best trade will be short AUD/JPY.
For the month of February, we forecasted that the best trade would be short AUD/JPY. The final performance was as follows:
Weekly Forecast 1st March 2020
Last week, we made no weekly forecast. As there were again no large and clear counter-trend price movements, we again make no forecast this week.
The Forex market is showing much more price activity compared to last week, with 78% of the important currency pairs and crosses moving by more than 1% in value over the past week. There were also several much larger price movements. Volatility is likely to remain high over the coming week and may even increase.
Last week was dominated by relative strength in the Japanese Yen, and relative weakness in the Australian Dollar.
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 1.3016 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 near the end of last Tuesday’s London session, the price bounced weakly off that level, forming a double inside candlestick formation marked by the down arrow in the price chart below, which eventually broke to the downside. This trade has given an excellent maximum reward to risk ratio so far of a little more than 11 to 1.
We had expected the level at 1.3463 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 just at the start of last Friday’s New York session, the price bounced off that level, forming a bearish pin candlestick formation rejecting that level, which immediately broke to the downside. This trade has given a maximum reward to risk ratio so far of almost 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.