January, 2011

General Information — Comments Off
31
Jan 11

EUR/USD Facing Major 1.3740 Resistance Area.

After an extremely choppy and turmoil week of trading last week, we are starting to see markets settling a bit to give us some swing trade setups. Here we see one on the EUR/USD 4 HR Chart. I’ve highlighted in blue the top resistance area of 1.3740-1.3770 that we bounce off late last week but have come back to retest. As long as this resistance area holds we maintain a longer term bearish view on EUR/USD and will be looking for opportunities to go short and this current level provides a great price to consider a short. The setup would be a short trade in the 1.3700-1.3740 area with a stop loss right above 1.3770 and an initial target of 1.3430 level (shown in green) and perhaps lower if we can break that towards the 1.2800 area. There are 2 great things about this trade, firstly, the attractive risk/reward ratio, currently at about a 5:1 ratio, more importantly this setup provides us a very nice alternative idea if we are stopped out. Clearly the blue area is a major resistance level, which means if it were to be breached and stops us out of this trade, would provide us a great opportunity to go long on EUR/USD with an upside target in the 1.4200 area.

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Play of the Week — Comments Off
30
Jan 11

EUR/USD Retracement Process

Since the dramatic breakout of the 650 pip trading range on January 21st, the EUR/USD pair has spent the week fighting to push new highs. Price made it as high as the 1.3750’s on a number of occasions, and finally sold off closing out the week with some significant bearish momentum. From the swing trading perspective, this is a normal corrective movement so far. This means the bigger picture has not changed enough to re-evaluate the general trend. In my opinion, the trend is still bullish. I am waiting for the 1.3500 area to be tested. If price can correct to this major support area, I will be looking for the price behavior to become very sluggish and start showing confirmed signs of buying. Hammers, bullish engulfing candles, higher low formations, etc., is what I will be watching for in order to establish a long position. Since the trend should still be bullish, once in a long position, I would expect a test of the previous high in the 1.3750 area and anticipate a break to new highs as well which can take this pair into the 1.3850 – 1.3900 area. As a longer time-frame trader, you should not lose sight of what is going on in the bigger picture, especially if you are trading shorter time-frame strategies simultaneously which will often give you conflicting information. Also as you evaluate the information on the larger time-frame, always be open to the alternate scenario so that if the market shows signs of major changes, you will not be taken by surprise or become stuck on one opinion. The alternate scenario here is if price breaks significant support levels and closes below these levels. A break below the 1.3550 – 1.3500 area along with staying below these levels for 8-16 hours, will prevent me from looking for long positions. At that point, I would wait to see what other information the market offers before looking for short positions. You can do this by waiting for price to bounce back to a significant resistance level and observe the price action for signs of reversing back to the bear side. When these confirmations appear, that is the time to measure your risk and look to open short positions.

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Play of the Week — Comments Off
23
Jan 11

EUR/USD Break Out Confirmation

The EUR/USD has been in a 650+ pip range over the previous few weeks and has finally chosen a side. The 1.3500 – 1.3550 level was a very significant resistance that needed to be cleared and sustained before any longs can be considered. That break came on Friday when price went back above the 1.3500 level and closed over 1.3600. This confirms the breakout of the range-bound condition that this pair has been in since November of 2010. Now that I have this confirmation, I am looking to open swing trade positions to the long side only. This requires waiting for a retracement on this time-frame which can bring the price back to the old range resistance which should now act as the new major support. That would put the price area to look for long setups around the 1.3500 to 1.3550 area. It is also possible that price can pull back a little further into the high 1.3400′s so be patient and wait for proper reversal signs before taking any longs. It is also possible that this recent move can be a fake, and if it is, then price should immediately sell off and take out the swing low near the 1.3380 area. If this happens, I will take that as a significant sign of weakness and wait for the market to give me more information before opening any positions. A sustained support break of this kind will imply that price is on its way back into the middle or the low of the previous trading range. As a trader, you have to be flexible enough to recognize and react to alternate scenarios. If price continues in the current direction, without breaking any significant supports, I am looking at 1.3750 area as a possible profit target which can be achieved this coming week.

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17
Jan 11

GBP/USD Swing Trade Targets 1.6300

Taking a look at the Sterling 4 HR Chart, we see a clear bullish sentiment since it broke above the major trendline resistance we’ve had since early November. After breaking that, a quick rally towards the 1.5880 resistance level, we saw a quick bounce and swift break above that resistance level. Now we’re back with the 1.5880 level as support now and targeting 1.6300 to the upside. We see minor resistance at 1.6100 and 1.6200 towards that and can be used as areas to consider taking profit. The great thing about this trade just like most of my ideas is the risk/reward. I would put a stop right below 1.5880 , which at current levels make it about a 8:1 Risk/Reward ratio. Reminder: Tonight we are conducting our Swing Trade Weekly Chatroom at 8PM Eastern, for part-time traders to discuss longer term swing trade ideas. Click Here to sign up!

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Play of the Week — Comments Off
16
Jan 11

EUR/USD Watching 1.3450 – 1.3500 Resistance

The previous week has been an interesting one in terms of volatility in the EUR/USD. After breaking significant lows the week before, this pair has retraced back up through some important resistance levels that we have been watching for shorts. 1.3000-1.3050, 1.3150, 1.3250 and most importantly 1.3420. Price has pushed beyond the 1.3420 level and then backed off which is a sign of weakness. This coming week, I will be watching the 1.3450 – 1.3500 area for resistance to hold and the larger time-frame trend to reassert itself. Once price action proves that it cannot break above these levels, I will look to open a swing short position and use new minor resistance levels to place my stop. At his point, the only reference point I have to define my risk is the 1.3500 area. If price breaks above 1.3500 and sustains itself at higher levels, I will re-evaluate my scenario and stop looking for shorts. A confirmed breakout of 1.3500 will also be a break of a 650 pip trading range that began in December of 2010. When we identify important levels, and the market breaks them, it is trying to tell us something and as swing traders we must be able to utilize this information and adjust. Remember when price reaches a level that we are interested in, you must wait for price action confirmation and on this time-frame this can take 4-8 hours at least. You may not get the best price, but you will be positioning yourself on the side of the broader momentum.

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14
Jan 11

EUR/USD Short into 1.3430 Resistance Area

This ties directly into our post yesterday about the Dollar Index Click Here to see that post if you didn’t read that yesterday. As we saw the dollar index approach a major support level and we know that Dollar Index is inversely correlated to the Euro, we now see the EUR/USD approach that major 1.3430 resistance area that we’ve been eying since the holidays and was rejected promptly. This 1.3430 area should provide sufficient resistance to bring in sellers again and perhaps push this pair back down towards 1.2900 area. At current prices this represents approximately a 4:1 risk/reward ratio if we place our stops right above the 1.3430 area.

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13
Jan 11

US Dollar Index Update

These days it really helps to stay on top of the Dollar Index to get a better gauge of market sentiment and where some of the Major Pairs are headed. Since the Dollar Index is heavily weighted by the Euro (60%) it gives us a very good idea whether we should expect a range-bound or trending market. As we can see from the chart above, the index has clearly been stuck in a range since late November and so has the Euro, Late last week and early this week, we saw Euro push significantly lower and break some major support levels and we were hearing lots of traders calling for 1.25-1.20 on Euro by end of month if not sooner, but analysis of the Dollar Index would have stopped us from being trapped in effectively what is a Short Squeeze over the last 2 days. Dollar Index moved to the top the range as Euro pushed towards the 1.2880′s but clearly never broke above that 81.50 resistance level. Now, we clearly see a test of what’s clearly a support level for the Dollar Index at the  79.10-79.20 area. This is significant because we expect to see a nice sized moved whether this bounces or breaks below with an attractive risk/reward on either side which we can trade through the EUR/USD Pair. We have a Bullish bias on the Index (Bearish on Euro) since this is a very clear support area and Indicators are showing that it is fairly oversold, but a break below isn’t completely out the question if the Euro Debt Crisis sees some kind of recovery.

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12
Jan 11

EUR/GBP Swing Trade Setup

Looking at a 4HR chart for EUR/GBP we clearly see that we’ve broke below the .8350 support level and has been consolidating below it for the last few days in a tight range. I’m anticipating perhaps a move lower towards the .8150 area and .8050 as an extended target below as that previous support now acts as resistance. Just like our previous trades, we are aiming for a high risk/reward ratio and on this trade we’re seeing about a 40-50 pips stop loss with targets of 4-6 times that. Reminder: We’re doing our Live Analysis of the Asian Session Webinar at 8PM Eastern. If you have any questions about trading FX, this is the time to come and ask! Click Here to Sign up!

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11
Jan 11

Reconsidering our GBP/JPY Swing Trade

This is a follow up to yesterday’s trade setup to short the GBP/JPY into that resistance zone that we were looking at, but since then, we have pierced through that level. So now we are looking at a potential long towards the 133.00 level. However with this trade, because we were stopped out on our previous trade, I would wait for a retest of that support and put in an order around 129.75 area to go long and place a stop right below 129.50 area giving us a very attractive 10:1 risk/reward ratio on this trade. Reminder: Tonight we are conducting our Swing Trade Weekly Chatroom at 8PM Eastern, for part-time traders to discuss longer term swing trade ideas. Click Here to sign up!

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10
Jan 11

GBP/JPY Swing Trade Idea: Short into 129-129.50 Resistance Zone

I’ve been following the GBP/JPY recently quite a bit as pair that has responded very well to simple support/resistance swing trade ideas and here is again one. We’ve back retesting the same resistance we saw looking at about 2 weeks back, the 129.50 level. We broke lower 2 weeks ago and prompted saw 125.50, forming a 400 pip range. Now we’re back at the top of that range with a possible short here again in the same place. This would target the same 125.50 level on this trade with stops right above 129.50 if we break above that resistance, at current prices that’s almost a 5:1 risk/reward ratio. Reminder: We’re starting or new 1 HR Night-time Chatroom on Tuesdays at 8PM Eastern specifically for part time swing traders. Click Here to sign up!

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