Update: EURUSD Monthly chart

I am often asked if I give signals to buy and sell. I suppose the answer is yes and "know." I generally don't tell others in real time when I am buying here or selling there. I tend to teach others my methods and let them make educated choices. In the interest of putting it all together I do post updates from time to time. Previously in a monthly chart of the EURUSD I wrote the following

"You will also see three yellow dots that high light 3 spike lows (1.4310, 1.4365, 1.4439) at that area of support and resistance."

It took price a few weeks to get into this area but for those of us who scaled in at each of these levels (discussed in a post previously) or entered at the 1.4439 area (riskier since the most extreme area doesn't always get hit) were rewarded with a nice trade, up to +380 pips.(Though 1.4110 area was a safer exit which was still over 300 pips) . Using support and resistance areas for entry, stop placement as well as profit targets is the way to make money in these markets. Just make sure all three are taken from the same time frame. Good trading to all

Areas to watch on the GBPUSD 1.7005-1.7203

Update. Our first sell out of this area has yeilded over 300 pips. The push seems to be to the upside so I'm content with this move for now.

AUDUSD TRADE

Target area reached! +135 pips

Update

Buy AUDUSD @ .7705 - .7675 area & target .7873-44

This level finally hit last night. Up +108 pips so far.

For a detailed Chart Click here

Home, Home on the Range

"Home on the Range" is the state song of Kansas. Dr. Brewster M. Higley originally wrote the words in a poem called "My Western Home" (early 1870s) The poem was first published in a December 1873 issue of the Smith County Pioneer under the title "Oh, Give Me a Home Where the Buffalo Roam." All it needed was a little music which a friend of Higley's, named Daniel E. Kelley gladly provided. I mean, what are friends for if not to encourage and even partner in your endeavors? Higley's original words are similar to those of the song today but not identical. (For all you “Home, Home on the Range” purists out there) The song was adopted by settlers, cowboys, and others, who spread the catchy little diddy across the USA upon their whistling lips in its various forms. It wasn’t until the early 20th century the song received formal arrangement by Texas composer David Guion (1892-1981) who is often credited as the composer. It went on to be officially adopted as the state song of Kansas on June 30^th, 1947 and is commonly regarded as the unofficial anthem of the western United States commonly referred to as the American West.

Not only is “Home, Home on the Range” a well recognized song from those thrilling days of yesteryear, it is also good advice for FX traders everywhere. Since the market spends more time in a range than a trend perhaps it is in the range where we need to feel at home.

It always amuses me when a so-called expert trader makes a statement such as; “the markets we are in now can’t be traded” or “these are the kind of markets where traders get chewed up” or some other form of similar statement equally planted firmly on the foundation of (to borrow from H. Norman Schwarzkopf, jr. General, US Army ret.) bovine scathology also know as B.S.

Here is what chews traders up, pure and simple, trying to pick tops and bottoms inside the previous days range, end of story. What does that look like? Well pull up a chair.

First, why do we want to catch a top or bottom in a move? We want to nail the utmost tick and ride up or down for 300 pips of profit, (oh greed) come back in a few hours and cash out (laziness) and head to the club for some tennis or catch some rays out by the pool. So if that doesn’t work then what? Do we sit glued to our screen day in and day out and try to scalp trade for 5 pips here and 5 pips there, is that the key to success? Probably not. Oh, don’t get me wrong, most of my trades are short term trades (at least in a ranging market) but they never play out as stressful as I just described. And believe me, we can catch the big runs with the right training.

Economics 101. There are three phases to any market. First there is the accumulation phase. In FX, this can be described as the big boys (institutions and hedge funds) buying at low, low fire sale prices. They come in and they overwhelm the sellers and price rises, they pull out when price gets too high and the market fizzles and falls to where or near where they bought before and they buy again. This process repeats over and over again, day after day until the big commercial traders have acquired enough inventory at the price they wanted. This action manifests itself in the market as a ranging environment with strong support. Remember, as we have talked about in the past, support = demand.

Then price breaks to the up side and the trend begins. We enter the second phase of the market, the trend (in this example an up trend) This is where everybody (I mean everybody) is an expert and anybody can make money, from housewives to real estate agents. This is where every system seller is a prophet of profit because the dirty little secret that nobody tells you is everything works in a trend. Take your pick, moving averages, bollinger bands, psar, MACD, stochastics and a myriad of others and combinations thereof.

Why? ....... Because the market is trending and all we are really doing when the smoke and mirrors are taken away is trading pullbacks to support and buying with the trend. Only the stubborn bear traders lose money in this market. W.D. Gann (whom I believe was an excellent chartist) said, “you have to be a bull in a bull market and a bear in a bear market.” After the market goes so long and so far (beware the asset bubble for all good things come to an end) it finds resistance. The little people, the retail traders have fueled so much wealth for the big boys, the economy is showing stress, fundamental stress the commercial traders are adept at reading and the mainstream media is great at ignoring. Trading markets through the eyes of media headlines reminisces of a certain Caesar fiddling while Rome burned.

Now we enter the third phase of markets, called distribution. This is best described as the big boys (institutions and hedge funds) selling at retail prices to a desperate crowd of Christmas shoppers. They unload their wore out wares to a thankful market, all too willing to pay top dollar. This plays out as a ranging market as well, only with strong resistance. Remember, resistance = supply. Institutions sell until buyers run out of dough and with no one to snatch up supply, price falls only to find a new wave of buyers come in and send price up again. This scenario plays out again and again until the big boys are out of inventory and the music stops. (Do wah diddy --- diddy dum --- diddy do --- annnnnd cut!) There stands the retail trader without a chair. With no buyers behind them, the joyride is over. We step back into the trend phase, only this time it’s a downtrend and it’s really ugly. Long covering fuels the ride down and the market gobbles up gains like cupcakes at a bake sale.

Here’s how it looks on a chart of the EurUSD.

For a detailed image Click Here

“Knowledge comes by eyes always open and working hands; and there is no knowledge that is not power,” says Ralph Waldo Emerson. What I have just demonstrated will save a whole lot of traders starting out from loss, which is my sole purpose of posting these articles at all.

Support and resistance works in all markets and will be the most effective when adjusted to the present phase. As I said, trying to pick tops and bottoms inside the previous days range is what chews traders up and spits them out, broke and broken. S&R style trading is good at finding reversal points only when a trader trades on the edge.

HUH? ...... Every currency has a daily range and it is easy to figure out. Use the indicator (I can’t believe I just said that) ATR (Average True Range) and set it to 10 on a daily chart. This will take the last 10 days highs and lows and average them out to a number. What ever that number is the 10 day average range in pips for that currency pair.

In the EURUSD Chart below we see the current 10 day average true range is 103.

For a detailed image Click Here.

Now you know how far that currency can go in one direction before buying or selling typically becomes exhausted. Now apply that price to the NY close in both directions and you have a top and a bottom extreme price, i.e. the edge, good for the next 24 hours of trading. Here is what it would look like on a EURUSD 1 hour chart.

For a detailed image Click Here.

Price may not get there yet if it does man oh man a reversal is a high probability trade so we look for a key support or resistance area near these levels. Lets look at how the above chart played out on the chart below.

For a detailed image Click here

Scrolling through the different time frames we find an OBVIOUS level of support on the 4 hour chart near the Average True Range level at 1.3837. This is a high probability buy. Update: It ended up being a 50 pip trade on the day.

But wait theres more, in addition to this we look at the previous day high and low. If price hits the high of the previous day first in the Asian session we go short, If price hits the low of the previous day first in the Asian session we go long. In ranging market these are high probability trades.

Here is one of many, many examples from the EURUSD.

For a detailed image Click Here.

I say the Asian session because a whole new wave of players come in at the London open. The world moves from it’s lowest trading volume (Asia) to its highest volume (London) at this time. You may ask, “… and ...ah... what if the trade breaks higher or lower in Asia or London?”

Here’s a chart.

For a detailed image Click Here.

In trading as in life we need two plans, one for when things go right and one for when things go wrong. Say we go short because price goes up and tags the previous day high during the Asian session but doggone it all price breaks above and finds support at that level. What to do? Well if we are not right we need to get right so we reverse our position go long, accepting a breakeven to small loss on the first trade.

Coincidentally that is how you use S&R trading in a trend. You buy resistance turned support in an uptrend and you sell support that has become resistance in a downtrend. In other words, we buy and sell the pullback. Heres how it looks in an uptrend.

For a detailed image Click Here.

The really good news is when these markets range like this and you trade this way, it sets you up to be in first when the trend emerges. It is a great place to be. So the next time someone tells you these markets can’t be traded, you can tell them to “stuff it!” because you know better! ;-)

BUY USDCAD @ 1.1482-1.1521 area and target 1.2440-1.2532

There are arguments for a deeper correction in the short term down into the 1.10 area. So I would exercise caution and keep stops tight. The lower USDCAD goes the more bullish I become at least until something changes (like oh say Oil at 110 a barrel)

Top down analysis

It doesn't matter if you want to trade intraday or for extended periods of time, it is essential to be aware of the big picture. Here is a monthly chart of the EURUSD.

For a detailed image Click here

You will first of all see the trendlines drawn to Tom Demark specifications. Second you will see an area of support and resistance (1.4634 - 1.4582) that has been tested from above and below once already. You will also see three yellow dots that high light 3 spike lows (1.4310, 1.4365, 1.4439) at that area of support and resistance. These represent 3 attempts to push price lower through this area and they ALL failed. These are potential areas price could react to if they attempt to push higher from here. Just by looking at this one chart we see there is upside potential but we don't want to get too heavy to the upside unless we want our long covering to be the fuel for the next wave down (not a good plan, ask me how I know).

So often I hear people express their desires to be "in the know" about what banks and hedge funds are doing. Aside from having the actual "deal flow" at any given moment which will absolutely tell you if price will go up or down from here, (and which you will never get unless you work at the dealing desk of an institution or broker) this is it.

This is what bank analysts do. The look at patterns. They draw trendlines and channels. They perform top down analysis. They draw fibonacci and look at retracement levels and extension levels. They look for divergence on oscillators. (the only real value of an oscillator)

In other words, they do what you can do. The difference is thay have been trained how to do it. If they can do it, so can you. Start with the monthly chart and work your way down to the smaller timeframes.