Friday, February 20, 2009

Support/Resistance lines

Continuing with my post yesterday....

What time frame should be used in determining support & resistance levels?

They can be determined on any time frame chart. But what i prefer to do is  look at the daily chart & understand the trend, and mark support & resistance lines or levels.

Next i open the hourly charts & mark the trendlines, support/resistance levels on the hourly charts.

Then one looks for price action near these levels. Its best it there is a level derived from the daily chart & one is able to see a particular phenomenon around it on the hourly. Say an hourly close above a resistance lines & then a retracement to the line where price finds support & then a move back above the high of the previous hour. This would be a perfect sign of strength.

See, one can also wait for a close on a higher level time frame. So one can wait for a daily close above the level to be very certain. But the advantage with the hourly close in earlier entry & thus being able to capture a greater part of the move.

So, thus you will have lower accuracy or correct calls, but earlier entries & greater profits or lower losses in case of false moves.



Thursday, February 19, 2009

AUD-USD - Head & Shoulders



A typical head & Shoulders pattern. Lets see if neckline holds or not.

GBP - Should aim for lower end of channel



After having faced heavy resistance at 1.50 levels & from trendline resistance, gbp-usd
should aim for the lower end of the channel over the coming few days.

Euro - Former support should act as resistance



This is the daily chart for Eur-USD

1.2700-1.2750 area was the support from where prices had bounced off 3 times in the past fortnight. Finally it gave in on Monday & has not been able to break back above it since. When & if price action reaches up to that area, it should face selling pressure again. Take a short position at 1.27 with target towards lows made in 2008 near 1.22

US Dollar Index Double Top ??



US Dollar index at crucial level. If it can take out previous high of 88.21 in December successfully, we should see a continuation of the Dollar bull run. Else it will form a double top & should see a broad based decline in its value over the coming months.

Support & Resistance lines - How to draw

How does one draw support & resistance lines ?
Or how is a support & a resistance determine ?

The answer is - a lot of it is done visually. There is no particular
rule for it.

How most traders go about doing it is -

a. Look at recent swing highs & swing lows
b. Join two of them (highs or lows)
c. Extend the line
d. Now this line might act as a support or a resistance in future
e. Extend this line backwards & see if there were more such swing highs/lows near/at that line. If there are, its a confirmation that the line should act as a support/resistance.

Understand it this way

With one point (low/high) you cannot form a line. You wait for another point. With two points you can form a line - but it may not necessarily act as a support/resistance - there would be so many lines joining so many swing points - on the hourly chart, daily chart etc.

But with a 3 points on the same line, there is confidence that the lines is acting as a support /resistance.


What people also do it form parallel channels. So say they have a line formed from two swing lows. There is also a swing high somewhere in between. They will create a line running through this swing high & running parallel to the first line & then check to see it acts as resistance/support.

When enough traders do this, the line will actually act as one.


Traders look to take traders around these lines or book profits near them. Either ways it gives them an actionable event to do.


Another question - When forming trendlines on candlestick charts does one form a line using wick highs or bodies ?

Answer is - a trendline can pass through wicks, but not through bodies.



Tuesday, February 17, 2009

USD-CAD Triangle Breakout



This is the daily chart for CAD-USD. As i mentioned yesterday a break from the triangle was expected & it seems we do have a breakout, as expected towards the upside. I will be looking for a daily close above the line to have a confirmation.





The same pair, this time the hourly charts. Will be looking to go long at the current juncture & slightly below. It price comes down to test the black resistance line & finds support there (hourly close above it. Infact preferably a slight dip below the line, a pull back & close above the line would be perfect signal) I would go long there with a wider stop than usual. The expected move should be pretty large & one can make decent money.

Several of the CAD crosses too are near or at breakouts.

Euro Hourly - Broke through support



Here is the Euro - USD hourly chart. As i mentioned yesterday that 1.27 is a crucial area. Today morning price action broke through the support line conclusively & decisively. Though price has again taken support at 1.26 multiple times during the last 3 hours & has thus bounced back again.

Thats because there are multiple trend lines which converge in this region of 1.25 to 1.27, one even drawing down from the swing highs in Sept. These should provide support.

But I am looking to go short near the 1.27 area again, my stops would be defined very well. So lets see price action develop. Volatility is finally returning back again & one can see the effects across all the majors as well as many crosses & trending moves should finally develop again.

Eur-Chf hourly charts - Bullish Wedge formation



Bullish (downward) wedge on the Eur-Chf hourly

Such patterns usually resolve to the upside. But that's not a 100% surety, it could as well breakout on the downside. Price is near bottom support line. Ideal place to take a long trade. Book half profits at upper resistance line & carry the other half expecting an upside break.




Monday, February 16, 2009

USD/CAD Daily Charts - Breakout from Triangle expected



This is the USD-CAD Daily chart. I have marked out the triangle developing since October. Now
this has been in the making for over 4 months now. A breakout should happen this week or at most next week. The resulting move should be pretty large and the last leg of this major move. Greater probability is for breakout to happen on upper side as triangles are known to be continuation patterns. Further recent fundamental data seems to support the bearish view for the canadian economy. Not only that for proponents of elliot wave analysis, the wave count suggests that the triangle was a fourth wave consolidation & we should see a 5th & final wave in the form of an upmove.

Wait for the move & take a position in the direction of the move.




Aud-Yen



This is the Aud/Yen hourly chart. At the bottom is the ATR indicator. ATR - Average True Range, measures the average daily range of movement. If its quite high means the underlying is moving about quite a bit. As you can see, ATR was about 0.4-0.5 for most of the last few days. But in the past 40 hours or so, it has collapsed. As you can see from the chart that the movement in the pair was confined to between 59.4 or so & 60. Thats quite a range compression for one of the most volatile pair in the markets.

While its true that market volatility has been consistently going down over the past few days, with the strong clear trends of Oct-Jan giving way to muddled moves, this kind of compression in volatility doesnt last for long. There are periods of high volatility followed by a lull when no one is sure of the direction of the next move. But we should see a strong directional move developing soon. And the best thing would be to wait for a proper break from this range & take a trade in that direction with a stop below/above the other side of the range.

Breakout on either side should give a move of 200-300 pips, making for very good gains.




USD-CHF Channel (Update)



USD - CHF has neared the bottom of the channel. A long position can be initiated here, simply because you can then keep a defined stop of 70-80 points as a conclusive break of support.The bounce back might net you anywhere between 100-300 pips. This is why technical traders look for setups, you have a reason to enter a trade & know where to put your stops.

On the other hand, my feeling is that this time round the support might not hold. Lets see price action develop. One can take large sized shorts if 1.1520-30 gets taken out for a large 400-500 pips move.

But i will still go ahead with the long trade with appropriate stop in place.




GBP-CHF



Here we have a GBP-CHF channel in the making. As is with channels, look to sell on resistance line & buy on support. Define appropriate stop at time of entry. Buy/Sell on breakout above/below your stop.

But personally speaking, I dont have a great lot of confidence on this channel setup. But i look for technical reasons to buy & sell, rather than whims & fancies, so will trade when risk-reward is in my favour.



Pound Support line

A couple of hours back I wrote about the support line for Euro. At the very same time a similar support line for pound too was into play. Have a look



Presence of clear support lines for both the currencies meant that there was greater probability that support would hold out in general. We've now seen around 6 hours of price action after test of support, infact a double dip test if you look more clearly & it seems that there are buyers out in the market at these price levels which is supporting the price. Look to buy on dips, just like in this pic above & keep a stop about 50-80 pips below support.

I would look to book profits when price action reaches near the resistance line joining the swing highs on 9th & 13th of feb.

USD-CHF (Dollar - Swiss Franc) Hourly Charts Channel



A very well defined channel on the hourly charts of USD/CHF. While the top line (resistance) has been tested thrice, the bottom one has withstood multiplte tests. As such we should see a break above the resistance line which should lead to a move atleast the size of this range (300 pips).

But till then, one can continue to play the range with entry buy orders at the bottom channel line & sell orders at the top line of the channel, keeping a stop of 80 pips. If there is a breakout either on the upside or downside & your stop is taken out, take a position in the opposite side. You should be able to get around 220-250 pips even after the move.

But ideally, if on a breakout, I would wait for the price to come back & test support/resistance (for breakout on upside & downside respectively) from the earlier channel lines and take a trade there.

~cheers

Euro Support Line




This is the Euro-USD hourly chart. As you can see, the price action
currently is near the support line after having bounced back off it.
One can put in a limit order a little lower & wait for order to
fill in. Keep a stop of around 80, that should be good enough. You can
use the downward sloping resistance line to book profits (tested 5
times now).

If price action is not able to sustain this level
we will see a decent move to the downside. 1.27 is a good support &
break of that level should see shorts coming in fast & furious.
Apart from that a Head & Shoulders (with our support line as the
neck line) will be completed. That means the move to the downside would
be a minimum of 350-400 pips (H & S pattern implication  = vertical
distance of head from neck line).

Overall direction is not clear at all , with price action over past few weeks being to & fro & very choppy.