Tuesday, March 31, 2009

Eur USD Channel resistance

eur usd 240 mins 31.03.09

Here you can see the Euro-US Dollar (eur-usd) 240 mins chart. As i posted last week, after the huge rally, the pair came in for resistance at the crucial .382 retracement of the whole down move from 1.6 in July 2008. After multiple attempts to get past the resistance over 2-3 days, price started correcting downwards in a parallel channel, finally breaking through on Friday with a sharp fall along with the correction in equity markets. Its moved off just above the 50% retracement level of this upmove near 1.31, having almost filled in the gap created a couple of weeks back by the huge 400 pips bar after the Federal Reserve announce their treasure buyback plan.

The pair has now reached back near the bottom line of the channel & all those who could not get in on the downmove earlier now have an opportunity to do so. The market will be weak coming forth, equities will slowly give up some of their gains of the past month, and the major high yielders are all expected to give up some of their gains to. Infact this could also be high for this leg of the rally, and euro and pound and others might continue the long term downmove they started in July ‘08.

Aud cad hits resistance, good risk reward in short trade

aud cad daily 31.03.09

This is the daily chart of Aud-cad (Australian dollar-Canadian dollar) pair.

As can be clearly seen on the chart that the pair has been rallying since the beginning of Feb.  After such a huge rally its finally facing resistance in the region of .8670, the previous swing high in mid December 08. Over the last seven trading sessions price has thrice bounced lower from the resistance area. Traders are looking to book profits after such a stupendous move and this resistance gives them an excuse to do so. Daily stochastics studies too are over extended, with RSI & Stochastics both showing heavy overbought levels and signs of exhaustion & that a down move should be around the corner.

 

A very safe area to take a short position, as risk reward ratio is very favourably. This is why I always look at take positions around areas of resistance and support as then I can define my risk very well. If on a closing basis price closes above resistance or below support level, then I book the loss on my trade & get out. This would mean a small loss of 50-120 pips. If one the other hand the trend changes as one expects then after a favourable move in one’s favour you can move the stop loss to where the trade was entered into & then onwards trail the stops along with the price. This way you would ensure that your losses are minimum, or zero and then let your profits run with the stops getting tighter/closer to price as the trend matures. This is the best way to take positions in markets and the way to make money on a regular consistent basis.

 

So I will be taking a short trade here with a stop above the resistance line on a closing basis. Will trail profit till target of about 0.81-0.82 is neared. If on the other hand, the resistance is overcome and price is able to move above conclusively, would then go long instead.

Thursday, March 26, 2009

US Dollar Index takes support at trendline




US Dollar Index has found support at the rising trendline from July 08. Prices have been consolidating for past 4 sessions around this level. We should hopefully see an upmove soon, RSI has bounced off from
just below 30, stochastics has turned positive and we wait its move above 20 level.

The whole market looks overbought (most pairs have a negative corelation with USD Index, except for Yen,Chf,Cad pairs) and should give up some gains atleast over next few days. Trade accordingly - take shorts on rallies



Wednesday, March 25, 2009

EUR-USD Parallel Channel

EUR-USD Hourly chart showing channel formation.



Price has again found resistance at upper line. Shorts can be established at current levels or better with stop above the 0.382 retracement marked on the chart (upper yellow line) with a target of 1.32 or lower - the .236 retracement level and the area from where price gapped up a few days ago. Once the gap is filled, we can look forward to a resumption of the uptrend.




USD-CHF moves down but bounces off support line

USD-CHF hourly chart support line




Price has bounced back from the support line drawn in grey in the hourly chart above. If price were
to give an hourly close below this line, short positions can be taken with a stop of 70 pips above the line.

Why is this line acting as support ? Because it is the 50% retracement of the earlier upmove. Levels are marked on daily chart below. Infact the level has been holding up for many days now. It it breaks, then
minimum target will be the 0.618 fibonacci retracement level at 1.0980, with a further slide below it possible too.



Similarly, a move above the .382 retracement level at 1.1357 should mean that price then would continue its uptrend & take out the previous swing high of 1.1940 over the coming few weeks. Take positions accordingly.

Eur-Gbp shorts can be established

Eur-Gbp hourly chart - shorts can now be established against support turned resistance



Short positions can be taken with appropriate stop of 40-50 pips. Price action faces resistance from
two angles. Previous channel support should now act as resistance. Further, swing low support level (marked with green line) seen a few days back should too put pressure.



GBP-CHF moves down from resistance

Daily chart of GBP-CHF - Price pulls back from resistance line



GBP-CHF has once again faced resistance at the downward sloping resistance line from Nov 2008.
Having bounced lower from it a few days back, again over yesterday & today price has moved lower from the line. Price should now aim for the lower support line of the triangle.



Here is the 4 hour chart. Thing to notice is that each time price it turning away to the downside further and further away from the trendline. This might be construed to be traders having an overall more bearish stance & thus looking to shorts as soon as price nears anywhere near resistance. It could find temporary support at the trend line marked here, but any bounce off it should be used to sell into.

Cad-yen in same position as nzd-yen



This is the daily chart for Cad-yen. Notice the similarity to the nzd-ten chart ?

It too faced good resistance from the previous high made in december. The action is clearer on the 4 hour chart below. Again, expectation is that prices should show a dip. The area to buy is the area around 77.9-78.1area, which again i have marked out as the green line in the 4 hour chart below.



As is amply clear cad-yen faced a lot of resistance at this level with multiple candles touching the level
and falling back within the earlier range. This level should now act as solid support and should be the place where we will look to enter. But it isnt that prices cant dip further, they can, right upto the rising trendline from January end. But the 78 level should offer good support. Watch price action when and if price reaches there.

One can take short positions too here, but the risk reward is not as great as in nzd-yen.

NZD-Yen daily resisted at previous high



I wrote a couple of days back that Nzd-yen had broken out of major resistance and that we should
look to buy on dips. Well, the pair has continued to rally since, but faced major resistance yesterday
and today from the previous swing high of 56.2-56.3 levels (yellow line).

Further weakness can be expected from here on as the whole market is showing signs of weakness
and is due for a decent pullback over the coming few days.

So one should look to buy closer to the 50.22-51.68 area  which is the .5 - .618 retracement area,
with the 50% retracement level also coinciding with the rising trendline on Thu-Fri. This would be ideal area to enter.

Till then, one can wait on the sidelines patiently for this pull back to happen, or can even establish shorts against 56.5 as stop.



Tuesday, March 24, 2009

Euro turning back from .382 retracement level

Euro-usd facing resistance at the .382 retracement level




The above is the daily chart of the Euro-US Dollar (eur/usd), the most traded currency in the world.
I have marked on the charts Fibonacci retracement levels of the whole move from 1.6038 top in July 2008 and the 1.2330 bottom in Oct 2008. As you can see, after the big rally over the past couple of weeks price action has been facing good amount of resistance at the .382 retracement level of around 1.3740. Infact over the past 3 days, while the overall markets and equities have been rallying the currency pair has tested this level thrice and gone back (seen better on the 4 hour charts).




Now it seems set to move down from here and give back some of its heavy gains over the coming days. One can take short positions here with stops of 80 pips above the line. The risk reward is excellent at present, with a potential risk of 80 pips, the gain can be as much as 400 pips at the minimum. Generally professional traders look to take trades with risk:reward ratios of 2:1 or above, 5:1 is awesome.\

What also gives one confidence to take the trade is the RSI indicator. It will quite probably close below the level of 70 today, giving a sell signal after reaching overbought zone a couple of days back. Last time this happened, we had very good downside ensuing (both marked out in chart below).




But I am not suggesting that this too we shall see a major downside. Rather, my sense is that this
round of gains is not over as yet. The market needs to take a breather, give back some of its gains, consolidate and it should be ready to continue the up move again.

Friday, March 20, 2009

Nzd-Yen pair break out of triangle. Wait for significant retracement.

Nzd-Yen 240 minutes chart (4 hrs = 6 bars everyday) (Nzd = New zealand dollar)



The triangle is marked on the chart, very obvious, nothing to explain here.


Same chart on daily timeframe -



As you can see price action has also been able to clear the major falling trendline since the decline
began sometime in middle of last year.


I have also posted the same chart Nzd-yen daily, with a different trend line marked on it to explain
a concept of trendlines. First have a look at the chart & locate the different trendline.




Able to locate the difference ?

Now the question is which trendline is relevant? We have two trendlines, created by starting with
two different swing highs & extending both through a common major swing high.

I would tend to use the first one, but question is why?

The first trendline again, with a critical area marked -



Now notice how with this trendline, how price faced resistance so many times. First it bounced lower
from it before taking support from the rising trendline from below & again trying to cross it, with multiple
candles with long wicks (that's the long thin part above/below the main body) above the trendline but
ultimately closing below the trendline. That means price tried to get above the trend line many times but
faced resistance, forcing it to close below the trendline. This wasnt the case with the second trendline
at all. Price just touched it & continued to move higher - thus my conclusion would be that the first
trendline is a more relevant & important one. Maybe the first swing high was a key level from elliot
wave analysis. But I dont understand too much of elliot wave so wont attempt at an explanation.

This is a point to note, whatever timeframe chart one is trading on, the good trader looks for a close
in that timeframe above/below a key level. So if your trading on the hourly charts, look for a close at
the end of a particular hour and then take a position. What this will mean is a little late entry, but
higher accuracy in the trades.


One should now patiently wait for price action to come back to where it broke out from & take long
positions there. That would mean much better risk reward ratio for the trade. I have marked out the
Fibonacci levels on the charts, of the big move from the lows around 44 levels to current price. Obviously
if the price moves up further, will have to adjust it accordingly. The ideal place to take the trade
would be around the .382 retracement, which also coincides with the former resistance line of the
triangle.



So wait patiently for price to decline to those levels before taking a fresh position. Put in a limit
order for going long around levels of 50.