Trend is a blog about global daily, weekly, monthly and yearly market trends in such financial markets as Forex, stocks and commodities as well as various day, swing and Forex trading strategies and ways to invest your money. In the blog I am going to share what happens in these markets on a daily basis. I hope you will enjoy my trend analysis. Welcome to my blog.
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Showing posts with label forex trading strategies. Show all posts
Showing posts with label forex trading strategies. Show all posts
Fundamental events always cause a lot of volatility
in foreign exchange markets. Interest rate decision events are above the rest
as they are key currency drivers both short and long term. Markets often stall
and fall into ranges days before these key releases and right after they come
out huge moves start. Be aware of that. Of course, general public might be
wrong regarding interpretations of these pieces of news, so it is crucial to
follow smart money and not be led by emotions of greed and fear. Anyway, if you
know how to take advantage of the news trading you can make nice cash in the
long term. Let us look at how you could have traded BOA (Bank of Australia)
rate decision today and try to speculate whether it will have long term impact
or not.
You can also watch a video on how you could have traded Bank of Australia rate decision:
Also read related articles when you have finished this one:
Since I have moderated my trading news method
slightly I did not trade the event. I did expect Australian dollar to rise
after the release, but the Central Bank of Australia decided to surprise traders
by cutting interest rates. Technically, yes you could see strong demand for
British Pound, Euro and other currencies and strong supply of aussie all along.
I guess that was the sign for technical traders that smart money knew what the
BOA is up to and were buying into the event.
Although, I did not trade the event I want to
quickly show you how you could have taken a trade (or trades) in gbp/aud and
eur/aud made nice profits. I like these aussie crosses most as they are the
most volatile and travel biggest distances when the breaks happen and big moves
start. So, let us see how you could have taken a breakout trade in these two
pairs.
First, eur/aud. Just before the news the pair was
fluctuating in a small range of 1.2744-1.2777. This gave us an area for entry
and exit. For a buy you would have placed a buy stop order a few pips above
1.2777 level with a stop below the range of 1.2744 (possibly 1.2740). That
would be a stop of forty pips. You should have also placed a take profit target
at previous high of 1.2885. I like exiting at previous highs when I buy and
previous lows when I sell. So, the news came out and market exploded upwards
and reached the target in 7 hours. A little bit over 100 pips of profit! I
would say that is a very good risk reward ratio!
Now, if you wanted to place a sell order just before
the news came you simply had to reverse the above mentioned order. You had to
place a sell stop below 1.2744 level and stop loss order above 1.2777 level.
Then define a take profit target that would have been around 1.2600 level,
possibly a little bit higher (1.2610 as I like exiting ten pips before even
number). Since the market went up you simply had to remove your sell stop when
your buy order was opened and concentrate on your long trade.
Let us look at how you possibly could have traded
gbp/aud pair during the event. Just before the news (3 hours) the pair was
fluctuating in a range of 1.5189-1.5161. It means you should have placeda buy stop above the high of the range
(1.5189) with a stop loss below the low of the range (1.5161). What about an
exit? One way was to exit at previous high (1.5233). Another one was to exit at
mid-point number of 1.5250. Of course, you could still keep the trade, but as
you may see you would have lost most of your profit by now.
What if you wanted to place a sell order? Just
reverse the process. Your sell stop order should have been at 1.5161 (a few
pips below it) and your stop had to be a few pips above the high of the range
at 1.5189 (possibly 1.5195). The most logical place to exit your trade would
have been at an even number of 1.5100 (ten pips above that). When you saw that
the news was bearish for aussie and your buy stop was triggered you simply had
to remove the sell order and ride upwards with the market.
Looking at the price action now you can also see
that these kind of trades can have very short term impact and market may
reverse in a few hours, possibly in a few minutes. However, I still find news
trading a good way to make extra money with my swing trading strategies.
Ok, I will finish on this happy note. Be sure to
read related articles to learn more on my news trading method. I promise to
expand on this in my future posts.
I hope you benefited from the post. If you liked the
post I would also be happy if you gave a plus on Google+, tweeted, liked it on
Facebook and other social platforms. Have a nice day.
Vytas.
If
you want to see and experience what real investing in financial markets such as
Forex, stocks and commodities is all about I recommend trying innovative social
investment platform of Etoro. Initial deposits are as low as a few hundred
bucks. The best dealer I have heard of so far!
Trading
financial markets carries a high level of risk, and may not be suitable for all
investors. All information on the blog http://trend0.blogspot.com/ is of educational
nature and cannot be considered as advice, recommendation or signals to trade
in any financial markets.
So, it is high time to discuss the last market
state: volatile range and try to define how you can trade it. I just want to
remember that according to my definition are four types of market states: calm
trend, calm range, volatile trend and volatile range. Each has specific
conditions that make prices move in a unique way and specific strategies to
trade these moves. Volatile range is probably the most complicated market state
as it is pretty difficult to trade. However, as I do not believe that markets
are random I will try to share with you some insights of mine regarding the
conditions of this specific market state. BECOME A POPULAR INVESTOR ON eTORO NOW
Volatile range is directionless choppy price action
that is most often contained within specific market range, usually a very small
one. It often travels from one small range to another, then back, then to the
first level again. These kind of ranges often develop after huge market moves
and it indicates that market hast lost momentum and is consolidating before
making new move. This market state can last from weeks to months and even
years. These volatile ranges often develop other volatile ranges within
themselves. If you look at the chart of gbp/nzd pair below you will see what a
volatile market range looks like.
You can clearly see how after sharp move down the
pair started consolidating and moved into a prolonged big range with smaller
sub-ranges inside. I like comparing this kind of price action with an elevator
in a three-four store building. The elevator has very limited space to travel
in a building of such size and it can change its’ location very fast by going
from the first to the third floor and then back.
You can see price blocks that could be compared to
building floors and see how price travels within our ‘price building’ or stays
at the same floor for prolonged period of time.
The
way to trade these ranges
As you may see the ranges during these periods of
choppy price action are quite small. gbp/nzd pair is very volatile and makes
big moves and yet it can stay within 200 pip range for a few weeks, then move
to another range of 200 pip width and then back to previous range. So, how do
you trade that?
Firstly, you need to wait and become sure what the size
of the range is. You look at the chart and see price past action. In a real
life situation you may not be sure where the bottom or top of the range is if
it has just started to form a new range. After any significant trend is over
wait for the security to form a range. That is: wait for it to make a top and a
bottom of the range. Only then, when the price visits these places for the
second time you trade REVERSALS. If
you have been reading this blog long enough you have probably noticed how I
love trading reversals. This is especially true about trading volatile range.
There is not enough ‘meat to chew on’ as range is very small, so you get the
most by selling at the top of the range and buying on the bottom of it.
Let’s
walk through some trades
From price action we may see that the pair made a
top and a bottom of the range from 14th to 19th of
February (2013). On the 19th it visited the bottom of the range for
the second time and made a reversal. This was the first possibility to buy. A
big bullish 4 hour candle at the bottom gave us a clue that buyers started
stepping in and we bought at the break of two 4 hour candle charts at 1.8248
level with a stop below the low of the day and exited at previous top at 1.8390
(ten pips before even number).
The price made a reversal there and we placed a sell
stop order below the bearish 4 hour candle at 1.8342 with a stop above the high
of the day and exited at previous low of 1.8160 or at 1.8210 (ten pips above
the even number).
Then price proceeded to break the floor and made the
bottom for another floor 1.7954. It then quickly returned to the previous floor
and hit the ceiling of the top floor again. It made a few attempts to break it,
but failed. If you had traded the price action purely technically you would
have lost on the first attempt to go down on the 26-27th of
February, but if you had waited till fundamentals came out you would have
skipped the above mentioned dates and traded GDP of British pound and made a
successful trade by selling Pound again below 1.8339 level with a stop above
day’s high and closed your trade at 1.8210 after four days. You see how the
price lingered for a few days and only then collapsed by reaching the floor
again. Trading these ranges requires a lot of patience. Choppy price action
might get on the nerves of any trader.
On the 1st of March the pair made a
reversal at the floor and started rising, but failed to reach previous top. So,
either you would have exited with some profits at an even number at 1.8290 (ten
pips below even number( entry point 1.8232 with a stop loss 1.8166) or you
could have pushed your stop at break even and got neither profit, nor loss from
this trade.
Then for about two weeks the pair got stuck between
two floors until it made to the ground floor (from past perspective (we know
that it was not ground floor now)) again. It formed a cluster of candles (that
indicates a reversal) and broke upwards back to the top floor. A break of the
floor could have been a good possibility to enter the market and come back to
the ceiling of the floor. So, a buy stop at 1.8170 with a stop 1.8052 and the
target of 1.8390 would have been an excellent trade.
Do
your own homework
The pair then again made two attempts to break the
level and failed. I do not want to continue telling how you could have traded
these as now you can pretty much figure that for yourself. Do your homework,
analysis and design the best ways how you could trade these situations in the
future. When the same market conditions appear you will be equipped to make an
intelligent guess and smart trade. You will make mistakes along the way, but
practice makes perfect. So, continue analyzing the right side of the chart (the
first one) trying to find best entry, stop loss and take profit areas for your
trades. You won’t believe how much you will learn by simply doing this. People
fail to trade successfully not because they do not have any strategy, but they
tend to be reactive rather than proactive. You need to be ready before things
start happening rather than reacting to what is happening. Daily analysis
(maybe even writing a trading journal) would help you a lot to become a
proactive trader who plans his trades and executes as well as manages them with
sound discipline.
Conclusion
Trading volatile range requires: establishing high
and low of the range, trading reversals at both ends when market price action
confirms a reversal (bullish and bearish candles, 123 reversal patterns and
fundamental news releases), setting stops above high (if selling) and below the
low (if buying) of the day market reaches the top or bottom of the range. Your
target always is the other end of the range (if buying you go to the top
(resistance) , if selling you go to the bottom (support)). Do not forget that
market can slip through current range and set new one. Be flexible and watch
what happens when market reaches its’ freshly made bottom or top. Finally, plan
your trades and trade your plan. This is how you will become a pro using any
kind of trading system.
Ok, time to finish! I have covered all market states
and finally finished my series. Next time I am going to tell you how to select
best candidates for your trades. I wrote somewhat on the topic, but I want to
deal with the theme exclusively, so that you could learn to choose the best
pairs that have the highest potential to move strongly.
I hope you benefited from the post. If you liked the
post I would also be happy if you gave a plus on Google+, tweeted, liked it on
Facebook and other social platforms. Have a nice day.
Disclaimer
Trading
financial markets carries a high level of risk, and may not be suitable for all
investors. All information on the blog http://trend0.blogspot.com/ is of educational
nature and cannot be considered as advice, recommendation or signals to trade
in any financial markets.
This post is a continuation of my series on
different market states. I want to briefly remind you that market can be in 4
types of states at any given time: calm range, calm trend, volatile range and
volatile trend. Each of the states requires specific ways of analysis and
trading. Before you make any decision to trade you need to define what
conditions are in the market and only then wait for opportunities to implement
one or another strategy. I have already covered calm range and calm trend
trading strategies and today I want to define volatile trend market conditions
and shape a method for trading this specific market state. START COPYING POPULAR INVESTORS ON eTORO NOW
It is very easy when you see the market orderly
making higher highs and higher lows in an uptrend or lower highs and lower lows
in an uptrend. It is also easy to trade orderly swings in a calm range. It is
more difficult, however, to trade choppy trends that rally high, then go
sharply down, then again up, then down. Nevertheless, if looking at longer time
frames you see some direction, there definitely are ways to spot areas of
probably support and resistance and to trade those to make profits.
When you are through with the article, please read related articles and watch a video:
If
you want to see and experience what real investing in financial markets such as
Forex, stocks and commodities is all about I recommend trying innovative social
investment platform of Etoro. Initial deposits are as low as a few hundred
bucks. The best dealer I have heard of so far!
I define volatile trend as price move in a clear
direction within the boundaries of a channel. There is a specific trajectory of
the move and you can draw two trendlines that the price is confined to till the
trend is broken and prices reverse or a new channel is formed. Some people give
names for those trendlines: inside and outside of a channel. Whatever you call
it, the point is to understand price action inside the channel that is caged
within those lines.
2009 saw a very volatile trend in eur/usd pair that
lasted for eight months. I want you to look at the chart and see how eur/usd
travelled upwards that year. That’s what I call a volatile trend! If you
carefully analyze the price action of the pair in 2009 you will surely notice
that the pair managed to form two short term volatile swings downwards and one
longer term trend upwards.
Market
conditions change very often
It is quite natural for a price to break out of a
range (calm or volatile), form calm or volatile trend, then shift to volatile
(or calm) trend, or to volatile or calm range. This happens because market
absorbs all fundamental factors that have been running one move or another and
this causes market conditions to change. Depending on the type of factors that
start driving the market after initial factors change, market may shift into
any of the states I have mentioned above. All moves (trends) come to an end and
the manner markets move changes too. So, you should spend more time for
analysis and less for trading at all times, especially when market conditions
start changing. Now, let’s come back to eur/usd pair in 2009 and see how market
conditions changed a few times per year.
Analysis
of 2009 eur/usd trends
The year started from a collapse of prices after
forming a peak at the end of the year when strong calm trend upwards finished. The
early move down (from the 5th of January) started as a calm trend
and later (on the 23rd of January) transformed into volatile
(channel type) downtrend. It lasted till the middle of March when the volatile
downtrend (in a shape of a channel) was broken and a short calm up trend
started. It lasted only about a week and then a short volatile down trend
started. It lasted till the first of May when the down trend channel was broken
upwards and a long (6 months) volatile uptrend started that lasted till the
beginning of December when upward trend channel was broken downwards and a calm
bearish trend started. So, we had three volatile trends in 2009, two short term
down and one longer term up.
How
do you trade volatile trends
Since I see volatile trends as price action caged
within a channel and moving in a clear direction it is best to enter your
trades when market corrects to the support trend line (if the move is upwards)
and to the resistance trend line (if the move is downwards). I want to trade
only in the direction of a trend and keep my positions longer than I do in day
trading.
Entries,
stops and exits
The points when price reaches a trendline are best
for entries. I do not have a magical mathematical exact rule for that, but
rather use a few ways of entering the market, whichever seems to be the best at
the moment. As I am not purely a technician, but use a balanced
techno-fundamental approach to market price action I watch for both technical
and fundamental confirmations where and when I should jump into a trade. At
times, I do pure technical trades at other times purely fundamental and most
often I have mixed trades.
A nice technical way would be to place a sell stop
below the low of the day at the top of the channel if the trend is downwards
(meaning the counter trend rally is over). If we take as an example eur/usd
short term volatile trend from the 18th of January to 12th
of March you would have placed a sell stop below the low of 27th of
January at 1.3118 as the price hit the top of the channel. Your stop would have
been above the high of the same day at 1.3330.
What about exits? I hold to a philosophy that it is
very difficult to predict tops and bottoms, so I want to catch the bulk of the
move, not the entire move. In our instance I would have exited (taken my
profits) at the previous low of the channel at about 1.2760 with about 250 pips
of profit. It was possible to trade the rest of the move down in some ways, but
you would have used other rules and methods for entries, but the same for stops
and exits. Study the chart and find how you would have taken two more short
positions in the move and where you have placed your stops and take profit
orders. It was possible to trade against the prevailing trend following the
same rules (buying above the high of the day when lower trend line was hit,
with a stop below the low of the same day). However, exits would have been more
problematic as this is downtrend and previous high was not reached. You should
find more advanced and complicated rules for trading against the trend.
You should also not forget that we look at the chart
in retrospect knowing and seeing what happened, but at the time the only thing
you would have known was that the pair was in a downtrend, the move was slowing
and it was your best intelligent guess that the pair will either go into a range
or continue going down in a slower fashion.
That’s why I also watch fundamentals closely to get
the grasp of where the market might be going and in what manner in the nearest
future. The fundamental way for entries would have been to wait for important
fundamental news and market reaction to it and go with the flow. Read about my
Forex news trading strategy to see what I mean.
Trading
breakouts of the channels
Another excellent way to trade these volatile trends
is to trade breakouts of the channels. Most often than not you have fast and
calm trends developing right after that. They are often short lived, but the
distance the price travels after a breakout of the channel is pretty attractive
for any swing or trend trader. All three volatile trends of 2009 were followed
by channel breaks and followed by fast calm trends. Look at the chart to see
for yourself.
How could you have traded those? In this case rules
for entries and stops are very simple. You just have to enter your order the
day the channel closes after breaking the channel. If a downward channel is
broken upwards you enter a buy stop position above the high of the day when
market closes outside the channel. A stop loss order should be below the low of
the same day. If an upward channel is broken downwards you enter a sell stop
position below the low day of the day when the market closes outside the
channel. The stop loss order should be above the high of the same day.
Exits are as always the most difficult part. Having
a few orders entered gives you a better choice for exits as you can exit the
first position when you have some profits (at an even number or closest
support/resistance level) and let the rest of your position ride with the
market. There are a lot of ways how to exit the rest of your position. Some traders
close bit by bit when market makes a new high (even daily (in an uptrend)) or a
new low (even daily (in a downtrend)). Others use a ten/twenty day low/high
rule. If a market moves below ten/twenty day low in an uptrend or above
ten/twenty day high in a downtrend they would automatically close all of their
position. Some look at historical charts and determine to exit before some
levels are reached.
As nobody really knows when the trend will end this
part is the most difficult. However, as the market has some momentum in these
breaks you can definitely grab nice cash and leave some of the table without
big regrets. 95 percent of traders are losing their money anyway. 3 percent are
on break even. So, if you manage catch half of the move and come out with
profits you are among 2 percent of traders who are really making money.
If
you want to see and experience what real investing in financial markets such as
Forex, stocks and commodities is all about I recommend trying innovative social
investment platform of Etoro. Initial deposits are as low as a few hundred
bucks. The best dealer I have heard of so far!
Volatile trends most often move in waves in a
channel. You must trade only in the direction of the prevailing move and try to
avoid counter trend moves. Entries and stops are the easiest part. You will
have to think carefully how to exit your trades and cash in your profits. Wait
also for breakouts from the channels as these often create fast and calm trends
(with minor retracements and counter trend moves). And yes, do not forget money
management. Never risk everything on one trade. Learn to protect your capital
and with time you will learn how to make it.
Ok. I hope you benefited from the post. I would
continue the topic of different market states in my next post. Hope to do it
very soon! If you liked the post I would also be happy if you gave a plus on
Google+, tweeted, liked it on Facebook and other social platforms. Have a nice
day.
Disclaimer
Trading
financial markets carries a high level of risk, and may not be suitable for all
investors. All information on the blog http://trend0.blogspot.com/ is of educational
nature and cannot be considered as advice, recommendation or signals to trade
in any financial markets.
