Big Money is in Big Moves

That was the idea that famous speculator Jesse Livermore realized and the idea helped him to make millions in stocks and commodities trading both on the long and short (buying and selling) side. According to his own words when he day traded he failed to see the big picture and the prevailing trends in the market. When he realized that he should follow trend, he stopped losing money and started making it regularly.

The good news is that big moves happen almost every week. We call those swings. Trends are longer term moves that happen one or two times per year, while swings do happen every week, both as directional and correctional moves. If you look at the chart of gbp/usd below you can see that the pair has been in a range for some time, but within the range there were plenty of swings every week that you could play on the long and sort side. On the 25^th of January the pair was mostly in downward swings with some correctional swings. You would have made more money selling correctional rallies than buying dips in a downtrend. However as moves lasted from 5 to 10 business days with the help of trendlines, key price points, resistance points, key reversal days (Fridays and Mondays) you would have made money trading either direction.

My point is that you need to see bigger picture: from one to three months. Then you will be able to see those key resistance and support points where reversals typically take place and place buy or sell orders respectively. You may measure number of pips from one peak to another to calculate possible reversal point in a downtrend in order to take a position and number of pips from one bottom to another in order to guess a reversal point and initiate a buy order in an uptrend.

These weekly swings help you not to get lost in daily fluctuations and to see bigger picture more clearly. Seeing it you would probably trade less, but more profitably and on each trade make more money. Good luck.

Disclaimer: Your capital is at risk.

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Summer Ranges Maybe Over Soon

It is no big secret that price action during summers tend to be range bound rather than trend driven. This summer was no exception. Major currencies as well as crosses were range bound. gbp/usd has been in 700 pip range (not a small one) since July, result of post Brexit consolidation after a huge collapse. As we have BOE coming out with interest rate decision tomorrow we may see the pair consolidate around 1.3100 area. Next week FED interest rate decision may send gbp/usd either back to support of 1.2800 or to 1.3500 and beyond that to 1.4000 or even 1.5000 level.

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eur/usd, on the other hand stayed in much smaller range of about 500 pips, July and August range being only 400 pips. After FED releases its’ interest rate decision the pair will most likely gain direction and either drop to 1.0500 or rise to 1.1700. The most likely scenario is that it will revisit the lows of 1.0500 before going upwards. A rare, but a possible case would be for the pair to keep dropping and reaching 2000 lows of 0.8200. That would have made a full bullish and bearish cycle of eur/usd. Seven years of rise and seven years of going back to the exact spot where Euro started its’ ascend.

If we look at the gold chart we can also see that it has been caged in a range for a number of months. One thing is clear that the commodity is in an uptrend after correcting downwards for a few years. At the moment, technical analysts and traders can spot a bullish flag forming on 8 hour and a daily chart, meaning that we may see a breakout upwards sooner rather than later. 

Double bottom

Today we continue analyzing various chart patterns and double bottom technical pattern is the topic of the post. You can find this structure on various time frames and it is pretty go indication that a trend is about to change. So, this particular pattern indicates a reversal. You probably remember that we either have continuation or reversal patterns. This is a bullish reversal pattern. It means that the bears will probably lose their fight soon and bulls will start reigning in a particular security double bottom is formed. Let us look at some necessary conditions that have to be that we might state that the picture we see is a valid double bottom pattern. 

When you finish this article I also highly recommend reading other posts on chart patters:

Inverted head and shoulders

Pennants

Flags

Wedge

How to do technical chart analysis

Six key elements of technical analysis

Triangle formation

Trading head and shoulders

Key components in double bottom pattern

As it is a reversal pattern the first thing that there has to be is a previous downtrend. The security had to go down for some time in order for the pattern we are discussing to be formed. Depending on the structure the downtrend could have been from a few days (weeks, months) to a year and more. 

There has to be the first sharp fall that marks the first spot in the bottom. It is known as the lowest point in the ongoing downtrend. At this point we cannot say whether the tendency has changed or not as there still isn’t any indication of a reversal and increase in demand.

The first rally! Reaching the first bottom the price of the security rallies upwards. It indicates that smart money assumes it is good time to accumulate the security and so buying ensues. After some time (hours, days or even weeks) the first top (or important resistance) is formed. 

Back to the bottom! At some point inertia of the bears kicks in and they continue selling assuming that the downtrend is not over. So, the price of the security collapses to the first spot of support (bottom) and this time the spot becomes the second spot of a double bottom pattern. 

The second rally! After hitting the first support (bottom) the security starts rallying, which indicates that there really is serious demand for the security at current prices. In most cases the prices will reach the first spot in resistance. In most cases the price after hitting the resistance will retrace a little. 

Break of the resistance. The two points of resistance that were made as the security rallied after reaching the bottom is finally broken. That is the point where the double bottom pattern becomes a valid one. 

Support becomes resistance. That is a classical rule of technical analysis. It is not a necessity, but a security sometimes comes back to test previous resistance (that is now support) and if the break was not fake the support will hold. 

Traditional target for the exit of your long trade is the distance from the break point to the lowest point of the pattern added to the breakout point. That is the smallest distance that the price is expected to travel. It may go further, or it may fail to reach the expected target. However, if you need some guidelines where to exit this could be one of those. Additionally, you can move your stop below clusters of hourly or daily candles (depending on the strength of reversal). 

Time frames

As I said, you can find the pattern on all time frames. The longer the time frames the more valid it becomes. There have been a few of those patterns (on smaller time frames) in various currencies. Let us look an example that happened on a small time frame.

gbp/usd example

After a prolonged move upwards gbp/usd pair started collapsing on the 9^th of May (2013). The downward move continued for about two weeks till the sharp move down ended on the 23^rd of May (2013) with a strong rally upwards. The rally continued for four days and formed the first peak or resistance on the 27^th of May at 1.5156 level.  

The pair then retraced to its’ previous bottom and failed to break it. On the 29^th of May the second point in the double bottom pattern was formed. On the same day it rallied to previous resistance and formed second high (resistance) at 1.5145. It then retraced and consolidated for a few sessions before breaking the resistance and rallying to 1.5240 on the next day. One had to place a buy stop above the resistance (1.5156) with a stop loss below the bounce after second rally’s high (at 1.5098) and take profit order around 1.5300 level. 

According to our rules the exit target should be around 1.5300 level, so it has not been reached yet. The pair came to visit previous resistance (now support) and support held. The pair bounced from 1.5140 level.

This week will show whether gbp/usd will reach our target or not. Looking at technical price action we can see clear demand coming at previous resistance. So, let us be patient and wait for confirmations during European session whether we could add to our position or let the pair go down. 

Conclusion

Double bottom pattern is a bullish reversal pattern that can be found on various time frames. The pattern can be found in various securities regularly. One should wait for a break of resistance to enter market with buy orders. 

Ok, I will finish now. Be sure to read related articles to learn more on technical analysis. 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.

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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.

gbp/usd

More bearishness ahead (11^th of February 2013)

I shorted gbp/usd pair today, because I saw a reversal pattern (123) that started forming on Friday and finished in the early European session. I entered a short below 1.5783 level and exited at 1.5705. I like exiting my day trade positions before an even number and this as in many other cases it worked quite well. Pound rally had some fundamental back up at the end of last week, but these were not very important things and therefore the rally faded and pound downtrend resumed. I think we are going to see more of it soon. Watch what happens in gbp/usd, eur/gbp, gbp/aud, gbp/cad and gbp/nzd pairs tomorrow when CPI is released. You might get some good opportunities to short the cable. 

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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.

Rally without any visible reason (7^th of February 2013)

I have already mentioned in my gbp/jpy post that pound rallied more than one hour before BOE report was released. Does that mean pound downtrend is over? It is difficult to say. However, after news pound did not change its’ direction much. It stalled and has been in the same place for about two sessions now. It is quite possible that a correction is coming. gbp/usd is very much oversold and sooner or later corrections come. It might be the best time for that. Anyway, support starts at 1.5685. If broken the most recent low of 1.5630 should act as minimum support too. Resistance is at 1.5770-1.5800 and more important at 1.5880. One could attempt small longs above 1.5725 with a target of 1.5800. 

Downtrend continues (5^th of February 2013)

Selling rallies in a downtrend rule works with British pound perfectly. If pound rises just a little it is met with heavy selling. After a brutal Friday Pound bulls managed to get themselves together and rally to 1.5800 level (previous support, now resistance) in two days. However, there they met heavy resistance and pound gave back all of its’ Monday-Tuesday gains and even more than that in two sessions (8 hours). Isn’t it a good proof that we should always be trading in the direction of a major trend. If you watch other pound pairs it helps you to better identify points of entries and exits. As the pound went through 1.5725 level it was clear that the downtrend resumed and it could have been a good point for entering a short in the pair. 

Fights for support

Pound bears triumphed on Friday. It fell across the board in all currency pairs. However, and I like that saying again and again that if we have wild moves on Fridays we often have a reversal on Mondays. That is precisely what we are seeing today. Pound and Yen are the strongest currencies today. This could be attributed to profit taking before key events on Thursday: ECB and BOE interest rate announcements. Nobody expects any surprises, but that should not mean there won’t be any volatility. There will be! If BOE does not show any efforts to stop pound from falling this rally will be short term and the cable will resume its downtrend soon. I will be looking for reversal patterns at the top to sell rallies or short after BOE announcement. 

 Defensive mode in Pound (2^nd of February 2013)

Pound is clearly on the defensive. It is not bad for UK economy as they can export goods at much better prices. From the point of view of trading traders can benefit from it by selling gbp/usd rallies. Be always on the lookout when the pair rises as it will go down sharp soon. UK has to change its’ monetary policy and politicians to change the way they talk to inspire to go long British pound. Anyway, trend for pound is down and I do not see any signs of reversal yet. 

Consolidation in the pair (30^th of January 2013)

Pound looks neutral against US dollar. On the bearish side it has just bumped at 200 sma on 1 hour chart, which now is at an even number of 1.5800. FED rate decision can change that and prices may break this hourly resistance. As you can see from the chart there are a lot of areas of resistance ahead though. On the bullish side is the fact that gbp/usd has also broken its’ hourly downtrend line and is above it now. If 1.5800 level is taken out after the news I might go long. However, I prefer trading gbp/jpy on the release. No trades before release comes out. Too risky!

Bearish comments (28^th of January 2013)

British pound continued falling today after incoming Bank of England governor made bearish comments regarding BOE financial policy. More quantitative easing is ahead and this is no good for the cable. The move was not strong and one could not get enough meat trading the breakout below Friday’s lows. gbp/usd is definitely not my favorite pair at the moment. Too many choppy movements! Anyway, support is 1.5700 level and resistance stands at 1.5750. Narrow Monday range!

Technicals of the cable (25^th of January 2013)

gbp/usd pair sits on support that used to be a breakout of a range from June to August in 2012. 1.5750 was the breakout point of that range. Having broken that level then, the pair came to test it. I think we can expect something similar this time. Pound bulls will try to protect the level. Resistance stands at 1.5890-1.5910 level. That is where the pair is headed. However, if we hear more of Cameron’s ideas resounding during weekend the current support level may not hold for long. So, do not be too bullish about pound. 

David Cameron talk (24^th of January 2013)

Bullish daily candles did not stop uk pound from falling against us dollar. I guess this is mostly connected to the fact that David Cameron expressed his idea of UK leaving European Union. This might be a good idea as French and German politicians with their ideas of saving Europe by taking away money from those who work and giving it to those who are not willing to work is utter nonsense. Pound collapsed through its’ support today and now is headed to 1.5750. Selling rallies in Pound is the best trading strategy for the time being. 

Support is found (22^nd of January 2013)

As I predicted gbp/usd pair has found support today and rallied strongly. Look at daily or 4 or even 1 hour chart and you will see bullish candles indicating that lots of Pound shorts have been closed and longs opened. Resistance starts at 1.5895-1.5910 levels. I expect some day traders will take their profits on long positions and price will retrace somewhat. If new lows are not reached I will be looking for the best place to enter the market with my Pound long orders. More serious resistance starts in the area of 1.5950-1.6010. I will probably close some of my longs there. 

Move down maybe over (21^st of January 2013)

Pound seems to have reached its important support at 1.5830. Allow it to go there again and bounce before taking any longs in gbp/usd. The range for the pair in the coming days is 1.5830-1.6000 the former being support, the latter resistance. We have some fundamentals this week that could move the pair significantly. The most important is BOE minutes on Wednesday. European ministers’ meeting today and tomorrow could be another event , but that will probably have more impact on eur/usd, not pound pairs. Buying near the above mentioned support and selling near above mentioned resistance seems to be the best strategy for a few days.

US dollar strengthens (18^th of January 2013)

Despite being weak against Euro and a lot of other currencies US dollar has been pretty strong against British pound. If you read my previous posts on the topic you will see that my predictions about the pair were right. It is going down. Having finally broken 1.6000 level the pair is now headed to 1.5830 support on daily charts. There is some support at a current even number of 1.5900 and some shorts will be closed for profits, but the direction of gbp/usd is still down till the above mentioned support is reached. 

Volatility is back (17^th of January 2013)

Having made a new low yesterday British pound bounced off today. The rally was not very strong, which indicates that we might see new lows sooner rather than later. However, you might also see a triangle pattern develop, which can be both bearish and bullish. I do not rule the chance of gbp/usd breaking higher, despite the fact it looks more bearish than bullish at the moment. Selling rallies near resistance 1.6070 is an option for bears and buying near 1,5980-60 is an option for Pound bulls.

New lows again (16^th of January 2013)

Today I am even more bearish on gbp/usd than yesterday. The pair has broken new lows after 4 consecutive bearish days. Pound has gone beyond a very important support level of 1.6000. Last time it did this was a false break. The story can repeat itself, but as there are no signs of that for the time being I remain bearish on Pound and intend to continue selling rallies till market conditions change. 

More downside ahead (15^th of January 2013)

The more I look at gbp/usd chart the more bearish I become. Why? I see lower peaks and lower lows. That is a clear indication of a downtrend. The pair sits on support area now 1.6030-1.6000. Lower prices are coming for the pair. However, having in mind the tendency of the pair to form sideways action we should look opportunities to sell rallies, not breakouts. Do not be surprised to see a lot of choppy price action around these levels. Watch what happens around European sessions. If the pair near resistance at those times one can look for opportunities to short the pair. 

Resistance is overcome (11^th of January 2013)

British Pound was fighting hard to overcome greenback’s resistance at 1.6070 level and managed to do it victoriously yesterday. Yen weakness influenced the fall of US dollar too. The pair tends to form narrow ranges and you have a lot of sideways action going on quite often. Previous resistance of 1.6070 is now support. gbp/usd finds it difficult to get above 200sma and stay there. Let’s hope it will be able to do it next week. Buying near support levels and selling at resistance seems to be the best trading strategy for now. The pair is currently at hourly support of 1.6105. 

gbp/usd is rising (10^th of January 2013)

Although 1.6010 level was attacked and slightly broken gbp/usd pair bounced off and is slightly rising. It tells me that the break was false and this gives the pair some bullish momentum. It formed 123 reversal pattern at the above mentioned support and rallied to the most recent resistance at 1.6070. Current support is at 1.6030. Look at the chart below to see current support and resistance levels. Since we are in a range in gbp/usd we want to buy at support and sell at resistance I believe gbp/usd has reached its’ medium term support and is good to buy. I am buying on bounces. 

News from BOE did not have strong immediate response, so traders will trade based on their previously held outlook. 

The pair has no sentiment for now (8^th of January 2013)

Technical picture of gbp/usd is neutral. The pair is trying to get above 200sma on both 1 and 4 hour charts. As long as it is below them I cannot be bullish about the pair. There are some bullish aspects about it. A very important support of 1.6000-1.6010 still holds. However, there is much resistance ahead. The zone of 1.6130-1.6150 is pretty strong resistance to say nothing of 1.6200. Ok, the former might be assaulted today, the latter will probably have to wait for tomorrow. The pair has jumped off 1.6075 support and is getting ready for attacking 1.6130 level. 

I prefer to wait for tomorrow and see what BOE will deliver to us when they release interest rate decision.  

Intro to British Pound versus US dollar (7^th of January 2013)

This is the first post on gbp/usd pair. Hope not last! This volatile Forex pair is in a range at the moment. It tried, in the same fashion as eur/usd to take on new highs in the first days of January, but failed. It managed to do false break, but then reversed sharply and collapsed. It is now below 200sma both on 1 and 4 hour charts. Friday saw some bounce due to lower than expected Nonfarm payrolls data. It will probably be a short term reaction and the pair will continue going down in swings as it has been doing since the end of September 2012. 

The support is at previous Friday’s low 1.6000 level. Resistance is at an even number of 1.6100-1.6105. It is difficult to define other support areas as simply looking at the chart you can see them coming almost every 30 pips. However, the most current support is the most important one and the pair having gone through that can simply go down without stopping till 1.5825 – the lowest level of the current range. Another area of interest is 1.5912. It served as a resistance area while climbing up at the end of August 2012 and then served as support while going down at the end of October 2012. 

The sentiment is bearish and I am looking for reversal patterns in rallies to short the pair till more important support levels are reached.