Gold and oil analysis

Gold and oil have been trending lower for quite a while. From fundamental point of view I see a lot of politics going on with both commodities. Due to annexation of Crimean and turmoil in Ukraine Russia faced a lot of pressure from the West and one of the reasons for fall in oil prices could be just this. I can never be sure about it, but big boys definitely have means to push the price of oil or any other security. Of course, there are other reasons too. However, no trend continues forever. On the one hand we could see oil going to 60 bucks per barrel and stay at that level for quite a while. On the other hand, we could see gold bottoming in the area of 1000-900 per ounce. You should remember that gold is a currency as well as cash and in such troublesome times as these you should invest in gold. I mean you should possess it in physical forms. Silver is an alternative, of course, if you cannot afford buying gold. At some point, we might see nations collapsing economically due to debts in government sector.
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For the time being, more pressure will be coming to both commodities. If you are a swing trader you should consider selling gold at resistance of 1220-1180 (previous support, now resistance) level down to 1000 level. Selling pressure may come as early as the beginning of next week.

Now, oil is currently at resistance. The commodity ended the week at resistance and you might expect oil to start falling to new lows from these levels. We are in a downtrend and you should only sell rallies when downtrend is in progress. Price may do some topping process at these levels, but I am pretty sure that it will go through the floor sooner rather than later.
For those who need basic Forex education I recommend visiting website http://www.theforexspeculator.com/ where I regularly write educational articles.

How to trade calm range

I want to start the article by referring back to my last post where I said that I expected Japanese Yen to strengthen against all other pairs. As you may see the trend shift (from bearish to bullish) did not materialize and my stop losses were hit. However, it was a ‘pre-planned’ loss and I am not stressed about it at all. I often start building a line of my positions in the direction of an ‘expected’ trend and if it does not happen I can suffer a loss of about 10 to 15 percent. However, if it does happen I easily double my account. That happened a lot of times. The most important thing is to limit your losses and multiply your profits when they come. Ok, now let’s move to today’s topic – calm range trading strategy.

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If you want to consistently make money trading you must take only those trades that offer you better odds of winning and ignoring those that are average or poor ones. This might be said easier than done, but as practice makes everything perfect you can learn to find these high profitability odds trades quite easily. The hardest thing, actually is not to find them, but to patiently skip all those daily ‘half-good and half bad’ trades.

Be sure to read my other articles on the subject and watch a video:

Best Forex trading system

Calm range trading method

Volatile trend strategy

Short lived momentum reversal trading system

How to make money in trading breakouts

Nicolas Darvas trading method

How to make money in trading breakouts

Spotting how market trends change

Fortunes are made when market trends change

In order to be able to find these high profitability trades you need to define what state a market you want to trade is in and how this ‘state’ is traded best. Markets can be in four kinds of states:

1. Volatile trend
2. Calm trend
3. Volatile range
4. Calm range

Each one of these has its’ own specifics of trading. Each one of them can be very difficult to trade if you just come at any place a market is in and expect to make a trade. No, you need to define areas where the market will reverse or break out and trade the areas accordingly. I want to write a series of articles describing each specific market condition and how you can trade that. Today will be the first article on calm range. I prefer this type of market to volatile range as entry and exit points are much clearer and you can place smaller stops than you have to do in a volatile range markets. 

Defining calm range

So, what is calm range? It is a market that is consolidating after some swing or trend move. It is a market that has quite clear points of bottom and top. The market moves within these limits in a very orderly fashion. When a bottom is hit the price forms a reversal pattern and starts orderly moving upwards by forming higher highs and higher lows. The same happens when the top of the range is hit. The price forms a reversal pattern and then in a very orderly fashion starts moving down by forming lower highs and lower lows. 

Finding high and low of the range

The first step to trade that you need to define the highest point of the range and the lowest point of it. Now, the range can be narrowing so you need to see how these support and resistance areas change! If we talk about Forex we know that by nature some currency pairs are more volatile and some are very orderly. The most orderly pairs are eur/chf and eur/gbp. If you are a conservative trader and want to trade less volatile pairs the above mentioned ones could be a good option for you. 

Let us skip eur/gbp and look at eur/chf as it is in pretty calm range at the moment. After a sharp move down the pair formed the low of the current range (it is consolidating) at 1.2118 (on the 26^th of February) and the high of the range at 1.2390 (on the 8^th of March). It then started making lower highs and lower lows (clear sign of a swing low). The further it went the more the move down slowed. It is a clear indication that more buyers (of Euro) started coming in. Then at the end you can see a cluster of daily candles with very small lows. A break above the highs of those could have been a good long entry point if you trade these calm ranges. You can see that it came very very close to the above mentioned lowest point of the range. 

Signs of an impending reversal

When you see the pair coming to this support point you would naturally expect a reversal. How to judge whether it will happen or not? I want to see those clusters of candles when the price finally fails to hit new lows and runs to some daily resistance point. At this point you can see a lot of volatility and very narrow daily range. The pair goes to the low of the day and then back to its’ previous day’s high. It can continue for three or four days. This is a clear indication that a breakout is coming and the odds are that it will be upwards. That is exactly what happened with eur/chf. Market moved through the resistance of three days’ high when the news from Switzerland failed to meet market’s expectations. A buy stop above 1.2171 could have been an excellent level to enter the market. (Other signs I look for: Alternatively 123 reversal pattern may also be formed, which would indicate of upcoming reversal. Bullish candles also tell me about a swing change).

Exit points

Now, where could we exit our trade? Following classical technical analysis definition we know that previous support becomes resistance and previous resistance becomes support. So, we need to check to see where the market reversed near resistance to find our exit point. We clearly see that 1.2300 level served as support for some time till fundamentals came and the market crashed. This is our exit level. I tend to exit the market ten pips earlier, so possible exit level is 1.2290 now. 

Catalysts of a reversal

One more important thing to remember is that market often needs a catalyst to break through some resistance or support point and that catalyst is often fundamental news. So, when you market your technical points and expect a reversal be sure to look at your Economic calendar to see what fundamental news events are coming to be aware of possible fundamental catalysts. 

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.

Support

What is support?

Trading support is the topic of the post. What is support in technical analysis? I guess the answer to the question is not very complicated. It is a technical level where price came once from top downwards and was not able to fall any further. This becomes an important psychological level for most traders saw that the level held the price and next time the price comes to the level, most probably it will have a lot of buyers there. The more times the level is tested the more important and stronger it becomes. 

Multiple support levels

Very often a downtrend ends when a price of a security fails to break through some low which it tested many times. In this way a range is formed and after that an uptrend usually develops. So, if one is in a range trading support is essential for prices of securities visit the same levels again and again and those levels hold. I usually try to spot a divergence on RSI indicator, flattening Bollinger bands and 123 patterns on various time frames to define my entry points at various support levels. If support fails you should be ready to trade a breakout. 

Support in a trend

When securities are in a trend, support is also a very good strategy that one can implement in making decisions for a trade. If a market is in an uptrend you would often see peaks and valleys as the market progresses upwards. Some traders would enter another trade when a security makes new high. Others wait for pullbacks and buy back at previous resistance (which is now support) or wait for confirmations that a counter trend move is over and it is time to go up again. Various technical tools, some of which have been mentioned above are used to define when a counter trend move has finished. 

Wait for confirmations before trading support

I also like waiting for the price to hit the same level twice to find some short term bottom before I go up with a trend. The double bottom usually ends up with 123 pattern and strengthens the idea of a real reversal. In trading currencies I would wait for European session to start for currencies are usually consolidating during Asian sessions and forming bottoms during a short term counter trend move. During European sessions volatility goes up and market usually takes its trend oriented direction. This may very with other securities, but there usually is a tendency for a move in the direction of a trend to continue when a trading day starts. 

Check support on various time frames

If you want to see support and resistance levels clearly I would encourage you to put trend lines on the places where prices came and were rejected. This will give you a better perspective of where you can see support and resistance next. You should train yourself to do that on multiple time frames. It is better to start with monthly, weekly and daily charts, before you proceed to hourly and minute charts. Longer time frames give you a perspective on the big picture and smaller time frames give you clues on where to enter and exit the market. When you train your eye to spot support levels on longer time frames it will become much easier to do it on smaller time frames for the same basic principles are applied on all time frames. If you use only smaller time frame you might become a short sighted day trader, if you use only long term time frame you will miss a lot of opportunities that happen in financial markets on daily basis. So try to find balance between those time frames. 

Read my previous post:

Bollinger bands

Disclaimer

Trading financial markets carries a high level of risk, and may not be suitable for all investors. All information on the blog is of educational nature and cannot be considered as advice, recommendation or signals to trade in any financial markets.