Hello Forex Traders!
This week has been a very slow and sluggish market so far.
There are literally tons of massive consolidations building up so there are good break out setups. Our article today will focus on these massive sideways corrections.
The problem is that the break of these corrections could take longer than we Forex traders can imagine. And the reason is connected to time factor.
Here is why:
Before reviewing the charts, I want to quickly explain why this week is definitely more tricky trading than usual. Not only is it the last week of the month, but it is also the last week of the quarter and bi-annual close. For example, I have heard that in Australia the fiscal year finishes at the end of this week.
Quarter end closures mean that usually trend directions are less respected as funds got moved and larger trades get closed. It can also mean a serious drop of movement in the market. This is what we have seen in the first 2 days of trading where the market has reverted to a sideways chop. So be careful this week. I am definitely taking less trades and less risk on the trades I take.
What is your usual risk management policy? Do you incorporate the factors I mentioned in the paragraph above as well in your risk management decisions?
If you want to know more about timing and time factor, please take a look at two articles I wrote back in January this year:
Before we dive into the AUDJPY, don’t forget to read yesterday’s article. Here I mentioned already a many great break out setups. Check out that article here. If you are in search of the analysis on the majors, take a look here for that.
Also check out yesterday’s video analysis here where we talk about the AUDJPY as well.
This currency pair has fallen recently as fast as it has risen. Or in fact, probably the fall has even been faster.
If you take a look at the weekly chart, we can see that the AUDJPY is an interesting position. It has fallen right back to the major tops on the left (purple lines). A break and hook back to these major tops is always a potential bouncing area.
The major tops always tie in nicely with a 500 Fib retracement of the entire move up.
The Aussie weakness has been very strong so far, but the question still remains: will we see a bounce or break? A break down could see the currency fall to the 618 Fib. A bounce up back to resistance on the daily chart.
Let us take a look at that daily chart. Here we can see that recently the AJ has been bouncing back up and down between a relatively tight range of 200 pips. The bottom has not been broken for 8 days straight. This too could have consequences for the currency:
1) As I mentioned in our trading room, the fact that a break down below the bottom has not happened within 5 days could mean that we could larger correction in time (oscillator back to zero line for example) or
2) It could mean a sharper reversal (break to upside)
If the currency does break the bottom, then a fall down to the bigger weekly 618 Fib seems to be its most likely move.
By the way, if you want to catch pips together in the trading room and learn more of these cool tips and facts, take a look our Forex services at Winners Edge Trading:
b) Forex mentoring (trading room in included)
Also the AUDCHF has been crashing like no tomorrow. It too has made a decent sized correction to the upside. Here are the two most interesting facts on this correction:
1) The Oscillator is back to the zero line which means that the currency has reached the minimum retracement requirement on this time frame
2) The correction is a typical bear flag formation
3) The correction so far has been very sluggish and slowish, almost as if the AUDCHF was crawling up
These types of corrections are great because they make any potential break out trade in the same direction as the trend easy to to trade. The trend in this currency is down, of course, so a break of the bear flag would be great downside trading most likely. Check out this article if you want to know more on taking profit.
The AUDCAD has a similar setup as the AUDCHF, but the correction to the upside has been steeper and more aggressive. This is great example where we can see the difference in the angle of the trend lines between the AUDCAD and the AUDCHF. IN the end of the day though, also the AUDCAD has returned back to major resistance levels (black and red) and a break of the correction (black trend line) could mean a great downside trade. Just be careful of the 4 hour support levels (green).
Here is a EURCAD trade update. I wrote about this trade setup a while back and wanted to give you feedback on the development of the trade. If you are not aware of the trade setup, or if you want to reread the analysis from earlier, please check out these links:
1) Intensive EURCAD analysis on June 5
The currency has hit the first target which is the -0.272 at 1.3790. We can see 3 days worth of daily tops hitting the target and not able to break that level. This is normal.
At targets we can either see the currency retrace, or make a prolonged sideways range.
If it does retrace, then there is a high probability of a bounce at the support levels (green lines) and continuation up to the -618 target.
If the currency goes sideways, then currency will most likely stay above the daily lows (light blue).
Either way, the currency setup looks good to me for upside continuation. If the top however would not get broken within 5 days, then the situation changes and I will write again which trade management precautions I am taking.
That marks the end of today’s article. Please leave a note down below on your views on risk management.
Tomorrow we will look at the Forex markets, but on Friday we are going to continue with the article on “how to build a trading strategy, part 2.” Here is part 1 by the way, if you missed that article.
Also make sure to read these articles:
Thanks for reading, thank you for sharing, and Good Trading!
Latest posts by Chris Svorcik (see all)
- How to Apply Technical Analysis Step by Step - November 25, 2014
- Multiple Trade Setups on EURUSD and USDJPY - November 24, 2014
- A Collection of Currency Pair Characteristics in Forex Market - November 23, 2014
Winner’s Edge Trading, as seen on: