Forex

Forex Trading - Trade Strategy Report

2005-10-18T16:54:00.000-07:00

EUR/USD looks like it may finally be ready to breach the significant support in the 1.19 area. After moving down to 1.19 and bouncing back several times, it looks like the market may be setting itself up for new lows. Traders can look to enter a short position on a break below 1.19 with a stop about 20 pips above. Don't enter this trade too soon as there is always the chance that we may try to bounce again. Let the market confirm its direction and be ready to act in the event we begin a new leg in the Euro downtrend.

For those of you who did enter the trade on the EUR/GBP short, you have been rewarded with a market that has gone straight down for the past day and a half. Keep an eye on the .6825 level as that would be the next place where this pair may try to find some support and mount at least a short term rally. Other than that, the trend looks to be firmly in place until further notice.

The Refco Failure

2005-10-14T20:06:00.000-07:00

The failure of a major player in the Forex market has created quite a stir this week. I have been flooded with emails asking about the safety of funds held with various Forex brokerages. First off, let me say that the failure of this company seems to have more to do with the underhanded dealing on an individual than an industry. I see nothing on the horizon that would indicate that what we have seen with Refco could spill over into other Forex brokerages. With that being said, investing in the currency, futures, and options markets can present more risk than depositing your money in your neighborhood bank. As with any investment, you want to place your capital with a firm that will provide both safety of funds and a favorable trading environment. Luckily, these two often go hand in hand. When selecting a brokerage it is extremely important that traders examine the history and stability of the organization. Information should be transparent and easy to find on the company website. Check to ensure that the company is a registered Futures Commission Merchant (FCM) with the Commodity Futures Trading Commission (CFTC) and is a member of the National Futures Association. While it may seem advantageous, you should avoid brokerages offering excessive leverage as they are exposing themselves to significantly more risk (potential insolvency). In addition, keep an eye on where the company is based and be sure that it is a major economic center. Funds held in developing countries or small islands with limited regulation can often be a sign of danger. If you are a trader with a large amount of capital, it might make sense to split it up with up to three brokerage firms to ensure that in the unlikely event that one were to fail. Some top notch Forex brokers even hold insurance policies with major providers that ensure that specifically protect customer funds against failure of service, dishonesty, and forgery. Hopefully none of you held accounts with Refco as they were not a particularly good Forex brokerage to begin with. Should you worry about possible insolvency with your Forex broker? In most cases, no. In the coming weeks as an added service to our readers, I will put together a list of Forex brokers to avoid in the spirit of Jim Cramer's Danger Zone for Forex traders. This will consist of firms that are unworthy of your investment dollars for any number of reasons.

Forex Market News

2005-10-13T12:59:00.000-07:00

Well, no sooner did we post a cut to our long USD position than the dollar got slammed. Proving once again that bulls make money, bears make money and pigs? Oinkety oink oink oink, they get slaughtered. After trimming some of our position at 115.02, the remainder of our position was stopped out at 114.88. We may have given back a little bit of our gain but I'll take a protected 80+ pip move over giving it all back any day. For right now, we'll just ride this one out on the sidelines until the bus shows some signs of losing momentum. One word of caution, before you Euro bulls out there jump on the bandwagon you may want to wait for some follow through for confirmation. We've seen quite a few of these big one day rallies on the way down from 1.36 and until the market proves otherwise, I don't see this as being particularly important as far as a long term reversal is concerned. In fact, I would be shocked if we were able to sustain a move to the upside that clears 1.22. Time will tell.

EUR/GBP continues to rally and push back toward .69. If we do get there, we will begin to accumulate a short position.

Forex Trade Update - Target Price Hit

2005-10-13T08:41:00.000-07:00

USD/JPY has hit our price target of 115.00. While we don't see any imminent signs that the trend is weakening, we are beginning to enter an area of higher risk and thus will trim back on the size of our position to lock in some of our unrealized gains.

EUR/USD is once again challenging the critical support level around 1.19 and continues to see buying come in near that level. It would appear quite evident that at least a few large institutional players have been defending that support for quite some time. If you look at a daily chart of EUR/USD, you will notice that the bounces have been considerably smaller on recent tests of the 1.19 level giving big players less time to sell into strength. If we get back down close to 1.19 a couple more times, it would seem as if a breach of this level of support would be increasingly likely. This could potentially open the door to a move back around the 1.14-1.15 level.

AUD/JPY continues to slowly drift downward on seemingly little volume. This one might start to look attractive for a long position if we can get a little closer to the bottom of the uptrend channel near 85.00. Stay tuned, we always like the opportunity to hold such a high yielding pair....

Forex Trade Update USD/JPY

2005-10-11T11:55:00.000-07:00

As expected, USD/JPY broke out of a nice bull flag pattern to the upside and hit a new high for the year. We may see a little bit of a pullback here but as long as the breakout holds, you should be OK to keep your position. The market seems ready to price in a USD interest rate hike for both the November and December Fed meeting at this point. If this continues, I would expect to see a brief pullback in USD/JPY followed by continued pressure to the upside.

Forex Strategies EUR/USD

2005-10-10T23:32:00.000-07:00

After the expected oversold bounce, we have quickly seen the par reverse back to the downside and it would appear that a retest of the double bottom could be imminent. This time, I would not be at all confident that this level of support would hold. We will take a wait a see stance as a flurry of economic data hits the market this week. Should we continue to push to the downside, look to short EUR/USD on a break below 1.119 with a stop just above 1.1920.

On the flip side, USD/JPY is beginning to rise out of a bull flag on a daily chart and appears that it will at least make an attempt at a breakout. The key number to look for on this one is 114.37. If we can clear this area, I would expect to see 115 in fairly short order.

In other news, EUR/GBP is starting to look a bit toppy. Keep an eye on this one for a possible short.

Forex Trade Update EUR/USD

2005-10-05T21:56:00.000-07:00

As anticipated, we did get a strong bounce off of the support near the July lows at 1.19. Hopefully some of you made a nice profit on the move. We even managed to take out the first overhead resistance at 1.20 on an upward move of 160 pips. The 1.20 level (Just below) would be a good place to put your stop to protect the majority of your gain. It will be interesting over the next couple of days to see if we are able to follow through and continue the move to the upside or if this is simply a reload phase pending a new move to the downside and a break to new lows. One important thing to take note of is that if we do get any kind of follow through to the upside, a significant double bottom will have been put in place at 1.19 and strategies going forward will have to take that into consideration. I try to avoid making personal judgments when evaluating the market but I do believe that as long as the fed is in play and additional interest rate hikes are on the way, it will be difficult for the Euro to mount any kind of long term rally with an ever increasing rate spread. With that being said, we will still let the action of the overall Forex market tell us were to place our bets. For now, protect your gains on the bounce in case it is short lived.

Forex Trade Update AUD/JPY

2005-10-04T20:56:00.000-07:00

Well, within about an hour of the post mentioning that this pair looked like it was due for a pullback we slid straight off a cliff to the tune of 80 pips and counting. I know I can sometimes sound like a broken record when talking about the importance of stop placement and an exit strategy but this is a perfect illustration of why this is such a crucial element of successful Forex trading. The long term trend on this currency pair still looks good but for now it's time to sit back and wait for the market to provide a new entry point.

Forex Trading EUR/USD

2005-10-04T15:41:00.000-07:00

Well, EUR/USD was able to break through some decent support around 1.20 and quickly dropped down to challenge the years low from back in July at 1.19. So far this level has held. It wouldn't surprise me if we get a quick oversold bounce back to around 1.22 before we resume the downtrend. Any significant break below 1.19 within the next 24-48 hours would signal that the Euro selloff is stronger than initially anticipated. If we do break to the downside, you can short the pair on the break with a stop just above 1.19. In the event that we do get a little bounce first, traders can take a long position in here with a stop immediately (5-15 pips) below 1.19. Whichever side you decide to play, keep in mind that your money management strategy is critical here. Place your stops intelligently and you should do just fine regardless of which way we move.

As far as our AUD/JPY trade is concerned, we are sitting on a significant gain from the breakout point and the pair is starting to appear a bit extended. This does not however mean that it will not become further extended. It just means that now is a good time to look at your exit strategy to ensure that you do not give back any significant portion of the gain in the event of a reversal. This one could correct to the downside to the tune of 120 pips without even damaging the uptrend so keep a close eye on it.

Forex Trade Chart Pattern Alert Follow Up

2005-09-30T10:08:00.000-07:00

Here is a visual of the AUD/JPY breakout. A classic example of a cup and handle followed by a powerful move to the upside. We probably won't see much in terms of additional movement here going into the weekend as institutional players begin to check out but now would be a good time to move your stops upward to protect some additional gains.

Currency Trade Status Update

2005-09-30T07:54:00.000-07:00

AUD/JPY strengthened it's breakout move overnight and is starting to look much better. As long as we can clear that last hurdle of the intraday spike high around 86.50 from July (nevermind, just happened as I was composing this post), we should be in the clear for a little while. Pull your stops up a little bit to protect your gains. Aggressive traders can give it 35 pips worth of wiggle room while those of you who are more conservative with your trading capital can cut that to 25 pips.

Forex Trade Status Update

2005-09-29T20:58:00.000-07:00

AUD/JPY has been able to complete the cup and handle and break out to the upside as previously discussed. I have to say that I'm not overly impressed with the strength of the move so at this time, our plan is to keep a tight stop to protect our gain and see what develops.

EUR/USD has continued to hold support but as of yet, still has not shown any indication of a strong move to the upside. For right now, stops will remain just below 1.20. For those traders concerned with protecting some of the 50 pip move to the upside that we have seen over the past several hours, you can consider a trailing stop of about 25-30 pips below the current levels (9:03PM 9-29) but do not be the least bit surprised if you get stopped out as the market continues to test the support around 1.20.

Forex Trade Alert

2005-09-28T10:31:00.000-07:00

The freefall in EUR/USD seems to have run out of gas over the past five days. It has attempted to drift lower and is running into some support at 1.20. Over the past six months, we have seen this pair reverse to the upside from this level on no less that 4 separate occasions. Typically when we see a strong pattern transition into a flat one in combination with an oversold condition, this tends to signal the end of the trend (at least in the short to intermediate term timeframe). You could take a long position in EUR/USD for a fairly low risk trade entry at 1.20-1.2015. Stops should be placed somewhere around 1.1970 to protect your downside just in case we do see another leg to the downside to test the yearly low at 1.19. A bounce to the upside into the area of 1.21-1.22 would seem reasonable in this situation. Here is a daily chart of the pair so you can get a clearer picture of what we are looking at (You can click to enlarge the picture):

Forex Trading Chart Pattern Alert - Visual

2005-09-27T12:12:00.000-07:00

Here is a screen shot cooresponding to the most recent post showing the cup and handle on AUD/JPY. Sometimes is is easier to follow along with my jibberish if you can look at a graphic as it is being discussed. You can click on the enclosed screen capture to enlarge it for a better view.

Forex Trading - Chart Pattern Alert

2005-09-27T11:01:00.000-07:00

Today's discussion will be related to AUD/JPY which is currently in the process of building a text book cup and handle pattern on a daily chart. This is one of the better examples of this that I have seen in quite some time. We go rim to rim at an almost perfect 86.00. If we can get a breakout above these levels, we could see a significant push to the upside to new highs for the year. There is good support in the 84.85 area and that would be an ideal place for a stop as a failure that pushed below this area would negate the pattern. As always, I will offer a few strategies for trading the pattern. You can enter with a buy limit order set just above 86.00 and that way you only enter the trade on a break above 86.00. With this strategy, a stop could be placed just below 84.85 for conservative traders and at 85.40 for more aggressive personalities. Those of you who are a little more trigger happy can start to build your position here by taking say 20% of your intended position size every 10 pips up. Just keep a stop in place below your initial entry point to protect yourself in the event that the pattern does not complete. Remember nothing in this or any market for that matter is ever certain, we can only trade those set ups that have a history of producing results more often than not. Either way, this pair yields an outstanding interest rate spread and you should get a nice return while you hold the position.

USD/JPY trade still looks good. You can follow today's gains upward by pulling your stops up a little along with the market. There is a little risk starting to creep in but nothing that would negate the previous discussion as of yet.

Forex Trading Key Number

2005-09-26T15:41:00.000-07:00

USD/JPY has been steadily back towards the yearly highs of mid July. 113.108 is the number to watch as that was the closing high for the year to date. If we can break out above this old high, it could indicate further strength in the pair going forward. A failure in that area could help to form a significant double top. Since the interest rate spread is now clearly in favor of the dollar, I wouldn't be willing to bet as heavily on a long term failure then a breakout to the upside. There are a few ways to play this scenario. You could work a potential breakout with a buy limit order set just above the intraday high of 113.78 with a stop below the breakout point of 113.10 if you want extra confirmation. Otherwise go straight in on any break above 113.108 with a stop 10-15 pips below with the goal of taking profit at 114. The only caution I'll give you is to keep any eye on relative strength and watch for any possible divergences or extreme overbought conditions that could signal an increase in trade risk. As long as we still look favorable there, you have the green light and can pick up some healthy interest payments along the way.

Forex Trading Platform Review

2005-09-24T16:42:00.000-07:00

Ahhhh, quiet in the Forex market! The weekend has come once again and all of you Forex trading addicts out there will find yourselves looking for alternative entertainment. This weekend, our discussion will focus on a review of Forex Trading platforms. I get countless emails each week asking for my opinion on various trading platforms and brokers. Rather than answer each question individually, I will share my experience and provide some information that will help you select the right Forex trading platform for you. Let me start my mentioning that I am not affiliated with any of the software manufacturers or brokers about to be discussed and do not receive any kickbacks or incentives for touting one over another. With that being said, there are twoForex brokers that I can recommend with confidence. The platform that offers the greatest flexibility is Oanda. They have no minimums for opening an account and allow trading with tight spreads in transaction sizes as small as $1 (virtually unheard of in this business). The platform is very stable and in two years of trading with them has never crashed on me. Another unique feature is their payment of continuous interest. This allows you to be paid interest on spread positive transactions by the second, no need to hold a position for a full 24 hours to enjoy the beefits of an interest payment. They are the only firm in the industry to offer this feature that I am currently aware of. The one drawback is that you need to have a computer system that has a screaming processor and lots of memory in order to be able to handle the trading platform and accomplish other tasks like market research simultaneously. My second favorite is Interactive Brokers. This platform is probably better suited for advanced traders and has a greater breadth of product offerings including futures and options. They also have transaction costs that are very competitive along with a full suite of data analysis features. System reliability gets a grade of A- with very few technical meltdowns or losses of connectivity. Trade executions are lightning fast and slippage is very minimal. My recommendation to everyone is to try a demo account with several service providers and see which one best matches your trading style. One will almost always clearly stand out as the hands down favorite.

Forex Trade Status Update

2005-09-23T09:56:00.000-07:00

Our quick little attempt a catching a bounce in EUR/USD wasn't able to materialize and we were stopped out with a small loss. EUR/USD has since broken down below some key intermediate term support and looks as if it wants to test the June lows of 1.19. We continue to be very oversold in the pair and I would anticipate at least a modest bounce to the upside before we are able to break down to significant new lows. The market has spoken loud and clear and until we have some answers on the future of Germany, don't expect a major move to the upside in the pair. The widening interest rate differential is also undoubtedly influencing the decisions of any large institutional players as it is becoming increasingly costly to bet against the dollar.

Forex Trading Strategies EUR/USD Continued

2005-09-21T17:44:00.000-07:00

Now that we have broken out to the upside as anticipated, we are forming a nice tight bull flag on a five minute chart. As in every market, the main drivers are fear and greed and this is a classic example with concerns building over the hurricane, oil prices/production, interest rates, etc. These are the times when it pays to be a Forex trader!

Forex Trading Strategies EUR/USD

2005-09-21T15:50:00.000-07:00

The EUR/USD has been very news driven as of late and it seems to be poised to continue. The dollar plummeted in the wake of hurricane Katrina only to bounce back while the Euro dropped like a rock after the German elections. The pair is currently forming a huge cup and handle on an hourly chart coming off of a significantly oversold condition and could be poised for a strong breakout if the dollar comes under pressure as a result of the now category five hurricane Rita set to slam into the US gulf coast. A break above 1.2240 is the number to look for. You can enter a long position on any brief pullback here as long as we can stay above 1.22 which would also be a good place for your stop.

Forex Trading Set Up AUD/JPY

2005-09-20T19:19:00.000-07:00

AUD/JPY is currently forming a nice cup and handle on a five minute chart. You can go long with a buy limit order just above 86.00. This is also just about equal to the yearly high for the pair so if we do see a breakout it is likely to be a strong one. As always, keep a tight stop just below the base of the handle in the 85.90 range to protect yourself if we see a false breakout. This is a major resistance point so don't be surprised if it doesn't make it on the first try and has to come back and consolidate a little.

Forex Trading USD/JPY

2005-09-20T11:59:00.000-07:00

USD/JPY is currently building a nice bull flag pattern on a five minute chart. We are a bit overbought here so using a sound money management strategy is critical. You can go long here with a tight stop at 111.83. That way you can ride a breakout and won't stand to loose much on a potential failure.

New Currency Trade EUR/USD

2005-09-20T08:33:00.000-07:00

EUR/USD is currently forming a nice cup and handle on a 5 minute chart. Normally this would signal a potentially strong move to the upside but ahead of the fed announcement, my confidence is lower than it would normally be in such a trade.If you decide to play it, you can enter a long position with a buy limit order on a break above 1.2177 with a tight stop just below the base of the handle at 1.2167.

Currency Trades Update

2005-09-19T20:22:00.000-07:00

Stopped out on that last trade with a 15 pip loss. Proving once again that no matter what the indicators tell us, it is never a good idea to trade against the main long term trend in this pair. We are starting to see some choppy trading ahead of the Tuesday Fed announcement and would anticipate that it would continue. It is our general policy not to trade ahead of a major pending news event so until tomorrow, we will take to the sidelines and let the market establish a solid direction before making any significant moves.

Currency Trades Update

2005-09-16T12:21:00.000-07:00

EUR/USD appears to be attempting to build a double bottom at 1.22. This would be a good entry point for those of you wanting to capture a portion of an oversold bounce back. EUR has just been battered since we first mentioned that it looked like it was in trouble earlier this week. Chances are good that anyone wanting to sell has done so ahead of the weekend so as not to have to pay the interest spread while the market is inactive. You can take a long position with a tight stop just below 1.22 and look for a quick bounce up to around 1.2325-1.2350.