USD/CNY to slump towards 6.65 by end-2023 – ANZ

USD/CNY hovers around the 6.95 level. Economists at ANZ Bank expect the pair to edge lower next year towards 6.65.

Recovery in China’s growth reduces the need for further PBoC’s easing

“Although it will be a bumpy road ahead as China reopens, at least the shift in the narrative from overwhelmingly negative in 2022 towards a more hopeful tone for 2023 will help prompt inflows and encourage exporters’ conversion of accumulated dollar receipts. A recovery in China’s growth reduces the need for further People’s Bank of China easing as well.” 

“We do not foresee a rapid rebound in outbound Chinese tourists at first due to an anticipated backlog in passport applications. This should allay any concerns over potential outflows.”

“We forecast a rebound in the CNY to 6.65 against USD by the end of 2023.”

 

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Top Monthly Charts Heading Into 2023: VIX, Stocks, China and More

Nasdaq 100, Dow, VIX, Dollar, USDCNH, Inflation and Recession Talking Points:

The Market Perspective: Bearish Risk Trends; Bearish Dollar; Recession ProofingWith December and 2022 coming to a close, it is a good time to review very high time frame charts (monthlies) which can give scope to macro themesThis article reviews the NasdaqDow ratio, VIX volatility index, Dollar Index, ‘2-10 spread’, USDCNH and wheat futures

Recommended by John Kicklighter

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When it comes to charts, the higher time frames can offer useful insight on macro themes. Big picture financial trends, growth or recession patterns, turning points in general volatility levels and more can be drawn from analysis of monthly charts of significant assets and economic measures. As we move into 2023 with a general bear trend to our backs, warnings of recession on repeat and interest rates changing the flow of capital; it is a good time to review some key themes via an unorthodox technical analysis review.

The first monthly chart that I would expect most traders to prioritize is one that reflects on ‘risk appetite/aversion’ directly. A dominant force in the winds of capital markets, collective sentiment is one of the natural currents that all market participants would do well to at least have a view on. Ultimately, most major assets have a connection to the oscillation between fear and greed; but I believe some provide better reflection than others. The major US indices are a good proxy reflecting the most heavily invested asset (equities) and the world’s largest market, and the S&P 500 in particular backs among the largest suite of derivatives in the market. However, I am particularly keen on the ratio of the Nasdaq 100 to Dow Jones Industrial Average as a ‘risk’ gauge. The relative performance helps curb the perspective of US or equity-centric influence to gauge more generic sentiment. That said, this ratio dropped five consecutive months matching the longest slide in at least four decades and looks to start the new year at the 38.2 percent Fibonacci retracement of the 2002 – 2021 bull run. That feels like a decision point to me.

Chart of Nasdaq-Dow Ratio with Consecutive Monthly Changes (Monthly)

Chart Created on Tradingview Platform

As we move into 2023, there is considerable debate between the unrelenting bears who say the economic damage ahead has not been fully discounted versus the bulls that believe this last year’s retreat more than earned its technical ‘bear market’ designation. There are important considerations for what lies ahead that will ultimately factor into whether we extend or turn the 2022’s dominant trend, but there is a consideration of market conditions that I believe is informative of the type of conditions that we will experience going forward. The level of (implied) volatility that we’ve experienced this past year has certainly been elevated, but it is far from the panicky state that has accompanied some previous turning points in the financial system. Below, from the monthly chart of the VIX Volatility Index, we can see the higher general state of expected activity from the market in the 12-month moving average (equivalent to one year). Meanwhile, the extremes of volatility through 2022 were far from the complacent lows of 2017 or the ‘blow off’ levels of 2021. Should implied volatility keep this trend, it could prove more ‘productive’ support for forming trends. If we push to the extremes though, it could signal a turning point for underlying conditions.

Chart of VIX Volatility Index with 12-Month SMA (Monthly)

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Chart Created on Tradingview Platform

If there were one fundamental theme that topped all the others for those following the FX markets, it would most likely be the dramatic swing in monetary policy. From a general policy of extreme accommodation between near-zero interest rates and unorthodox tools such as quantitative easing at the beginning of the year, we were closed out the period with substantial increases to benchmarks and the throttling of bloated stimulus programs. The shift has a significant impact on assets that are interest rate sensitive, but the relative aspect of different regions shifting at different paces helped push the US Dollar to its incredible, multi-decade peak this past September. However, where the Greenback was benefiting the combination push for carry and the general ‘risk off’ backdrop, its underlying yield advantage was deflating. The direction and intensity of risk trends is critical for the US currency moving forward; but so long as that theme holds back from extremes, the closing of the yield gap between the Fed and its peers could passively deflate the Dollar.

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Chart of DXY Dollar Index with 1-Month ROC and US Yield Differential to EU, JP and UK (Monthly)

image3.png

Chart Created on Tradingview Platform

You can always tell that recession fears are gaining traction in the market when reference to the ‘2-10 spread’ makes it into normal market conversations. That spread is technically the difference between the 10-year and 2-year Treasury yields. Under normal circumstances, this yield ‘curve’ should be upward sloping – meaning that longer dated debt (even from the US government) should offer a higher yield due to the increased time over which an unfavorable development could unfold. When the curve ‘inverts’ (the shorter yield is higher than the longer one), it suggests that markets are pricing in an acute risk through the nearer term to warrant a greater premium to compensate for the added uncertainty. This is why the 2-10 spread is often referred to as a recession signal to many investors. We are entering 2023 with a six-month stent of inversion and only modestly off the steepest flip in four decades. This certainly doesn’t feel like support for the ‘soft landing’ Fed officials so frequently voice hope for.

Chart of US 10-Year to 2-Year Yield Spread with 200-Day SMA (Monthly)

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Chart Created on Tradingview Platform

A more targeted macro chart that I believe is worth reviewing is that of the US Dollar and Chinese Yuan exchange rate (USDCNH). These are the two largest economies in the world and disproportionately drag the rest of the world into expansion or contraction. Yet, these two currencies are also very different when it comes to transparency of economic and financial health as well as virtual opposites according to their principal sources of growth (the US relies heavy on domestic consumer spending while China is still rooted in factory activity supporting its export sector). This exchange rate can therefore reflect on the world’s expectations for growth as well as the need for transparency in risk for a given return. China’s decision to drop its Covid quarantine policies just this past month add fresh speculative fodder, but the bigger picture reflects upon a much greater level of volatility in this exchange rate over time. Such significant swings in the relative performance of the these major currencies and economies can have critical implications for the rest of the financial system.

Chart of USDCNH with 6-Month Average True Range (Monthly)

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Chart Created on Tradingview Platform

Another theme that dominated the headlines – if not directly, than by proxy – in 2022 was the surge in inflation. We entered the year with the mantra from central banks that high inflation was ‘transitory’ and we ended it with 100s of basis points of rate hikes. Initially, the pandemic lock down had a severe impact on the global supply chain which translated into sharp increases in prices. That was further compounded with the flush of stimulus infused to address the economic hardship which translated to more cash chasing fewer goods. By the end of this past year, we did see some notable reductions in the pace of key inflation readings such as the US CPI (consumer price index), but the tempo is still far above most major central banks’ target levels. To add context to the tracking of inflation, interest rate potential and recession risks; following key commodity charts can be particularly useful. Different commodities can reflect different factors, but wheat is one that reflects a staple that also carries global context with the ongoing Russian invasion of Ukraine as the latter is one of the largest grains exporters in the world.

Chart of Wheat Futures Prices Overlaid with US CPI Year-Over-Year Change (Monthly)

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Chart Created on Tradingview Platform

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What is a Swap in Forex and How to Calculate

2022-12-29 2022-12-29
What is a Swap in Forex and How to Calculatelogo

Everyone trading on the exchange must know and understand what a swap is. In my rather long professional career, I have come across many situations where people lost entire deposits simply because they didn’t know how swaps worked.

In other words, if you understand well what swap is and how it works, you can protect yourself from unnecessary losses and even use swaps for additional profit. This concept is as important as leverage.

The article covers the following subjects:

What are swaps and how are they calculated?

Now let’s figure out what fx swap is.

Foreign exchange swap is the difference in the interest rates of the banks issuing the two currencies, which is credited to or charged from the account when the trading position is kept overnight.

The central banks of each country determine the key interest rate. This is the rate at which the central bank lends to other banks. This rate may change throughout the year. But its starting value is determined at the first meeting of the central bank of the year.

On the foreign exchange market currency pairs are traded. Two different currencies are involved in the transaction, and each of them has its own interest rate.

The currency pair contains the base and the quote currency. The former is the currency we buy and the latter is the currency we buy it with.

The base currency is also called the deposit currency. This is our currency and the exchange uses it on a daily basis. Therefore it must pay us a certain percentage for it.

The quote currency is also called the counter currency. It belongs to the bank and we borrow it from the bank. Therefore we pay interest to the bank for the use of its currency, like with a consumer loan.

A negative swap is when you pay it or a positive when it is paid to you.

If there is a negative swap (with a minus sign), its crediting to your trading account will end when you withdraw the funds (points). If the difference in the interest rates gives a positive swap, the money will not be withdrawn from your trading account, but rather a certain number of points will be credited.

Thus, if the client has an open position at the close of the New York trading session, a swap operation with currencies is enforced. This means the position is simultaneously closed and opened for the new day. But on the client’s trading account there is no actual closing and opening. Rather the credited or charged interest is simply displayed.

However, there is a day when this operation is tripled. This is called a triple swap day. For currency pairs on the forex market, this is Wednesday to Thursday night. This is because settlements on the exchange for a position open on Wednesday are made on Friday. Therefore, the calculations for the position carried over from Wednesday to Thursday are done for the next day. And the next business day after Friday is Monday. This adds up to 3 days and the weekend swaps charge triple.

Swap as a trading strategy is different for each instrument. It wouldn’t be convenient to constantly calculate them, so brokers provide special swap tables. My broker has a swap table you can use here.

How to calculate swap in Forex?

In order to understand when we pay swap and when it is paid to us, let’s talk about how is swap rate calculated in Forex trading when buying or selling:

There is a simple formula, as shown above. The most important parameter of this formula is the rates of the central banks, or rather the difference in the interest rates of the base and quote currencies.

For example, let’s compare rates for one currency pair, the EURUSD for example. The ECB rate is now at 0% (loans are effectively free), and the Fed rate is set at 0.25%.

So if we buy a currency pair, we must subtract the quote currency rate from the base currency rate: 0 – 0.25 = -0.25. This means when buying this pair, the difference in rates is negative, and therefore the swap rate will be negative.

But when selling a pair, on the contrary, we need to subtract the base currency from the quote currency: 0.25 – 0 = 0.25. The swap rate will be positive.

This operation only gives us the positive or negative sign of the swap rate (which means either you pay or get paid). If we want to calculate the swap value itself, we need to substitute all the values ​​into the formula.

Today almost no one uses the formula to calculate the swap rate anymore. Traders either look it up in tables or find it using an fx swap calculator.

Every reliable broker has such a calculator on their website. I gave you an example of my broker’s calculator above.

FX Swaps and Cross Currency Swaps

As I said above, there are several types of swaps. Now let’s take a look at the difference between the three main types of swaps.

Forex swap

Fx swap rates are the financial instrument that represents the difference between the paying interest rates of the banks of the two currencies in a pair, which is credited or charged when an open position is carried overnight.

Cross currency swap

A cross currency swap is a foreign exchange transaction that combines the purchase or sale of a currency on a spot basis with the simultaneous sale (or purchase) of the same currency for a specified period on a forward basis. This means the trader performs a combination of two opposite conversion transactions for the same amount, but with different value dates.

This is the official definition. Now let me explain it in simple terms:

A cross swap on Forex trading is a situation that occurs when two companies participating in trades on the foreign market enter into an agreement with each other. Within this agreement, they sell each other the same amount in different currencies based on their current rate immediately after the swap operation itself and not at a higher interest rate compared to the changes of the market. After a predetermined period, which they have set under the forward contract, they sell these amounts back to each other in accordance with their rate under the forward contract.

Currency interest rate swap on Forex

A currency interest rate on the Forex swap is a simple interest rate swap that is carried out with different currencies.

Despite the fact that this operation is typical for large financial institutions, it also occurs in everyday life.

For example, you have a loan in foreign currency. The only option for you is to take out a new loan to cover the old one. But taking a new loan in foreign currency is a bad option as the stakes are high. But in local currency they are acceptable. At the same time, you happen to have a friend overseas with similar problems. So you take out a loan in your local currency, and he takes out one in his local currency, which is foreign for you. And then you simply exchange these amounts. As a result, you pay interest on his loan, and he does on yours. Everyone wins and you both saved on the interest rate without any risk involved.

To help you understand the difference between the different types of currency swaps, I have made a comparison table:

How a Currency Swap Works – FX Swap Examples

Now let’s take a closer look at how foreign exchange swap works.

I have already mentioned this above. At its core, Fx swap rates are the difference in the interest rates of the central banks of the two countries whose currencies are represented in the pair.

Above, I gave you the formula to calculate the base swap rate. The main parameters of this formula are basically unchanged during the year. And for some currencies, even for several years.

The main parameters are the values ​​of interest swap rates. Except for the current year 2020, changes in interest rates are not frequent. This happens once a year at best.

The variable parameters are the markup and the quote of the currency pair. These parameters can change even more often than once a day. Therefore, if we want to know the exact value of the swap, we need to constantly recalculate the value using a formula or a special calculator.

In addition to being positive and negative, swap rates can also be long and short positions open. In other words, a buy swap and a sell swap.

In my broker’s swap table, it looks like this:

These values ​​in the red columns indicate the swap value in points per one full lot, which will be credited to or charged from the trader’s account if you have your positions open. In other words, if we have an open position to sell the AUDUSD pair, when we carry it overnight a swap short is applied to our position, which is equal to -3.216 points. If we have an open position to buy this pair, Swap Long will be applied, and it will be equal to -3.816 points.

The largest swap value is usually associated with exotic currency pairs such as USDRUB.

If you need to know the swap just before opening the position, you can use the contract specification table:

The situation with swap rates will be slightly different for the euro/dollar pair. The buy swap pip value will be -6.036. In other words, an amount equal to this value per lot will be charged from your account. But the sell swap is equal to 0.392 points. A positive sign means that this value will be credited to your account. So you can actually earn money on a swap.

I have already explained why swap rates can be positive and negative. It’s all about the difference in interest swap rates. If the interest rates of the central banks of currencies differ greatly, then the swap sign will be different when buying and selling.

Calculating the swap fees on a short position

Now let’s take a closer look at how the total swap value is calculated on Forex trading for a sell trade in the EURUSD currency pair.

SWAP (short positions) = (Lot * (quote currency rate – base currency rate – markup) / 100) * current quote / number of days in a year.

However, it should be noted that the value will not be entirely accurate since we do not know the exact markup value.

If the positions open at 1 lot with the current quote at 1.19626 and markup at, for example, 0.20%, the swap size will be:

SWAP (short positions) = (100 000 *(0.25 – (0.0 – 0.20)/100) * 1.19626/365 = 0.163 EUR with an incorrect markup value.

If you perform this operation using a calculator on the broker’s website, you get 0.376 USD, so the difference is only in the markup value.

Swap on a long position

Now let’s look at how the total swap value is calculated for a buy when you trade Forex using the EURUSD pair.

SWAP (long positions) = (Lot * (base currency rate – quote currency rate – markup) / 100) * current quote / number of days in a year.

However, it should be noted that the value will not be entirely accurate since we do not know the exact markup value.

If we open a position of 1 lot with the current quote at 1.19626 and markup at, for example, 0.20%, the swap size will be:

SWAP (long positions) = (100,000 * (0.0 – (0.25 + 0.20) / 100) * 1.19626 / 365 = -1.474 EUR with an incorrect markup value.

If you perform this operation using a calculator on the broker’s website, you get -6.036 USD, so the value of the broker’s markup for a short trade is significantly different.

Can I make money from swap in Forex trading?

After traders learn that they can actually earn on swap in Forex trading, they start to look for pairs with positive swap in order to avoid high risk choices such as trading with CFDs. And there are enough of them, but with one caveat. There are no pairs where all swap rates are positive, but there are pairs where the swap is positive depending on the type of operation.

Below, I have listed the pairs with positive Forex swap. Under certain conditions, we can earn on swaps trading these pairs.

At the moment, this is the entire list of instruments with positive forex swaps that my broker provides. However, their number may vary depending on market conditions. For example, if one of the central banks changes its underlying interest rate or your broker changes the markup value.

In general, if you know that a country has a negative net interest rate, this is the sign that positive Forex swap rates may appear in currency pairs containing the currency of this country. However, traders should remember that a small positive swap in Forex trading will be easily eaten up by a spread and can lead to a high risk of losing money rapidly.

But even if such situations are rare, there are some very simple Forex trading strategies to earn on interest and Forex swap rates differences.

Carry Trade

The most popular trading strategy for making money on swap rates is, of course, the carry trade.

The principle of the strategy is to find the largest difference in interest swap rates of different countries. After that, we group the currency pairs that include the currencies of these countries and find a pair where the swap in one direction is greater than in the others.

After a quick look, I have highlighted the CADCHF pair. Forex buy swap on it is 0.528 points. Therefore, if we buy this currency pair, we will be making money on a positive swap. Since the position must be held for a long time to make a profit, we need to analyze the global chart for growth prospects. This particular pair has a growth potential. Now all that remains is to buy and wait, making a profit from the growth of the rate and a positive swap. However, the strategy requires that we keep the position open for quite a long time.

Swap and Fly

There is another strategy that resembles the previous one — Swap and Fly. The strategy appeared after most forex brokers began to provide the trailing stop option.

We choose an instrument similarly to the first strategy. After we’ve found the pair, we need to find a pattern that’s highly likely to be realized. Candlestick patterns are used more often, but geometric patterns will also work. In our case, this is a flag pattern, after which we expect growth. It’s important not to use mathematical indicators.

After that, order levels are placed with standard rules, which makes the ratio approximately 1:1. After the price starts to grow and goes above the entry point, you need to move Stop Loss to breakeven, I.e. at the level that a position opens. And that’s it. Then you just keep the position until the stop loss is triggered. Of course, you can use a trailing stop and also increase your profit by the rate difference. But this is not the essence of the strategy.

The essence of the strategy is to make money on a positive swap. In our case, it is equal to 0.834 points for a buy position. For a 1 lot trade, it’s about 80 cents. If we can maintain the position for a month, when closed by stop loss there will be no exchange rate difference, but the swap will bring us 21 * 0.8 = 16.8 dollars.

Currency futures strategy

There is another good strategy. I sometimes use it myself. The essence of the strategy is to create an ordinary locked position but with different types of contracts. You know that besides currency pairs, there are also futures, options, trading CFDs, and many other contracts. So, futures are essentially no different from a currency pair. Their most important difference is the absence of a swap. Did you already guess what I’m getting at?

Exactly. I create a locked structure by buying a currency pair with a positive buy swap when trading Forex on market and at the same time selling futures for the same pair on another exchange. The currency pair and futures quotes are usually the same, as are the fluctuations. Therefore, wherever the price goes, I will always have 0 because one side is bought and the other is sold.

The profit will be formed from the positive swap when you trade Forex. Of course, there are nuances, such as the size of the spread and the commission. But you can always account for them in the strategy and compensate either by the duration of the position or by a short-term play on price fluctuations and their future performance.

If you want to know more strategies, learn more about trading CFDs for making money on swaps without a higt risk of losing money rapidly, I recommend that you get specialized training from your broker.

What is swap fee in Forex — islamic accounts

Forex brokers also have special swap-free accounts. They are also called Islamic accounts. An Islamic account is a trading account that does not have any swap charge or fees in the form of an interest rate. According to the laws of Islam, Muslims are prohibited from receiving or giving interest on any kind of activity. So Islamic accounts were created in order for Muslims to be able to use the services of the Forex brokers.

Despite the fact that this type of account was created for Muslims, anyone can open it now. In order to open an Islamic account for yourself, you need to submit an application to your broker.

However, we all understand that brokers are not charity organizations. And if the account is swap-free, the broker will get their money in other ways. Usually this means larger spreads or a fixed commission per trade.

Conclusion

The topic of swap is quite important on the exchange. Many large investors make money not on the difference in exchange rates, but rather on the difference in net interest rates. When you trade Forex in the financial markets, most traders view forex swaps as another type of commission that brokers use to get rich. But if you understand how swap works, you can turn it from an enemy into a reliable ally that will bring you profit regardless of exchange rate fluctuations. Thus, using swap trading first on a demo account with a nominal position will help you understand how this efficient tool works with no need to risk money on complex instruments like trading cfds, or even avoid the high swap charges.

Price chart of EURUSD in real time mode

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteFinance. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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EUR/USD Price Analysis: Bearish bias remains intact below 1.0650 hurdle

EUR/USD pares the first daily gains in three during sluggish session.
Clear downside break of weekly support line, sustained trading below 100-SMA favor sellers.
Descending trend line from Tuesday adds to the upside filters.
Weekly horizontal support restricts immediate downside amid steady RSI.

EUR/USD takes offers to consolidate the first daily gains in three around 1.0620 heading into Thursday’s European session. Even so, the major currency pair prints 0.13% intraday gains by the press time.

That said, the quote broke a one-week-old ascending trend line, as well as the 100-Simple Moving Average (SMA), the previous day and favored the bears.

The following corrective bounce off the late Friday’s trough, however, failed to cross the aforementioned hurdles and join the steady RSI (14) to keep sellers hopeful.

As a result, EUR/USD bears are likely to revisit the weekly horizontal support zone surrounding 1.0600, a break of which could quickly drag the quote towards the previous weekly low near 1.0575.

It’s worth noting that the pair’s weakness past 1.0575 will highlight the 1.0440 support level, as well as the monthly low of 1.0393 for the EUR/USD sellers.

On the contrary, the 100-SMA level of 1.0640 precedes the previous support line, around 1.0645 at the latest, to restrict the short-term EUR/USD upside.

Following that, a downward-sloping trend line from Tuesday, close to 1.0650 by the press time, will gain the market’s attention.

In a case where the EUR/USD bulls manage to cross the 1.0650 hurdle, which is less expected, the quote is likely to refresh the monthly high, currently around 1.0735.

EUR/USD: 30-minute chart

Trend: Further downside expected

 

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US Dollar Price Action Setups: EUR/USD, GBP/USD, USD/CAD, USD/JPY

US Dollar Talking Points:

The US Dollar continues to hold support at the 103.82 spot, which was the 2017 high that came back into the equation two weeks ago.Many USD markets are exhibiting range which is not all too surprising given the holiday period. After nine months of an aggressive bullish trend and three months of aggressive pull back, the stage is set for a continuation of USD volatility into 2023 trade.The analysis contained in article relies on price action and chart formations. To learn more about price action or chart patterns, check out our DailyFX Education section.

Recommended by James Stanley

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The US Dollar has now held support for two weeks which, given the circumstances, can be considered an early win for bulls. The sell-off in Q4 was aggressive after a really strong topside run enveloped the US Dollar and related pairs through the first three quarters of the year.

This wasn’t just a US Dollar story, however, and if one merely evaluates the chart they may miss that point. Also playing into that theme was melting currencies in the UK and Europe, each of which make up a significant component of the DXY basket (57.6% for the Euro, 11.9% for the British Pound). As inflation was spiking in Europe and the UK and as the European Central Bank and the Bank of England were slow to respond, markets punished their currencies and when added with the higher rates out of the US, this made for fast bearish runs in EUR/USD and GBP/USD.

The high for the USD in 2022 came on the same morning that the British Pound collapsed. This happened in late-September after the unveil of a budget that caused some considerable political turmoil in the UK. But – as markets stepped back from the ledge and as GBP/USD recovered, the USD snapped back and this was led into a similar recovery move in EUR/USD, helped along as the ECB finally started to come to the table with rate hikes.

Inflation in Europe and the UK remains at over 10%. The hope is that in the US, CPI has topped and will continue to move-lower after a blistering pace of rate hikes in 2022. But, perhaps more importantly for next year, the ECB and BoE may not be as much flexibility as the FOMC, and this raises the question as to whether these bullish trends that sparked in Q4 in EUR/USD and GBP/USD have much potential for continuation. Below, I take a look at these questions from a longer-term lens.

US Dollar

The US Dollar has found support at the 103.82 level which was the swing high in 2017. This price provided some resistance when DXY was breaking out in April, albeit temporary, before coming in as support in June just before the USD launched up to a fresh 20-year-high.

This level started to come back into the picture a couple of weeks ago, right after the CPI print that helped to bring a reversal move in stocks, which is still pricing in today. The dollar has since come back to this price to test the lows on multiple occasions, illustrated on the below weekly chart in the red box.

US Dollar Weekly Price Chart

Chart prepared by James Stanley; USD, DXY on Tradingview

USD Longer-Term

Taking a step back, this pullback has the appearance of correction in a bigger-picture bullish theme. This is supported by the 23.6% Fibonacci retracement of the 2008-2022 major move, which is confluent with a bullish trendline projection taken from swing lows in 2021 and 2022, and of course that prior swing high from 2017 that comes in at 103.82.

US Dollar Monthly Chart

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Chart prepared by James Stanley; USD, DXY on Tradingview

EUR/USD

As noted above EUR/USD is a whopping 57.6% of the DXY quote so it’s going to be difficult for the US Dollar to go anywhere without at least some participation from the Euro.

In 2022 that was very much key, as a precipitous drop in the single currency was a major contributing factor to the spike in the USD. Perhaps more problematic was the lack of support at the parity handle, which did help to buffer the lows for a couple of months but soon gave way to sellers.

A low finally was set in September around the .9594 level, which was a swing-high-turned-support from back in 2001. There was such a dearth of historical action in this region and something as simple as a prior swing was able to come-in to help demarcate the lows. The bounce that’s showed in November and December came from deep oversold conditions on a long-term basis and at this point, resistance has held from a prior spot of support, around 1.0750, questioning whether the pullback has run its course.

EUR/USD Monthly Price Chart

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Chart prepared by James Stanley; EURUSD on Tradingview

GBP/USD

The British Pound came into Q4 on its back foot. The currency went into collapse-like mode in late-September and Q4 was largely a period of recovery from that. In less than three months, GBP/USD erased more than 50% of the sell-off that began in May of 2021. The 50% marker of that move is at 1.2303 and it set resistance in GBP/USD over a three-week-period in late-November and early-December. The corresponding pullback has so far held at the 1.2000 psychological level and from a short-term basis, a hold of support there can keep the door open for topside swings. But, if it fails, there’s a lot of room for price to run-lower in breakdown scenarios.

Recommended by James Stanley

How to Trade GBP/USD

GBP/USD Weekly Price Chart

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Chart prepared by James Stanley; GBPUSD on Tradingview

USD/CAD

First things first, USD/CAD is in a long-term range and I think this is notable as something like this can have immense impact on short-term swing dynamics. Below, the monthly chart highlights this mean reversion that’s been going on for more than seven years now.

USD/CAD Monthly Chart

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Chart prepared by James Stanley; GBPUSD on Tradingview

USD/CAD Shorter-Term

On a shorter-term basis, USD/CAD has been teasing breakout for the past few weeks with nothing taking hold yet. There was a build of resistance at 1.3700 which held multiple inflections and yesterday, prices pushed down to the 1.3500 level before a bounce showed. That bounce has since pushed up to resistance at prior short-term support so on a shorter-term basis, the matter remains messy.

More importantly, however, is if we zoom out we’ll notice the continued build of lower-highs after price failed to test above the 1.4000 level, and then set resistance at 1.3808 and then the continued build at 1.3700.

This puts the onus to defend the lows on bulls and, if they don’t, bigger picture reversal themes could come into the equation next year, looking for price to move-lower in the longer-term range formation.

USD/CAD Daily Price Chart

image6.png

Chart prepared by James Stanley; USDCAD on Tradingview

USD/JPY

Can the BoJ keep up their pedal-to-the-floor policy through the end of 2023? With inflation spiking up to 40-year highs and with a leadership change set to take place atop the BoJ, that’s a difficult prospect to accept at this point. But, any changes are wrought with risk so the big question remains ‘how’ the Bank of Japan might navigate a situation that’s surely to carry downside with any option that they choose.

This year saw USD/JPY spike up to fresh 32-year highs, to levels that haven’t been traded at since 1990. There was little tolerance for prices above the 150.00 psychological level, however, as prices quickly retreated after a test there in October. The continued pullback from that level ran all the way down to longer-term support at the 131.25 level that had set a double top formation in April.

USD/JPY Monthly Price Chart

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Chart prepared by James Stanley; USDJPY on Tradingview

USD/JPY Shorter-Term

At this point, the 131.25 level has provided a bit of a bounce but the onus is still on bulls to protect that low above the 130.00 handle. I wouldn’t quite call the below setup a head and shoulders pattern, but it has similar leanings as there’s a spot of support that’s come back into the equation after a spiked breakout fell flat.

This would, at the least, keep that support as somewhat vulnerable until bulls showed a greater response, and re-crossing above the 135.00 level would be an ideal first step, after which a spot of resistance from prior support shows around the 138.00 handle.

Recommended by James Stanley

How to Trade USD/JPY

USD/JPY Daily Price Chart

image8.png

Chart prepared by James Stanley; USDJPY on Tradingview

— Written by James Stanley

Contact and follow James on Twitter: @JStanleyFX

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Tesla Market Cap Plunges 72% Since 2021 Peak, Nasdaq 100 Sinks on Fed Woes

Tesla, Nasdaq 100, Fed, Illiquidity – Asia Pacific Market Open

Tesla’s market capitalization no longer towers over its competitionNasdaq 100 sank as Tesla plunged 11.41%, Treasury yields soaredBe wary of volatility as holidays make for thin trading conditions

Recommended by Daniel Dubrovsky

Get Your Free Equities Forecast

Asia-Pacific Market Briefing – Nasdaq 100 Sinks With Tesla as Treasury Yields Soar

Volatility roared back to life as risk aversion struck Wall Street in the first trading session after the Christmas holiday break. This is in line with historical performance in the days leading into and after the holiday since 1990. The tech-heavy Nasdaq 100 sank about 1.4 percent, with the S&P 500 falling about 0.4%. Meanwhile, the blue-chip-oriented Dow Jones was left mostly unchanged.

Clearly, tech stocks were disproportionately impacted on Tuesday. A look at the market pricing of where the Federal Reserve might take interest rates ahead can explain this dynamic. Traders boosted rate hike projections across tenors since Thursday, with the most coming from the 2-year outlook. Treasury yields gained across the board, pushing the 10-year rate to its highest since the middle of November.

Meanwhile, Tesla’s stock was caught in the crossfire. While tech stocks were sinking, traders also had to deal with an announcement that Tesla is planning on reducing production at its Shanghai plant. That sparked concerns about demand despite China increasingly reversing its Covid-zero policy. The country announced that it will end quarantine for incoming travelers.

Tesla’s share price sank 11.41% on Tuesday in the worst drop since April 2022. This means that since the November 2021 peak, the stock has lost about 73% in value. No longer does its market capitalization tower over the combined total of its top 5 competitors like it used to – see chart below. While Tesla’s market cap sank 72%, its top 5 competitors declined about 31% since last year.

Tesla No Longer Towers Over Competition Like Before

Wednesday’s Asia Pacific Trading Session – Eyes on Risk Aversion

Wednesday’s Asia-Pacific trading session is lacking notable economic event risk. With the holidays still producing thin trading conditions, be mindful of volatility risk. Wall Street’s disappointing session is opening the door to further losses for APAC bourses. This is placing indices like the ASX 200, Nikkei 225 and Hang Seng Index at risk.

Nasdaq 100 Technical Analysis

On the daily chart, the Nasdaq 100 appears to have broken under a Bearish Flag chart formation. Confirmation is lacking at the time of publishing. Further downside progress risks opening the door to extending the dominant downtrend. That would place the focus on the 10484 – 10708 support zone. Meanwhile, the 200-day Simple Moving Average continues to maintain a downside bias.

Recommended by Daniel Dubrovsky

Get Your Free Top Trading Opportunities Forecast

Nasdaq 100 Daily Chart

Nasdaq 100 Daily Chart

Chart Created in TradingView

— Written by Daniel Dubrovsky, Senior Strategist for DailyFX.com

To contact Daniel, follow him on Twitter:@ddubrovskyFX

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USD/CAD finds bids around 1.3500 amid risk aversion theme, oil aims to recapture $80.00

USD/CAD has attempted a recovery after dropping below 1.3500 as the risk-off mood has regained traction.
Firmer oil prices led by growing supply worries as Russia bans oil supply have supported the Canadian Dollar.
The 10-year US Treasury yields have jumped to near 3.85% amid the risk aversion theme.

The USD/CAD pair has sensed buying interest after dropping to near 1.3500 in the early Asian session. The Loonie asset has picked strength as the risk-aversion theme is gaining traction amid volatility in a festive week. The major has shown signs of reversal after displaying a perpendicular downside move on Tuesday as firmer oil prices supported the Canadian Dollar.

The risk profile is highly obscure amid the unavailability of solid triggers for decisive moves in the currency market. Also, easing lockdown restrictions for inbound travelers in China failed to uplift the market mood. S&P500 remained under pressure on Tuesday as tech-savvy stocks faced immense heat. The US Dollar Index (DXY) has turned sideways around 103.80 after failing to cross the crucial resistance of 104.00.

Meanwhile, the risk aversion theme led by illiquid markets due to the festive week is impacting the US Treasury bonds. The 10-year US Treasury yields have jumped to near 3.85%.

The Canadian Dollar hogged the limelight on firmer oil prices. West Texas Intermediate (WTI) futures have dropped marginally but have resumed their upside journey and are expected to recapture the critical resistance of $80.00 led by growing supply worries and China’s progress towards reopening of the economy despite a spike in Covid cases.

Oil supply worries escalated after Russian President Vladimir Putin signed a decree that bans the sale of Russian oil to countries that imposed the oil price cap.

On the United States front, Thomas M. Mertens, a Researcher from the Federal Reserve (Fed) Bank of San Francisco’s Economic Research Department came out with a recession predictor based on macroeconomic time series, particularly the jobless unemployment rate. He cited that no predictors indicate an upcoming recession over the next two quarters currently. And, the jobless rate does not currently signal an impending recession.

 

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Best Forex Trading Strategies in 2022 – 2023

2022-12-27 2022-12-27
Best Forex Trading Strategies in 2022 – 2023logo

Are you about to take your first steps in trading but haven’t chosen a strategy yet? Do you want to learn about different types of Forex trading systems for beginners and professionals? This review will look at different types of systems to base your own trading strategy on. Each block discusses the essence of the strategy with an example, entry / exit points and the risk level.

The article covers the following subjects:

What is Trading Strategy in Forex

A trading strategy on the Forex market is an algorithm that allows you to achieve your goal as quickly as possible with an optimal level of risk. The goal is usually to obtain a certain percentage of profit.

The trading system answers the following questions:

What is the goal and how quickly should it be achieved? Based on this, the type of strategy is selected in accordance with the timing, frequency of signals and the risk level.

What are the main trading assets? What is their volatility level?

Which timeframe is selected for analysis, and which one is used for trading?

What tools are used to search for a signal? Is fundamental, technical or graphical analysis used? Which instruments give the main signal, which ones provide an additional one?

What combination of signals constitutes a сue to place a market or pending order, and to exit the Forex market?

What are the risk management rules? How is the volume of the first trade calculated, as well as the volume of subsequent trades in case of profit or loss? How are the stop loss and take profit level calculated? What is the maximum allowable total loss?

What is the algorithm in case of unforeseen situations?

Having a trading plan allows you to quickly respond to any changes. The absence of a strategy equals chaotic actions and wasted time.

How Trading Strategies actually work

How Forex trading strategies work:

You have a strategy, which means you know which actions need to be taken in each case in order to maximize profit or minimize potential loss.

When you have a plan, you understand the end goal. You break it down into several stages and check the efficiency of the strategy at each stage. If you notice that the plan is not working out, rebuild the trading system.

A systematic approach gives you confidence in your actions. If you have a working strategy, you can turn it into an automatic trading system by ordering a trading advisor.

Having a trading strategy also has an emotional aspect. When you have a plan, you clearly follow it without succumbing to emotions. For example, the price went the other way after you opened the trade, but your plan provides for an acceptable loss. So you don’t have to close the trade in a panic. No waiting until the last minute in the hope that the price will turn around – you will just calmly follow your strategy.

Basic Forex Trading Strategies for Beginners

Forex trading strategies for beginners are trading systems that have the following characteristics:

Few indicators. The chart should not be oversaturated so it’s not confusing to the trader.

Large timeframes. Timeframes from H1 are easier to navigate as you have more time for analysis.

Minimal risk. Rare signals with relatively small profits, but a high percentage of triggering.

Accurate interpretation of signals.

All the profitable strategies described below are basic versions. They need to be finalized and indicator parameters need to be adjusted for a specific asset and timeframe.

Positional Trading

Positional trading is a long-term strategy. It is based on the wave theory, according to which the market develops in a cyclical fashion: any growth is followed by a recession. A trader makes a long-term position, taking as much profit as possible from a single wave of price growth or decline, while ignoring local countertrend corrections. The position is closed when the price reverses or goes flat.

Strategy description

Cryptocurrencies and stock assets are best suited for position trading. Currency pairs move in a narrow corridor, while cryptocurrencies and stock assets do not have a growth ceiling and have protracted trends. Timeframes: from H4 and above.

Risk level

Medium. The main risk is stop out. On long timeframes, the cost of a pip is much higher than on minute intervals. Therefore, even a small correction can cost you. The trader must have sufficient margin to sustain the drawdown.

Reward ratio

Profitability of long-term investment – 15-50% per annum.

Length of trade

Long term trading. Trades are kept in the market from several days to several weeks or months.

Entry/exit point

The two best scenarios for entering the market are opening a trade at the moment the market exits a flat or on a fundamental driver. For example, after the release of quarterly or annual reports. Good indicators for determining the trend are the Alligator, ADX, moving averages. Exit the market according to the situation.

Example

Long-term positional trading in shares. Before opening a trade, you need to analyze statistics for individual industries. Explosive growth is recorded in biotech companies, but there is a big risk of falling prices. Technology stocks are doing well, but they have deep drawdowns during general market decline. Retail and consumer stocks are the best option for positional trading.

The screenshot above shows the long-term trend in the price of Coca-Cola shares. After exiting the flat corridor, the share price went up. The duration of local corrections is 1 month. The trade is closed at the moment of consolidation near the trend line and at the moment when it turns from support into resistance. Profitability in 9 months – 12 USD per share or 23% per annum.

Pros and cons

The advantage of positional trading is that in the long term, strong movements are longer and more stable. Market makers do not have enough capital to manipulate the market. After catching a trend at the exit from a flat or on a fundamental factor, you can keep a position in the market with little or no monitoring. On the daily interval, it is enough to check the chart for 5-7 minutes every few hours. Disadvantages: rare signals, lower returns compared to intraday swing systems.

Trend Breakdown Strategy

Breakdown trading is a simple Forex strategy, in which the main signal is a breakdown of a trendline. A bullish trendline is drawn using the lows, while a bearish trendline is drawn using the highs. A breakdown confirmed by patterns and news is a sign of a change in the main direction of price movement.

Strategy description

The strategy is based on the idea of wave market development. Any long-term trend ends with a consolidation or a change in direction. If the price breaks the trend line and bounces back from it after a slight consolidation, there is a trend reversal. This is a medium-term strategy, the best timeframe is H1-H4.

Risk level

Below medium. There is a risk of a false breakout, so it is important to track additional signals.

Reward ratio

Depends on the duration of the trend. On the hourly interval, the yield in 1-2 days can be 100-150 points. Protracted trends can generate an income of 300-400 points.

Length of trade

Signals are relatively rare – on an hourly interval, a signal can appear once in 1-2 weeks. The length of trade is from 12-15 hours to several days, so you need to take into account the fact that single and triple swaps will be charged.

Entry/exit point

The next candle in the new trend direction after the candle that breaks the trend. The presence of consolidation near the trend line indicates that a temporary equilibrium has been established on the Fx market. For example, in an uptrend, buyers are not ready to buy the asset that has risen in price. The majority see that the trend has stopped and start selling the asset at the high, so the price begins to fall. Confirmation signals: formation of reversal patterns, breakdown of key resistance/support levels.

Example

The objective is to build a trend line and wait for its breakdown after getting confirmation from other instruments. Here it is important to distinguish a false corrective breakout from a change in the trend direction.

A strong downtrend is visible on the hourly interval of the AUD/USD pair, which allows us to draw a trend line. The line is drawn based on the high extremes in order to reduce the likelihood of a false breakout (if a breakout occurs, the trend line moves). The screenshot shows that the line is built using the first and fourth highs.

At the end of a trend, volatility increases and the price goes into a temporary correction. We can see the formation of the triangle pattern, the initial range decreases. The sides of the triangle are only occasionally broken down by shadows, which indicates the weakness of sellers – this is a preliminary signal. A relatively clear horizontal resistance level is also present.

The price breaks the upper side of the triangle, then the trend line. As soon as the price breaks through the resistance level (triple confirmation), we open a trade on the next candle. We close the trade after the appearance of two reversal candles in a row (forming the Three Black Crows pattern). Profit with minimal risk is 70 points.

Pros and cons

Suitable for beginner traders who have basic pattern trading skills and know how to build trend lines correctly. Its advantage is that there is time for analysis on long timeframes, a late entry after a trend breakout is not a mistake. The disadvantage is that the new trend may turn out to be a deep correction, so it is advisable to check the chart at least once an hour.

Swing Trading

Swing trading is a Forex trading strategy that involves earning on rollbacks. It is based on the idea that local corrections can be applied to maximize profits. This method of trading is focused on the use of rollback moments (corrective movements) that occur during the formation of a trend.

Strategy description

One of the trading options for this system is to open a trade at the end of the correction and close it at the start of a new correction. The optimal timeframe is from H1-H4. On short intervals, the trend is less stable, so it is less often used in swing trading.

Risk level

Medium. If a strong trend is found, the risk of loss is relatively small, you need to close positions in time at the beginning of a rollback. But the trend is not always stable, the signal construed as the resumption of the trend may turn out to be false, and the correction will continue.

Reward ratio

Depending on the type of swing trading strategy and time frame. On the hourly interval, when trading along the trend, the profitability per trade is 80-100 points.

Length of trade

Swing trading can be used both in intraday strategies and in long-term ones, depending on the chosen timeframe. On the H1 interval, you can catch corrective movements with a depth of 5-7 candles and earn intraday. On intervals from H4, swing trading turns into a long-term trading strategy with trade length of several days.

Entry/exit point

There is an uptrend in the markets, in which downward corrections appear. A trader can use them in the following ways:

Open a trade at the end of the correction in the direction of the trend. For example, you missed the beginning of the trend and you need to find an entry point at the best price.

Open a trade at the bottom of the correction in the direction of the trend, close at the extremum. Wait for the next correction, open a trade again at the bottom of the correction.

Increase the volume of the position at the end of each correction.

Alternate reversing the trade in the direction of the trend and in the direction of correction.

Closing the trade: 50% at the level of the beginning of the correction (return to the last extremum), the remaining 50% – by trailing stop.

Indicators: trend tools with confirming oscillators to find the trend. Reversal patterns, resistance and support levels, Fibonacci levels.

Example

The objective is to find a trend on an hourly interval. In the chart below, there is a horizontal resistance level after a downtrend.

1 – After the breakdown of the resistance and a rebound from it, a series of growing candles appears. This is the beginning of a trend, open a long position.

2 – The first strong reversal – three candles down in a row – close the trade.

3 – The price reverses up, allowing you to draw a trend line. Open a long position.

4 – Three candles down – close the trade.

5 – Rebound from the trend line and a few candles up – open a long position.

6 – Three candles down – close the trade. Despite the fact that there was no correction, it is better not to take risks – wait for the next rollback.

7 – The price does not reach the trend line, but there is a reversal pattern – you can risk opening a trade (weak signal).

8 – Three candles down – close the trade.

The profitability of each trade is 80-100 points, but you need to take swap into account.

Pros and cons

Forex strategy advantages:

More profitability. Unlike the trend strategy, a trader earns more in swing trading. For example, a trend trader earns 100 pips upon closing a trade. A swing trader makes 50 pips on the trend and closes the trade at the start of the correction. The price rolls back 15 pips, the swing trader opens the trade again. Their income is 50 + 65 = 115 points.

Less risk. A position trader waits out the correction and protects the trade with a stop order. If the stop loss is triggered, the loss is equal to the depth of correction. A swing trader closes the trade at the start of the correction. And if the rollback turns into a new trend, the swing trader loses nothing.

The disadvantage of the strategy is that you need to constantly monitor the chart and be able to find the beginning and end of the correction well. Corrections are not always ideal in form and can turn into a flat.

Trend Trading

Trend trading involves opening a trade at the beginning of a trend movement and closing it at the reversal. The trader’s objective is to find the beginning of the trend and avoid mistaking the correction for a reversal and closing the position too soon.

Strategy description

One of the best strategies for trading on the Forex market is to open a position when the price exits a flat or during a trend reversal. Timeframe – from H1. The strategy is well suited for both intraday trading on the foreign exchange market and positional trading on the stock markets.

Risk level

Below medium. The main risk is the late opening of the position. Novice traders can miss the start of the trend and enter the market when it has mostly exhausted itself. If you regularly monitor the chart, set stop loss and take profit, the risk is minimal.

Reward ratio

Depends on the chosen timeframe and risk appetite. On the hourly interval, you can find a trend longer than 24-48 hours. With a daily asset volatility of 80-100 points, you can find a trend with a length of 50 points or more.

Length of trade

Depending on the timeframe. On the interval H4 and above, the strategy turns becomes a medium-term one. Monitor the chart regularly in order to search for a trend reversal.

Entry/exit point

Entry:

Trend with signs of its upcoming ending: the candlesticks become smaller, there is a transition to a flat. The appearance of a reversal pattern and the breakdown of the trend line in the opposite direction is a signal to open a trade.

The moment of the price exiting the flat is signalled by the breakdown of its borders and the appearance of candlesticks with consistently growing bodies.

Get signals from trend indicators and oscillators: Alligator, moving averages, Momentum.

Exit the market in parts. After the price moves in the predicted direction, move stop loss to the breakeven level. Close 50% of the trade when the price passes the predetermined number of points. For example, you are 99% sure that the price will definitely not reverse before it moves by 20 pips – this will be the first target. Insure the remaining 50% of the trade by a 10-15 pips trailing stop, depending on the depth of the average correction.

Example

We open a position based on the signals of the Alligator indicator.

The signal is the divergence of moving averages. In two cases, the signals turned out to be correct, however in the third case, the signal shows the beginning of a long upward movement, but the entry point has not been determined, since the divergence of the moving averages begins on a rollback. Therefore, it is better to filter the indicator signals with additional tools.

Pros and cons

The advantage is that it’s a good strategy for beginners. On long timeframes, the trend is relatively stable, the investor has time to assess the situation, there is no need to constantly monitor the chart. After 50% of the trade has been closed, you don’t have to monitor the chart anymore. It is also possible to earn on individual small trend movements, as shown in the example above. The disadvantage is relatively rare signals. On the Forex market, strong trends appear infrequently, especially on large intervals.

Range Trading

Range trading includes flat trading and channel trading strategies on the Forex market. They are based on the following idea: mostly the price moves in a fixed corridor with a median, which can be represented by a moving average. The price tends to its average value. The further the price moves away from its average value, the more likely it is to reverse.

Strategy description

This strategy has two trading options:

Breakdown trading: the channel is built based on the points where the price reverses most often. If the border is broken down, a trade should be opened in the direction of the breakdown.

Channel trading: the channel is built based on extremums – the points that the price reached and did not break through. A trade should be opened when the price reverses at the border to the middle of the channel.

Risk level

Medium. There is risk of a false breakdown of the channel, as well as the risk of the price continuing to move towards the breakdown of the channel after a trade has been opened.

Reward ratio

Depending on the timeframe. Within a day, the price can give 1-2 signals of 20-30 points each.

Length of trade

The strategy works on intervals from M30 for intraday, medium and long-term strategies. It is not suitable for scalping, since the price has a high impulse movement on minute intervals, which violates the logic of averaging.

Entry/exit point

Options:

High risk. Open a trade after the price exits the channel. Breakdown indicates a strong inertial movement. Close the trade at the slightest signal of a reversal.

Moderate risk. Open a trade after the border of the channel has been broken and the price reverses towards its middle. Close when the price reaches the median line of the channel.

Main technical tools:

Levels, trend lines that define the boundaries of inclined or horizontal channels.

Channel patterns: rectangle, rails, flag, etc.

Channel indicators: Bollinger Bands, Envelopes, Keltner Channel, Darvas Box.

Reversal indicators: Pivot points, heat map.

Overbought and oversold oscillators: Stochastic, MACD, RSI, CCI.

Example

The main indicator is the Keltner Channel with an expansion multiplier of 2. This multiplier value expands the channel, allowing you to find points that the price reaches relatively rarely, and therefore a reversal to them is most likely. The confirming tool is the RSI oscillator.

The signal is the price going beyond the channel and reversing. At this or the next candle, the RSI should touch the 70 or 30 level. If it doesn’t, don’t open the position. Close 50% of the position volume upon the price reaching the middle line of the channel. The other 50% should be insured by a trailing stop 10-15 points long (for the H1 timeframe).

1 – three strong candles from the middle of the channel indicate a strong impulse movement. Then the movement ends, and a reversal occurs. The RSI touches the 70 mark. Profitability is about 40 points.

2 – the price leaves the channel, reverses and returns to it. There are no reversal patterns, so the signal can be described as weak, but it is confirmed by the RSI. Profitability is about 30 points.

3 – the situation is similar to the previous one. Profitability is about 15 points.

4 – the situation is similar to the previous ones, but the signal turned out to be false.

Pay attention to reversal patterns outside the channels. If there are none, the signal is weak.

By changing the multiplier of the indicator, you can change the entering mechanics. For example, with a multiplier of “1”, you can open trades on the breakdown of the channel.

Pros and cons

This is a clear Forex trading strategy suitable for beginner traders. Disadvantage: it takes a long time to adjust the settings of the channel indicators that determine the channel width.

Day Trading

Day trading means opening and closing a position within a trading session to save on swap. You can carry the position overnight if you are confident in the strong trend and the ability to regularly monitor the chart.

Strategy description

Day trading is a strategy defined by the duration of the position in the market. For example, intraday trading includes scalping, swing trading, and trend strategies. The suitable timeframes are М5-Н1.

Risk level

Depends on the type of intraday trading chosen. Scalping has high risk, swing trading has medium risk, and trend strategies have below medium risk.

Reward ratio

In scalping, profitability per day can reach 100 points or more. The profitability of a trend trading strategy with an asset volatility of 70-100 points is 30-50 points.

Length of trade

Day trading refers to short-term strategies with the option of transitioning to medium term.

Entry/exit point

There are no clear rules. Scalping can use oscillators and patterns. Entry/exit points are at price reversal. In trend trading, use trend indicators that show the exit from a flat or a change in trend, as well as levels. Entry/exit points are breakdowns of key levels, signals from moving averages, etc.

Example

One of the options for intraday trading is to look for a strong signal for a trend reversal or exit from a flat, confirmed by graphic or fundamental analysis. You earn on the movement of 5-8 candles.

On the hourly interval of the EUR/USD currency pair, we can see a long uptrend, which should end sooner or later. We draw a trend line according to its corrections. At the top of the trend, a horizontal corridor with two tops forms. At 14:00, a small red candle appears, which means that the price cannot break through the resistance level. There is a balance of buyers and sellers, showing that the buyers are exhausted.

At 15.00 there is a strong candle down. It breaks the uptrend trend line – this is a preliminary signal. Then the price breaks the support level – this is a signal to open a short position. The big downward candlestick is also confirmed by a fundamental factor – the statistics on inflation in the US for August was announced, which coincided with the forecasts and remained at a high level (more than 8%). This means that the Fed will soon raise the discount rate, thus strengthening the USD.

We close the trade either before the time for the swap to be charged, or after the appearance of two consecutive reversal candles after the downtrend slows down. Profit with minimal risk with this Forex strategy was about 25 points.

Pros and cons

The advantage is that it’s suitable for any trading style from scalping to trading with the trend, against the trend or based on fundamental analysis. Also it saves on swap. The disadvantage is the constant need for monitoring the chart.

Retracement Trading

This strategy is a variant of swing trading, but it is built on a unique group of indicators – Fibonacci tools. There are corrections in any trend, and their depth often corresponds to the Golden Section ratios. There are correction levels that are more and less significant, and a breakdown of distant correction levels means a change in the direction of the trend. Also, Fibo correction levels are used to set stop loss and take profit.

Strategy description

After the start of the first correction, a Fibonacci grid is built beginning at the extremum and ending at the beginning of the trend. The level of 23.6% is the first, weak level. 38.2% is the level of the most likely end of the correction. If the price reverses in the direction of the trend, a trade with a take profit at the “0” point should be opened. If the price draws a new extremum, “0” is moved to its level.

Risk level

Medium. The level building method is mathematical, so there is always a chance that the price will reverse between the levels or will not reach the take profit.

Reward ratio

Depends on the timeframe. The distance between correction levels on the H1 timeframe can be 15-35 points.

Length of trade

The strategy is suitable for intraday medium and long-term trading.

Entry/exit point

The entry point is a price rebound from the correction level in the direction of the trend. Take profit should be set at the next level in the trend or point “0”. Stop loss is the next level in the direction of correction. Additional indicators are patterns and oscillators that confirm the reversal.

Example

After the first correction, a Fibo grid is built (blue lines are the extremums for its building).

Correction is determined by the number of candles going against the trend. In the first case, there is no correction, since the level of 0.38 was only tested by a shadow, and subsequent movements near the level 0.23 consist of small candles. In the second situation, there is clear touching of the 0.5 level and an ascending Engulfing pattern – you can open a long position. The fact of the second touching of the level 0.5 is the confirmation of the signal. At level 0, we close 50% of the trade, and insure the remaining 50% with a trailing stop with the length equal to the distance between 0.23 and 0.

As the trend grows, we stretch the Fibo grid.

Note that the price moves between the 0.23 and 0.38 levels for some time. Then it goes to the level of 0.5, from which it rebounds upwards. Trades can be opened at any rebound from the levels of 0.23 and 0.38.

Pros and cons

The maths of this strategy is supported by opposite psychology. Most traders are sure that Fibo levels work, so they are guided by them when placing pending orders. Orders work, so the Fibo method also works. Therefore, the advantage is the understandable logic of the tool. The disadvantage is that you need to develop intuition in order to learn how to intuit the most powerful levels.

The Bladerunner Trade

This strategy is built on the basis of the moving average, which suggests the moment of the beginning of a trend movement. The system is great for beginners, as it provides a clear interpretation of the signals. The best timeframes are M30-H1. Strategy tools: EMA (20), levels, and breakout patterns.

Strategy description

The concept of the strategy is based on 4 main events:

The exit from the consolidation zone is signalled by the breakdown of the border of the side channel by the price.

Breakdown pattern. For example, 3 candles in the direction of the breakdown.

Breakdown of the moving average. After the breakdown of the consolidation zone, the candle should close above/below the moving average. The rest of the candles should also close above/below the EMA (20).

Testing. The price returns to the moving average, touches it, rebounds and goes in the direction of the trend.

The moment of EMA testing confirms the beginning of a strong trend.

Risk level

Relatively low. The strategy uses a combination of several instruments that confirm the exit from the flat and the beginning of the trend. Signals are rare but effective.

Reward ratio

From 30-50 points and above – the trade closes by trailing stop.

Length of trade

The objective is to make the most out of the trend. On M30-H1 timeframes, with relatively rare but accurate signals, you can close a trade intraday and save on swap.

Entry/exit point

Open a trade after the price has tested the moving average and a movement has started in the direction of the trend. Closing is at the discretion of the trader.

Example

The price is in a sideways movement with a clear resistance level but blurred support levels. The first (red) support level has a false breakout – there is no testing of the EMA, the price breaks through it upward.

At the next breakdown, the first three conditions of the system are met:

The price is below the EMA.

There is an exit outside the horizontal corridor at point 1.

There is a formed trend pattern at point 2 – three consecutive descending candles with a consistently increasing body.

At point 3, the price almost touched the EMA – this is the 4th, confirming signal. We can open a short position at the first blue arrow. Point 4 is the final confirmation that the price is now confidently touching the EMA, the touch point coincides with the traced support level, which has now turned into resistance. The second blue arrow points to a candle, after which you can open a short trade with confidence.

Options for closing the position:

On the H1 interval, we close 50% of the trade after making a profit of 30-50 points, and insure the rest with a trailing stop of 15-20 points.

When the next side corridor appears.

When the price line crosses the EMA from the bottom up.

Pros and cons

The advantage of the strategy is in the clear logic of the signal. The breakdown of the consolidation zone with a trend pattern confirmed by the moving average is a strong signal. On the other hand, the Forex market is never unambiguous. Therefore, relying only on the EMA (20) without experimenting with other periods and without adding other indicators is dangerous. Therefore, I recommend using the idea of this strategy but adjusting it for the selected asset and timeframe.

The Pop ‘n’ Stop Trade

This is a classic tactic for opening trades at the end of a sideways movement with the appearance of a clear uptrend or downtrend. The price moves in a narrow sideways corridor for some time, after which it breaks through the resistance or support level, thus indicating the beginning of a trend.

Strategy description

A flat means the market is in a state of uncertainty. It can appear in a trend movement as a temporary respite with consequent continuation of the trend, for example, before the weekend or news release. Alternatively, it means that the trend has run out of steam and the other side will now take revenge. A breakout of the channel borders means the beginning of a trend, which is where a position should be opened. The strategy is suitable for beginners provided conservative risk management on timeframes from H1.

Risk level

Medium for the following reasons:

The breakdown of the flat channel may be false. To confirm the signal, you can use the attempt of the price to return to the channel (breakout of the channel border, return to it and a rebound from it in the direction of the breakdown), trend indicators and oscillators.

A flat corridor rarely has parallel boundaries and clear extrema for drawing. An error in choosing an extremum for drawing resistance/support levels can result in opening the trade too early or too late.

Reward ratio

With a strong trend, you can earn more than 50-70 points. But it is better to close a part of the trade after reaching a profit of 20-25 points.

Length of trade

From several hours to several days. The trend movement lasts at least 8-10 candles. You can close the trade early before the swap is charged, or try to squeeze the most out of the trend by insuring the trade with a trailing stop.

Entry/exit point

Preliminary chart: there is a sideways movement and significant resistance/support levels can be drawn. Shallow breakdowns of levels by shadows are allowed. Preliminary signal: the price breaks down the level and closes beyond it. The body of the candle is relatively large. The second candle continues the breakout and has the same body as the breakout candle. Open a position on the third candle.

To reduce risk, you can wait for a local correction and a price reversal in the direction of the trend (late entry). You can increase risk and open a trade on the next candle after the breakout (second candle). Early entry, but more profit. Closing the trade: 50% – after 30-40 points for the hourly timeframe, the other 50% should be insured with a trailing stop 15-20 points long or a little more than the depth of the average trend correction.

Example

First we need to find a flat section.

After a relatively small downward movement, the price turned into a sideways movement with high volatility. The support level can be drawn using the three points indicated by the arrows. The resistance level is less pronounced, but the chart shows that it is drawn correctly – after the levels were drawn, the price tested both boundaries of the channel several more times.

Signal for trend movement:

The price touches the resistance, bounces off it, moves along it for a while. Sideways candles have small bodies, which indicates small trading volumes and a temporary lull.

Price breaks through resistance. The breakdown candle has a large body and closes almost completely outside the level. Here you can open a trade. But the example of a false breakdown in the middle of a flat section shows that even two growing candles in a row do not guarantee a trend.

The third candle after the breakdown is an upward one. The price is above the EMA (9), which is a confirming signal. You can open a long position.

Please note that after the position was opened, two red candles with long downward shadows appeared. If the stop loss is short, the trade could close early with a loss.

Pros and cons

The advantage is the clear logic of the strategy and behavior of traders. The disadvantage is false breakouts and a trend reversal almost immediately after it starts. Building levels is quite complicated. This is clear in the local breakouts in the chart above.

Advanced Forex Trading Strategies for Pros

This section discusses Forex strategies for traders who are familiar with the basics of technical and fundamental analysis and also looking for options to grow their profit. These systems have a few common characteristics:

Increased risk level. However, more frequent signals allow you to increase the average monthly profitability of the strategy.

More complex combinations of instruments that require attention and quick response.

Less unambiguous interpretations of signals, providing flexibility to the trading system. Entering the market based on less clear signals is at the discretion of the trader, but this approach allows you to open trade “ahead of the curve” and increase profits.

Before launching a trading system, be sure to run it through a strategy tester.

News Trading

This group of trading systems is based on fundamental analysis. The release of statistical data can dramatically affect the opinion of investors. For example, the publication of positive financial statements that fully meet the expectations of traders leads to an increase in the value of the company’s shares.

Strategy description

The main tool is the economic calendar that contains the schedule of releases of financial statements. If the statistics turn out to be better than the forecast, the price of the asset rises, and if they are worse than expected, it falls, even if the statistics are positive. A few minutes before the news release, pending orders are placed in both directions. The trade is closed after the end of the movement at the first signal for a reversal.

Risk level

The strategy is considered high-risk for several reasons:

It is not always possible to accurately predict the reaction of the majority. Before choosing the direction of movement, the price may pass several candles in both directions, triggering stop losses or false pending orders.

Due to high volatility, the spread increases sharply and slippage occurs. The reason is the change in the ratio of buy or sell orders.

The trader must have access to information in real time. Many portals publish statistics with a delay of 10-15 minutes.

Novice traders are advised to stop trading 30 minutes before the release of news and not resume it for 30 minutes after the release of statistics.

Reward ratio

Depending on the depth of movement and its duration. On average, the yield can be 30-50-80 points in 1-4 hours.

Length of trade

News related to economic statistics has a short-term impact on the market. Increased volatility is observed in the first few hours – this is 3-5 candles on the H1 interval. Occasionally, news can set a long-term downtrend. Example: a negative forecast for global GDP during the pandemic led to a long-term drop in the US stock indices.

Entry/exit point

The main tool is any online source of reliable information. Indicators play a secondary role, as the news can easily reverse the price against the trend.

Example

Let’s look at Non-Farm Payrolls. The US Employment Report is published every first Friday of the month. If the actual figure is very different from the forecast, the USD/EUR rate goes up or down.

1. First let’s analyze the economic calendar:

According to the report on July 8, the increase in the number of jobs amounted to 372K, after which this figure was revised upward to 398K. Analysts predicted a decline in growth rates from 398K to 250K. But the actual figure turned out to be 528K. This means that the pessimistic forecast of analysts did not come true – the US economy showed growth.

2. 5 minutes before the publication of the report on August 5 (at 15.25 Moscow time), we set pending buy/sell stop orders on the M5 timeframe at a distance of 5-7 points in 4-digit quotes. Based on the fact that if there is a strong discrepancy between the forecast and the actual figure, one of the pending orders will work.

Positive statistics immediately leads to a strengthening of the dollar, which means a fall in the EUR/USD rate – a Sell Stop order is triggered. We close the trade when the first reversal candle appears or when a reversal pattern appears (in this case, a pin bar). Profit – about 70 points in 40 minutes.

Pros and cons

Advantage – you don’t have to use technical analysis, which can be complicated for beginners. The disadvantage is that you need to be aware of the news all the time and understand which news can have the strongest impact.

Scalp Trading (Scalping)

Scalping is a high-frequency trading strategy that involves opening trades with a profitability of several points. Assets with high volatility and liquidity are best suited for scalping. The trader’s objective is to make the most of the short-term price movement, closing or reversing the position at the first signal. Therefore, the best account type for scalping is ECN, where spreads are close to zero and there is no slippage due to high liquidity.

Strategy description

The most popular timeframes for scalping are M5-M15, less often M1. Trades are kept in the market for 15-30 minutes, rarely up to several hours. If there is a clear trend, scalping can smoothly turn into intraday trading. During the day, scalpers open several dozen trades, simultaneously monitoring the charts of several assets that have a clear direct or inverse correlation.

Risk level

High. The main risk of loss is due to the complexity of forecasting. There are no stable trends on short-term intervals. The price can reverse at any moment under the pressure of market makers who collect stop orders of ordinary traders. On short intervals, high-frequency trading (HFT) robots are often used, which brings chaos into the trend with the volumes of placed and deleted orders.

Reward ratio

On average, profitability per trade is 3-5 points, taking into account the spread. The scalper’s income can be more than 100 points of net profit, taking into account losing trades.

Length of trade

Scalping is a type of short-term trading.

Entry/exit point

The type of indicators used depends on the scalping strategy. For example, for a rebound from key levels one would use a trend line or a resistance/support line. The second option is trading within the channel. Here the main indicator is a channel indicator. The trade is opened at the moment when the price starts to turn outside the channel towards the median value (middle of the channel). The trade is closed after making a profit of several points or when a reversal signal appears.

Example

Scalping works best during moments of fundamental volatility or in areas of consolidation. In a trend movement, scalping turns into swing trading. Therefore, the scalper’s objective is to find the moment when the range of the price movement increases sharply.

The screenshot shows that there are nine fairly strong short-term movements (red lines) and three false unprofitable ones (blue lines) in the 7-hour time frame. Profitable movements have engulfing and pin bar patterns. Assuming the scalper takes advantage of 50% of a given movement minus the spread, each trade would yield 7-10 points.

Pros and cons

The advantage of the strategy is that it allows earning on any assets, any timeframes and in any situation, including a flat. Scalping can always be turned into any other type of strategy. The disadvantage is a high load on the eyes and nervous system. The spread plays a major role, as it takes most of the profit. Therefore, a trader should try to open as many profitable trades as possible, monitoring the market every minute.

Carry trading

Carry trade is a system for generating income on the difference in the rates of Central banks. Each broker has a swap – a commission that is charged or deducted if the trade is not closed within the trading day. If the swap is positive in the direction in which the position was opened, every day the trader will receive a small income.

Strategy description

It involves opening long-term trades on timeframes from H4 and higher for currency pairs exclusively in the direction of price movement with a positive swap. The strategy is often used as a supplement to long-term trend systems.

Risk level

Low. The strategy has two main risks – the price will go in the opposite direction to the forecast or the Central Bank of one of the countries will change the discount rate. In the first case, it is enough to move the stop loss to the breakeven level + spread. The trade will close at zero, but you will earn on the swap. In the second case, the risk is reduced to zero by constantly monitoring discount rates.

Reward ratio

It depends on the amount of the swap and on the length of trade in the market. With a minimum position size of 0.01 lots without leverage in 4-digit quotes, the yield will be about 35-50 USD in 1 year.

Length of trade

Carry trade is a long-term strategy. The longer the trade is held in the market, the larger the income. Swap is calculated daily.

Entry/exit point

The main signal is a positive swap. Any trend indicators will suffice as a tool. They are only needed to determine the direction of the trend and its strength. After moving the stop loss to the breakeven level, you don’t need to monitor the indicators.

Example

1. Let’s find a currency pair with a positive swap. It is better to start the search with the exotic pair – they have protracted trends with slippage. Cross rates often have positive swaps. You can find swap information in the specification.

2. Now we need to analyze the long-term trend. If there are prerequisites for a descending movement, we open a short position.

Pros and cons

The strategy only works if there is a strong trend movement, otherwise the trade will close by stop loss before the trading session ends and the swap is charged. 

Advantage: almost complete absence of risk and additional earnings on the trend movement, provided that the stop order moves with the price.

Disadvantages: the number of assets that have a positive swap and a long-term trend movement is very small. The second disadvantage is that the amount of swap charged is so small that in order to get tangible earnings, the deposit must be several thousand US dollars, even with leverage. Otherwise, it makes no sense to freeze your money when there are more profitable financial instruments.

Grid Trading

Grid strategy involves placing pending orders above and below the current price in the expectation that with any movement, one of the orders will work. Trend strategy: an order to buy is placed above the price, an order to sell – below the price. Countertrend strategy: a sell order is placed above the price, a buy order is placed below the price.

Strategy description

A grid of orders placed at fixed levels is used in markets with high volatility. It works in a flat market with a large range of price movement.

Risk level

High. The trader is required not only to correctly predict the required distance of pending orders, but also the further price movement. In a volatile market, the price may trigger a short pending order and move in the other direction. On the other hand, the price may not reach a long pending order. Expert Advisors solve this issue by setting a grid of pending orders, several on both sides. To compensate for the loss, the Martingale coefficient is used to increase the lot.

Reward ratio

When placing a grid of orders on a short timeframe, you only get a few points of profit. Therefore, this trading option is automated. When trading based on the fundamental analysis of the market, the profitability can be 30-50 points. With profitable trend strategies, where false breakouts are filtered using pending orders, profitability can be 100 points or more.

Length of trade

Depends on the profit targets and the speed of working with orders. Grid trading can be used in scalping with automated placing and removing of pending orders. Comfortable timeframes are М30-Н1.

Entry/exit point

The price is moving in a flat and there is a chance of a false breakdown. Pending orders (buy stop/sell stop) are placed respectively above and below the possible breakdown. If the upward breakdown is not false, a buy stop is triggered – a long position is opened.

The price is moving in a flat and will definitely touch the level from which it will rebound to the middle of the flat corridor. At the levels of a probable reversal, buy limit/stop limit orders are placed.

Tools: reversal patterns, pivot levels, ATR volatility indicator, etc.

Example

The trader needs to predict the direction of price movement after a breakdown and place a relevant pending order.

The chart shows that the price has been moving in a horizontal corridor for some time. There is a clear resistance level but no clear support level. In half the cases the price touches the lower red line and bounces up from it. It even moves near it for some time. But in the other 50% of cases, there are false breakouts with touching of another support level – the blue line. A pending Sell Stop order is set below the blue line. If the next breakdown of the red support level turns out to be false, the price will not reach the order, turning around at the blue level. A break of the blue level will mean the beginning of a strong downtrend.

Pros and cons

Advantage: no matter which direction the price goes, a pending order will work. Disadvantage: the price may turn around after triggering the order.

Bounce Strategy

This is the general name of the group of strategies that involve opening trades at the moment of the price rebounding from the key curves or lines. They have much in common with channel strategies, which have a similar principle of opening trades. The strategy can be used for any assets; the preferred timeframes are from M15 and higher.

Strategy description

Bounce trading options:

Rebound from the trend line. The trend line is built through the first three points. Then a trade is opened at the moment of a rebound from the trend line.

Rebound from the moving average. The reference line is the moving average until the price breaks through it. This example was discussed above in the Bladerunner Forex Strategy.

Rebound from Fibonacci levels. Trades are opened on H1-H4 timeframes upon rebounds from Fibo levels.

Reflection from round key levels.

The flat corridor is not used in bounce trading.

Risk level

Medium. The trend movement consists of short-term corrections. The easiest way to implement the strategy is to draw trend lines based on their extrema. Trading on Fibo levels and moving averages is more difficult, since a breakdown can occur at any time.

Reward ratio

Depends on the timeframe, the width of the trend channel, and the strength of the trend. On average, one trade can take up 5-7 candles or more.

Length of trade

On the M15 timeframe, a trade is held in the market for an average of 2-3 hours. On a daily timeframe – for a week or more.

Entry/exit point

One of the strategy options is trading on rebounds from the trend corridor. The trade is opened on the next candle after the bounce or in the middle of the first candle if it has a much larger body compared to the previous ones. If the price breaks through a little, the trade is opened upon return to the channel. Close the trade at the other border of the channel. Please note that channel indicators cannot be used here, since their channels follow the price. A commonly used tool is the rectangle pattern. Alternatively, you can draw lines through the three points manually.

Example

The objective is to find a trend that can be limited by three point lines. Long timeframes are better suited for this. The price does not always reach the opposite border of the corridor, so you need to look for opportunities to close the trade early.

We build support and resistance lines on the daily timeframe during an uptrend using the points indicated by the red arrows. We open trades on rebounds (blue arrows). Closing is at the discretion of the trader. Since the chart is daily, you can do with 3-5 candles. For example, in the last trade, the price reached only the middle of the corridor.

Pros and cons

The idea of bounce trading is quite logical; channel strategies and swing trading are built on it. But it is important to catch the trend and draw the lines from which the price will rebound more than three times. This is the hardest part. For beginners, the strategy may seem complicated, since it does not have clear instructions. You need to select the tools for determining pivot points and decide on the exit point.

Running out of steam strategy

This is a special case of trading on a trend reversal, when there is no clear formation of the  pattern head/shoulders, double bottom, or double top.

Strategy description

“Bulls / bears are running out of steam” – this is how traders describe a situation when, after an upward or downward movement, the price rests on some kind of ceiling or floor. This is the price above which buyers refuse to buy an asset, or the price below which sellers would not go short. The price tests the level several times, after which it changes direction.

Signal formation:

You can only draw one horizontal level: a resistance line above which the bulls cannot go up, or a support line below which the exhausted sellers cannot go down. You can only draw the second level – there is no formed side channel.

The price tests the level three times on a long section.

There are no obvious reversal patterns.

Open a trade after the third rebound. Close according to the situation.

Risk level

High. The third retest may be followed by a fourth one. A breakdown or a false breakdown of the level is possible. In both cases, the trade will close by stop loss.

Reward ratio

Depends on the strength of the trend. Profitability can be from 20-30 points.

Length of trade

This is a long term strategy. To eliminate price noise and the influence of market makers, you need a timeframe from H1. Signal formation can take several days. An open trade is held in the market for more than 1 day.

Entry/exit point

Open a trade after the third touching of the level on the next candle after the reversal.

Example

In theory, one can draw the upper resistance level. But the price repeatedly tries to get to it. Support levels are not pronounced – each of the drawn levels can be one. But the downward trend still began, marking a slight upward correction. The entry moment is ambiguous. Two long candles down after a resistance bounce seem to be a good moment, but it is better to wait for the moment of correction and open a trade after it ends.

Pros and cons

This principle is hardly a separate strategy, but in some sources it is given special attention. The strategy shows that a trend change can take a long time. And the price can draw any chaotic shapes without a clear flat before changing direction. Its advantage is that the trend comes sooner or later and the signal is strong. The disadvantage is that you need a large deposit to withstand the next return to a key level if the trade is already open.

To interpret the strength of the movement momentum, you can use the Currency Strength Indicator oscillator.

Breakout Strategy

Breakout strategy involves opening a trade in the event of a breakout of a key level. This is a symbiosis of trend and channel strategies. The trend often encounters levels at which the orders of sellers and buyers are in equilibrium. The price moves along the level for some time and then a reversal (a new trend or correction) or a breakdown of the level is possible. Opening a trade after a breakout is referred to as the Breakout Strategy.

Strategy description

The idea of the strategy is based on the fact that a breakout of the level where the price has consolidated means that the trend has not yet exhausted itself. If you missed the opportunity to open a trade at the beginning of the trend and suspect that it may end at any moment, a breakout is the moment to jump in.

Risk level

Medium. Breakouts may be false. On the other hand, if it is confirmed by fundamental factors, i.e. the price continues to move after the news, the risk is lower.

Reward ratio

On the hourly interval, you can earn 30-50 points, with some luck even 70-100 points.

Length of trade

Depends on the strength of the trend. On average, you can manage to cover 4-6 candles.

Entry/exit point

The trend has a pronounced movement. Then there is a temporary pause and a flat occurs. The price periodically tries to break through in both directions and returns to the sideways corridor. A breakout in the direction of the trend with a confirming pattern is a signal to open a trade on the next candle after the breakout. Close the trade based on actual the situation. Closing signals: reversal patterns, trailing stop, etc.

Example

1 – after the start of the downward movement the price drew the first reversal point. Although the downward movement was short, it can be described as a trend movement, since the length of the candles is much longer than the previous ones.2 – the end of the correction.3 – the price again rests on the same level – you can draw a support line.4 – correction ends, a resistance line is formed.5 – confirmation of the support as a strong level. The candlesticks have almost no downward shadows. This suggests that buyers are in no hurry to buy the asset, and at the end of the hour the price will remain at its lowest value.6 – a false breakout of the resistance line and a strong series of downward candles with a breakdown of support.7 – open a short position.

Close the trade after the appearance of two consecutive upward candles or by trailing stop.

Pros and cons

The advantage of the strategy is that the signal confirms the further price movement. Disadvantage: such strong trends are rare, and there are many false signals on the M15-M30 intervals due to the instability of the movement.

Overbought and Oversold Trading Strategy

This trading strategy is based on the fact that a trend cannot last forever. Sooner or later, the price climbs so high that buyers refuse to buy the asset, or falls so low that sellers refuse to sell the asset at a loss, hoping for growth. Or buyers finally see a favorable price and agree to buy the asset.

When there are no buyers, sellers appear, and their volumes reverse the price down. At the pivot point, the asset is overbought. But a reversal rarely occurs instantly and clearly. Buyers begin to buy the depreciating asset again, and the price goes up to the overbought level. This is how the supply zone is formed. It’s vice versa for the oversold zone – this is how the demand zone is formed.

Strategy description

The trader’s objective is to correctly identify the demand and / or supply zones and place pending orders in them, filtering out false breakouts of the zone borders. Then wait in the zones for a price reversal and the formation of a reversal trend.

Risk level

Above medium. For example, in theory, a downward reversal should occur anyway. But the reversal may again be followed by an increase in the volume of buyers. This kind of back-and-forth can go on for a long time. But as soon as the buyers realize that the sellers are not yet ready to sell the asset en masse, which means they are counting on continued growth, the price will continue to grow. Such rallies are especially evident on the cryptocurrency market.

Reward ratio

Depending on the timeframe. On the hourly interval, you can catch a trend that will give you at least 30-50 points per day.

Length of trade

Depending on the timeframe. The strategy is suitable for intraday trading with the possibility of holding a trade for up to several days. However, the zones are best viewed on timeframes from H4 and higher.

Entry/exit point

Define overbought and oversold zones in the chart. As soon as reversal patterns and other reversal signals appear in them, open a trade in the direction of the reversal. The strongest signal is a retest of the far line of the zone. Close the trade at the end of the trend as soon as the price reaches the opposite zone.

Example

Long-term Forex strategy for the H4 timeframe.

On the H4 timeframe, there was an uptrend, which with high volatility began to turn into a flat.

We can build a support level (red horizontal) and a resistance level (blue horizontal) through points “1”. These are the near levels of the future zones of demand (lower zone) and supply (upper zone).

Another reversal forms at point “2”. From the point of view of the level theory, it is a “false breakdown” – it breaks through the previous resistance but does not continue the trend. It builds a far resistance level. The distance between the blue lines is the supply zone.

On the next upward movement, the far resistance line is broken. The return to the zone is a retest of the far resistance level, showing that buyers cannot set an uptrend even on the second attempt. We open a short position at point “3”.

The price breaks through the support level and reverses up. At point “4” we close the short position. Then we draw a far support level at the pivot point. The distance between the red lines forms the demand zone.

At point “5”, the price enters the demand zone again, retests the far support level and goes up – we open a long position.

At point “6”, when the price touches the near resistance level, we close the position.

This example shows how, on a long-term interval, you can consistently pull out signals from the formed supply and demand zones in compliance with the level retest rule.

Pros and cons

The strategy does not have a clear framework for the interpretation of signals. Each trader determines the boundaries of the zones and sets limits on false breakouts at their own discretion. Despite the clear logic, there is no unambiguity in this strategy that provides for a high risk. Oscillators do not help to determine the ranges of overbought and oversold zones in this case. And the zone itself may turn out to be a consolidation zone, beyond which the trend will continue.

Daily Fibonacci Pivot Trade Strategy

This is a Fibonacci levels strategy with the additional confirming Pivot Points indicator. One can also trade on corrections or trend continuation between Fibo levels. But the confirmation is the signals of both indicators coinciding.

Strategy description

In a trending market, Fibonacci levels are built at the beginning of the first correction. The preliminary signal is the price bouncing off the Fibo level in the direction of the trend. At the same time, the level coincides with S1/S2/S3 or R1/R2/R3.

Risk level

High. This Forex strategy needs to be carefully adjusted for a specific asset and timeframe. Without long testing, there is a high risk of getting a lot of false signals.

Reward ratio

On the H4 timeframe, the distance between the levels is about 40 points.

Length of trade

This is a long-term strategy, the trade is kept in the market from several days to several weeks.

Entry/exit point

During the correction, the price touches the Fibo level, which coincides with the Pivot levels. Then it reverses. Open a position in the middle of the pivot candle. The nearest target is the next trend level.

Example

In the chart, it looks like this. Even with the S1/R1 levels left, the chart is oversaturated with lines, although one entry point on the correction is still visible. A piece of advice: it is difficult to perfect this strategy on the history of quotes. Use a demo account and set the lowest value of the “Number of reverse values” in the indicator settings – 2. In this case, the indicator will take into account 6 candles for the H4 interval, and 24 candles for the H1 interval. And it will calculate two level values.

Pros and cons

The Fibonacci levels are a good tool once you get used to it. But the combination with Pivot points turns a relatively easy Forex strategy into a complex professional system. Pivot points have different formulas: Camarilla, Fibonacci, Woody, etc. Which formula should be applied at what point is the real question. You can play with the parameters for a long time on the history of quotes, but this does not guarantee the result on a real account.

Overlapping Fibonacci Trade Strategy

The strategy is built on two Fibonacci grids built in the same trend. The first grid is built through the beginning of the trend and its extremum. As new extrema appear, the grid stretches. The second grid is built through the extremum of the first correction and the extremum of the trend. Both grids have different start points and the same end point.

Strategy description

When the levels of both Fibonacci grids match, it’s considered a strong horizontal line. When the price rebounds from it, open a trade with the target level at “the next trend level or extremum level” (level 0).

Risk level

High. Attempts to build grids so that the levels finally match will often lead to wishful thinking.

Reward ratio

Depends on the timeframe. On the H4 timeframe, the distance between the levels is about 40 points. On the hourly interval, you can earn 15-20 points on a short movement.

Length of trade

Depending on the timeframe. If the trade is closed at the next Fibo level, the strategy for the H1 interval will be intraday.

Entry/exit point

Enter when the price rebounds from the correction at the double Fibo level in the direction of the trend. A double level breakout and a return to the trend are allowed. The position should be opened at the moment of the breakout of the double level along the trend. Exit at the next Fibo level along the trend.

Example

Two grids superimposed on each other are not very convenient from a visual point of view: there are too many lines and selected zones in the chart. And if you add other indicators, you get chaos. However, you can still find some patterns. For example, the matching level of 0.5 and 0.618 really turned out to be strong. Also, in some areas, movements between the levels of different grids are visible. They are small, you can’t earn much from them. But they can be used for trading on lower timeframes, as they will allow you to find earlier entry points.

Pros and cons

The idea of confirming a signal with a similar indicator with different settings is considered one of the most effective methods. There are strategies based on several stochastic indicators, moving averages, etc. But in this case, it will work only when you learn to intuitively determine the start and end points of the trend. If the first Fibo grid is built at the beginning of the trend and its extremum, no problem. But which correction point should be used for the second grid then? What if there are two corrections, do you build two Fibo grids? Only you can answer these questions when you gain experience and develop your intuition. Building grids at random will give you false signals.

Summing up the trading strategies

In this block, you will find a summary table with ranking from 1 to 19 for all the above strategies based on the chosen criteria. 1 is the simplest strategy recommended for beginners, while 19 is the most complex professional trading system. The ranking is subjective. If you have a different opinion, you want to share your experience and your strategy, or you have questions about these systems, please join the discussion in the comments.

Strategy: Positional trading

Risk level: Medium

Reward ratio: 15-50% per annum 

Length of trade: Several weeks

Entry points: Start of a long-term trend

Exit points: Trend reversal, transition to a flat. Exit by trailing stop

Pros: Steady trend on a long timeframe. No need to constantly monitor the chart

Cons: Rare signals. Relatively low returns

Total ranking: 9

Strategy: Trend Breakdown strategy

Risk level: Below medium

Reward ratio: 100-150 pips in several days

Length of trade: 12-15 hours to several days

Entry points: Next candle after the trendline is broken at reversal

Exit points: Reversal patterns, trend movement decay

Pros: Clear signal logic. The trader has time for analysis. Late entry allowed

Cons: You need to watch the chart to avoid losing on a deep correction

Total ranking: 1

Strategy: Swing trading

Risk level: Medium

Reward ratio: Trend trading on the hourly intervalyields 80-100 points

Length of trade: Several hours to several days

Entry points: Price reversal in the direction of the trend after the end of the correction

Exit points: 50% when the price reaches the level of the beginning of the correction. The remaining 50% – by trailing stop

Pros: Clear signal logic. Relatively high profitability from skipping correction areas

Cons: Constant chart monitoring. There is a risk that the correction will turn out to be a new trend

Total ranking: 6

Strategy: Trend trading

Risk level: Below medium

Reward ratio: 40-50 points for intraday trading

Length of trade: Intraday trading with the option of transitioning to medium-term trading

Entry points: The end of the trend, its reversal, or exit from the flat confirmed by patterns and trend indicators

Exit points: After reaching the target profit, a part of the position is closed, the rest is insured by trailing stop. Exit by levels, reversal patterns

Pros: The trader has time to evaluate the chart; stable trends on hourly or higher intervals

Cons: Relatively rare signals

Total ranking: 4

Strategy: Range trading

Risk level: Medium 

Reward ratio: 20-30 pips on the hourly timeframe

Length of trade: Intraday

Entry points: Price reversal outside the channel in case of a breakdown towards its middle or at the moment of price rebound without breakdown

Exit points: 50% at the middle of the channel, 50% – by trailing or when the price touches the opposite border of the channel

Pros: Relatively accurate signals with clear interpretation

Cons: It is hard to select the proper settings of indicators that determine the channel width

Total ranking: 12

Strategy: Day trading

Risk level: High for scalping, below medium for a trend strategy

Reward ratio: 70-100 points for a trend strategy with a high asset volatility

Length of trade: Intraday trading with an average length of trade of 8-12 hours

Entry points: Moments of a trend reversal or exit from a flat identified by reversal patterns, trend indicators, oscillators

Exit points: At the end of the trend: reaching key levels, 30 minutes before the release of the news, the appearance of reversal patterns

Pros: Saving on swap. Different types of strategies can be applied

Cons: Constant chart monitoring

Total ranking: 5

Strategy: Retracement trading

Risk level: Medium

Reward ratio: 15-35 points per hour

Length of trade: Intraday, medium and long-term trading

Entry points: End of correction, reversal in the direction of the trend with a rebound from the Fibo level

Exit points: Conservative version of the long-term strategy – 100% of the trade is closed upon reaching the closest Fibo level along the trend. Aggressive version – 50% of the trade is closed at 0, 50% is insured by trailing stop

Pros: The system is backed by the psychology of the majority

Cons: Requires intuition to spot strong levels

Total ranking: 14

Strategy: The Bladerunner trade

Risk level: Below medium

Reward ratio: From 30-50 pips

Length of trade: Intraday

Entry points: Matching of the key level and the point where the price tests the moving average 

Exit points: By reversal pattern, by trailing stop

Pros: Clear logic of signals

Cons: Rare signals

Total ranking: 2

Strategy: The Pop ‘n’ Stop trade

Risk level: Medium

Reward ratio: Conservative option – 25-30 points, aggressive – 50 points and more

Length of trade: Several hours to several days

Entry points: Price exiting from a flat (breakout of the corridor border), beginning of a trend

Exit points: Reversal patterns, smaller bodies of candles, transition to a flat

Pros: Clear logic of signals

Cons: Risk of false breakouts

Total ranking: 7

Strategy: News trading

Risk level: High

Reward ratio: 30-50 points

Length of trade: Several hours

Entry points: News release. You can use pending orders

Exit points: Trend decay

Pros: Quick earnings on a sharp surge in volatility

Cons: High probability of exiting by stop loss due to volatility, risk of predicting the direction of movement wrong

Total ranking: 13

Strategy: Scalping

Risk level: High

Reward ratio: 50-100 points – depends on the number of trades

Length of trade: Short-term

Entry points: Any approaches to finding signals to enter the market

Exit points: Any approaches to finding signals to exit the market

Pros: The strategy is suitable for any asset and any market condition, including flats

Cons: Emotional stress of opening dozens of trades a day

Total ranking: 16

Strategy: Carry trading

Risk level: Below medium

Reward ratio: Depends on leverage, position size and swap size

Length of trade: Long-term

Entry points: Positive swap coinciding with long-term price movement

Exit points: By trailing stop or before the discount rate changes

Pros: No risk if you correctly forecast the direction of price movement and move the stop order to the breakeven level in time

Cons: Limited number of assets with positive swap. Large deposit and leveraged trading required

Total ranking: 3

Strategy: Grid trading

Risk level: High

Reward ratio: 30-50 points

Length of trade: Mostly intraday 

Entry points: By pending order

Exit points: By trailing stop

Pros: The order will work regardless of the direction the price goes

Cons: Difficult to calculate the length of pending orders

Total ranking: 15

Strategy: Bounce strategy

Risk level: Medium

Reward ratio: 5-7 candles

Length of trade: Several hours with M15 interval

Entry points: On the next candle after the rebound from the channel border

Exit points: Upon reaching the opposite channel border

Pros: Several signals can appear in one movement

Cons: No clear guidelines for identifying signals

Total ranking: 8

Strategy: Running out of steam

Risk level: High

Reward ratio: from 20-30 points

Length of trade: Intraday, long-term

Entry points: At the moment of rebound from the resistance level for a short position, from a support level for a long position

Exit points: Depending on the situation

Pros: In case of a change in the direction of the trend, you can catch a strong movement

Cons: No clear guidelines for interpreting entry signals

Total ranking: 17

Strategy: Breakout strategy

Risk level: Medium

Reward ratio: 50-70 points

Length of trade: Several hours to several days

Entry points: Trend continuation after a small horizontal movement

Exit points: Reversal patterns

Pros: High probability of trend continuation in case of a breakout

Cons: Risk of false breakout, rare signals

Total ranking: 10

Strategy: Overbought and oversold

Risk level: Above medium

Reward ratio: 30-50 points per hour

Length of trade: Several hours to several days

Entry points: By reversal patterns in supply and demand zones

Exit points: End of the trend, price reaching the opposite zone

Pros: Clear logic of the strategy, but identifying the boundaries of the zones is at the discretion of the trader

Cons: No clear interpretation of signals

Total ranking: 11

Strategy: Daily Fibonacci Pivot Trade

Risk level: High

Reward ratio: Around 40 points for the H4 interval

Length of trade: Long-term

Entry points: The end of the correction coincides with one of the Fibo levels and Pivot reversal level

Exit points: First Fibo level in the direction of the trend

Pros: Double signal confirmation

Cons: Difficult signal interpretation

Total ranking: 18

Strategy: Overlapping Fibonacci Trade

Risk level: High

Reward ratio: Around 40 points for the H4 interval

Length of trade: Long-term

Entry points: End of correction coinciding with both Fibo levels of two different grids

Exit points: First Fibo level in the direction of the trend or level 0, which is the same for both grids

Pros: Double confirmation of signals

Cons: Rare signals. Hard to identify the points on which the second Fibo grid is built

Total ranking: 19

A simple strategy does not mean a profitable one. Just as a complex professional trading system does not guarantee profitability. The number of indicators isn’t the deciding factor either: trying to double confirm a signal not so much increases the chance of success as it reduces their frequency. A successful strategy is one that you understand well, that suits your goals and brings satisfaction and comfort instead of fatigue.

How to find such a Forex trading strategy:

Try different trading systems on a demo account and find what you like best. With LiteFinance, you can use a demo account without registration.

Don’t chase profitability. Initially, your goal should be gaining experience.

Experiment. Introduce your own elements into the strategy, customize it, etc. Change timeframes, try the system on different assets, set different risk levels. Try to work with different indicators.

Believe in yourself, don’t be afraid to try something new and you will succeed. Good luck!

Frequently asked questions about Forex strategies

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteFinance. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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XAUUSD: Elliott wave analysis and forecast for 23.12.22 – 30.12.22

2022-12-23 2022-12-23
XAUUSD: Elliott wave analysis and forecast for 23.12.22 – 30.12.22logo

Main scenario: consider short positions from corrections below the level of 1824.57 with a target of 1721.07 – 1696.78.

Alternative scenario: breakout and consolidation above the level of 1824.57 will allow the pair to continue rising to the levels of 1851.11 – 1920.84.

Analysis: a descending correction appears to have formed as the fourth wave (4) of larger degree on the daily chart, with wave С of (4) completed inside. The fifth wave (5) appears to be forming on the H4 chart, with the first counter-trend wave of smaller degree i of 1 of (5) completed as its part. On the H1 chart, a local correction started developing as wave ii of 1 of (5), with wave (а) of ii continuing forming inside. If the presumption is correct, the pair will continue to drop to the levels of 1721.07 – 1696.78. The level of 1824.57 is critical in this scenario as a breakout will enable the pair to continue rising to the levels of 1851.11 – 1920.84.

Price chart of XAUUSD in real time mode

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteFinance. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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EUR/USD Price Analysis: An explosive holiday season breakout could be on the cards

EUR/USD bears are eyeing the trendline support for an explosive breakout.
The price is being resisted and a break of 1.0575 will likely encourage the bears to target a break of 1.0500. 

As per the prior analysis, EUR/USD Price Analysis: Bears sink in their teeth to test bulls at a critical support structure, the bears are capping the bull’s attempts to break higher. We have seen the price start to coil on the backside of the prior bullish trend but still, the Euro remains on the front side of the more dominant bullish trend as the following will illustrate.

EUR/USD prior analysis

the above showed the prospects of an explosive move below trendline support and given the holidays, a narrow range could still be the fuel for the same in the full trading days between Christmas and New Year.

EUR/USD update

The price is being resisted and a break of 1.0575 will likely encourage the bears to target a break of 1.0500. 

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