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As I write this article on 18 September, 2008, the ASX200 has fallen 4%. You can almost smell the blood in the streets. In times like these, I’m glad to be a currency trader!
Sure, the currencies have their moments too, like every market. But David Bowden always said that if he could only trade one instrument, it would be a currency, because it’s a market that tends to trend strongly.
Chart 1 below shows the Euro (EC-Spotv in Profitsource) with a Swing Overlay. It shows that the Euro has trended nicely from the July top, without giving a single higher swing top.
Chart 1
click chart to enlarge
Many traders don’t trade currencies and commodities due to uncertainty or a lack of knowledge. However once you understand the simple mechanics behind the trades, you can then simply apply all the same technical analysis techniques that you would apply to a stock.
Students who would like some further education on trading currencies and commodities using vehicles such as futures should get their hands on a recording of the recent Hot Commodities Summit.
The Euro is now approaching an important price cluster. I briefly mentioned this price cluster in my article for Platinum Students, and challenged them to look for price support around the 1.38 level. Hopefully many of our Platinum Students took up the challenge and tested their Price Forecasting skills!
The first reason for support around 1.38 comes from our Resistance Cards. This work is straight out of your Number One Trading Plan. Chart 2 below shows that the Euro has retraced approximately 50% of the current bull market range.
Chart 2
click chart to enlarge
The second reason for support is also circled on the chart above – there are old tops at 1.38. No matter how many advanced seminars we attend, or how many courses we study, we always need to remember our basic technical analysis – old resistance becomes new support.
The third reason is a little bit harder, so well done to any of the students who figured it out.
We had Double Tops at 1.5985 in April and 1.5988 in July. The lowest point between these Double Tops was 1.5255. This gives us an AB range of 730 points (1.5985 – 1.5255). We apply this range to the second top at 1.5988, and calculate our milestones.
Pretty simple? The one thing most people would overlook is to continue their resistance card down past the 200% milestone. David tells us to watch 200% after a Double Top, but that doesn’t mean we don’t watch 150%, or 250% or in this case, 300%. This is especially important on a major Double Top such as this one.
In this case, 300% of 730 gives us 2190 points. This gives us a target to watch at 1.3798 (1.5988 – 0.2190 = 1.3798).
So we have some support sitting around 1.38. If any of this is new to you, I’d encourage you to revisit Section 11 of the Number One Trading Plan. There are also plenty of articles on Price Forecasting on the Safety in the Market website, www.sitm.com.au.
We have seen the market make a low on September 11, and give an Overbalance in Price Trade Setup. The market may well come back to form either a Double Bottom, or a lower low than this current low, before resuming the long term bull trend.
It’s been a great time for currency trading! As a separate challenge, I’d encourage students to go over the period from August 15, 2008 till the end of September on the US Dollar / Japanese Yen (FXUSJY in ProfitSource). This has been extremely good to trade, and is a good case study for students to go back over. Another example would be the Australian Dollar / Japanese Yen (FXADJY), where a 28 day time frame has provided some strong trading opportunities. Those of you with ProfitSource can play around with this one!
October 7 and November 17 are the two major pressure dates I’ll be watching for the rest of the year. Look to your swing charts if we get a good signal day on either of these dates!
As always I encourage students to put in the hard work, and recreate these setups in your software.
Be Prepared!
Mathew Barnes
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