Weekly Trading Forecasts on Major Pairs (December 8 - 12, 2014)

Here’s the market outlook for the week:

EURUSD

Dominant bias: Bearish

This is a weak market, and the broke below the line at 1.2400 (which is now a resistance line) led to the strengthening of the bearish bias as price went further downwards, closing below the resistance line at 1.2300. The target for next week is at the support line of 1.2200, which would be tested with the continuation of the weakness in this market. Any rallies, whether shallow or significant, should be seen as opportunities to sell short. As long as the rally does not take price above the resistance line at 1.2500, it cannot render the bearish bias invalid.

USDCHF

Dominant bias: Bullish   

USD/CHF was able to close above the target at 0.9750, which is now a support level. Price was able to close above that level as it moves very close to the resistance level at 0.9800. The resistance level could be breached to the upside as price goes for another target at the resistance level of 0.9850. Could USD reach parity again with CHF? Only time will tell. However, if that would happen, it could be in this month.

GBPUSD

Dominant bias: Bearish  

This currency trading instrument is also weak. It was able to break below the price territory at 1.5600, which had been a great hurdle for the bears for a few weeks. The great barrier has been overcome and the instrument has closed below that territory. Should price go further downwards, it would reach the accumulation territory at 1.5500. The distribution territory at 1.5600, which is now a great barrier, should do a good job in resisting possible rallies along the way. Any rally that is strong enough to break that distribution territory to the upside could be strong enough to threaten the existence of the extant bearish outlook.

USDJPY

Dominant bias: Bullish  

The Bullish Confirmation Pattern on this pair is stronger than ever – because of a great strength in USD and a great weakness in JPY.  The supply level at 121.50 is under siege and it would be broken to the upside. On the other hand, there could be a large pullback while the bulls are making effort to push price further north, as it is may be true of other JPY pairs. The possible pullback would be contained at the demand levels of 120.50 and 119.50.    

EURJPY

Dominant bias: Bullish

This cross moved upwards by roughly 200 pips this week (USDJPY moved by 300 pips). Price ought to target the supply zone at 150.00, but the possibilities of bearish retracements cannot also be ruled out; though the retracements should be halted at the demand zones at 148.50 and 147.50. The bias remains bullish.

This forecast is concluded with the quote below:

“Trading is a matter of probabilities. We find a method that has a statistical edge and use that method over and over so that the law of averages will work in our favor.” – Joe Ross

Source: www.tallinex.com

  

Learn from the Generals of the Markets: http://www.amazon.co.uk/Learn-Generals-Market-Azeez-Mustapha/dp/1908756314

A Simple but Effective Relative Strength Index/Bollinger Bands Strategy

“I am adhering to a positive expectancy model and prudent rules of risk management, therefore I have confidence in taking each and every trading signal.”

The Relative Strength Index (RSI) – which has many uses - is a popular tool among Forex traders. However, using it in a conventional way mayn’t serve our best interest. If the conventional use were effective, many traders wouldn’t be losing. The conventional use makes us buy when the indicator is oversold and sell when it is overbought.

Another indicator in consideration is the Bollinger Bands (BB), which is also popular. Its conventional use makes us buy when the lower Band is tested by the price and sell when the upper Band is tested by the price. Also, many traders fail using this approach. Why?

This is because the Forex market tends to move strongly in one direction. When a major bias is assumed, it can go on for weeks, months or years; having transitory corrections along the way. This is especially true of certain crosses and pairs that are often ignored by the mainstream traders. For example, the AUDJPY on 4-hour chart reached a demand zone at 93.00 on May 21, 2014. After this, an upward journey was assumed. The BB had had its lower Band tested and the RSI went into the oversold region and an indication to go long was seen, as it were. Many a trader would’ve gone long.

The price then went up by over 120 pips, testing the upper Band of the BB on May 27, 2014. Was that a time to go short? Many a trader would’ve gone short, and of course, gotten kicked in the butt. In contrary to the expectation of a reversal, the price went further upwards by another 160 pips, testing the upper Band of the BB many times along the northward journey, fooling the traders that a reversal would happen (especially when the RSI sauntered into the overbought region).

What can be done to avoid this kind of scenario and make our trading more profitable? When a pair or cross is trending seriously in one direction, we’d do well to trade in its favor rather than trading against it. Therefore, we want to do something that goes contrary to the conventional thought, but which would make us experience some positivity.

Let’s go back to the example of the AUDJPY on May 27, 2014. The most preferable action to have been done was to go long. On June 24, 2014 (that was the date on which this article was being prepared), the price on the AUDJPY pushed the lower Band of the BB downwards vigorously while the RSI period 14 went below the level 40. What should we do? Sell.

Conversely, this means that we want to go long when the price touches the upper Band of the BB vigorously and the RSI goes above the level 60.

Using the BB and the RSI in conventional ways invariably result in low hit rates; whereas using it in contrary to the conventional thought would improve the hit rates. The conventional method is not totally useless, but the hit rates are lower. One may use optimal stops and targets, plus the maximum duration of open trades, as befitting a swing trading method. It’s a bad habit to truncate our trade before it hits the stop or the target or before the maximum trading duration expires. The position sizes should limit us to about 0.5% or 1% risk per trade and the use of trailing stop is optional.

When trading a mechanical strategy, we want to remain mechanical in our approach. Application of emotional discretion to a mechanical strategy may lead to errors, especially when we’re trying to tweak it for optimization. 

When we peek at our charts – irrespective of the instruments – we peek at money-making setups. Nevertheless, it’s not every setup we’ll trade. We want to take fewer setups so that our stakes could be limited. We’re interested in harnessing gains, not in making infallible forecasts. If we accept negativity in our career, we’ll later be rewarded with positivity.

The quote above is from Richard Weissman. Another quote from him ends this article.

“It is more important to be the best risk manager and best position manager than it is to

develop the most robust rules for trade entry.”

Source: www.tallinex.com

Learn from the Generals of the Markets: Market Generals

Fitbug Price Rises from a Strange Base

Fitbug Holdings shares (LSE:FITB) have risen from a strange base in a determination to go upwards. The base is called a strange base because it was ongoing for many months (an extremely tight consolidation), while price appears as dots in the chart. However, the current upwards breakout signals the end of the tight consolidation.

The ADX period 14 is now above the level 40, meaning the current bullish bias is strong. The DM+ is above the DM-, meaning that the bulls have upper hands. The MACD (default parameters) has both its signal lines and histogram above the zero line. This shows a Bullish Confirmation Pattern in the market and the only rational thing to do is to go long irrespective of the volatility and pullbacks in the market. Price may eventually reach the resistance levels at 30.00 and 35.00.

Even with a high hit rate, you would still need bravery and determination to go on during a short-term losing streak.  You do not need to quit because of a transient losing streak. Remember the day you decided to become a trader. The only thing we can do to become profitable is to truncate our losses and ride our wins. There is no better method for trading.

This forecast is ended by the quote below:

“I have been in this business since 1994 so that I have my second decade anniversary now and I am always detecting the same behaviour.” – Dr. Emilio Tomasini

Azeez Mustapha

Market Analyst, Trading Signals Provider and Coach

Learn from the Generals of the Markets: Market Generals

Source: http://uk.advfn.com/newspaper/authors/azeez-mustapha

Monthly Forecast on Gulf Keystone (December 2014)

Gulf Keystone stock (LSE:GKP) is still bearish in outlook and long trades are not currently recommended. The bearish forces that cause the current weakness are present in the market. The insects that devour vegetables live on vegetables.

The price is almost below the EMA 21 and the Williams’ % Range period 20 is not that far from the oversold area. In this kind of market, rallies offer wonderful opportunities to go short at better prices. Unless price closes above the EMA 21 and trends further upwards, long trades remain illogical. It is likely that the price would test the demand level at 50.50 again.

When the market goes up, investors are happy. During a strong downtrend, investors will start a spate of complaints, ire, frustration and despair. When the stock drops further, investors will begin shouting again. Such is the investors’ behavior. However, we have learned that seemingly impossible hurdles can be overcome.

This forecast is ended by the quote below:

“Over the next few years and into Graduate school I continued to learn by losing my own money over and over again. Then all of a sudden I started losing less money.” – Ian Cassel

Azeez Mustapha

Market Analyst, Trading Signals Provider and Coach

Learn from the Generals of the Markets: Market Generals

Source: http://uk.advfn.com/newspaper/authors/azeez-mustapha

Monthly Technical Reviews on Gold and Silver (December 2014)

GOLD (XAUUSD)

Dominant Bias: Bullish

According to the past historical seasonal trend and cycle, Gold was expected to be bullish around the last Thanksgiving holiday. Instead, Gold price consolidated and later dropped sharply last week – another example of the fact that past event is not indicative of future result. However, this does not mean Gold cannot trend higher during the next Thanksgiving Day. That being said, price has skyrocketed on Monday, December 1, 2014; leading to a quick Bullish Confirmation Pattern in the market. This new bullish bias may hold out till the end of the year, unless price goes below the accumulation territories at 1165.00 and 1160.00. Below those accumulation territories, the bias would turn bearish again, but above them, the bias remains bullish.    

SILVER (XAGUSD)

Dominant Bias: Bullish  

The fate of Gold is quite similar to the fate of Silver (it should be borne in mind that both precious metals are positively correlated in most cases).  Silver consolidated for most of the last month and plummeted on Thursday and Friday of last week. On Monday, December 1, 2014, the market shot skywards by more than 1700 pips, from the low of 14.9950. The upwards sprint has been strong enough to establish the supremacy of the bulls: a situation that may hold true for the rest of the year. The only thing that can overturn the existing bias is an event in which price closes below the support levels at 15.6000 and 15.0000

Source: www.tallinex.com

Learn from the Generals of the Markets: Market Generals