[FOREX TIP] USDCHF Past Trade Idea – 18th May 2017

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USDCHF has been very bearish for the last 5 trading days. The price has kept making new lower lows on the H4 chart without having too many pauses. Today’s price action suggests that the pair might take some corrections up to the New York open. If the New York open produces an H4 bearish reversal candle, then selling the pair would get us some green pips. Let us find out the level where the reversal candle to be produced.

USDCHF Past Trade Idea – 18th May 2017

As we see on the chart, that the price came down up to 0.97750 yesterday without having any trouble whatsoever. On its way, the price broke an important level of support at 0.98190. If this level becomes the resistance by producing an H4 reversal candle later today, then selling the pair should be the best option as far as this trade setup is concerned. Let us have a look at the summary of the trade…

• Sell Limit Order: 0.98190
• Stop Loss Level: 0.98700
• Take Profit Target: 0.97450
• Validity: 24 hours
• Whenever possible, move the stop loss to the entry price and whenever you want, you can take profit anytime as long as you feel comfortable

There are many types of reversal candles such as Engulfing, Pin Bar, Doji, Hammer, Inverted Hammer, Inside bar. Among them, Engulfing reversal candle and Pinbar reversal candle are strong reversal candle patterns. The rest of them work well as well, but they do not work as well as Pinbar or Engulfing do. As a trader, we have to have a very good understanding of the reversal candlestick pattern. In the Forex market, this is known as “Japanese candlestick pattern”.

You can also take a look at our previous (and most likely profitable) Free Forex Trading Signals Here.

We hope that you enjoy our Free Forex Trading Signal today: USDCHF Past Trade Idea – 18th May 2017

 

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[FOREX TIP] Who are the participants in the forex market?

Who are the participants in the forex market?

Although the “big players” still account for the majority of the daily turnover in forex, independent traders have also found their place in the market. Independent traders have today the same access to currency quotes and news as the big banks and institutions.

Some traders think they can’t compete with the “big players” in the forex market: the large banks, large commercial companies, governments, central banks, insurance funds etc. The truth is, you don’t have to compete with these giants. Instead of trying to be ahead of them, you can trade along with them. And, most of the time, the “big players” are hit by the same breaking news or volatile market movements just like an independent trader would be. Interest rate changes by central banks, inflation and employment reports, natural disasters, almost all news are immediately available to both the “big players” and independent traders. Instead of fearing these large investors, you should read their analysis and forecasts, and try to jump in the same trades as they do. That being said, their forecasts are also wrong from to time. The market is large enough not to be much influenced by any specific bank or company.

Let’s take a closer look at the “big players” in forex.

• The Super Banks

The big banks account for the majority of the transacted volume. The amounts they transact between each other are huge, often hundreds of millions of dollars. The biggest players include Deutsche Bank, UBS, Citi, HSBC, Goldman Sachs and others. Unlike other market participants, banks have the little advantage that they can track their clients’ orders and determine possible buying and selling pressures on specific currencies. But, due to the size of the FX market ($5 trillion a day), one single bank can’t move the market and influence the prices. They have the same goal of making profit, just like a retail investor.

 

 

• Large commercial companies

Large companies also participate in the foreign-exchange market. From small businesses to large multinational corporations, many companies need to exchange currencies from time to time. Unlike the other participants in forex, the intention of companies is not directly to make a profit trading currencies. Rather, the nature of their core business makes them buy and sell currencies. For example, a cheese producer from France selling his products in the United Kingdom, will receive British pounds for the sales. He will exchange the pounds to euros in France, not with the intention to profit on the currency moves. Indeed, large companies want to offset the risk from currency fluctuations, making their profit in overseas markets more predictable. To do so, they will hedge their receivables or fix the exchange rate with currency forward agreements.

 

• Governments and Central Banks

The role of governments and their central banks is an important one in the forex market. Central banks don’t trade currencies to make profits, but to facilitate their government’s monetary policies. The role of central banks in developed countries is usually to maintain a stable exchange rate through eliminating excess supply and demand for their national currency, and to target specific inflation rates and low unemployment rates. To achieve their goals, central banks hold reserve currencies which they buy or sell on the market to stabilize the national currency’s exchange rate, or they can change the key interest rates and influence supply and demand for the local currency. Central banks usually hold dollars as the reserve currency, but recently other currencies like euros or Japanese yens are also becoming increasingly popular. Traders should closely monitor any activities of central banks as they can have a large and long-lasting impact on the value of currencies. Governments play an indirect role in the forex market, mainly by the sheer volume of money that they are able to invest through public spending and investing. Government debts also play an important role for the value of national currencies, with higher debts usually having a negative impact on the currency.

 

• Individual Retail Traders

The forex market, combined with some knowledge and experience, can be very profitable for the individual retail trader. Many retail traders don’t even have a finance background, and are self-taught in forex. Many people with a technical background, like engineers, find forex exciting as they can establish their own strict rules and analyze the market from a technical perspective. To start trading forex, you don’t even need to make large initial deposits. The availability of trading on margin makes it possible to start trading with as little as $50, but opening much larger positions.

 

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[FOREX TIP] Tips on GDP Reports; And How Traders Can Utilize Them

Tips on GDP Reports; And How Traders Can Utilize Them

The GDP release remains the broadest and most comprehensive indicator available to assess a country’s economic condition. The Gross Domestic Product represents the sum of the market value of all finished goods and services during a specific period of time (usually one year), produced inside a country, regardless of the ownership of the resources. For example, all cars produced by Ford in Germany, are included in the German GDP, while all cars produced by Mercedes-Benz in Mexico, are included in the Mexican GDP.

The U.S. GDP is reported quarterly by the Bureau of Economic Analysis, and contains data on personal income and consumption expenditures, corporate profits, national income and inflation.

The number that traders watch the most, is the annualized growth rate of the GDP, reported quarterly. A growth rate higher than the forecast, means the economy is performing well and has a positive impact on the currency. A growth rate that didn’t meet the expectations, has a negative impact on the currency.

How to Trade the GDP Report

Being a quarterly release, most of the movements in the GDP are already anticipated by the market. GDP, as the most comprehensive indicator, is usually forecasted by some other indicators and priced into the market. There are 3 versions of GDP released a month apart – Advance, Preliminary, and Final. The Advance release is the earliest and thus tends to have the most impact on the currency market.

Final GDP releases usually don’t have a big impact on the market. The reasons for this are primary the frequency of the reports – GDP reports are released quarterly. Other indicator already give an insight into what the GDP growth might be. These are so called “leading” indicators, like stock indices, retail sales, housing starts and money supply. These indicators anticipate the future state of the economy, and the final GDP report is therefore already priced in the market before the release. That being said, the advance GDP report, which is released approximately 2 months before the final release, has the most impact on the currency market. Personal consumption expenditures are the largest component of GDP, accounting for roughly two-thirds of total economic output.

Figure 1 The GDP consists mostly of personal consumption and retail sales

As the chart in FIGURE 2 shows, pronounced declines in the year-over-year growth in consumer expenditures have preceded each of the six recessions in the United States since 1963. Traditionally, the first retrenchment occurs in purchases of big-ticket items, such as durable goods. So it is in that portion of consumer spending where you’ll find early warnings of economic downturns, and adequately anticipate the impact on the foreign exchange market.

Figure 2 Personal consumption expenditures and recessions, United States

Conclusion: The GDP reports are the benchmark of economic activity, and traders use other indicators to anticipate movements in GDP. In other words, the level of GDP is usually the variable that other indicators attempt to forecast or emulate. GDP is also released on a quarterly basis, and the economic associations and relationships it points to aren’t as predictive as those expressed on a monthly or weekly basis.

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[FOREX TIP] A brief overview of the Fibonacci retracements in forex

A brief overview of the Fibonacci retracements in forex

There is an old saying in the forex market that the trend is your friend and most of the professional traders in the financial industry execute their trade in favor of the long-term prevailing trend to reduce the risk exposure. But, executing your trend at the perfect place in favor of the trend is a little bit tricky and this is where the Fibonacci retracement tools come into play. Let’s get into more details of the Fibonacci retracement tools.

Fibonacci retracement

Fibonacci retracements are simple but very effective charting tools in the forex market that allow you to find the possible retracement levels in the market. The retracement levels are calculated based on Fibonacci series and most of the time the market respects this Fibonacci retracement levels and continue its movement in favor of the long-term prevailing trend in the market. Let’s see an example how the Fibonacci retracements help traders to find the best possible trade entries in favor of the long-term prevailing trend.

Figure: Use of Fibonacci retracement tools

From the above figure, you can see three important Fibonacci retracement levels drawn in the AUDUSD pair. Some of you might think how to draw these key retracement levels in the market. But there is no need to worry, since all the trading platforms come with a built-in Fibonacci retracement tool, so all you need to do is to find the key swings in the market. For instance, in the above figure, we have drawn the retracement levels from the key swing low to swing high in the market since it’s an uptrend. Similarly, for a downtrend, you need to draw the retracement levels of the key swing high to swing low in the market. Once you have the Fibonacci retracement levels, wait for trading signals at the major retracement levels to execute your orders with proper risk management factors. Please note that here we have shown you only the most reliable Fibonacci retracement levels, but you will also find other minor retracement levels in the market while you use Fibonacci levels.

Some important points to note for Fibonacci trading

Always trade the higher time frame

1. Execute the orders at 38.2 %, 50% or 61.8 % retracement levels
2. Use price action trading signals to enhance your winning edge
3. Always use predefined stop loss or trail your take profit level
4. Use only the key swing high and low

So, if you are thinking to become a professional Fibonacci trader then make sure that you always follow these important rules. No trading strategy is 100 percent accurate and even the long-term established trend in the market often gets changed. So make sure that you always use proper risk management factors to save your trading capital in the market. Unlike the novice traders, the professional traders always risk only a certain portion of their trading account so that they don’t have to worry about their loss if the trade takes the opposite direction.

Let’s see a losing trade in the market.

Figure: A clear break of 61.8 % retracement levels

From the above figure, you can clearly see that the price has broken the 61.8 percent retracement level, which clearly signifies a trend change in the market. However, you should not enter into the market right after the breach of .618 percent retracement level, rather you should wait for a strong bullish candle in the market to confirm the establishment of the new momentum in the market.

Summary: Trading the Fibonacci retracement levels is one of the most profitable and reliable systems in the forex market. Professional traders use the price action confirmation signal in the market to execute the trades at the key retracement levels in the market. When you trade these levels, make sure that you draw the retracement levels in the higher time frame or else you will not have high-quality trading signals. Always follow proper risk management factors in every single trade since it is considered to be the most important element for successful forex trading.

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[FOREX TIP] Tips on Employment Indicators; How to Take Advantage of NFP Reports

Tips on Employment Indicators; How to Take Advantage of NFP Reports

As always, the main strategy is to find ways to predict what a potentially market-moving number will be before it is released. Because the payrolls figure is such an accurate indicator of economic activity, for instance, economists and traders try to get ahead of the curve by forecasting it. Many keep a journal by their desks, recording events they come across in their daily reading that could influence employment.

Unexpected disruptions like labor strikes, mass layoffs, and natural disasters like hurricanes, tornados, floods, and blizzards can greatly alter the number of workers in a given month. Economists also watch a number of alternative indicators for evidence to support or refute the developments suggested by datain the employment report. One of these alternative indicators is the index of monthly layoff announcements made by companies. The index, compiled by the employment consulting firm Challenger, Gray and Christmas, measures intended dismissals rather than actual firings. It is thus something of a leading indicator. It gives economists an insight into industries that may be experiencing difficulties. Movements in the index are also helpful in gauging the bigger picture contained in the BLS employment report. That is, increases in the number of layoff announcements usually portend a softer payroll picture, while a decline in the number of announced layoffs generally results in stronger payroll growth.

Another resource is the Help-Wanted Advertising Index. Created and maintained by the Conference Board, it tracks the monthly volume of help-wanted advertisements in the top fifty-one newspapers across the nation, thus identifying regional demand for labor. Since the advent of the Internet, however, businesses have had other ways to advertise available positions, so the popularity of the index has faded. Still, it can be helpful in determining general trends in demand for workers.

Probably the most helpful resource for predicting movements in monthly payrolls is the weekly claims for unemployment benefit insurance. Rising jobless claims usually portend a deteriorating labor market. Many economists argue that when the four-week moving average of claims tops 400,000, job creation is stagnant. Of course, the correlation between claims for jobless benefits and the employment data is not precise. Employment conditions can change at any time, and short-lived changes are more likely to show up in the weekly jobless-claims report than in the monthly BLS employment report. Also, although unemployment-insurance benefits generally last only thirteen weeks, bear in mind that people can be out of work for months at a time. Finally, some unemployed workers are not entitled to jobless benefits.

The Non Farm Payrolls release has a big market-impact. It is one of the most important indicators to watch for a trader, as increasing unemployment causes a decrease in personal consumption which has the biggest share in GDP calculations. Usually, if NFP is above the expectations, this will create a positive environment for the US dollar. And if the NFP is below market expectations, the impact will most likely be negative for the dollar. The FIGURE 1 shows the quite negative correlation that NFP reports have with the EUR/USD currency pair (notice the swing highs and lows in both lines moving opposite). I.e., a rising NFP is mostly beneficial to the U.S. dollar.

 

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[FOREX TIP] Bollinger Bands Technical Strategies

Bollinger Bands Technical Strategies

Bollinger Bands are a very popular technical indicator which measures the price volatility of a financial instrument. Bollinger Bands are invented by the famous technical analyst John Bollinger in the 1980s, and trademarked by him in 2011. Bollinger Bands are showing the volatility of the price by plotting two bands, the upper and lower band, two standard deviations away from a simple moving average (SMA). In general, when the market becomes more volatile, the bands widen, and in less volatile period the bands become narrower. If the bands become narrower and track parallel for an extended time, the price will usually bounce of the upper and lower bands, which take a role of support and resistance lines in sideways trading conditions. Let’s take a look at some popular strategies which involve the Bollinger Bands.

The Squeeze

When the bands come very close together, and the distance from the moving average becomes very small, it is called a squeeze. This market condition implies very low volatility, and traders should be prepared for a possible increase in future market volatility and trading opportunities. The opposite situation, in which the bands are wider apart, means that the market volatility is very high. In this case traders should prepare for a decrease in volatility and eventually consider exiting a position. The following chart shows a squeeze with a succeeding rise in price volatility.

 

The Breakout

A breakout occurs when the price closes outside the upper or lower band. This situation is very rare, as 90-95% of all market activity is taking place inside the bands, so far as the standard setting for the standard deviation multiplier is used (K=2). A breakout is therefore a major event, but it doesn’t provide a complete trading signal, because the future direction of the price or time when a breakout will occur are unknown. Therefore, John Bollinger suggests using other direction-based indicators for entering a trade. The following chart shows a fake breakout:

Some traders also use a breakout for entering a trade. Because the bands act as support and resistance lines, a breakout of the price outside these bands is considered a potential trading possibility. In the next chart, we show a breakout trade setup on EUR/GBP, with Bollinger Bands (20,2).

 

 

 

 

 

In the beginning of December 2015, the price moved outside the upper band with a long bullish candlestick. To confirm the breakout, a trader should wait for a second signal, which in this case give the following candlestick patterns. The next period after the breakout, a small black candlestick appears, with high and close prices inside the previous candlestick’s body. This is the first signal showing the dominance of buyers. The next period, forming a bullish long-shadow candlestick, and with a close just on the border of the upper band, confirms once more that an uptrend is possibly ahead. Now it is time to enter a long position.

The pair trades the next few months close to the upper band, with a few fake breakouts, and touches quite often the middle band, i.e. the 20-period moving average. The position should be closed either when the price falls to the lower band, or the trend shows signs of exhaustion. In this case, the price failed to make a new higher high on the 24^th of March 2016, forming a double top with the upper band acting as a resistance level. This is a level where trader would consider exiting the position.

Riding the Bands

Another popular strategy based on Bollinger Bands, is riding the bands. During powerful down and uptrends, the price tends to stick to the lower and upper bands, respectively. This shows that there is still enough steam behind the trend, and that it will likely continue in the future. As mentioned before, plotting the bands two standard deviations away from the moving average, means that almost 90-95% of the price-action is contained inside the bands. A price sticking to one of the bands, is therefore a major statistical event which happens in exceptional conditions, like changes in the currency fundamentals.

The chart above shows the EUR/GBP pair on H4 timeframe. On 20^th of August 2016, the price broke the previous high and traded outside the upper band for a while. Opening a long position after the break of resistance would give the opportunity to ride the upper band, as the price has touched the upper band until 25^th of August. After the price closed away from the band, traders should close the long position with a nice profit in the account.

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[FOREX NEWS] US new home sales disappoints with 569K – USD wobbles

One month it’s up, the next it’s down. A tumble down of 11.4% in new home sales was reported for April. The figure stands at 569K, down from an upwards revised 642K in March. The US dollar is responding with a small drop, especially against the yen. The US was expected to report a small drop [...]

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[FOREX NEWS] More reports about Trump’s obstruction of justice – USD to remain pressured

Less than a week has passed since the New York Times reported about the Comey memo, a report that sent EUR/USD higher. The former FBI Director noted Trump’s request to “let Flynn go”, an intervention into the FBI’s investigation against Trump’s first pick as the National Security Adviser. And now, the Washington Post, the NYT’s [...]

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[FOREX NEWS] German IFO Business Climate beats with 114.6 – EUR/USD looks strong

Businesses are confident in Europe’s largest economy. The influential IFO Business Climate beats expectations with a score of 114.6. This is accompanied with better than expected numbers in the sub-components. The Business Expectations figure hits 106.5 points and the Current Assessment reaches 123.2. EUR/USD rises towards the highs. Will it make it all the way to 1.13? The [...]

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[FOREX NEWS] Can GBP/USD stay up or has it peaked?

The horrific bombing in the Manchester Arena found GBP/USD already under 1.30. What’s next? Here are two opinions about the next moves in cable. Here is their view, courtesy of eFXnews: GBP/USD: Needs A Fresh Catalyst To Stay Above 1.30 – Barclays Barclays Capital FX Strategy Research notes that GBP/USD has been pushed above the [...]

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