Forex market leaves clues all over the place
This price action leaves a trail and all we have to do is know how to pick it up.
I want to share a simple forex trading technique that I talked about 3 hours ago at a lunch time talk with a local broker. I was a guest speaker and this is a monthly session that I have with their invited participants. This method is amazingly easy rule-based method to use. All one needs to do is to observe facts only and not to operate any gut feeling.
The session today was scheduled to start at 12.30pm and so was RBA’s Rate Statement. Naturally AUDUSD is a pair of most concern to us. Now because of the presentations slides I prepared, I have the opportunity to show one of my techniques to trade forex with illustration from before and after price action.
Chart #1 AUDUSD weekly chart (pre-RBA rate statement)
My presentation went like this:
1. I don’t know whether AUDUSD is bullish or not and neither do I know whether it is reversing or not.
2. I know some facts however and this what I know↓.
3. AUDUSD is in multi-year down trend. See the big blue boxes which shows price moving lower since 2012 shown partially in the top left hand corner. Each blue box paints the price action in one year.
4. AUDUSD is also in multi-month down trend as can be seen from the small boxes overlaid inside in olive.
5. I don’t know whether RBA will cut rates or hike rates but I know that the big trend is down and the trend riding trade is a short one based on the chart.
Chart #2 AUDUSD weekly chart (pre-RBA rate statement)
We then looked at the daily chart and this was what I said:
6. AUDUSD is still below 2014-low and therefore until the level is broken, there is no reason for year -year trend to change.
7. Over the last 3 months AUDUSD moved sideways but last 2 weeks it rallied strongly.
8. I do not know whether the rally will lead to a reversal or not.
9. But I do know as a fact that the rally failed and reversed below March high marked by black dotted line.
10. I know that a rally above March high in April also failed.
11. Therefore the fact is March high in black dotted line is the effective resistance.
12. Last week’s rally is very common with high impact news like FOMC (last Wednesday after midnight). Fact is high impact news events like FOMC almost always lead to price action that will ‘kill’ both buyers and sellers’ positions. Buyers are ‘killed’ because they were herded into a false breakout trade and sellers are ‘killed’ because their short orders are closed by stop-loss that were triggered. The market then reverts to its true direction.
13. What will happen after RBA rate announcement?
14. I won’t know the outcome but I know as a fact that selling is a trade in line with the big trend and if price goes up, then March high is an effective resistance (black dotted line).
Chart #3 AUDUSD 4-hourly chart (post-RBA rate statement)
If I had the same audience in front of me this is what I would say:
14. I don’t know whether AUDUSD will go further up or not after the rate statement.
15. But I know for a fact that AUDUSD was resisted by March high at black dotted and that was confirmed by AUDUSD price action after the rate statement. That touch and recoil would not happen if the market did not see a resistance that I see as well.
This is how forex trading battle is already half won
My method gives me A) market trend B) market sentiment and C) critical market support – resistance levels.
If you like my method, do the following:
- Press CTRL – Y to show vertical lines in your MT4 chart.
- Use the rectangle drawing tool on the toolbar to draw boxes that show month-month price action on the daily chart.
- When boxes print lower high and lower low, a currency pair is down trending.
- You can repeat these steps in the weekly chart which will show year – year trend.
- Forex traders will naturally encounter many support resistance levels in every chart but instantly a trader must realise that previous time period’s highs and lows immediately tell a story about trend and behaves as a support or resistance level as well.
Director, TerraSeeds Market Technician Pte Ltd. Trader, investor. @sohtionghum was picked ‘Top 70 Forex Twitter in 2015’. Operates multiple strategies.
“Dear reader, I do not have a financial license to give advice. I do not know you the reader. Your financial objective and risk tolerance may be different from mine. I am not responsible for any consequence of your action.