Chartology

Chartology Follow-Up on 240 min. EUR/JPY

2008-08-19T22:13:31+02:00

It's a perfect storm and please don't read into that statement "fool-proof, perfect trade", there's no such thing.

The prefect storm here starts with the support on the U.S. Dollar Index.

The current pullback to the cycle indicator (aka The Wave) is the trigger I look for when setting up a swing buy.

Next up, the EUR/USD.

The fiber is setting up a swing short of the bottom line.

The EUR/JPY set up we took a look at in the prior Chartology post is setting up my preferred trend follow trade with the bounce.

It's this same touch on the bottom line of the cycle indicator with the channel down pattern still intact that I am looking to capitalize on. All three entries are valid and triggered and that's what makes it a "perfect storm" for me.

The Dollar Index and the EUR/USD make for secondary confirmation for the EUR/JPY trigger.

- Raghee

Chartology of the Day: Playing the downtrend on the 240 minute chart of the EUR/JPY

2008-08-19T02:52:25+02:00

Trending markets has three possible entries: trend follow, reversal, breakout. The down channel below is no exception.

The current chart shows that the downward market cycle is starting to lose it's steepness. But it's still in a four to six o'clock angle none-the-less according to the cycle indicator.

There is a low that already created a short term bottom at 161.33. I'm looking for a bounce to the bottom line of the cycle indicator at 162.64 for a short or a hit on the resistance downtrend of the channel pattern.

A reversal of the pattern would be either a break of the resistance downtrend line and/or the top line of the cycle indicator.

- Raghee

Chartology for Next Week: A Few Set Ups to Watch Monday

2008-08-16T22:04:31+02:00

The dollar-yen is heading higher on the 240 as the market cycle is still in an uptrend. With 111.00 ahead there is an opportunity to play a breakout but since this is a trending market, I'd much rather get long on a correction than a breakout. A pullback to 110.20 or 110.05 would make a good pullback in order to buy support and follow the trend. Keep in mind that any trending pattern like the rising wedge does also have the reversal trade waiting on the back burner so a break down through 109.00 would trigger a short on the break on uptrend line support.

I've have a key support on the aussie on the daily and 240 minute waiting just above the .8600 level. Now I have been peeling out of my short position from the 1-2-3 short we talked about here at the Chartology blog and in the Chart Pattern Trading webinars here at FXStreet and if there will be a area of support from which the aussie will base and rally, it the area between 0.8600 and 0.8380.

And just so no one gets the impression that I have some unusual obsession with the 240 time frame...The 60 minute aussie is trading in the narrows of of the triangle pattern that has formed. The MACD Histogram is currently well above the zero line so I will be looking for the break higher for a trigger to buy.

Finally the swissy on the 240 is playing a lot like the dollar-yen. A pullback to initially the 1.0900 would be a great corrective entry long. If you're looking for a little deeper pullback, the 1.0883 level -- which is also the top line the my Cycle Indicator (RCI) -- would be a great place to trigger a buy.

As far as "U.S. Dollar harmony" realize the we need a quick pullback on the dollar to initiate the dollar-yen and swissy buys. As far as dollar support, which the dollar at the 77.18 closing level on Friday, there will be support at the 77.00 and then again between 76.50 to 76.33.

As I have said often this week, if the dollar rally is to continue it NEEDS to correct (pullback) along the uptrend to attract the next wave of buyers.

- Raghee

If you want to get chart pattern alerts like the ones above, check out Autochartist. You can get a free 21-day demo here.

Chartology of the Day: Every Good Entry Needs an Exit

2008-08-15T00:24:31+02:00

Thursday, August 14th 6:10pm EST

I often find when talking to traders that an exit is the result of "Aaah! Get me out! I'm losing money!" or..."Yeeah! Get me out! I made some money!"

...hardly a well thought out plan of exit.

I see that most often traders (and investors for that matter) seem to endlessly plan entries but exits become a knee jerk reaction to price either moving for or against their position.

There are only two types of exits really: a profit target or a stop loss. Both in my opinion should be based upon support or resistance in the market, not dollars, not a percentage, not boredom. You should have a cap as far as what your tolerance for loss is. For example, a 2% cap for loss is fine but a 2% stop loss is totally random. If you determine that your max loss is 2% that's fine but do not place your stop loss based upon that number. You stop loss should be determined by where the trade is no longer valid and if that is within your 2% cap, great. If not, don't take the trade or "cheat in" your stop to a another support or resistance level with the full knowledge that you are working within the point of validity and could be stopped out before the trade become invalid.

This concept of a a trade being invalid is often foreign to many trader who have been placing stops and even profit targets based upon dollar amounts. Profit targets should be also placed using support and resistance. If you are long a market, then you are looking up to potential resistance levels for profit target(s).

Personally I like to enter with multiple lots and exit at predetermined levels. If the price moves beyond at least my first profit target (preferably my second) I can then consider using a trailing stop and that for me will usually be either Fibonacci Levels, psychological levels or if I really want to give the trend room to move, I will use my RCI (aka the Wave) which is the 34 period EMA on the high, low, and close.

Realize that my risk management is totally tied into my profit target placement. I ratchet the stop loss as the trade goes in my favor. When I hit my initial profit target and then move through it (preferably 50% to the next profit target) will move my "risk based" stop loss to a break even - which is typically five pips below my the trade's entry trigger price, which by the way is not the same as where I got my fill.

The final step as a trade continues in my favor is to transition from a break even stop to a trailing and that's where you can look to Fibos, psych numbers, the RCI.

Autochartist will also give you a visual cue with their "Prediction Region".

These two charts are a great follow up to my previous post with the EUR/USD set up. As the fiber broke down the swissy broke up and Autochartist plotted "Prediction Region".

- Raghee

Chartology of the Day: Autochartist EUR/USD Triangle Alert

2008-08-13T23:22:52+02:00

Let Autochartist do some of the heavy lifting for you! It's going to scan the markets, recognize patterns, and bring them to your attention...which is especially great since it frees you up from your computer monitor(s)!

Here's a current alert and the set up.

There is a symmetrical triangle setting up on the 60 minute chart of the EUR/USD going into the Asian session.

The current market cycle sideways so the confirmation for the pattern is there. This is the first step of pattern confirmation. A consolidation or congestion pattern must set up in a sideways market!

Since we're talking about the EUR/USD here, it's of help to look at the current price action in the U.S. Dollar Index (in grey). Here's an overlay of the fiber and the dollar.

The set up is currently slightly pre-confirmed to the upside with the MACD Histogram above the zero line. However because it is not very strong above the zero level and the pattern is wide enough, the confirmation could easily shift to the downside and a negative MACD Histogram so make the final call at the time of the break...which quite frankly is the most prudent course of action for any momentum set up.

Remember any automation like Autochartist is not designed to take away your decision making, but rather facilitate finding opportunities. It's our job to confirm the pattern and set up the trade.

- Raghee

Chartology of the Day: Fibo Levels on the Dollar and Cable

2008-08-12T21:18:26+02:00

Here's a sample of what was discussed during today's Chart Pattern Trading webinar.

Fibonacci Levels were the main topic of discussion as well as a quick survey of topics that were requested for future discussion.

Among the topics were:

Money Management
Fibonacci Levels
Futures

...and a few others.

Sp here are two chartology snapshots from today's webinar and the set ups.

The cable had a channel down that we were discussing. Remember when you are setting up trending patterns there are THREE possible entries opportunities: trend follow on the correction, trend follow on the breakout, and the reversal.

The set up we discussed was one of my favorites: One Things Leads to Another. Where an short term bounce could break the downtrend resistance line of the channel for a buy (light green) and then set up the short off the top line of the RCI and major downtrend line (the lower thick blue line).

This is all dependent upon the "market pulse" chart of the dollar as well as it is taking breather today.

We did a Fibonacci work up in the room to show the significance of today's pause.

----------

Regarding the weekly webinars (and here's where you can help!) is whether or not to separate the chart pattern discussion from my forex market pulse since combining the two often makes for an overwhelming presentation packed into a mere 30-40 minutes.

Well, I am open to your ideas but for now I am thinking of one Chart Pattern Trading webinar and a second, Forex Market Pulse webinar. The second webinar is ideal for those of you who are interested in how the dollar, Dow, gold, and crude oil correlate with the U.S. Dollar correlated majors and commodity currencies. Knowing this makes a significant difference in how to analyze key levels, trends, corrections, and reversals in the forex pairs.

----------

- Raghee

Chartology of the Day: The First Floor and Basement is Next on the Fiber and Cable

2008-08-07T17:03:57+02:00

As the U.S. Dollar Index continues to hold support above the key 74.00 level -- although it has not been tested! -- the 74.50 psychological level has not been broken and so the sellers are still holding tight. This price action coincides with the support levels being tested in both the EUR/USD and GBP/USD on the heels of their respective rate decisions today.

I've marked the support on both charts and you can see the "first floor" and "basement" levels as they are being hit today.

If the U.S. Dollar continues to climb the the downtrend in the fiber and cable will push on, but these levels represent considerable support through '08.

I'll be watching for a potential distribution cycle to develop and if we can set up an inside-the-range at the lows I will post it here at the Chartology blog.

And ofcourse, feel free to join me each Tuesday at 11:00am EST for the Chart Pattern Trading webinar here at FXStreet.

- Raghee

Chartology of the Day: Is the Dollar Going to Continue Higher?

2008-08-06T17:03:51+02:00

The distribution cycle of the U.S. Dollar Index would lead me to believe that the 74.31 high will be resistance. I would expect this area to extend to 74.50 (major psychological number).

We shouldn't neglect the minor psychology resistance level at 74.20 either.

Again, it's the distribution market cycle and and the summer-long range we've seen that leads me to focus on the resistance here. I am long from the bounce of the 71.50 level so this level presents a major shift for me as far as the thinking behind my being long.

There are some significant changes in the fundamentals though. Crude below 120, the commodity sell-off in the gold and grains certainly have allowed the dollar to rally. But there is certainly support at the 118.00 level in crude and gold has attracted buyers from 873 to 876. So the question is: Is this where the dollar rally begins to find selling resistance.

The Fed Funds futures doesn't show the likelihood of a hike until January '09. And I think the next level traders are looking at will be the 110.00 decade level and the 109.00 200SMA support in crude. This is a huge support level that the equity and currency markets will be effected by.

- Raghee

A clip from yesterday's webinar: What to look for in front of FOMC decisions.

2008-08-06T16:40:54+02:00

- Raghee

Tommorrow's Chart Pattern Trading webinar agenda: FIBONACCI LEVELS

2008-08-04T19:43:25+02:00

We're going to talk about Fibonacci levels tomorrow. There are a few ideas to keep in mind regarding Fibo levels and I am going to outline them now...so here they are in no particular order.

First remember that Fibonacci levels are simply one of the many ways to identify support and resistance.

Second, Fibonacci always assumes a reversal so if you are drawing a Fibo from the last major sell-off you are going to project resistance levels and if you draw them from the lat major rally, you will project support.

Third, you must draw Fibonacci levels from the *subjective* last major move, but at the same time, there is seldom just one Fibonacci set of levels to consider on any chart.

Fourth, Fibonacci levels are usually going to be relevant only on the time frame that you draw them on. Don't assume that a Fibo on the 30 minute is necessarily going to be the same on the 60 or 180 and so on - UNLESS the last major move happens to be the same on the other time frames.

Bring able to identify minor highs and lows will help you find the touchpoints of the last major move.

Fibonacci levels have a unique way of "confirming" themselves. Look how often after you've drawn a Fibonacci you will see past support and resistance level line up with the Fibo levels.

Fibonacci is not just a trading tool! Fibonacci is a mathematical law of nature with application in biology, architecture, chemistry. And since we are applying this law of nature to the markets we are actually measuring human nature (fear & greed) to price movement.

I'm sure many Fibonacci fans shrieked in delight at the mention of Fibonacci in the Da Vinci Code movie. (hey I couldn't have been the ONLY one!) PS3 fans might have caught the Fibonacci series being sung in Metal Gears Solid 4. Even the conversion from miles to kilometers is very close to a Fibonacci ratio, the "golden" 1.618!

Oh yeah...It's everywhere!

- Raghee