In Tuesdays profit warning update I described what was happening on the cable (gbp/$ ) chart above and tried to show you areas to look at for possible reversal areas on a forex pair.
Gbp/Usd: In the analysis for the chart above I explained that what was extremely interesting to me was where price was then. The arrow is pointing to where the 4 hour and the daily trend lines meet.
I said “This area is critical. If price starts to go back up from here we could be at the bottom of a major move upwards for 100’s of pips (possibly a 1000 to the top trend line)”.
What I am going to explain is how I bring my varied trading methods together to try and calculate where price is going next.
I have been trading forex for over 5 years now. You can not expect to pick all this up overnight, but it will give you an idea of how a professional forex trader tries to build up a detailed picture to arrive at a decision. Especially on a trade like this which could yield many 100′s of pips.
This analysis for cable will be extremely detailed. If you have read the free lessons on the main site, hopefully this will all be starting to come together. If you are new, don’t worry, just try to absorb the information.
My thought process is as follows
- On the daily chart (above) I can see that price has been in an uptrend/channel for 6 months (the 2 parallel yellow lines) and price has bounced off the bottom line 5 or 6 times. As price comes down to this area I am therefore looking for other reasons for why price might react in this area. That is I am looking for other pieces of the jigsaw to support the theory. So next I go to the 4 hour chart as shown in fig 2.
- The almost horizontal yellow line is the 4 hour down trend line as shown in the following diagram
Fig 2
4 hour down trend gbp/usd
Here on the 4 hour forex chart we are looking for;
- an aggressive trade, a bounce back off the bottom line with a stop just below the trend line (not a great idea in the markets for the last few days) or
- A more conservative break & close of a candle through the top line
- A 3rd option of course is to consider all the reasons why we might short (sell) the pair; a break and close below the daily trend line would be a major reversal
Are there any other clues we can look for ?
Fibonacci. Take a look at the same chart with fib lines added (Fig 3). See how price has bounced twice at the 5o% fib line (standard fib pullback strategy as I have explained numerous times before). This 50% has also become a double bottom, another strong support area.
Notice also how price has failed to break & close above the 23.6% fib, therefore this is a resistance area in roughly the same area as the upper trend line.
Fig 3
So What Happened next & where do we go now ?
Gbp/$ 4 hour chart break out of uppper 4 hour trend line after bounce off daily and 4 hour trend line at point 1
Possible entries
- The aggressive trader would have bought at point 1 which is a close of a hammer candle after a bounce off a 50% fib and daily trend line.
I missed it ! I was watching for it but had to go out. Doh ! - Less aggressive trader at point 2 where the candle has broken (and most importantly closed) above the upper (yellow) resistance/trend line. I caught it here. It was not an LMT move, just my normal stuff.
- More conservative trader would Definatley look to enter here, the only problem it was so late on friday that you need to wait for Monday open to look for an entry. I never enter trades friday pm.
Also beware pullback Monday market open though, or now wait for LMT signal). At point 3 we have had. Confirmed break and close of trend line and fib as well as close above fairly major psychological level of 1.6500.
The final piece of the jigsaw for me is my normal chart set up that I show in the last diagram below (as explained in detail in the free lessons).
Price is above all the emas on the 4 hour forex chart for gbp/$
If you would like to receive regular free analysis, tips and advice from me, just send me an email: marc@forex-fxtrader.com I will post less detailed analysis for the other 10 pairs here on the blog tomorrow, regards, Marc
Marc,
Fantastic explanation (you can do this for a living
I’ve used your reasoning and walkthrough on a few major pairs to provide the general parameters to work with LMT signals.
My main question I have is how far do you go to draw trend/fib lines on 4h & 1d charts? if you move sometimes 3-4 candles back, the lines are drawn significantly different. 1 week, 2 weeks, 2 months ?
the meeting point between 2 opposing trends on the daily and 4h is a great way to look at this and wait for a break, I have it on 2-3 other pairs as well.
Hi rahm. re fibs “where to fib from and to.” Fibs work because lots of traders are aware of them. They become a self fulfilling prophecy. There is no scientific formula i can give you. You have to pick the most obvious points that everyone else is likely to see as in my gbp examples above. If you are not sure, go back and place fibs on older charts and see where there was a reaction. the more you do this the easier it becomes to read the charts, marc
Hi Marc,
You mean I can buy GBP/USD on Monday at 1.6500
Which are the best pairs are you trading personally ? Please advice.
Thanks for your help
NOOOO jas. I already got in at 1.6420. This information is advanced analysis so that you can learn what to look for in the future. I dont give buy or sell signals ( I haven’t got the time). If you are on my list you should receive another update this afternoon where I recommend which pairs to avoid how to trade the lmt for the week ahead.
got it, fibs are sort of self fulfilling prophecy…
as far as trend lines you think 3 months for 1D and 1month on 4h charts is enough to draw lines/channels ? Is there an actual rule here ?
Marc, have I missed the analysis on the other pairs? Or are you still saying its not worth trading?
Marc,
My daily hit it profit mark while I was sleeping then it reveresed for 70 points. Whwn it does this should you get back in?
Did you take the profit on that one michael ? I split the trade into 2 parts. 1st part to close at 1st target (in this case that would have been 70 pips area). then the 2nd lot i move the stop to entry and let it run. if you have to go to leave the trade, set a trailing stop on the 2nd lot, marc
Michael, are you talking about GBPUSD? If you’re long – get out immediately! It’s going down and may hit 1.62
What Alx said. Though I think its GBPJPY he’s talking about
Things still not settled down (assume Marc is spending his affiliate income and lying on the beach…). EURCAD this morning was okay, but I’m keeping tight stops or just going to the first target (which worked nicely on GBPJPY overnight).
Yes I was talking about the GBPJPY. I don’t have the ability to keep watch on thngs so I just stayed out. But still was able to pull off 90 pips.
Marc,
I posed this question last night and it seems it didn’t take. Here it is again. I am running LMT on 3 different brokers. All have different dailey times. If I don’t get a signal on the first I wait until the 2nd then the 3rd. What do oyu think of this strategy?
michael, the strategy is fine. the more platforms you have running the more opportunities you will have. Also remember to check the 4 hour charts for signals at the same time. I have had 4 hour signals on days when there were no daily. If you are only able to trade the daily charts it can be frustrating, especially at the moment, BUT a) you will find quite a few will all come at once (so plan ahead) b) when you can catch the start of a daily move the pips gain can be phenomenal. i had a 1200 pip gain on gbp from mid may (unfortunately on demo as i was only testing at the time), marc
Hi Michael, I do the same. I get a sequence of signals.
I found two secanarios:
1) The first signal hits target and you’re breakeven. You can add with the second signal but be careful when the third comes – it may be too late.
2) The first signal turns to loser. Then don’t try to take another two, they may go the same way.
If you have the second and third signal and still open position, you can select the best Stop Loss and Profit Targets from the three sets.
And of course it’s quite common you get just one broker signal. It doesn’t mean it’s bad – yesterday I had a signal from Admiral no other broker generated. It gave me quite niece profit.
I believe this will benefit more when trends finally settle. At the moment take the money and run method is the best one.