Caution is still the best advice I can give if you intend to trade in this summer lull period. Very few of the forex pairs are trending and those that are, are simply moving sideways in tight ranges. I explained in yesterdays update “Forex trade examples” how you can use break outs from these trends for devastating profits.
Those of you who are trading the LMT Forex formula I still recommend that you only take trades when the trend is the same on the 4 hour & daily charts. The following analysis is not LMT related. If you are new to forex just follow the rules and keep it simple. Don’t panic with all this technical mumbo jumbo! But if you want to learn more about forex then read on !
There are trades to be had this week and I have posted below my analysis for 7 or 8 pairs including my “forex tip of the week” (please let me be right) ! I suspect that lots of the pairs may be due a pullback this week as many have rejected at recent highs or lows
Forex Trade Tip of the Week – Head & Shoulders Pattern
There is a classic head & shoulders pattern building on one of the 4 hour charts for the week ahead.
A head and shoulders pattern signifies that there is a major reversal imminent in the price of a forex pair. I am convinced that this particular pair is fundamentally due a fall as well.
The most significant head and shoulders pattern is in a weekly or monthly or daily charts. Head and shoulders on lower time frame can be unreliable. Anything less than a 4 hour forex chart and I ignore them.
What is a Head & Shoulders Forex Pattern?
The name of this pattern is given after its shape. This formation looks like, guess what, a head and shoulders. It consists of three consecutive rallies all based in the same support line named neckline. The two shoulders should be almost equal height and the “head” should be the highest. The great thing is that it gives you a specific entry point, stop loss point and target.
Fig 1. Euro/gbp 4 hour forex chart
This is a classic example forming of a forex head & shoulders pattern.
You may enter the market during either a break of the “neckline” with the stop above the nearest “shoulder” or more conservative traders look for a pullback/retest of the broken neckline with a much smaller stop just the other side of the neckline.
Price target is the length between top of head and neckline which in this case is 150 pips below @ approximately 0.8430/0.8400 which coincidentally are recent lows for this pair. If price breaks & closes back above the neckline the pattern is void.
A more aggressive entry is to start taking parts of the trades as the price falls. For example I have taken 25% of the trade at 0.8500 area (price could pullback to 0.857o area (left shoulder), I would look to short 25% again there. If price break above the 0.8700 area then the pattern is void and we should look for reasons to long.
If you are trading the LMT then the conservative way is to wait for the trends to turn back down on both time-frames. If that point coincides with a break of the neckline then that would be an extremely strong signal for me.
Analysis of other forex pairs for the week ahead
The euro/$ The last 3 days this pair has been range bound. Moving sideways in a tight range between 1.4050 and 1.4150. It may continue like this for a few days, but look for confirmed break outs (on the 4 hour charts) as per my explanation in yesterdays “forex trade examples” post.
If it breaks up recent high was 1.4300 and then dec 2008′s high was 1.4400. If it breaks down 1st target area would be 1.3850, 2nd 1.3700
Cable (gbp/$) There was a “shooting star” candle pattern on the daily charts. I will explain this in a later post. The thing you need to know is that this pattern usually signals a change in direction, ie down in this case. It is range bound as well between 1.6300 and 1.6465, so again look for breaks here in either direction.
Aud- Almost an engulfing candle on the daily chart, suggests pullback, ie price to fall. Price again is stuck in a tight range, look to trade break outs in either direction.
Cad – There is a doji candle on the daily chart which signifies indecision. Price has now entered a tight range, which is normal after a big move such as last weeks. If breaks out upwards, could go to 1.1400 area or down to 1.0800
Euro/cad- Similar scenario to cad
$/yen Near a double top at 94.50. Dont take longs here unless it breaks and closes above. It looks bullish to me but with limited upside (there are lots of emas and things in 95.00 area that would be difficult to break). If it does break 95.00 though, next target would be 97.00 area.
Lots of the experts are predicting a fall to 90.00 area. Best advice is probably leave alone this week unless there is a major move and you can catch a pullback.
Euro/yen, Gbp/yen These two are both in a tight range, again look for confirmed break outs on the 4 hour charts.
If you would like to trade forex successfully with us here on the blog, we have more than 1500 registered traders, and 15.000+ on twitter following both my advice, and sharing advice with each other.
The following is concerning the LMT forex formula. More than 500 of us here trade this system. It is the BEST, SIMPLEST,CHEAPEST forex trading system I have found in almost 6 years of trading forex. Click on the coloured banner below to find out more, regards, marc walton
As usual, your information is clear, informative, educational and correct. Thanks for all your hard work. I really appreciate it.
Thanks for your hard work. The analysis is indeed very clear, correct and helpful.
Bought LMT yesterday – 1st trade executed today – UsdCad – and it’s a winner
Hope you didn’t get over-enthusiastic today Dean. The day started well, but after the Bernanke speech everything’s reversed. Still,LMT managed to pick up the last moves against JPY and in favour of CAD. As of now, if you’d taken every signal today you’d be in profit (if only just), but once the last few went to losses, its not worth staying in until things become clear once more.
If you made money with LMT today you were lucky, I took 3 trades all stopped out for a loss of about -193 pips.
Hi tim, it was a bad day. the bernanke speech killed a whole bunch of signals as soon as they were given, thats why always best to avoid trades near big news. losing is part of forex, no one or no system will ever be right. alx just sent me the statistics for june/july. the win ratio was 80%+ for lmts 4 hour signals, marc
Wasn’t luck. It was a) looking at the economic calendar, b) staying out of the dollar as it neared Bernanke’s speech, c) not going back into bets that have already failed.
But if you HAD taken every signal yesterday and followed through as per the rules you’d have been in profit by about 20 pips. Which is still not a bad day.
IINterestingly, what IS happening is a lot of the pairs are now sorting out their direction on D/H4. Whether its the RIGHT direction remains to be seen…
Hi all – My 1st trade was a small winner – took half the profits at 50 pips and the bal was stopped out at BE. (I’m taking it as a good sign of things to come. )
Today’s off to a slow but profitable start with a few daily signals as well as a few 4hr alerts. In the money so far but very slow…
Alex,
Marc tells me that you have a website where you post charts, results etc regarding LMT. Could I become part of the group that has access to this info.
thanks
Andy
Hi Marc,
Do you factor in support/resistance levels when entering a LMT trade? For example: how many touches on the S/R line do you like to see to classify as notable S/R, does it matter if they are as support or resistance if looking at a long entry? Finally, how much (if any) of a buffer do you require between your 1st profit target and the S/R line? Thanks – I love the site and constant updates!!
Hi Dean, good question. at the moment the markets are not trending therefore the lmt will struggle to find good long term trades. before this summer quiet period started, we were generally just taking the trades and they were winning. at the moment support and resistance lines are very important. price is bouncing between the 2 on lots of pairs. 2 or more touches on a 4 hour chart is enough for me.
If price is within 20/30 pips of the support or resistance area then it doesn’t leave us a great % chance of winning. We also need to consider daily ranges as explained in the advanced rules.
last night at 6pm london time there were a load of signals, but lots of the pairs were at or near support and resistance areas & their daily range; i posted this on twitter: “lots of lmt forex signals in 2 minutes make sure to check candle size and daily ranges, lots are near limit now.”
I went to the 15 minute charts to see if there was a pullback (there was on all of them). I left it alone, but the only way to trade it was off a pullback.
I keep telling people that the pro traders, who are using a trend following system such as this will simply walk away at the moment until the market changes.
if you MUST trade:) then be careful and conservative. when the trend returns (main trending times are september to xmas & january to late may) we will make a lot of money with the lmt. marc
Marc,
Thanks for the quick reply. I agree with everything you said. One last question: how do you determine WHEN the market has changed and we are back on the trending bandwagon? (or is it simply the seasonal effect?)
Thanks!
Marc,
when answering dean’s question you mention support and resistance. Do you mean sloping S/R lines through tops/bottoms or do you use horizontal lines through recent highs and lows.
cheers
Andy
hi andy, both ! oh that all questions were that easy to answer, marc