EURNZD

On the daily chart of  the Euro vs the New Zealand dollar (EURNZD), price has been consolidating in an uptrend forming an ascending wedge. Prices broke out below the pattern and came back for a possible pullback to test the lower boundary for resistance. At the moment, the price has been resisted as it has been unable to get back to the pattern. However we need to affirm the retest by a bearish candlestick.

SUMMARY.

Our bias is bearish, ensuing the breakout, however price action will confirm our entry. A dominant bearish candlestick such as an engulfing would be a good indication of lower prices to come.

CADCHF

Looking at the weekly chart of the Canadian Dollar versus the Swiss Franc (CADCHF), price is trading within the two trend lines (support and resistance) forming a symmetrical triangle. Price broke out of the pattern and preceding the breakout, an inside bar formed which was confirmed by the breakout candlestick. This shows a lot of bullish momentum and bias.

SUMMARY.

In this setup, we can look for an entry on a lower timeframe following price action confirmation. The  possibility of a re test is however present. We wait to see whether buyers will sustain the rally to the major level in the preceding weeks.


Disclaimer: This analysis is for educational and general information only and not advice or a recommendation to trade or invest. Do your own research/analysis and don’t blindly enter trades based on the analysis.

USDCHF

Looking at a minor uptrend on the Dollar vs The Swiss Franc (USDCHF) that began in August this year, the prices have been trading within an ascending channel on the daily timeframe, where the main players are bulls. Recently the channel broke out below and had a confirmation the next day.

SUMMARY.

Market sentiment has changed from bullish to bearish after the breakout. Are we going to see lower prices possibly to the near term level? A retest to the channel support is a possibility as well, before price resumes the bearish trend.

AUDJPY

For the past 5 years, the Australian Dollar vs the Japanese Yen (AUDJPY) pair has been on a downtrend on the weekly timeframe. Last month, prices broke out below a major level, and later formed an ascending triangle. The upper boundary of the triangle coincides with the major level which is a confluence. Price has been supported by the trend-line and resisted at the major level.

SUMMARY.

In such a scenario, we would be best placed to wait and act after the breakout. Bears may come in at the major level and push price lower to resume the bear market. Bulls may however continue with the rally causing a breakout of the triangle. Price action confirmation is key before we open any position.


Disclaimer: This analysis is for educational and general information only and not advice or a recommendation to trade or invest. Do your own research/analysis and don’t blindly enter trades based on the analysis.

EURCHF

On the EURCHF pair a fortnight ago, we looked at the weekly timeframe, on which bears have been in control. At the time, the fakey setup was our point of analysis. Two weeks later price has  rallied closing above the consolidation.

SUMMARY.

Based on the fakey setup our bias was bearish. However, price action confirmation was needed to affirm our expectations, especially after the fakey happened at a major level. Bulls came in at the level and pushed prices higher. Will the rally be sustained to the upper boundary of the channel taking into consideration that the main trend is bearish? As always price, the ultimate indicator will guide us.

USDCAD

The US Dollar vs The Canadian Dollar (USDCAD) has been consolidating within an ascending triangle as seen on the daily chart. In this pattern, bulls are in control forming consecutive higher lows. Prices have moved sharply bearish in the past two days, indicating a strong selling pressure.

SUMMARY.

To increase the probability of our trades whenever we’re looking at patterns, a breakout is needed. Prices could be supported at the lower boundary followed by a  rally up, or a breakout downward showing the bearish strength. We therefore protect our capital as we patiently wait for a confirmation.


Disclaimer: This analysis is for educational and general information only and not advice or a recommendation to trade or invest. Do your own research/analysis and don’t blindly enter trades based on the analysis.

XAUUSD

This week on the XAUUSD pair after the long term uptrend, prices have gone into a consolidation within a descending channel. The minor trend is a downtrend, guided by the chart pattern. However we must keep in mind that the main trend is still bullish. Indecision candles closed off the week giving us signs of uncertainty, more so the formation of the long legged doji near the upper boundary of the channel.

SUMMARY.

A bearish confirmation of the doji will give us a bearish bias. If not, further price action will guide us on the best course of action. For instance, a price breakout above the channel would mean that the upward trend may continue.

EURCAD

On the EURCAD pair, we have a descending wedge in a downtrend is usually a potential reversal signal. As usual, we have to wait for confirmation, before pulling the trigger. Price broke out of the wedge. The next candlestick after the wedge made a small pullback indicated by the lower shadow, also clearly seen on a lower timeframe. Furthermore the pullback candlestick doubles as an inside bar, a potential continuation signal.

SUMMARY.

Patience is needed to confirm whether bulls will come in strongly after the breakout and take price higher potentially to the near term resistance level.


Disclaimer: This analysis is for educational and general information only and not advice or a recommendation to trade or invest. Do your own research/analysis and don’t blindly enter trades based on the analysis.

AUDNZD

This week on the AUDNZD pair we have a setup that depicts a pattern within a pattern. A double bottom within a descending triangle. The double bottom broke out, pulled back to the neckline and was supported. Evidence of the pullback is the lower shadow on the pullback candlestick, that means lower prices were rejected as there was buying pressure.

SUMMARY.

We have a bullish bias following the double bottom breakout. However we need a confirmation candlestick to increase the probability of the opportunity. A confirmation in this case would be a close above/breakout of the descending triangle.

EURCHF

The main trend on the EURCHF pair has been bearish as prices have been trending within a descending channel since April last year. Prices are currently at a major support zone. Last week, prices closed off forming a Fakey setup. Traders were faked out going bullish but then there was a close below the mother candle.

SUMMARY.

The Fakey setup is a bearish signal, nevertheless caution should be observed as we’re at a major support zone. Price action will guide as to whether we will follow price following a breakout below the level, or rally higher to the upper boundary of the channel.


Disclaimer: This analysis is for educational and general information only and not advice or a recommendation to trade or invest. Do your own research/analysis and don’t blindly enter trades based on the analysis.

GBPNZD

This week we revisit the pair of GBPNZD that we covered in last week’s analysis. At the time, price was trading in an ascending channel which is an indication of bullish dominance. The Doji followed by the Marubozu gave us a bullish bias, and we can testify that the rally continued. Currently price is at our major resistance zone with the formation of a pin bar.

SUMMARY.

We will be keen to watch what happens next, that is if price will reverse at the resistance level of price 2.009, or if the buyers have enough pressure to break the resistance level. In the case of a reversal, we will watch out for a confirmation signal such as an Engulfing.

GBPUSD

A Descending Channel formation on the weekly timeframe has come to our attention. This pattern can act as a reversal or continuation signal depending on the trend. Price was in an uptrend 2 years ago, before consolidating in a falling wedge. The last candlestick formed was a Doji which also happens to be an inside bar.

SUMMARY.

A breakout of the Wedge will give us a clear direction on where price is likely head next. Since the breakout has not happened, we sit on our hands. The Inside Bar is a potential continuation signal following the bullish candle. At the same time, the Doji shows us indecision. Patience is needed to ascertain whether price will breakout on the upside or be resisted and trade within the wedge.

CADJPY

On the CADJPY pair, the focus this week is a consolidation in form of a weekly descending channel. The tag of war between bulls and bears within the channel is evident as prices have been contained within the support and resistance boundaries. However the main players are the bears who have taken prices lower and lower for the past 2 years.. The past week closed off with a pin bar.

SUMMARY.

Pin bars are potential reversal signals. In order to come up with a bearish bias, we need to see the pin bar confirmed by a candlestick that closes below such as an engulfing or a bearish marubozu. Until then, we patiently observe the charts for further price action.

GBPNZD

On the GBPNZD pair, the daily timeframe shows an ongoing fairly strong uptrend trading within an ascending channel. Bulls are the dominant market participants signified by the trend which is up. Prices have been resisted at the upper boundary as well as being supported at the lower boundary. Most recently a doji formed followed by a bullish marubozu.

SUMMARY.

Price action suggests that bulls are determined to push prices much higher. Nevertheless, we have to monitor and see how price will behave upon reaching the channel’s resistance. Otherwise the rally may be headed towards the major resistance.

EURAUD

EURAUD

A close look at the pair on the daily timeframe reveals a clear ascending price channel that has continued to hold grounds. More significantly, the price channel falls within a long-term uptrend, making it a strong pattern to trade off. From the charts, we find that prices have respected the lower support line of the channel, with prices reversing to the upside for the last 6 months.

SUMMARY.

The price is currently almost touching the support line of the channel. At this point, we watch for price action reversal patterns such as a bullish pinbar/double bottom/engulfing, both in the daily and the lower timeframe of the 4hr in order to go long. We do not open any position(s) before we have entry confirmation to the upside.

CADCHF

CADCHF

This week we revisit this pair that we covered about two weeks ago in our weekly analysis. Zooming at the daily chart, we find that the clearly cut-out descending price channel has continued to hold grounds, with prices trading within the support and resistance lines of the channel for the last eight months. What makes the current level more significant for us, price action traders, is the fact that it falls within the near-term resistance level.

SUMMARY.

We stay put, hold our guns, as we wait for reversal price action patterns/candles such as a bearish pinbar/bearish engulfing candle/hammer to inform our bearish bias. Once the pattern(s) forms, coupled with an entry confirmation, we pull the trigger aiming towards the downside.

GBPUSD

This week we will look at the British Pound vs The US Dollar (GBPUSD) which we had covered a fortnight ago. At the time, price had just closed above the mother candle, indicated by the breakout candle. Our bias was bullish , ensuing the breakout.

SUMMARY.

Bulls caused a rally ,halting at the upper boundary of the descending channel. This boundary acted as resistance. Remember in the previous analysis, we mentioned that the major trend is bearish. Furthermore we are in a descending channel. Therefore we monitor the pair closely to see whether the bearish trend will resume.

USDCHF

Looking at the daily chart of The Dollar vs The Swiss Franc (USDCHF), we can see the formation of a descending triangle. Price is forming lower highs being resisted by the upper boundary as well as  lows being supported by the lower boundary of the triangle. During the past week we have seen bullish strength coming in, leading to a breakout of the channel.

SUMMARY.

Following the break out of the price pattern, we watch closely to see if  there will be a confirmation, after which we will follow price.

You got a cup of coffee set up on your table for today’s hangout? Maybe a bite to it? I’m doing mine without a bite. Because coffee is best taken without an accompaniment, in solitude, or at least that’s my way. But you’re right, we are not here today to talk about coffee rules, but to cover one of the most imperative aspects of any trader approaching Forex as a business.

A trading plan is the ‘business plan’ for us, traders. The most cognizant definition of a trading plan is ‘a well written guide that is prepared when the market is closed to inform your actions when the market is open.’ That kicks the beginning of the real talk! Any trader without a properly documented trading plan that guides all their trading actions when the market is open is doomed to fail. It is the surest tool that keeps us disciplined while trading the forex markets. We dwell in a business where we are constantly influenced by greed and fear, both emotions that are hard to battle without strict discipline. Any professional out there will tell you outrightly that without adhering to a properly laid down business plan and rules, you have low chances of survival in business. Unfortunately or fortunately for us traders, we can’t grow, leave alone survive, without following one.

Having a business plan is one thing, being informed of the right content and rules therein is another. And this will be our focus today. Now you’re welcome to serve your second cup of coffee.

1. Methodology

So what exactly is your methodology? This is the question I always pose to any new traders I meet out there, and you are not escaping it today. In case you ever meet anyone purporting to be a forex/stocks trader, please do the job for me, look straight into their eyes and shoot, ‘what exactly is your methodology? If they stutter or fumble with words, please be advised. Enough of my counseling! 

The first content of your trading plan methodology is to lay down the type of trading system/analysis upon which you base your trading decisions. Is it technical/price action trading (reading the chart patterns)? Or Fundamental trading (trading mainly based on economic-news events)? The latter is not an option for me, and for us at Fourthstreet Consultants. We trade purely based on price action, which is by studying and analyzing naked charts. This is because after all is said and done, everything about the forex/stocks market, including news events is discounted on the chart price movements. Price action is based on the fact that history repeats itself. Some chart patterns that have happened before, could be five weeks back, two years ago, or ten years back, will happen again, and again. Therefore, it is upon us to learn and master these unique chart patterns and trade them to our advantage. At least that is how I am able to foot my coffee bills for our hangouts here. That said, your trading plan must explain your methodology in detail. For price action traders like us, it should document your approach to the markets based on the following:

  1. Trend following
  2. Counter trend trading 
  3. Range bound trading  
  4. Breakouts 
  5. Candlestick formations

This list doesn’t end there, but it covers the main price action methodologies.

The next aspect that your trading plan must contain as far as methodology is concerned is the specific instruments/pairs that you will be analyzing and trading. This helps you follow up and grasp the patterns of the price movements of the instruments over the long run, which is paramount for the growth of your trading skills.

Listing the timeframes that you plan to be applying for your trading is also an integral part of your methodology. Will you analyze prices charts based on the 1 hour, 4hours, daily, weekly, or monthly time frame? Our Comprehensive Forex course equips you with a strategy we call ‘the top down approach,’ which is tailored to help you make informed trading decisions on the shorter time frame, that are aligned with the long term trend. Again, you’re welcome to join us here for this and more trading mentorship.

Lastly, your methodology should define your entry and exit guides. This is where stop losses and take profits come into play. The forex market platforms offer you with parameters to control your losses as well as set targets for profits without being necessarily online or logged in your trading account. You analyze, set the targets, and go about your other biashara (Swahili word for business).

2. RISK MANAGEMENT

Risk management is the backbone of forex trading. It is the only aspect that ensures your survival in the business of forex/stock/indices trading. It is only by managing your risk exposure that guarantees us of catching the next big move. I covered this and more extensively in an earlier article titled Forex trading as a business, you can catch up with it here when you have some time.

Your business plan must define your total risk based on your trading capital. It should expound the specific percentage of capital that you should risk per trade, and as such, the maximum number of trades you can have open at any one moment. As a general rule, you shouldn’t risk more than 1% of your capital per trade, and a total of 5% of your total capital in all your open trades. These rules are to be followed to the letter to achieve consistent returns in the long run. Our forex course expounds on this topic in videos, and goes further to show sample trades and how to employ the right risk management on a live forex account.

Additionally, your trading plan must inform how to avoid trading correlated instruments. This helps to limit risk exposure. By diversifying your portfolio, you stand to outlive losses and achieve success in your trading results.

At this point, please do the Indian headshake, that way I can confirm that you follow. Okay, let’s keep at it.

3. Record Keeping/ Trading Journal

In business, we talk of keeping inventories. From records of stock supplies, to sales, to profits & losses, to miscellaneous, among others. In forex trading, we keep inventories by filling and maintaining a trading journal. This is a comprehensive document whereby you pen down your trades, right from the specific instrument that you trade, to the entry price, to the reason (set-up) for taking the trade, and the exit price of the trade. You note that I haven’t mentioned listing down your risk to reward ratio because this is like the SI unit of placing a trade position. See what I did there?

Just like any other business, keeping a record of all your trades in your trading journal helps in the evaluation of performance over time. You are able to note the pairs/instruments that are least profitable and the methodology strategies that yields the highest rate of return. This way, you get to grow in your trading career, as you can always twitch where necessary to achieve better results. 

4. Psychology/Emotional Balance

I intentionally listed this aspect as the last component of your trading plan. Many a times, traders tend to underestimate how much having the right psychology and emotional balance can influence their trading results, yet it is what defines our long term success, almost ultimately. Throughout our lives, we have been programmed to avoid and hate losses. On the contrary, in trading we encounter losses frequently. I refer to them as ‘our cost of doing business.’ You cannot avoid losses in forex trading, and anyone who takes that path ends up in total ruin. As such, our job is to manage losses through setting up controls such as stop losses, trailing stop losses, and price levels available in our trading platforms.

It is your responsibility as a trader to call yourself to a meeting, understand how strong you can control your emotions of loss and fear. For instance, I advise new traders to keep off the markets for a week or so whenever they encounter a consecutive number of losses, instead of jumping back and trying ‘to make up’ for your losses. The latter only worsens the situation, as your mind won’t be in the right space to make sound decisions and for you to FOLLOW YOUR TRADING PLAN.

Everyone is different and only you can examine and put forth the best approach to help you maintain an emotional balance at all times, regardless of the trading results.

This is where we call it a day. You can master this and other aspects of Forex Trading with out top rated Forex Course. Please feel free to visit our blog on our website for our previous coffee hangouts, Okay, I mean the previous articles on other informative trading topics. Thanks ☺.