US existing-home sales

At 15:00 GMT, statistic on US existing-home sales will be released. 

Since 11:00 GMT (two hours before the opening US session) USDJPY has been hovering around the opening price of the day (i.e. the start of Asian session) at 96.56. 

At 12:57 GMT (13:57 on the chart) price bounced from the 96.56 (the dark red line) and there was a buy signal (refer to the 1st blue triangle area). At the entry point, the 200 ema is looking to converge with the 50 sma indicating price will ranging. Placed my 1 min scalp 1^st entry at 96.60. Since I am expecting  prices will be ranging in the short term, my profit target is for 10 pips only. Three minutes later, a reversal trade signal (a red B&S and red LCD) appeared. I entered the stop and reversed position at 96.58 for a 2 pips lost. Three minutes later I have to enter the stop and reversed position again due to the buy signal at 96.62. The short position caused me 4 pips lost. I closed the previous buy entry at 96.72 for my profit target of 10 pips (the blue rectangle). I ignored the subsequent sell signal since the entry is closed to the support level. 

At the second blue triangle I entered a buy position at 96.66. The price touched the upper BB and then formed a hanging man candle. Closed the buy entry at 96.70 for 4 pips profit. The buy signal at the third blue triangle initiated my buy entry at 96.70. Prices at  two candles later touched the upper BB and the subsequent bar showed weakness and I exited the trade for 1 pip lost. 

At the second blue rectangle with a buy signal caused my short entry at 96.67 . The next two candles formed a reversal morning star. Stop my short at 96.68 for a loss of 1 pip. 

The 4^th triangle with a buy signal at 13:49 GMT. The next candle confirmed the high closed doji of the previous candle (a bullish sign). Five candles later prices started gapping up and my first target is at 96.80. Without any sign of reversal the second profit target is at the double zero level of 97.00 for a profit of 30 pips. 

USDJPY was ranging within 10 pips for the first hour of US session before exploding one hour before the released of home sales data. I was trying to catch the price explosion after a tight range consolidation 30 minutes before major economic news. I managed to get a 36 pips profit in my one hour scalping period.

President Obama first joint session of Congress

A strong bullish candle yesterday reaffirms the long term double bottom with the first base forming in December last year and the second base in January this year. The break of the resistance level at 94.60 at 3:00 GMT propelled the cross to reach a higher level almost uninterrupted. A bullish candle with close above the pivot point indicated a bullish sentiment today with the low expected at pivot point/S1 and the high at R2.

In the morning Asian session, prices are expected to inch downward as yesterday US session was bullish early on before tapering in the second part of the session. Despite it was reported at 0:46 GMT that  Japan posted a trade deficit of 952.6 billion yen ($9.92 billion) in January, its largest ever but  was lower than the 1.13 trillion yen expected by economists, the yen did appreciated against the dollar. The USDJPY was at 96.40 (1:15 GMT) in Asia, compared with 96.90 at New York closing.

At 1:15 a morning star candle appeared and prices went flat at the lower BB with support from the 50 ema. One and half hour later President Obama addressed his first joint session of Congress and spoke frankly about the challenge facing the US economy and detailing proposal to turn it around. The US dollar take the cue from his speech and strengthen against all major currencies.

USDJPY first broke the key resistance at 96.80 and than the double zero level of 97.00 before touching the high of 97.32 at 5:45 GMT.

See the 15 min USDJPY chart below. 

Technical Analysis on Forex

The standard text book definition of technical analysis is that technical analysis is an attempts to forecast future price movements by examining past market data.  

Forex technical analysis is a game of odds not of certainties, so forget about forecasting or predicting with scientific accuracy, no one can achieve that. 

I try to explain the usage of technical analysis in my system based on theses equation: 

Price= fundamental + trader psychology . 

Fundamentals have an influence on price – all traders have the facts at their disposal but they see them in their own way and this mass of millions of people determines forex prices.

Human psychology is constant and never changes.

Traders will always be influenced by emotion and these emotions of greed and fear, will push prices to far away from fair value and these price spikes are easy to see on forex charts.

The important point to keep in mind is that trader psychology recurs - and so do chart patterns.

When using forex charts you don’t care how and why prices move, you simply look at the reality of price and try and make profits from the moves.

Of course, all people use forex charts in different ways and it’s an art not a science.

Technical analysis allows me to anticipate certain market activity before it occurs. These anticipations are drawn from previous chart patterns, probabilities of certain trade setups and my experience of the price pattern. Through some period of time, my anticipation eliminates the need for over-analyzing market direction as the possibility of me identifying clear and objective areas of significance. I read on the chart and anticipated to the direction of a trend and follow it through to a profit. I don't try to predict the future instead I create strategies that have a high probability of succeeding - situations where a trend or market movement can be anticipated. 

Of cause, everybody is seeking to the top or the bottom of a price. If everybody could achieve that consistently, he or she has found the holy grail of trading. Unfortunately, many of us have probably tried picking tops and bottoms in the past and are through with the game. Perhaps than we are already following in the footsteps of many professional traders, who attempt to find situations where they can anticipate a move and then take a portion of that move when the setups occur.

When deciding on whether or not to make a trade, we have our method of entering and exiting the market – it should be decided on these before clicking the buy/sell button. As technical traders I used certain tools couple with recognizable chart patterns that have occurred in the past with a certain measured result. As a technical trader we should have a good idea of what the outcome of a trade will be as it plays out. If the trade is going against us soon as we enter and it doesn't turn around within the next few bars, odds are that our analysis weren't correct and cut loss. However, if the trade does go in our favor within the next few bars, then we can begin to look at moving the stops up to lock in gains as the position plays out.  

Objectivity in trading the fast and highly leverage forex is essential to trading survival. Technical analysis provides many views of anticipation in a clear and concise manner, but as with everything else in life, it doesn't provide a guarantee of success. However, by sticking to a trading plan day in and day out, our emotions are minimized and we can greatly increase the probability of making a winning trade. With time and experience, you can learn to anticipate the direction of your trades and improve your chances of achieving better returns. 

See the 30 min chart of USDJPY below;

The US dollar was bullish last week and USDJPY has been on the upward moved from the 92 level, crossed the 93 and finally the 94 level. Most of us was anticipating that it will touched 94.60/70 level to form the long term double bottom. Instead during the US session, the dollar was getting weaker due to rumors of banks nationalization. The price could not breach the 94.40 level and formed a short term double top (the blue rectangle).

The double top has the target price at 93 but the fall was fast and sharp that it spike down to a 92.50. The fall should be anticipated when it fall below 94 and 93.80 within few minutes.

Yesterday, during Asian session, the USDJPY  fall slightly and consolidate at 92.8 – 93 . About 30 minutes after European open, the EURUSD showed weakness i.e. US dollar gained some strength. The USD/JPY has benefited from the USD strength early in European  trading. Within three hours, the cross moved up from 93 to 94.80 (the green rectangle).  The move comes with risk sentiment improving in the wake of news Citibank is in talks with federal regulators for the U.S. government to increase its’ stake in the bank to as much as 40%.

We are not predicting only reacting

Studying the forex chart is greatly difference from the stock/commodity/future charts. Applying technical indicators for the forex market has to be more refined since:

1: 24 hours Trading

Forex trading starts every week from Monday to Saturday (Malaysian time). The starting time of trading on Monday morning varies among the forex brokerages, so is the ending time on Saturday.

 

Some brokerages allow you to place orders on Monday morning as early as 2 am Malaysian Time while some others start at a later time like 7 am (8 am Tokyo time). For the ending time on Saturday morning, it is more consistent at 4am to 6 am Malaysian Time.

 

In between the starting time and the ending time, it is 24 hours trading all its way.

Forex 24 hours trading is very different from, say, 24 hours trading on the index futures. Let take a look at emini S&P traded 24 hours at CME Globex. Its underlying index S&P 500 is updated in USA during business hours in New York only. Thus after-hours trading on the emini S&P has no reference to which how the actual S&P 500 will do until the next business day. That factor alone makes after-hours trading of the emini S&P very illiquid.

 

Comparing that to forex market, every trading day there are three (3) distinguish time period that forex market gets very busy. That is, the start of the business day for Asia, Europe, and North America. It makes perfect sense because most traders need to sleep, and most of the participants in the forex market of each region will start their trading day at their normal business hours in their home countries.

 

In short, the 24 hours trading in forex increases its overnight risk significantly comparing to stock and index futures. That is a good reason why protective stop orders should be used if you are carrying your position overnight in forex, because while you are sleeping someone else is actively trading it in other parts of the world. As for me, the best solution is to be a day trader.

 

2. The Daily Bars are not Really Daily Bars

 Since almost different brokers quotes a different set of closing prices for the day, there is no real meaning to what we known as daily price bars. The net change from the previous trading day has a different meaning for traders using North America time and those who trades using Greenwich Mean Time (GMT).

 

When the daily price bars are not consistent, that affects the validity of the so-called pivot points indicator. Different traders will have a different set of price levels calculated, depending on their location, and time range they use for the construction of their daily prices.

 

Long term trend lines analysis is also affected by the inconsistencies of daily bars. As oppose to using the trend lines in a very precise manner, you may have to relax the condition and/or wait for confirmation from the prices before you can tell if your trend lines are holding up or being violated in real-time.

 

3. Historical Data Consistency

Day trading markets are usually provided by an exchange (such as the Chicago Mercantile Exchange (CME) in the US, the London Stock Exchange (LSE) in Europe, and Bursa Malaysia or the Hong Kong Futures Exchange (HKFE) in Asia). The exchange handles every order and every trade for their markets, and is aware of every trade that occurs, so the last price is well known.

Day trading markets in stocks, futures, commodity markets have three separate prices that update in real time whenever the markets are open. These prices are known as the bid, the ask, and the last price, and together, these prices provide a complete picture of the current state of the market in question.

Forex markets are not provided by an exchange. Forex trades take place directly between the two traders involved, and nobody else need even be aware that the trade has occurred. This means that the last price is not generally known, and is therefore not available for use by us for charting purposes.

Forex historical charts are constructed from the bid and ask streams. Charts provided by brokers could be either using the bid stream or ask stream as the reference price for the construction of historical data. And, for some forex brokerages, they take the mid-point value between the bid and ask prices for the construction of the historical data series. There is no volume analysis therefore tick analysis is not possible.

 

For developing your trading strategy based on technical analysis, you have to know clearly how your historical data is constructed. If it is bid stream based, all the buy side market orders will be off by at least the spread. For example, your brokerage offers 3 pip spread for trading EUR/USD. Then if you back test your system against the historical data provided by this broker, your historical market buy orders will be filled at the bid price, not the ask price.

 

If the historical data is constructed from historical ask stream, the inverse is true - the historical sell orders will be off by at least the spread size.

 

4. Slow Period

Normally during periods where most market participants are not working, you will find the forex market becomes extremely slow. For example, near the end of Asian session and before the London session and after general US market close at around 4 am Malaysian Time, there is quite a number of hours before Asia financial markets open. During this period of time, the market actions will be very slow and affecting many oscillator based indicators.

 

Most momentum type or oscillator type indicators do not work well when the underlying price series has a prolonged period of time staying in a tight range. Traders can stop trading during these slow periods to avoid the noisy signals, or, using higher time frames like 2-hour bar or 3-hour bars to get better overall reading of the current market condition.

 

5.Gaps

Because the FOREX market works five days a week around the clock (in contrast to other financial markets), we don't see classical gaps the way they appear on future and stock markets. As is generally known, a gap is a break between two consecutive bars on the chart, when the low of the previous bar is above the high of the previous one or the high of the previ­ous bar does not reach the low of the bar directly following it. Such gaps, in their classic description, are very rare on the spot currency market. Nevertheless, breaks on exchange rates charts exist, though they look a little different than they are described in technical analysis books.

Gaps with reference to the FOREX market are formed more often between Saturday and the following Monday, and are very rare in the middle of a week. They look like breaks between the closing price of the previous day (and accordingly the previous week, if this day is Saturday) and the low or the high of the following trading day (occasionally also all of the following week).

Most of the time, the market comes back to the gaps a bit later and completely covers the price break formed on the chart. The gap identification is very important but usually I don't trade on return and closing of such a gap. Formed some time back, a gap gives me additional confidence if my position is open toward a gap, and provides a warning signal if the position has been opened in the opposite direction.

6. Leverage
When a stock trader executes a buy order, he deposits at least 50% of his purchase. If a Forex trader also deposits 50% of his purchase, there would be no need to distinguish between their stop-loss orders. But in most cases, the Forex trader is more leveraged. Some times close to 100-to-1; which mean to trade $100,000 of currency, with a leverage of 100-to-1 or a margin of 1%, a trader will only have to deposit $1,000 into his or her margin account. This leverage of this size is significantly larger than the 2:1 leverage commonly provided on equities and the 15:1 leverage provided by the futures market . Therefore, we need  adjustment to place a Forex stop-loss to accommodate for the extra exposure. 

There is also a difference in the technicals. In stocks, participants tend to cluster around levels outside formation boundaries or defined by clear support or resistance parameters. At times, that is workable because stocks usually move a few percentage points at a time. In this situation, even if you are at maximum allowable stock leverage, your loss is still manageable since the largest portion of your assigned capital is still available. 

If no leverage is used, the loss has even less of an impact. By the same token, when a Forex trader buys a currency lot and deposits the full amount of $100,000, the currency fluctuation is likely to have a minimal impact. In this case, the application of a stop loss order based on support and resistance would be adequate. But  forex traders do not deposit the full amount of their position. 

In commodities, stop loss orders are sometimes misnomers. That is because commodities can move the limit, meaning there can be no ‘exit door’. A recent example happened in the Cattle market when the mad cow disease surfaced in the US in late 2003. Had you been long cattle futures, you would have been locked in for three consecutive ‘limit down’ days. 

Given these disparities between stocks, commodities and Forex, the Forex trader needs to approach the function of stop loss orders from his unique perspective. And because each different leverage position demands its particular considerations, there is no ‘one size fits all’. 

The one concept flexible enough to satisfy most conditions pertains to placing stop-loss orders based on dollar amounts. As such, where a position is exited will have a direct relevance to each individual trader’s circumstances, irrelevant of market conditions. If a Forex trader takes a position at 100-to-1 leverage, it makes no sense placing a stop-loss order at some support level that is 2% away from his entry. 

One cannot lose sight of the fact that if one loses 50%, one needs to double the money to come back to even. If traders insist on looking for support or resistance parameters to place protective stops, they need to lower their leverage to 20-to1 or less.

Finally, as told by one seasoned trader; the purpose of technical analysis is not to predict where and when the market will go, as many traders think.

The FOREX market is densely filled with technical traders and, for this reason, the formations frequently do not fulfill their destination to give traders reliable signals to enter a market and make some projection for the future.

Therefore our main goal as analyst is to define in advance the critical points or levels. Then, based on this research, you can build a trading strategy for the next trade.

We are not predicting only reacting.

 

 

Bank Nationalization

Fear of bank nationalization of the big banks is sending stocks lower and the US dollar in tailspin. The US dollar fell off a cliff against all the currencies. The fall began at 16:45 GMT, during the time that financial stocks plunged at Wall Street. The nice gains that the dollar made during the week were erased in 15 minutes, and the fall continues. The heavy fall came near the twilight zone, when Asia is already enjoying the weekend, European markets are closing and the New York session is far from the beginning.

 

The USDJPY  was almost flat during the Asian session and encountered heavy selling at London open (8:00 GMT) in line with EURJPY. One hour later, a reversal engulfing candle for the both currency crosses overturned the trend (see the EURJPY and USDJPY  charts below). The USDJPY  rally and reached 94.38 before stalling. Then things began to unravel, and quick.  Sen. Christopher Dodd’s comments on nationalization turned the fears of a theoretical risk it fears of an imminent move by US government to seize two of its largest banks, Citibank and Bank of America. Traders scrambled to square positions across the board and seek the safety of the sidelines.

 

EURJPY stalled at 16:45 GMT but  continued it upward moved.

 

EURUSD which was rumored to be aggressively bought by the Chinese Central Bank began to rise after it touch bottom at 1.2557. The action squeezed the EURUSD short market. Medium-term players began to cover as well after a second consecutive bounce from the 1.25 handle. Similar to USDJPY at 16:45 GMT, the EURUSD shot upward.  Within 30 mins the cross soared from 1.2630 to 1.2840.  Prices reached 1.2880/85 before the rally relented.

 

USD/JPY saw wave after wave of profit-taking as important supports all the way down to 92.80/90 were obliterated in just a few minutes time. Hopes for a topside breakout faded dramatically as 94.50 is now looking like a potential double-top on the charts. 92.51 was the spike low before a recovery to 93.30 level.

The heavy correction of USDJPY in the later part of the day more or less vindicated the trade folklore that the earlier move of the week in Asia will be reversed later in the week. 

The White House on late  Friday insisted it's not trying to take over two ailing financial institutions. Citigroup closed at $1.95 trading as low as $1.61. Bank of America closed at $3.79 having traded as low as $2.53.

Regardless of what Obama says, the market doubts these banks survive. 

Nibbling the USDJPY

For the past few days, USDJPY has been bouncing up and down within a small range during the Asian session before volatility increased during the European session.. Volatility increase tremendously when the European session overlap with the American session.   

 As usual the EURJPY  lead USDPY  for the breakout in the European session. Glanced to the two 30 min charts below.

 The first chart is the EURJPYt. The cross bounced of the daily pivot point at 4:00 or 3:00 GMT and travelled  south. 

In the second chart, the USDJPY position itself above the pivot point and moved within the range of  20 pips between 94.00 and 94.20  for more than 8 hours before a sudden fall at London opening session (8:00 GMT). The nudge downward carried USDJPY to spud fibo retracement level of  23.6% at  93.57 .

As I don’t trade between  4:00 GMT to 12:00 GMT so normally during my trading session I just ride the USDJPY small range up and down nibbling between 10-15 pips for every entry. 

This morning my 1 min scalp is as follows. 

At 1:00(24:00 GMT) which is 9:00 am in Tokyo, USDJPY bounced from daily pivot point and the double zero level of 94.00. At 94.20 (the blue rectangle), the cross is expected to come upon a resistance level which is also a 76.4% spud fibo retracement located. A gap at 1:56 confirmed that the cross is reversing downward. 2 min later I entered short on the blue lag cross over the 85. Two mins later the B&Y turn red and 6 ema cross over the 12 ema. The spud fibo 68.1 % retracement was touched at 2:06 and a hammer candle is formed. I closed my position for 12 pips profit. 

At 2:13, the B&Y and  LCD turned green,  6 ema cross over 12 ema and blue lag had crossed the 15. I don’t take the signal as the red lag just crossed the 45, the BB is getting narrower, the 50 sma and 200 ema are almost flat and near to each other indicating an immediate consolidation. The sell signal at 2:16 was also ignored due to the same reason.

 By 2:26 (the blue triangle area), all indicators showed a buy with the red lag above the 15. I took a long position and expected the cross to break through the BB as for the last 5 min it was flat. My profit target is at round number level of 94.20 . My profit is 13 pips.

 I have a total of 25 pips and since the session is still early, I take a sell position at 3:09 with all indicators registering a sell (the green rectangle). As the market  is slowly moving upward, the sell position that I took is considered a counter trend with a profit   target of 10 pips. By 3:30 I get the 10 pips. I leaved my trade for a total profit of 35 pips.

Support and Resistance at opening price level

A strong uptrend in USDJPY during the American session is expected to be reversed during the Asian session. USDJPY is to trade below the resistance aqua color  downtrend line. As the close is higher than the open and above the pivot point yesterday, I expected that the early session the cross is either moving around the pivot point or the opening price. 

As normally I have done, I started scanning the chart at the open of Asian session i.e GMT 23:00 or 24:00 on the chart. 

Refer to the 1 min chart below. 

USDJPY was nibbling between the almost flat 200 ema and the opening price for a range of 10 pips for the first hour. At 1:37 (0:37 GMT) the cross manage to break through the previous swing high at 93.73 . I expected that the cross will came to a resistance of the downward trend  line (aqua color). At 1:51 the cross reversed before touching the downtrend line with a engulfing candle that had it open price outside the BB outer boundary and confirmed with RSI (3) crossing the 85 level. At 1:56 Stealth Buy & Sell (B&Y) turn red and the blue lag cross the 85 level signaling for me to enter short. 1 min later the 6 ema cross over the 12 ema from above. I entered the short trade at 93.73. The first target at 93.63 is  the opening price which was reached 10 mins later but since the Stealth LCD is still red in color and the two ema cross the 50 sma, I maintained my position with target profit at 76.4% retracement - 93.51 

With a profit of  22 pips, I intended to take a counter trend trade. At 2:43 B&Y turned green and 6 ema crossed over 12 ema indicating a buy. The blue lag has crossed the 15 level about 3 min earlier. My target is for 10 pips profit. Closed my position when the price could not overcome the resistance of 200 ema. My profit was only 6 pips. 

At 2:59 the B&Y and LCD turned red, a sell signal with the blue lag cross the 85 level three mins earlier. Closed and reversed my position as the B&Y, LCD and the 6 ema crossed 12 ema. The blue lag crossed the 15 level with the red lag still tagging the 100 level indicating the bullish sentiment is in control. The price crossed the opening price i.e the price I entered long with target price at the downtrend aqua line. I closed out at 93.73 for a ten pips profit. Within 1 hour and 15 mins trade I had my 30+ pips and I quit for the session. 

Double-no-touch USDJPY

It has been widely acknowledge that the USDJPY was trading within the range of 87 to 93 for the past 3 months due to the currency option play of double-no-touch strategy. For option players, it is to their advantage that USDJPY stay within these two parameters for the duration of the option. The buyer of the structure  paid out a multiple of the premium risked. They protect their investments when they feel it is prudent by buying USDJPY ahead of 87 and selling it ahead of  93 in an attempt to keep the range intact and their structure in place. 

The seller of the option will have the exact opposite interest; to knock-out the options by pushing the market through one of the strikes. Once USDJPY trades above or below the strikes (below  87 or above 93), the seller of the options gets to pocket the premium and the structure expires worthless.

 

On the 17th, during the Asian  and American sessions the 93 level was  to be tested but fall short at  R1 level of 92.70. Yesterday during the Asian session, the USDJPY was a bit quite after a strong uptrend during the previous American session. During European session, the cross inched upward trying to break through the  strong resistance level of  92.70. USDJPY attempted twice and failed. The third try at 11:00 (10:00 GMT) succeeded but stop short to test the 93 level at R1 level. An evening star was formed and the cross went southward under the downtrend line. At 14.30 USDJPY hit the uptrend line and reverse with an engulfing pattern and having the second candle registering a bullish marubozu i.e without the shadow or wick.

 

With a strong candle, USDJPY  has no difficulty to breakthrough the 93 and R1 level at 93.40. At that level, the cross take a breather and than continue its journey upward tpward the R2 level or  at least 94. The cross managed to touched 93.95 at 17:45 with a reversal candle-shooting star.

 

The battle of the option was clearly won by the seller.

 

 My 1 min scalp, I position myself at below 93 level and rode through the 93.40.

The Japanese risk aversion

US shares were sharply lower with S&P 500 fall by 4.5% amid continued global banking woes. USD/JPY  and EURJPY held firm, breaking their recent pattern of falling along with stocks. This may mean that we are seeing a change in the FX market response to the almost inevitable fall in worldwide equity markets. 

Why are USD/JPY and EUR/JPY holding up better than one would expect them to fall given the global shift toward risk aversion?

 

There seems to be one primary factor stated one analyst: Japanese retail investors have finally reversed their penchant to move money offshore and have turned positions to being net-long of JPY.  With yields in the US, Europe and and UK near all-time lows, the incentives for investors to stay short their native currency is way lower than normal.

Now that they have the risk-aversion trade on, and it is not acting as it typically does, some of those investors and traders are throwing in the towel and covering shorts in USD/JPY and EUR/JPY.  Human nature would suggest when the “dumb money” is on board, there is only one way for the JPY to go, and that is down.

A drunken finance minister, a prime minister with approval ratings in the single-digits, those factors may be contributing, but the late arrival of “Mrs Watanabe” to the trade (the market’s derisive nickname for Japanese retail investors) seems to be the most decisive. 

Technically, USSDJPY have been subscribing to candlestick chart pattern beautifully. Refer to the 15 min chart below. 

The top at 5:45 (3:45 GMT) was a shooting star that ignited a USDJPY  reversal that reached the bottom at    11:15 with two candlesticks pattern, the harami. About one and half hour later piercing patterns confirmed the reversal for an uptrend move that carried the USDJPY to the top at R2 level. At this level, a bearish harami pattern was formed which push USDJPY downward to close at  R1 level. For the day a white candlestick which it almost a opening bozu    ( there is no lower shadow i.e.  opens at the low) was registered. 

I entered my trade at 17:30 when USDJPY was in a consolidation phase with concentration of dojis. At this level the cross is resting at 50 period ema, R1, 38.2% fibo retracement and at double zero level of 92.  A break over the height of the dojis and the above levels confirm my vindication for a  buy.

My profit target is at R2 -92.37.

Breakout after a dull day

Yesterday was a dull day for USDJPY with a daily small doji  gyrating within the range of 91.50 to 91.90 above the daily and weekly pivot point without touching the R1 level. The Bollinger Band was squeezed tightly for the whole day and a small tight triangle was formed that had it apex at early Asian Session. A possibility of a great breakout is expected.

On the 1 min chart below showed that at 02:31 (00:31 GMT), the blue lag break through the 15 level with Stealth LCD and Stealth Buy & Sell indicated a buy. The 6 period ema cross over the 12 period ema from below at one minute later, and 5 minutes later the two ema’s cross over the 50 sma confirming the bullish sentiment.

USDJPY broke the pivot point and the spud fibo retraced,  first the 50% and consequently the 61.8% and 76.4%. My profit target for this 1 min scalp is at double zero level of 92.00.

USDJPY trading during the Asian (Japanese) session is usually reflected by a herd-like behaviour which often resulted in large, volatile moves followed by extended period of sideway consolidation as the Japanese institutions responds en mass to break of key levels and then settle down.

Due to high involvement of Japanese institutions in USDSJPY means the cross tends to respect technical levels more than other crosses. The cross responds more quickly to breakout of key levels rather than waiting for pullbacks or a bounces. There tends to be clustering of market orders around key technical levels, which favour of placing stop-loss of 5-15 pips just beyond key technical levels. Another point to remember is the heavy emphasis on application of candlesticks in USDJPY.  Finally, other major yen cross such as the EURJPY can exert pressure on USDJPY, for example a technical break on EURJPY can spill into USDJPY and push it out of the driver’s seat.

The above points can be shown on the my subsequent 1 min scalp. (Refer to the chart above)

USDJPY find the top with a hangman at 3:14(1:14GMT). 10 minutes later a Stealth Buy and sell indicated for a short order. It was confirm 1 minute later with 6 period ema cross 12 period ema from above. Since the trend is up, my short position is a counter trend. Target profit of 10 pips is achieved when the cross touch the lower BB and 50 period sma.

At 3:36 Stealth LCD and Buy & Sell indicated a buy and two minutes later the 6 ema cross over  12 ema from below. 4 minutes earlier the blue lag had climbed above the 15 level. I am looking for a 20 pips profit i.e  expecting USDJPY to test the round number at 92.20.  USDJPY broke the 92.00 and gap up to break the R1. It did reach 92.19 and turn down toward the R1 without any technical sign of closing the reversing position. I hang on to the position with expectation that USDJPY to touch R2  at  92.37.

The 1 min chart

For an easy reference to my chart, I have color coded with arrows and line for indicators, filters, S/R lines for fibo, pivot points and moving average. 

Refer to the 1 min chart Above: 

1. Spud fibo: it will will draw fibonacci retracement and expansion lines in the chart automatically. Spud Fibo uses previous day’s High and Low to draw those line.

-For retracement it used a yellow line  with retracement at 23.6, 38.2, 50, 61.8 and 76.4.

-The previous day high and low is in white line. 

-An expansion of 126.6, 138.2, 1.50, 161.8, 176.4 and 200 with a white line.

-A negative expansion which is drawn below the previous day low with a white color line has the following numbers; -23.6, -38.2, -50.0, -61.8, -76.4 and -100.

2. Pivot Point: A daily, weekly and monthly pivot is drawn on the chart.

   -Daily: pivot point (Pp) is drawn as magenta dot line.

   Support(S1, S2 and S3) is in lime green dot line

   Resistance (R1, R2 and R3) is in red dot line.

   -Weekly: pivot point (Pp) is drawn as agua dot line. The resistance and support level is not drawn.

   -Monthly: pivot point(Pp) is drawn as peach dot line.

3. Bollinger Bands. The outer lines are in green in color with middle line i.e the 20 sma is in green if the RSI is above 50 and in yellow if RSI is below 50.

4. The moving averages: the 200 ema is the red line with 50 sma is in blue.

     -The 6 and 12 ema is not shown in the chart but if 6 ema cross over the 12 ema from below i.e buy signal, a big hollow arrow in blue color will appear and consequently if 6 ema cut the 12 ema from above i.e sell signal, a big hollow red arrow will appear.

      -An aqua color small arrow pointing upward indicate that 6 and 12 ema cross over the 50 sma from below (confirm buy). And a yellow red small arrow pointing downward indicates the 6 and 12 ema’s cross over 50 sma from above (confirm sell).  

5.  The filters: a-The FxPrime filter is not shown in the chart.

        b- The Stealth LCD is shown at the bottom of the chart with red color is bearish and green is bullish.

       c. The Stealth Buy & Sell is shown by the small arrow. An upward pointing lime green arrow is a Buy and a downward pointing red arrow is a sell.

6.  The lag indicators are not shown in the chart.

Double zero and round number.

When trading intraday, it is impossible to look for bounces off every support and resistance level. Trading of psychological level such as double zero or round numbers is one way of identifying such opportunities.

The double zero represent where the last two digits are zero. For example, 90.00 in USDJPY or 1.2800 in EURUSD. Round numbers are currency that have zero for the last digit such as 90.80.  The “80” and “20” round numbers are minor level, which means the support (or resistance) they create is not as solid as the “00” and “50”, but they are relevant, nonetheless. Careful placement of stop loss and profit target orders at round number and double zero levels enables the trader to execute trades with a strongly positive risk/reward factor.

For the past few months, USDJPY have many times bounces off from the double zero support and resistance. We could notice that the bounces from the double zero level have a bigger bounces and much more relevant than rallies off other areas.

Why are such double zero level have more bounces?

Market participants as a whole tend to put conditional orders near or around the same levels while stops loss orders are normally placed beyond the double zero or round numbers. Traders will cluster their take-profit orders at the double zero or round number. The reason why this occur is because traders are human, and human tends to think in round number. As a result, take profit order have a very high tendency of being placed at the double zero level.

The psychological round number or double zero levels have great significant if they coincide with a key technical level. Therefore the strategy tends to have an even higher probability of success when other important level converge at the figure, such as moving average, pivot points, fibo levels and Bollinger Band.

We refer to the chart below.

On the 12^th, USDJPY close above the open- daily white candle and above the pivot point. This indicates a possibility of bullish sentiment on the 13^th. It is also widely believed that the earlier week moved in Asia will be reversed by the end of the week. As early in the week, USDJPY was in the downtrend, Thursday and Friday it is expected that the cross will be moving upward. I am expected that on the 13^th, the price range will be the low  at S1 or pivot point with the high R2.

On the 13^th, early Japanese session market went southward after the doji evening star formed late in US session. The fall was supported at  pivot point (the magenta line) at 00:15 GMT and at round number of  90.50. The 15 min Stealth LCD indicated a buy (green color) at 00:30 GMT. The immediate target is at 31.8% retracement at 90.75 but with a bullish sentiment price could touch the 50% retracement at 91.08 which is near the double zero level of 91.00.

Using the above information, my early morning session my 1 min scalp netted about 35 pips.

For American session I make a preparation to enter the market at 14:00 GMT when USDJPY touch the lower uptrend channel at price above the round number 91.20. I was waiting price to breach 61.8% retracement and the S1 to initiate my long position. At 14:15 GMT price went above those level and I entered long at 91.45. My target is at S2 at 91.89. USDJPY do touch the double zero level of 92.00 and than bouncing between 91.80 - the 76.4% retracement, the S2 level and 92.00 for five hours before closing the market for the week.

Pivot Point..a continuation

On the 10^th (refer to the chart below), the USDJPY closed below the previous day close with a black candle body and the pivot point is above the close. As indicated in my previous posting, the next day i.e. the 11^th, the market is expected to have a bearish sentiment with the range high at pivot point or at S1 level and the low at S2. 

Japanese session normally  have a tendency to ignore the overnight lead in US especially during the early session. During the US session the cross went southward crossing the 91.00 level and registering about 120 pips downward moved within one hour. We expect that the cross to show an upward move during the early session in Japan but instead it consolidated into a channel of 90.50-90.30. At the end of Japanese session,  USDJPY breach the lower part of the channel and went down 30 pips and find support at 90.00 level. About one hour later it touch S1 and during the European session the price consolidated within the S1 and 90.00 level. 

At US opening session, USSDJPY managed to breakthrough the 90.00 level and moved upward to our target high of the day at Pivot point. The market close almost at the market open and forming a daily candle pattern of a doji. 

Based on the doji and with a close below pivot point, the sentiment for the 12^th is a mild bearish with a low at S1/S2 and high at pivot or R1. The Japanese session showed its normal tendency of reversing the overnight position. Moving below pivot point toward S1. The market was a bit slow and USDJPY manage to touch 90.00 level in late Japanese session. It touch S1 at the opening of London session and consolidated between S1 and 90 level during the London session. 30 minutes into the American session it break trough the consolidation phase breach the pivot point and went higher. USD JPY close above the S1 and the weekly pivot point. It did managed to touch  91.00 level with a reversal doji evening star.

Pivot Points

Pivot point analysis was originally developed by Henry Chase in the 1930’s. It was Larry Williams who was credited with popularizing the usage of pivot points analysis in his book “How I made one million  dollars....Last year...Trading Commodities.”

Pivot point are mathematical formula designed to determine the next time period’s range based on the previous period’s data such as the high (H), the low (L) and the close (C).

The Pivot point is Pp=(H+L+C)/3

Resistance2  is R2=Pp + H – L

Reistance1 is R1= (Pp x 2 ) – L

Support1  S1= (Pp X 2 ) - H

Support2  S2= Pp – H + L

The third level of pivot calculation will be

R3= H + 2(Pp – L )

S3= L – 2(H – Pp)

Those numbers represent how price action reacts with those projected target levels, how the numbers would break down by order, what typically occurs and how the market behave at those levels.

1. Resistance 3-This extreme bullish market condition generally created by news-driven price shocks.
2. Resistance 2-This is the bullish market price target. It generally is the high of the day.
3. Resistance 1-This mild bullish to bearish high target number. In light session such as consolidation phase this will be the highest level for the day. In the bearish market condition, price will come to this level but mostly will fall.
4. Pivot Point-This is the focus price level or the mean. It is the strongest support and resistance level. Prices normally trade above or below this number before breaking in one direction. As a guide, if price opens above pivot point, buy on the dips. If market open below this number sell on rallies.
5. Support 1-The mild to bearish number. The low target number during low volatility day or consolidation phase. Prices tend to reverse at or near the number in bullish market and most time fall short of hitting this number.
6. Support 2-The bearish target low for the day. Market often show significant support at this level in bearish market sentiment. Level to cover shorts.
7. Support 3-An extreme bearish level. At this level, prices is news driven. An oversold condition and possibility of quick price reversal scalp trade.

 Since there is no formal closing and opening range in forex, most traders prefer to use New York Bank settlement as the close at 5 pm New York Time or GMT 21:00 and assign the next day’s session open at 5:01 pm.

Some traders used the midpoint number between the resistance, supports and pivot point. The present of 13 price points to monitor is quite a hassle for some traders. Normally I just concentrate on the pivot point, resistance and supports only.

Weekly and monthly calculations should also be included in pivot analysis. For the weekly calculation I base it from the open on Monday morning and the close on Saturday morning (Malaysian time) or 22:00 GMT(Sunday) to 22:00 GMT Friday.

The monthly calculations will take the opening of the first day of the month and the close from the last day of the month.

Filtering the numbers

1.      1. Initially I take R1 and S1 for analysis

2.      2. The pivot point (Pp) can be considered as the high and low for the day

3.     3.  In bear market when the highs should be lower and the lower should be lower, I used Pp up to R1 for resistance and S2 for support target.

4.     4.  In a bull market, the highs should be higher and the low is higher, I used S1 up to Pp and R2 for resistance and support target.

5.      5. Pivot point helps determine when to enter/exit position.

6.      6. Pivot point is used to project support and resistance or actual highs and lows of trading position.

7.      7. Pivot point compliment other technical indicators in conforming support and resistance S/R

Note: watch out for prior time period that have small range i,e narrow price range of high to low. This session will project smaller range for support and resistance numbers for next time frame. Be aware of easily breaking out of the narrow range pivot points numbers. In this situation it is better off to monitor the next higher time frame numbers such as weekly and monthly. This is also true if the previous session has unusual wide range. In this situation watch the market contained between R1 and S1.

There is another method to determine the next day or period price range using pivot points:

1. Bearish for next day-The market is considered bearish next day if today close is below the open i.e black candlestick, yesterday  close and today pivot point. In this case I would take tomorrow pivot point up to R1 for target high and S2 for target low.

2. Bullish for next day-For bullish sentiment, today market close should be above the open- white candlestick, yesterday close and pivot point. Than I would consider, the next day trading range from  pivot point or S1 up to a high of R2.