OKE FOREX: gbp/aud

Showing posts with label gbp/aud. Show all posts

Tuesday, 7 May 2013

Forex news trading: BOA rate decision

Fundamental events always cause a lot of volatility in foreign exchange markets. Interest rate decision events are above the rest as they are key currency drivers both short and long term. Markets often stall and fall into ranges days before these key releases and right after they come out huge moves start. Be aware of that. Of course, general public might be wrong regarding interpretations of these pieces of news, so it is crucial to follow smart money and not be led by emotions of greed and fear. Anyway, if you know how to take advantage of the news trading you can make nice cash in the long term. Let us look at how you could have traded BOA (Bank of Australia) rate decision today and try to speculate whether it will have long term impact or not.

Since I have moderated my trading news method slightly I did not trade the event. I did expect Australian dollar to rise after the release, but the Central Bank of Australia decided to surprise traders by cutting interest rates. Technically, yes you could see strong demand for British Pound, Euro and other currencies and strong supply of aussie all along. I guess that was the sign for technical traders that smart money knew what the BOA is up to and were buying into the event.

Although, I did not trade the event I want to quickly show you how you could have taken a trade (or trades) in gbp/aud and eur/aud made nice profits. I like these aussie crosses most as they are the most volatile and travel biggest distances when the breaks happen and big moves start. So, let us see how you could have taken a breakout trade in these two pairs.

First, eur/aud. Just before the news the pair was fluctuating in a small range of 1.2744-1.2777. This gave us an area for entry and exit. For a buy you would have placed a buy stop order a few pips above 1.2777 level with a stop below the range of 1.2744 (possibly 1.2740). That would be a stop of forty pips. You should have also placed a take profit target at previous high of 1.2885. I like exiting at previous highs when I buy and previous lows when I sell. So, the news came out and market exploded upwards and reached the target in 7 hours. A little bit over 100 pips of profit! I would say that is a very good risk reward ratio!

Now, if you wanted to place a sell order just before the news came you simply had to reverse the above mentioned order. You had to place a sell stop below 1.2744 level and stop loss order above 1.2777 level. Then define a take profit target that would have been around 1.2600 level, possibly a little bit higher (1.2610 as I like exiting ten pips before even number). Since the market went up you simply had to remove your sell stop when your buy order was opened and concentrate on your long trade.

Let us look at how you possibly could have traded gbp/aud pair during the event. Just before the news (3 hours) the pair was fluctuating in a range of 1.5189-1.5161. It means you should have placed a buy stop above the high of the range (1.5189) with a stop loss below the low of the range (1.5161). What about an exit? One way was to exit at previous high (1.5233). Another one was to exit at mid-point number of 1.5250. Of course, you could still keep the trade, but as you may see you would have lost most of your profit by now.

What if you wanted to place a sell order? Just reverse the process. Your sell stop order should have been at 1.5161 (a few pips below it) and your stop had to be a few pips above the high of the range at 1.5189 (possibly 1.5195). The most logical place to exit your trade would have been at an even number of 1.5100 (ten pips above that). When you saw that the news was bearish for aussie and your buy stop was triggered you simply had to remove the sell order and ride upwards with the market.

Looking at the price action now you can also see that these kind of trades can have very short term impact and market may reverse in a few hours, possibly in a few minutes. However, I still find news trading a good way to make extra money with my swing trading strategies.

Ok, I will finish on this happy note. Be sure to read related articles to learn more on my news trading method. I promise to expand on this in my future posts.

I hope you benefited from the post. If you liked the post I would also be happy if you gave a plus on Google+, tweeted, liked it on Facebook and other social platforms. Have a nice day.

Vytas.

If you want to see and experience what real investing in financial markets such as Forex, stocks and commodities is all about I recommend trying innovative social investment platform of Etoro. Initial deposits are as low as a few hundred bucks. The best dealer I have heard of so far!

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Wednesday, 7 November 2012

eur/aud and gbp/aud outlook and technical analysis

Today I want to concentrate on Forex crosses eur/aud and gbp/aud and share with you my expectations about upcoming tendency in the pairs and possible targets. I enjoy trading any security that trends whether it some currency pair, a stock or gold. I like repeating the phrase of Jesse Livermore that �big money is in big moves�. More often than not you do not even have to be concerned about your entry level as the tendency pushes the security in the direction of the move quite soon and even if you entered the market at the wrong time you will be in profit sooner rather than later. What you need to think more is your position sizing and where to place your stop. You want to maximize your profits and minimize your risks. This is how you manage to make money even if you were late to jump on the first wagon of an upcoming train.

Ok. Let us talk now about eur/aud and gbp/aud pairs. If you have been reading my posts you probably know my opinion about trends in various pairs. Do your own analysis and you will see that when some currency is very strong it usually is strong against all the other currencies. Your task is to find out the strongest currency and trade it against the weakest one. As of now, Australian dollar seems to be the strongest. You may notice that Australian dollar was in a downtrend from the middle of August (this year) against Euro and Pound. They performed best against the Aussie. However, you should also remember that those that were the strongest become the weakest when a trend changes and the weakest also become the strongest.

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As I look at my charts I see that the shift has taken place and aussie is doing very well, especially against European currencies. It is not that powerful against US dollar and Yen as these have also recently been weaklings, but will gain strength pretty soon. Now what makes me think that eur/aud and gbp/aud are going to go sharply down? I have both fundamental and technical reasons for that. Let me start from the technical ones.

If you look at longer term charts you will clearly see that both eur/aud and gbp/aud are in long term downtrends. It means that when you see the pairs rallying up these are corrections, not a significant change in trend. You can also see that both pairs end up lower from previous peaks that were reached during previous rallies against a major aussie up trend. Whenever you see a pair (that has been in a downtrend) doing a rally and approaching to its� previous rally peak you should follow price action. Is the previous peak going to be reached? In most cases it is not and you can start playing from the short side.

While being in a counter trend rally a pair usually forms a breakout zone which becomes an entry level for us to play from the short side when that particular pair gets back to its� main trend again. At some point, while going against a trend a pair experiences sharp reversal days 3-7 days and then continues rallying against a major trend. The area where it stops and continues its rally against the prevailing trend becomes our entry level (if you are a breakout trader). If you look at eur/aud pair you will see that our entry zone for going short is around 1.2325 area. This is the place where the pair continued its� move against a major trend after some days of retracing.

You should remember that this is purely technical stuff and this area should not be applied without fundamental stuff. Now, if you do remember my previous posts you know that interest rate decisions are key fundamental events that sets currencies going and major turnarounds happen when those economic events happen. If you look at economic calendar you will see that on the 6^th of November BOA (bank of Australia) released its� interest rate decision. Contrary to expectations of economists and analysts the Bank did not cut interest rates but left them at the same level (3.25), which is very positive for Aussie. And for us currency traders who long Aussie and earn interest on our long positions.

So, if you look at the chart you will see that at the moment of the release eur/aud was at the very technical level I have already mentioned in the post. The news was released and the pair banged through the level. The same thing happened to gbp/aud pair. I must admit that we have missed some of the move, but you can never catch all of it and should be glad to jump into a move when it is at the strongest. There are some events scheduled that could impact prices for the time being, but in my opinion the direction of the above mentioned pairs is clear � downwards. Tomorrow is a big day: BOE and ECB interest rates decisions. However, having in mind poor results from Europe today and average last week we may assume that ECB will surprise investors. The same will probably be true with BOE. So, my best speculation regarding the direction of the pairs is down.

I likewise believe that there will be some days when the pairs will try to resist the main trend and start rallying. This will present us with more opportunities to add to our shorts and increase our profits. Unemployment data from Australia later in the day can also impact prices very much. It can also be another opportunity to short the above mentioned pairs again. The biggest events are tomorrow. So, be patient.

As you may understand tomorrow announcements will have deep impact on other Euro and Pound pairs: eur/jpy, eur/usd, gbp/jpy, gbp/usd, eur/gbp. I am mostly bearish on Euro and looking for eur/usd and eur/jpy to depreciate a lot. However, this is not the topic of the post.

I believe I will finish now and you will be able to judge for yourselves about my predictions regarding eur/aud and gbp/aud pairs. I expect gbp/aud to go to 1.4800 level and eur/aud 1.1700. If you intend to implement some trades on your own always forget to place a stop loss and let it not be bigger than 2-5 percent of your equity. And do not forget your profits run. Trends do start and they make us investors rich!

Good luck in trading.

If you liked the post I would also be happy if you gave a plus on Google+, tweeted, liked it on Facebook and other social platforms. Have a nice day.

Vytas.

If you want to see and experience what real investing in financial markets such as Forex, stocks and commodities is all about I recommend trying innovative social investment platform of Etoro. Initial deposits are as low as a few hundred bucks. The best dealer I have heard of so far!
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Disclaimer

Tuesday, 4 September 2012

Spotting how market trends change

A few weeks ago I wrote a post on best Forex trading system. I see that it is quite popular and I get positive responses about it. I want to continue on the topic and today share a small expansion of the system by adding a few points to the system. I will go through a few examples showing how important market trends changes happen at critical support and resistance areas driven by a Central Bank interest rate decision. By Central Bank I mean any bank, not just FED. In a matter of a few months I will write a post about important changes of trends in individual stocks. The principle will be the same, the economic news will be different. So, this is the second article on the aspect of my trading system. At the time of writing I feel that I will have to write one more on the subject (besides the one about stocks).

So, I am a swing trader that tries to find key resistance and support points and trade them around various fundamental news events: mostly around interest rate decision announcements. If you study currency pairs you will notice that key reversals happen both at those technical levels and at times when this particular piece of news is released. I think it is best to teach by example so let us look at gbp/aud chart and see a few market turns that happened after the above mentioned piece of news was released.

Here is the chart

Now, in the chart I deal with the time period from February 2012 till August (2012). As you may see there were three important releases regarding interest rates in Australia and all of them occurred near important support and resistance levels. They also caused markets to turn around and start a new trend: from bearish to bullish, from bullish to bearish and the last one (August) from bearish to bullish.

In this period these market trend moves would last around two months. There would be an additional news release in between the main ones, but as these would happen at not so important technical areas they would not cause major turn arounds of swings in the gbp/aud pair.

If you did your own analysis you would see how many more major turns happened at important support and resistance levels backed up by interest rate decision (and minutes) releases from BOA. It isn�t always the case, but most often than not it is and since this is a tendency, not some occasional event you should look seriously at the confluence of technical levels and fundamental news releases while trading as they will present huge opportunities for you.

Trade tendencies, not exceptions and you will dramatically increase your chances to make profits on a regular basis.

So, how do you trade these reversals? Let us look at the first example.

Well, first of all you buy at support and sell at resistance. That is clear for most. But where do we enter? Let us scroll to 4 hour charts and look more closely. The first example covers time period from the 17^th of January to 14^th of March 2012 (when a reversal upwards finally occurs). Before the period the pair was in a downtrend and during the above mentioned period the security was forming a bottom and getting ready for an upward move. When you see that happening you need to wait for an upward thrust that would form a breakout point for the coming future. This happened on the 24^thof January. The pair then continued going down for some time doing more and more horizontal work. It then started showing some bullish power as higher highs and higher lows were formed.

And finally it reached the breakout zone of 1.5000 and within a matter of week managed to break it and go higher. So, your first long position should have been above the 1.5000 area with your initial stop at 1.4770 level. It may seem too big at the time, but having in mind that you move your stops while swing trading, it is not big at all.

You can also start buying the pair on dips even before the breakout occurs, but I will not go into the subject now. I also do not want to go into details regarding opening new positions as I expect to cover the topic in one of my upcoming posts.

Look at the second chart now.

You see how the bullish move that started on the 14^th of March came to an end after about two months. The pair ranged from 15^th of May till the 5^th of June (the time interest rate decision from BOA was released) and then collapsed. A nice indication about an upcoming reversal were two nice peaks at the same level (double top)! It was formed quite close to previous three peaks formed at 11-08-2011, 04-10-2011 and 23-11-2011 (check your daily charts). Now, as you may see reversal did not take much time this time. It is quite often the case with bears. There is a saying that bears destroy in a month what bulls have created in 3. Bearish reversals are often faster, ranges at tops shorter. Why? This is in the nature of humans to be pessimistic and when this negativity prevails prices often collapse very fast. Just remember the crisis of 2008. Markets were crazy. Everybody lost faith in securities.

Ok, coming back to the chart. I see 1.5800 level as key support that had to be broken in order for us to enter our short orders to get into a reversal trade. I try to round up numbers. The area could be 1.5840-1.5775. Breach of the level would have been your first short order. The rest (adding to your position) will be discussed in my future posts.

Look at the third chart now:

This time bullish reversal took place very fast. You see the resistance line as the level to enter a breakout trade. In fact, news came out about a week before the breakout occurred. So, you could have taken a �pilot trade� upwards much earlier. However, I like placing my first trade at the breakout of resistance (or support if reversal is downwards). You can form your own rules about it.

When you start seeing these higher highs and higher lows, plus upcoming news (or news has come out) you get ready for a reversal. It did occur on the 16th of August and the trend has been upwards from this time up to now. (We had rate decisions previous night from BOA). In my opinion the pair is not at the crucial resistance yet. It starts around 1.5840 area (previous support now resistance). It may mean that we could have another bullish month, which will probably not be as strong as the first one, because the distance to the key resistance is very small. Plus we have interest rate decisions coming from European countries and Canada this week. So, we will see how it goes.

I hope you understand how to trade the confluence of important support and resistance levels with interest rate decisions now.

Final thoughts

There are certain tendencies that are present in any market. One has to study and find them and then build one�s trading strategy around them. Let us be smart and not run after exceptions, but follow general rules and tendencies. This article covered a few aspects of trading currencies. I will go on to talk about other securities in my future posts. Have a nice day.

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