Forex forecast: MACD indicator is in the negative area for the pair AUD/USD however it started to go up, giving grounds for a pair buy signal. Stochastic Oscillator is giving a similar signal today, being in the neutral zone.

Forex recommendations: considering that bullish sentiments for the pair will probably intensify, and in case of breakdown at the level of 0.9830, buyers’ targets today will be the levels of 0.9860 and 0.9900.

The following Australian data was released today:
– Volume of complete construction in QIII declined by 2.1% against the growth forecast by 2.0%;
– Leading indicators index CB decreased by 0.1% in September against +0.2% in August.

In general, statistics today did not give rise to optimism. Current growth was caused entirely by the markets participants’ belief that the last events in Ireland and South Korea do not annul global economy recovery.

Chief newsmaker for Australia is China – the country has increased the level of reserve requirements for the banks for the fifth time this year, which suggests that the Celestial Empire intends to raise the level of the interest rate in the future. This is a negative signal for Australia and AUD.
According to the average forecast of economists and analytics the RBA is unlikely to raise interest rate before QIV of 2011. Current level of the interest rate is 4.75% per annum. The Australian Minister of Finance updated its budget forecast this week. Thus, GDP in 2011 is expected to be at the level of 3.5% (growth), in 2012 – 3.75% (unchanged). Net debt will amount to 6.4% by 2012. As for the employment sector- unemployment rate is expected to be at the level of 4.75% in 2011 and at the level of 4.5% in 2012.

Forex forecast: MACD indicator is in the negative area for the pair USD/JPY and it goes down which gives a pair sell signal. Stochastic Oscillator is giving a pair buy signal today, being in the neutral zone.

Forex recommendations: off the market.

Feasible event scenario at Forex: in case of breakdown at the level of 83.30 the pair will go to 83.50 and 83.95. If the level of 82.80 is exceeded, traders’ targets will be the levels of 82.50 and 82.10.

Markets in Japan were closed yesterday due to the holiday in the country.

The Bank of Japan maintained interest rate in the target range of 0-0.1% per annum; at the last meeting the Bank of Japan  announced the purchase of the mortgage investment trusts with the rating not lower than AA. As was noted earlier in accordance with the Bank of Japan expectations, domestic economy will revert to the moderate growth path in 2011; while average forecast of basic inflation amounts to 0.4% so far. Average forecast of the real level of GDP for the next fiscal year is at the level of +2.1% against the forecast of 2.6% in June. The head of the Bank Mr. Chirakawa noted that they will carry out monetary policy easing more actively than it was before, as the economy follows the way of development.

Japanese Finance Minister Mr. Noda stressed earlier that authorities intend to take decisive measures when required and if the Yen starts to grow rapidly. He also noted that the Bank of Japan shall provide full support to the country’s economy.

Noda also expressed hope that consumer prices in Japan will begin to grow in the new fiscal year which starts in April 2012. In general, the situation in Japanese economy remains unchanged, since attention of the monetary authorities is focused on the anti-deflation move and on the support to economy.

The EURUSD made another indecisive weekly movement this week, formed a Doji on weekly chart. On daily chart below we can see that the pair still trapped in range area of 1.4405 – 1.4180. We need a break from the range area to have a clearer view whether we will have bullish continuation or a bearish reversal scenario. Here are three potential scenarios for the upcoming week:

Bullish continuation scenario: If we have a breakout above 1.4405/46, that would be a bullish continuation scenario confirmation, targeting 1.4719 area (December 18 high).

Bearish reversal scenario: If we have a break below 1.4180 and trendline support (blue), that would be a bearish reversal scenario confirmation targeting 1.3750 area.

Range Trading: Even after some important economic data from the Euro zone and US, the pair still trapped in the range area. In my opinion, with the lack of significant economic data from the Euro zone next week, it is more likely that the pair still trapped in the range area. So, the best trading strategy in range market is to buy near the lower line/support (1.4180) or to sell near the upper line/resistance (1.4405/46) with a very tight stop loss.

USDCHF Forecast
The USDCHF made indecisive movement yesterday. The pair attempted to push lower, bottomed at 1.0544 but further bearish scenario was rejected as the pair whipsawed to the upside and closed higher at 1.0617. On h4 chart below we can see that the pair still trapped in a range area between 1.0715 – 1.0540. In this kind of market, my favourite trading set up is to buy around 1.0540 or to sell around 1.0715 with a very tight stop loss. A break from the range area should give us a clearer direction.

Sell Limit @ 1.3000  SL 1.3050   TP 1.2700

GBP/USD

Sell Limit @1.4280  SL 1.4380  TP 1.3500

But first we look an the EUR / USD 1.2600 handle level, which could be tested this week. Based on the quite overbought condition of the USD, we do not anticipate much more strength for the USD today, rather a consolidation between ranges defined below. There are no scheduled market-moving fundamental data today

by George Clement

Intraday Market Outlook for Day Traders

EUR / USD
The pair recovered in early European trading, currently priced at 1.2935. We do not see yesterday’s low support point at 1.2850 being tested again, but expect some weakness first in today’s trading. Then another recovery attempt can set in, leading to resistance for today at 1.2980.

GBP / USD
Cable is in a pronounced downtrend for three days now, trading as low as 1.3750 in this European morning. Currently in a slight recovery move and at 1.3805 now, we expect some more recovery to come today, eventually testing the 1.3950 resistance level.

USD / CHF
Trading as high as 1.1507 in early European hours, the dollar has now retreated to the current 1.1410 against the Swiss franc. We see more of that down correction coming, testing the 1.1360 level, before a swing market between that price and 1.1450 will set in.

USD / JPY
Trading on today’s intermediate support, the dollar is currently priced at 89.85 against the yen. A recovery in today’s trading will meet resistance at 90.20, from where further weakness can set in, breaking the 89.80 support zone.

First Wilder defines the True range, or TR, determined as maximal of the following 3 values: absolute value of a distinction between ongoing maximum and the previous close price; absolute value of a distinction between ongoing minimum and the previous close price; distinction between an ongoing maximum and an ongoing minimum. If the distinction between a maximum and a minimum is rather little, most likely other two aforesaid methods will be used for TR calculation. If the range changes inside of the period, a distinction between a maximum and a minimum, is rather big, most probably TR will calculate from it.

Formula:

ATR = Moving Average (TR_j, n), Where TR_j = maximal modules from three values |High – Low |, |High – Closej-1 |, |Low – Closej-1 |.

The use

As a rule ATR with 14 periods is used. It’s calculated both on a one-day basis, and on day-time or week and even monthly basis. Extreme values of the indicator often define reversal points or the start of a new fluctuation.

Average True Range can’t predict a duration or direction of changes, as well as other volatility indicators. It specifies only an activity level. The indicator’s low level points out quiet trade in a little range, and high values point out intensive trade in a wide range. The long period of low ATR points out integration which, most probably, will result in fast continuation of changes or a turn.

High values of ATR usually are the result of quick fluctuations and seldom stay like this for the long period. As ATR indicates absolute volatility value currency pairs on Forex with the low prices will have with other things being equal lower ATR and on the opposite. The main notion of this indicator says “the smaller is the indicator’s value the more poor a trend direction is; the higher the indicator’s value is, the higher possibility of a turn of a trend is”.

The weaknesses

During a long period of ATR can be late, specifying not ongoing but previous inconstancy.

Range contraction setup: Many technicians have observed that big moves often emerge from quiet sideways markets. These quiet periods can be detected quite easily by comparing a short period ATR with a longer period ATR. For example if the 10 bar ATR is only .75 or less of the 50 period ATR it would indicate that the market has been unusually quiet lately. This can be a setup condition that tells us an important entry is near.

Range expansion setup: Many technicians believe that unusually high volatility means that a sustainable trend is underway. Range expansion periods are just the opposite of the range contraction periods. Range expansion periods can be measured by requiring that the 10 bar ATR be some amount greater than the 50 period ATR. For example the 10 bar ATR must be 1.25 or more times the 50 period ATR.

If you are concerned about the apparent contradiction of these two theories we could easily combine them. We could require that a period of low volatility be followed by a period of unusually high volatility before looking for our entry.

Dip or rally setup: Lets assume that we want to buy a market only after a dip or sell it only after a rally. We could tell our system to prepare for a buy entry whenever the price is 3 ATRs or more lower than it was five days ago. Our setup to sell on a rally would be that we want to sell short only when the price is 3 ATRs or more higher than it was five days ago. The choice of 3 ATRs and five days is simply an example and isn抰 necessarily a recommended choice of parameters. You will have to figure out the proper parameters on your own depending on the unique requirements of your particular system.

Entry Triggers:

Volatility Breakout: This theory assumes that a sudden large move in one direction indicates that a trend in the direction of the breakout has begun. Normally the entry rule goes something like this: Buy on a stop if the price rises 2 ATRs from yesterday’s close. Or sell short on a stop if the price declines 2 ATRs from the previous close. The general concept here is that on a normal day the price will only rise or fall 1 ATR or less from the previous close. Rising or falling 2 ATRs is an unusual occurrence and indicates that something out of the ordinary has influenced the prices to cause the breakout. The inference is that whatever caused this breakout has major importance and a new trend is beginning.

Some volatility systems operate by measuring the breakout in points rather than units of ATR. For example the system may require that the Yen must rise 250 points from the previous close to signal a breakout to the upside. Systems measuring points rather than units of ATR may need frequent reoptimization to stay in tune with current market conditions. However, breakouts measured in units of ATR should not require reoptimization because, as we previously explained, the ATR value contracts and expands with changing market conditions.

Change in direction trigger: Lets assume that we want to buy a dip in a rising market. We combine the dip or rally setup described above with an entry trigger that tells us the dip or rally may be over and the primary trend is resuming.

The series of rules might read something like this: If the close today is 2.0 ATRs greater than the 40 day moving average (this condition establishes that the long term trend is still up) and the close today is 2 ATRs or more below the close seven days ago (this condition establishes that we are presently in a dip within the uptrend) then buy tomorrow if the price rises 0.8 ATRs above todays low. This entry trigger shows that we have rallied significantly from a recent low and that the dip is probably over. As we enter the trade the prices are again moving in the direction of the major trend.

As you can see, the ATR can be a most valuable tool for designing logical entries. In our next article we will discuss using ATR in our exit strategies and give some interesting examples.

Using Average True Range for Exits

In this Bulletin we will show how ATR can help us achieve more accurateexits.

ATR EXIT TARGETS: Perhaps the most valuable of all application of ATR is to use it to define profit objectives. If we were to run some tests to define profit objective in terms of dollars we could probably find a particular dollar amount that produced acceptable results when reviewing historical data. Just as an example, let’s assume that we run some optimizations to find the best level at which to take profits in a particular market and we find that the best number is $1250. Although this amount may produce acceptable results on a historical basis it is not always the best solution to the problem.

When the market is quiet and there is little volatility our profits are likely to fall well short of our $1250 objective. However when the market is volatile and trending strongly our potential profit might be much greater than $1250. The $1250 level is simply a not so happy medium that is usually either too large a target or too small a target.

On the other hand if we measure our profit objective in terms of ATR we have a much more robust and logical solution. Lets assume that we run our tests again looking for units of ATR instead of dollars. Assume our research shows us that our best profit objective is now expressed as 4 ATRs. In a normal market 4 ATRs might be equal to $1250, the same as our dollar denominated target. However in a quiet market 4 ATRS might only be $800. The advantage of our ATR research is that while our original $1250 target is no longer obtainable because of the quiet market conditions the ATR target has adapted to the change in volatility and can still be achieved.

Increases in volatility produce an even more dramatic effect. Let\’s assume that the market is suddenly streaking in one direction because of some important news. Our 4 ATRs is now $5,000. Wouldn抰 it be a shame if our system was taking profits of $1250 when the market is willing to give us $5,000 or more.

In addition to setting profit objectives, ATR can also be very helpful in placing trailing stops. Here are two examples that you may recall from discussions on the FORUM page and past BULLETINS.

THE CHANDELIER EXIT: We have often advocated the importance of good exits and this is one of our favorites. The exit stop is placed at a multiple of average true ranges from the highest high or highest close since the entry of the trade. As the highs get higher the stop moves up but it never moves downward.

chandelier

Examples:

Exit at the highest high since entry minus 3 ATR on a stop.

Exit at the highest close since entry minus 2.5 ATR on a stop.

Application: We like the Chandelier Exit as one of our exits for trend following systems. (The name is derived from the fact that the exit is hung downward from the ceiling of a market.)

This exit is extremely effective at letting profits run in the direction of a trend while still offering some protection against a major reversal in trend. In fact our research has shown that this exit is so effective that you can enter futures markets at random and if you use this exit the results over time will be profitable. (If you don\’t believe us just try it.) When used for long term trend following the best values for the ATR in most markets ranges somewhere between 2.5 and 4.0.

THE YO YO EXIT: This exit is very similar to the Chandelier Exit except that the ATR stop is always pegged to the most recent close instead of the highest high. Since the closes move higher and lower, the stop also moves up and down (hence the Yo Yo name). Although this stop appears similar to the Chandelier Exit the logic is quite a bit different. The Yo Yo Exit is a classic volatility stop that is intended to recognize an abnormal adverse price fluctuation that occurs in one day. This abnormal volatility is often the result of a news event or some important technical reversal that is likely to signal the end of a trend. This logic makes the YO YO exit very effective and we seldom regret being stopped out whenever this exit is triggered.

We should caution you that the Yo Yo stop should never be our only loss protection because if the price moves slowly against our position the Yo Yo stop also moves away each day and, in theory, the stop may never be hit.

Combining the exits: The Yo Yo and the Chandelier exits work best when used together. The Chandelier Exit is typically set at 3 ATRs or more from a high point and never lowered; therefore it will protect us against any gradual reversal of trend. The Yo Yo exit is typically set at only 1.5 to 2.0 ATRs from the most recent close and will protect our position from unusual one day spikes in volatility. When used together the operative stop each day would be whichever of the two stops is closest.

Money Management Advice: When using any stops based on multiples of ATR we should keep in mind that volatility can quickly expand to where our risk is greater than we intended. We do not want to unknowingly exceed the risk limitations dictated by our money management scheme so we should also have a \”worst case\” dollar based stop available or be prepared to reduce our position size quickly as the ATR values expand. When should we reduce our position size and when should we implement our fixed dollar stop?

If we are on the right side of the volatility expansion it may not be wise to reduce our position size just as the trade is beginning to do what we hoped for. For this reason I prefer to implement the dollar based stop on profitable positions rather than reducing the size of winning positions prematurely. We obviously want to have big positions in our winners and small positions in our losers. Therefore it would make sense to reduce our position size only if the volatility is increasing in a trade that is going against us. Once extremely large profits have been achieved, positions can safely be reduced without sacrificing too much in the way of potential profits.

By now we hope you have begun to appreciate the value of ATR in designing systems. There are still more uses for ATR that we have yet to discuss (Keltner Bands for example). We hope to have additional articles about ATR sometime in the future. In the meantime we hope this series of articles has stimulated some creative thinking about the many uses of ATR. Lets us know if you come up with more creative ideas on how to apply this wonderful technical tool.

Today we’re going to talk about the support and resistance level.
It is essential to be able to see the support and resistance level
because you can find a pivot point and make a nice short term profit.

A support is a virtual barrier that prevents the price from falling.

A resistances is a virtual barrier that prevents the price from
increasing.

If the price of the currency breaks the support, than the support
price becomes the resistance. The same is true of the resistance is
broken, than the resistance becomes the support. That is a little
confusing, but read it over a few times.

Look at this image to get a visual look.

The best thing you can do is take a look at a candlestick chart and
draw lines from each pivot point for both the support and
resistance. You’ll notice that some lines end up touching more
pivot points than others. The ones that have more touching are the
ones with high competition between buyers and sellers. All that
means is that buyers and sellers are testing the ground out and no
one has won yet.

Here is an image of my lines on a graph.

The highs for the day and the lows for the day are considered the
strong resistance and support levels. You can look at the previous
days levels to get a general idea where it will be today. If things
are calm, everything should remain relatively the same

You can also look at the long term graphs to get a much better idea
if the currency has been increasing or decreasing. With that
information you can slightly adjust your levels.

I thought today I could get into a little more about the best forex trading signals. This is probably the most important things you need to learn after you get the basics down. You need to able to look at a graph and go “hey, that currency will probably go up, I should buy.”

All the signals I give here will come from candlestick graphs. I like these the best since they have the best information on it. If you’re unfamiliar with these types of graphs, you’re to notice rectangular boxes with vertical lines coming out the top and/or bottom known as the shadow. Each rectangle will be green (gone up in trading) or red (gone down in trading).