The Forex Chronicles

Possible Pennant Breakout for GBP/JPY Pair in October 2018

by Leave a Comment

Brexit Weighing Heavily on GBP Pairs

The GBP pairs continues to be heavily influenced by Brexit, which obviously makes them difficult to trade because one piece of positive or negative news can result in huge price movements in either direction.

Therefore if you do want to trade these pairs, it is probably best to concentrate solely on technical analysis, use strict stop losses to hopefully avoid any major wipeouts and be aware of when any Brexit negotiations or speeches are taking place.

With this in mind, one of the most interesting looking pairs right now is the GBP/JPY pair because after trending upwards for the last few months, we have seen some indecisiveness in recent weeks and a pennant has formed on the daily price chart:

GBPJPY Pennant - October 2018

Pennant Breakout?

Pennant breakouts can be very profitable to trade because many traders will spot the same pattern and will trade the subsequent breakout, and so it might be worth watching for a possible breakout on the GBP/JPY pair.

A breakout to the upside would see a resumption of the previous uptrend, and if the price could close strongly above the 150.00 level, which is a major round number and a big psychological resistance level, there is the potential for the price to move higher and test the next resistance level at 154.00, which is a previous high from April.

A breakout to the downside would see a resumption of the long-term downward trend that has been present throughout 2018, and we could potentially see a much stronger price move.

Using fibonacci retracement levels as a guide, a 50% retracement of the previous upward trend would give a price target of 144.81, whilst a 61.8% or 100% retracement would give price targets of 143.65 and 140.00 respectively.

Alternatively, another popular strategy to use when trading pennant breakouts is to derive your target prices from the width of the pennant (from the high to the low).

So regardless of the direction of the breakout, your exit price would be equivalent to the width of the pennant, which in this case is around 315 points, or 2 x the width of the pennant if you are confident of a big move, which would be around 630 points.

Final Thoughts

As always, I am not recommending any trades or offering any signals. These are just my own personal thoughts and opinions.

I just want to highlight a pennant that has formed on the GBP/JPY pair and discuss pennant breakouts in general because these can be very profitable when you get the right set-up.

Furthermore, although not all of these subsequent breakouts turn out to be profitable, there is the potential for a big price move in this instance because any major Brexit news could be the catalyst that causes the price to break strongly out of its narrow trading range.

Is Forex Trading Being Overshadowed by Cryptos and Cannabis?

by Leave a Comment

Popularity of Cryptocurrencies in 2017

Bitcoin, Ethereum, Litecoin, Ripple and many other cryptocurrencies really exploded in popularity in 2017 as the price of these instruments continued to rocket higher and higher, making thousands of people extremely rich in the process.

In some respects it was a new gold rush because many ordinary people started taking an interest in these cryptocurrencies and buying a few Bitcoins to grab a slice of the pie.

However, as expected, the price of Bitcoin and other markets couldn’t keep on going up forever, and eventually there was a huge price drop across the board, which has left many people nursing some heavy losses and praying for a recovery.

Despite these price falls, these cryptocurrencies are still very popular with speculators and traders, and are still be talked about on financial blogs, websites and TV channels on a daily basis.

Cannabis Stocks and ETFs

With the legalisation of cannabis in Canada, and a potential relaxation of laws in other countries around the world, there has also been a huge rush to buy shares in companies that are involved in the cannabis industry.

ETFs have been set up that invest in a selection of companies in this growing sector so that individuals can get a broad exposure to this industry without having to select individual companies, and the price of these ETFs has really rocketed higher in the last few months.

Two of the most popular ones are the Horizons Medical Marijuana Life Sciences ETF (HMMJ) and the ETFMG Alternative Harvest ETF (MJ), and you can see from their respective charts below that they have both risen by more than 50% since August:

Horizons Medical Marijuana Life Sciences ETF

ETFMG Alternative Harvest ETF

As a result of these price moves and the increased media coverage, more and more traders and investors are taking in interest in these cannabis stocks and ETFs because of the enormous potential to make future profits from the opening up of this industry.

Indeed as interest in cryptocurrencies has started to wane in 2018 with less volatility and fewer wild price swings, it is the cannabis / marijuana stocks that have become the ‘next big thing’ this year.

Implications for the Forex Trading Industry

I think it is fair to say that forex trading has definitely been overshadowed by both cryptocurrencies and cannabis stocks in the last couple of years.

While it is true that there will always be a large forex industry with many participants from all over the world, there is no doubt that traders are increasingly looking to these alternative markets in the belief that they can potentially generate more profits in the long run.

Subsequently, forex brokers are desperately looking to capitalise on these trends and compensate for any reduction in forex trading activity by their traders.

Therefore you will see that many brokers now offer trading on Bitcoin and a few other cryptocurrencies in the form of CFDs, and have created a range of banners and promotional material that is designed to attract these cryptocurrency traders.

Similarly, I am also seeing a range of banners for cannabis ETFs from brokers who provide the option to buy or trade these markets.

So, if anything, the clever brokers are actually benefiting from the growing popularity of cannabis stocks and cryptos, even if their forex trading profits have flat-lined or are growing at a slower rate.

It is also good news if you are an individual trader because you now have more markets to potentially make money from with the ability to trade these cannabis stocks and ETFs, and more opportunities to benefit from the price volatility of cryptocurrencies because you can take long and short positions, and don’t actually have to buy the cryptos directly.

EUR/USD Analysis – The Power of Pin Bars and Inside Bars

by Leave a Comment

Introduction

The EUR/USD pair traded in a sideways trading range for much of the summer, but suddenly burst into life in August when the price broke out to the downside.

It eventually found support at 1.1300 and came back into the previous trading range, before heading higher to touch the 200-day exponential moving average, which would have been an obvious exit point for many traders who had opened long positions prior to this.

This key moving average then acted as resistance and the price broke below the trendline that indicated the upward trend in August and September, and has continued drifting lower ever since.

EURUSD Price Chart - October 2018

Importance of Pin Bars, Inside Bars, Trendlines and EMA (200)

The real point that I wanted to get across in this article is that if you combine some of the most trusted candlestick patterns with trendlines and key areas of support and resistance, you can get some very powerful trading signals.

That’s exactly what we had with this pair because if you look at the daily price chart of the EUR/USD pair above, you can see all of these things combined to form a powerful reversal signal, and a clear signal to go short.

First of all, the price hit the EMA (200), and if you look at the subsequent price action, you can see that the price struggled to close above this key level.

Secondly, you can see that there was a clear pin bar where the price opened below the EMA (200) and surged higher above 1.1800 during the day’s session, but lacked momentum and dropped back to around its opening price, which was another key signal.

Thirdly, in the few days after this pin bar had formed, the two daily candles traded within the range of the pin bar and both had small bodies, which again indicated a reluctance to take the price higher.

Finally, the price broke below the range of the pin bar (which would have been the perfect time to open a short position), and if you were late to the party, you would have seen that this pair closed below the trendline, which would have given you another good opportunity to open a short position.

The price is now back at around the 1.1500 level. So even if you had entered late, you could have banked up to 170 points so far, which is obviously an excellent return.

Closing Comments

The point is that pin bars, inside bars, key resistance levels and breaks of trendlines are all powerful reversal signals all by themselves, but when they all combine to give the same signal, you end up with a really high probability set-up that is much more likely to be successful.

So it is always worth scanning through the various forex pairs to look for these ultra-strong signals because although they don’t necessarily occur that often, they can be very profitable when they do.

USD/JPY Soars To 114 After Breakout

by Leave a Comment

Trading Price Breakouts

If you are new to forex trading, one of the easiest ways to get started is to simply concentrate on trading price breakouts.

The key here is to find currency pairs that are trading sideways in a narrow trading range on the daily chart, draw trendlines connecting the highs and the lows, and wait for the price to close outside of this range with strong momentum.

In an ideal scenario, you also want to see a series of short, mid and long-term exponential moving averages (I use the 20, 50, 100 and 200-period EMAs) all trading close together because this indicates a period of consolidation and indecisiveness, and is a common pattern that you will often see before a strong breakout.

USD/JPY Breakout

If you visit this site regularly, you will know that I will often highlight some of the most promising set-ups, and a few weeks ago I highlighted the potential for the USD/JPY to break out of its current trading range.

This was because it continued to trade within an ever decreasing sideways trading range with little volatility or momentum, and all the EMAs were tightly squeezed together in readiness for a potential breakout.

So as a result of these favorable trading criteria, I said that there was a real chance that we would see a decent breakout if the price breaks through the upper or lower trendline (at around 112 or 110 respectively), and as it turned out, it was the upper trendline that was breached.

USD/JPY Breakout Before and After Results

Here is the pre-breakout chart of the USD/JPY pair….

USDJPY Price Chart - 10 September 2018

….and this is what subsequently happened….

USDJPY Breakout - September 2018

As you can see, the price of the USD/JPY has hit 114 after breaking out of its previous sideways trading range, giving a total profit of around 200 points so far.

Final Thoughts

Of course everyone will trade these breakouts differently. Some traders may look for even more profits, possibly equivalent to two or three times the width of the trading range, for example, while others will scale out of their positions in two stages or will have much smaller profit targets than 200 points.

The point I want to get across is that these price breakouts can be very profitable, and although you do occasionally get a few false breakouts (including a few that I have highlighted in previous articles), the profitable ones will often compensate for the losing ones in the long run if you use strict stop losses and maximize your earning potential with realistic profit targets.

If you want to see a live example of a price breakout, you might want to check out the daily gold chart because this is threatening to break lower and breach its support level, as first pointed out here.

Bitcoin’s Peaks Are Getting Lower – Needs To Break Above $7000

by Leave a Comment

Bitcoin Predictions

It is always interesting to keep an eye on the price of Bitcoin because in the past we have seen some crazy price swings.

Indeed there was a time when it rocketed up to around the $20,000 level and so-called experts were throwing out outlandish price targets.

For example, venture capitalist Tim Draper set a price target of $250,000 and John Pfeffer (a partner of Pfeffer Capital) set a price target of $700,000, while the controversial figure John McAfee suggested that the price of Bitcoin could even hit $1,000,000 by 2020.

Maybe these predictions will come true in the future, but at the moment they seem absolutely crazy based on the recent price action.

Bitcoin’s Recent Price Action

The chart below shows how the price of Bitcoin has moved since April, and it is clear to see that there has been a steady decline downwards.

Bitcoin Chart - September 2018

There have been times when the price has surged higher, but nevertheless the highs have been getting lower and lower, and just recently the price seems to have been stuck in a sideways trading range between around $5800 and $6600, with no real momentum to take it higher.

This week we have seen a little more strength with the price now trading at $6776 at the time of writing, but it is still far too early to call this a bull run.

Upward Price Breakout / Trading Opportunity

If I was looking to trade a possible breakout, I would look for two events to occur.

First of all, I would want the price to close above its most recent September highs ($6774) because this would push the price above the most recent trendline and potentially signal a short-term breakout.

Secondly, I would want to see the longer term trendline being broken because this would show significant strength, and may possibly bring a wave of new buying because it would encourage traders and investors to buy into this upward price breakout.

For these two things to happen, the price of Bitcoin is going to need to break through the $7000 level, and possibly as high as $7200 or $7300 (depending on when it occurs). However this is still quite a big ask because the price has been trading in the $6000s for quite some time now, so there is obviously a chance that it won’t happen at all.

There will be a breakout at some point, but it could easily be a downward breakout below $5800 if this latest breakout attempt fails to materialise.

Please note that these are just my own thought and opinions. I am not providing any trading advice or recommending any trades. Bitcoin trading is exceptionally risky and you should always be aware of these risks before entering any trades.