The Forex Chronicles

Bearish Signals For US Stock Markets – October 2018

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Previous Price Action

I think many traders were shocked by the severity of the mini-crash that occurred recently on the US stock markets because it seemed to come out of nowhere, even though many traders and investors have been expecting some kind of pull-back for quite a while now.

Since then there hasn’t really been a continuation of the sell-off because the price seems to have consolidated around the 200-day exponential moving average of both the S&P 500 and the Dow Jones.

However after a brief reversal, it is clear that there is not enough momentum to take it back to its previous highs, and worse still, the price action of the previous two trading sessions paints a bleak picture.

On both occasions the price traded a lot higher during the day, but ended up falling back and closing close to its opening price, which is a very bearish sign.

Furthermore, the futures prices of both of these markets are currently suggesting that the price is set to open a lot lower later today.

S&P 500 Price Weakness - October 2018

Dow Jones Price Weakness - October 2018

Future Direction

It is generally a bad idea to make predictions, particularly if you are backing your predictions with your own money, but the signs are not good if you are hoping for a recovery.

The two bearish pin bars and what is looking like a significantly lower opening later today is going to take the price further away from the EMA (200), and we have already seen the EMA (20) cross below the EMA (50), which is obviously another bearish signal.

I think the key thing to look for here is to see if the price can break below the previous lows on both the S&P 500 and the Dow Jones, which currently stand at 2709 and 24896 respectively.

If this happens, and the price actually closes below these lows, then there is a high probability that the price will go a lot lower.

Even if the price consolidates below the EMA (200) in the next few trading sessions, there is the potential for the dreaded death cross to occur, where the EMA (50) crosses below the EMA (200).

This would attract a lot of headlines in the financial media, and would almost become self-fulfulling because these negative headlines by themselves often encourage people to sell their shares and force the markets lower.

So while there is always the possibility of a consolidation or even a reversal, the markets are looking very weak right now, and if the price breaks below the recent lows, there could be a much bigger sell-off.

Possible Breakout on the EUR/JPY Pair – October 2018

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Breakout Criteria

There are various factors that I will consider when looking for potential breakout trades, but one of my favorite patterns is when you get a combination of a moving average cluster and a sideways trading range.

In other words, I like to see the 20, 50, 100 and 200-period exponential moving averages all trading close together because this indicates a period of consolidation and indecision, and is often the pre-cursor to a big breakout.

Similarly, I like to see the price trading in a consistent trading range close to these moving averages because this makes it easier to detect a breakout, and gives you a natural entry point because you just enter a long position when the price closes above this range or a short position when the price closes below this range.

I have just found that both of these criteria are present on the daily chart of the EUR/JPY pair, so this could potentially develop into a good trading opportunity:

EURJPY Potential Breakout - October 2018

Trading Opportunity

What I like about this set-up is that the trading range is currently very narrow, which is always a good thing because you can potentially make more profits, and can make your stop losses smaller if you place them just outside this range.

The only real danger is that you sometimes get a few false breakouts before the big one, which could happen here, but there is still the potential for the price to move at least 200 points in either direction.

A breakout to the upside could see the price retest its highs from last month at around 133.00, with 132.00 as a first target and potentially a price to close half the position and move the stop loss up to break-even.

A breakout to the downside, meanwhile, would see 128.00 as the first target because this was a recent support level, and if the price breaks through this level, then 126.00 could easily be attained.

It should always be pointed out that breakouts are not always profitable because you sometimes get false moves, and I am not certainly not recommending any trades. These are just my own thoughts and opinions.

The key to success with any strategy is to keep your losing trades small, and let your winning trades run, and this applies to breakout strategies as well.

Possible Pennant Breakout for GBP/JPY Pair in October 2018

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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.

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

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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.

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

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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.