Take Nothing But Long in an Uptrend and Nothing But Short in a Downtrend

After several days I have started publishing the reports again. Although you were not happy with my absence but I have a lot of new things for you. I will analyze more currency pairs and my analysis will cover smaller time frames like 4 hours. This is much better for those who are more interested in intra-day trading.

As it is possible that I can not check all the currency pairs every night, first I will start with the four main currency pairs (GBP/USD, EUR/USD, USD/CHF and USD/JPY). Then I will focus on some other currency pairs that are more popular like GBP/JPY, EUR/JPY, USD/CAD, AUS/USD and GBP/CAD.

Then if I had enough time I will check all other currency pairs. I try to do my best to cover all the currency pairs every night. I hope I can do that. Of course I check them all for my own trades but reporting them needs more time that I don’t have sometimes.

You may ask why I check so many currency pairs. There are two important reasons.

First, most of these currency pairs are related to each other. They move to the same direction or to the opposite directions. For example EUR/USD and USD/CHF move against each other. When one of them goes down the other one goes up. So if after analysis you came to this conclusion that both of these currency pairs go up, it means your analysis is wrong and you have to do it again or at least wait and do not enter to any trade.

In many cases, you can not see any good signal in one of these currency pairs but the other one shows you a good signal. So you will know the direction of the one that doesn’t show any clear and sharp signal through the signal that the other one shows.

Secondly, sometimes you can not find any signal in any of the four main currency pairs and many others. You will have two options then: wait for a signal and not to enter to any trade as long as you have not found any signal or you may force yourself to enter to a trade while there is no significant signal. In the first case you will not make any money and in the second case you may lose money.

But there is another option: Checking other currency pairs and finding a good signal in them.

I have seen many traders who trade only one currency pair. I personally do not fall in love with any currency pair. I trade any of them that show a good signal.

Tip of the day:

Take Nothing But Long in an Uptrend and Nothing But Short in a Downtrend!

Most traders, including me, like to trade against the market. Why?

There is a psychological reason for that. When you see the price is going up and has been going up for a while, you think that it will not go higher. Your brain can not accept that the price goes higher because it has already been going up for a long time. You take a short position as soon as you see some bearish signals whereas after a while the market will keep on going up and your stop loss will be triggered. This is called trading by the emotions which is wrong in most cases.

You have to control your emotions and tell yourself that:

It has been going up strongly. Bulls are buying like crazy. Will all of them stop buying and start selling suddenly? Definitely not. Some of them will do that but most of them will keep their positions and will even add to it.

So what should I do now? I have two options: 1. Waiting and 2. Going long

You can go long but if you are late and it has been going up for a long time, you should wait until the price goes down and then starts going up and breaks the level that it had started to go down from it. If this happens, it means the price will keep on going up.

If you trade against the market, you have to have a tight stop loss and close the trade as soon as it reaches your buy/sell price. You can close such a trade without any loss if you act on time otherwise you will have to close it when you have lost a lot.

Fundamentals:

Coming!

Ok! Let’s analyze the currencies.

1. British Pound against US Dollar (GBP-USD)

Let’s take a look at the big picture first.

It has been going up since many years ago. That was because of the USD weakness that mostly happened after 11 September and Iraq war. Of course USD value was going down before these events but they intensified the US dollar crisis.You always have to look at the big picture before you start your daily analysis.

GBP-USD started going down on November 9th after it failed to break the resistance. It has been going down since that time and could break a very strong support at December 19th. It went up to test this support - that was changed to resistance after breaking - on December 31th but could not even touch it and went down again. It made a support at 1.9750 on December 25th and currently it is trying to break it.

What will happen then?

1. If it breaks the 1.9750 support, it can go much lower.
2. If it breaks the 1.9750 support, it can go a little lower and then goes up to test the 1.9750 as a resistance. Then two things can happen: a. Breaks the 1.9750 support and goes up and makes a correction and b. fails to break the 1.9750 and goes down.
3. If it can not break the 1.9750 support, it will go up and will make a correction.

But will it be able to break the 1.9750 or not? How can we know?

Well! We can wait and see but it is the time that fundamentals can help. Will the GBP becomes stronger against the USD or the USD will become stronger?

It is the time that both of these currencies are getting weaker but which one becomes weaker against the other one? I think the GBP becomes weaker because USD has already passed the crisis and now it is getting a little stable but it is just the beginning of the Real Estate crisis in UK. US had this crisis a few months ago.

On the other hand, the elections in USA has had a good result so far and so people and specially investors are getting interested in investing in USA. All of these means the USA crisis is over and it will have a stable condition at least and will not go much lower.

This is my personal idea that can be wrong. I am a technical analyst not a fundamentalist but sometimes we have to check the news to see if a support or resistance will be broken or not. I think the 1.9750 support will be broken and the GBP-USD will go down BUT the best thing is waiting. I am not suggesting you to take a short position now or add to your previous short positions.

It is completely on an indecision situation right now. The Jan 4th candlestick in the daily chart admits this. When you see a Doji, you have to wait for more confirmation.

Let’s take a look at the 4 hours chart:

The big bearish candlestick at Jan 4th 12:00 and its previous candlestick tell us many things. The Bulls tried to take the control but the Bears were very strong. The Bulls took the price up could break the Bollinger middle band temporarily but Bears took the price down in a few hours and kept it low. The Bulls started attacking again but couldn’t take the price above the open price of the previous candlestick. I think the first 4hr candlestick when the market becomes opened this week will be a bearish candlestick and the price will go down.

The battle of the Bulls and Bears in the 4hrs chart justifies the big Doji in the daily chart. The market is in an indecision. but will go down finally. Let’s have an eye on the 4hrs chart and see what will happen.

2. Euro against US Dollar (EUR-USD)

Let’s take a look at the bigger picture in the daily chart.

EUR-USD ahs also been going up for so many years because of the same reasons that GBP-USD has been going up. So the general trend is an uptrend.

You can see the Saucer and Handle pattern. The rule says a Saucer and Handle will break up when the handle resistance is broken. There is a resistance that it has to break and then go to break the handle resistance (the horizontal green line). The last candlestick which is a big Doji like what you saw in the daily chart of the GBP-USD tells us that it has not been able to break this resistance so far. We have to wait by now. If you like to rely on the Saucer and Handle rule, you can go long but it is not recommended to rush in.

Let’s take a look at the 4hrs chart. You can see more details of the Saucer and Handle Pattern in the 4hrs chart:

The 4hrs chart last candlesticks say that it has been trying hard to break the Handle resistance but was not successful so far. In fact the last three candles in the 4hrs chart are showing a good bearish signal to go short.

Let’s see when the price will get out of the handle and to what direction. Something very important that I see in the 4hrs chart is that the horizontal green line is broken and the last candlestick has tested it as support. Let’s wait just for one more 4hrs candlestick and see that will happen.

3. US Dollar against Swiss Franc (USD-CHF)

Let’s take a look at the bigger picture in the daily chart.

As you see, USD-CHF trend is completely opposite of the EUR-USD pattern.

You see the same Saucer and Handle Pattern you could see in the EUR-USD but it is inverted here. As you see the rule worked here and the inverted Saucer and Handle Pattern broke down. The last candle say that Bears are still strong. The 61.80% Fibonacci level is broken. Just the last candlestick (4th Jan) is a little close to a Doji. It has long upper and lower shadows. It means the market is close to an indecision situation.

So the USD-CHF tells us that the EUR-USD Saucer and Handle Pattern will break up and we can go long.

The 4hrs chart shows some Bullish activities but it is still early to go long. We have to wait for more confirmations. The last candlestick is opened much lower than the close price of the previous candlestick. This means still there is a lot of Bearish power in the market.

4. US Dollar against Japanese Yen (USD-JPY)

The USD-JPY long term trend looks a little strange. It doesn’t show the same clear uptrend or downtrend you see in EUR-USD or USD-CHF. The reason is that EUR and CHF are both European currencies and they act mainly like each other. Swiss has a very stable economy. Whereas USD and JPY have a lot of up and down. Japan changes its interest rate all the time to support the exports and when these changes are mixed with the USD storms, it will make a strange trend.

JPY has been become stronger against the USD and this mainly is because of the USD problems. Japan doesn’t like that its currency becomes strong against the USD because it is not good for their exporters but since about June and July 2007, they have not been able to keep on decreasing the value of their currency against the USD because USD value has been going down badly.

The daily chart still looks Bearish.

The 4hrs chart has formed a descending wedge:

Descending wedge in a downtrend will break up. Wait for the price to break the wedge resistance and goes up and then go long.

5. British Pound against Japanese Yen (GBP-JPY)

The daily and 4hrs chars has almost the same pattern as the USD/JPY. The 4hrs has formed a descending wedge.

It should break up.

6. Euro against Japanese Yen (EUR-JPY)

EUR-JPY acts like GBP-JPY. So when one of them goes up the other one should go up and visa versa. It means when your analysis tells you that EUR-JPY goes up and GBP-JPY goes down, there is something wrong with it.

Like the GBP/JPY, the 4hrs chart has formed a descending wedge in EUR-JPY that should break up but the daily chart is still strongly bearish.

7. US Dollar against Canadian Dollar (USD-CAD)

CAD has been getting stronger against USD from many years ago. So the general trend is downtrend:

It started to go up since November 7th and then started going down on 14 December. It couldn’t break the 38.20% level and went up. It seems it is forming a correction and then will break down.

The 4hrs chart also shows a consolidation that is formed after a downtrend and so it should break down.

The last candlesticks are showing sell signals:

Good opportunity to go short but wait until the last candle breaks the 50% level down.

8. British Pound against Canadian Dollar (GBP-CAD)

The daily chart has a clear pattern:

The 4hrs chart is also clear and shows the direction of the market:

9. Euro against Canadian Dollar (EUR-CAD)

10. Australian Dollar against US Dollar (AUS-USD)

11. New Zealand Dollar against US Dollar (NZD-USD)

12. British Pound against Swiss Franc (GBP-CHF)

13. Euro against Swiss Franc (EUR-CHF)

14. British Pound against Australian Dollar (GBP-AUS)

15. Euro against Australian Dollar (EUR-AUS)

16. Euro against British Pound (EUR-GBP)

It has been going up strongly and has broken all the resistances that it had. Now it seems it is forming a correction because the Bulls are exhausted and are collecting their profits gradually. If you were long, I hope you have collected your profit sooner. If you like to go short, you can do that but you have to be careful because it is still against the trend to go short. Also consider that we will have a support at about 0.7388.

Check the supports and resistances and also the triangle in the 4hrs chart carefully:

Currently is it testing the triangle support to break it down but has not been successful so far. It is a symmetrical triangle. So it is not clear if it will break down or it will go up.

Further Reading:

• Forex Basics:
  What Is Forex and How to Make Money with It?
  Is Forex a Suitable Business for Everybody?
  When You Will Be A Professional Forex Trader?
  Currency Pairs Explained - Understanding the Currency Pairs in Forex Trading
  Currency Pairs Correlation in Forex Market: Cross Currency Pairs
  How to Choose the Best Currency pairs for Forex Trading
  What Thomas Edison Can Teach You about Trading Forex!
  A Letter from God to Forex Traders!
  Ten Important Forex Trading Tips
   
• Money Management:
  Money Management is a Critical Part of Forex Trading
  Risk/Reward Ratio in Forex Trading
  How to Make $53,000 per Month through Forex Trading
  Where Is the Best Place for Stop Loss and Limit Orders?
  When Should You Get Out of a Bad Position?
   
• Candlesticks:
  The Language of Japanese CandleSticks - The Only Real Time Indicators
  Doji Candlestick - Doji Star - How to Trade Using Doji Candlestick and Bollinger Bands
  What Is Heikin-Ashi and How to Trade with It?
   
• Price Chart:
  Forex Charts - How to Use Different Types of Charts in Forex Trading
  Renko Chart - How to Trade Using Renko Charts
   
• Technical Analysis:
  How to Use Technical Analysis in Forex and Stock Trading?
  How to Trade Using Trendlines, Head and Shoulders, Triangles, Double Tops and Bottoms, Flags, Pennants, Wedges...
  How to Use Moving Averages in Forex Trading
  How to Use Pivot Points in Forex and Stock Trading?
  How to Use Bollinger Bands in Forex and Stock Trading
  How to Use MACD or Moving Average Convergence / Divergence in Forex and Stock Trading
  How to Trade Forex During the News Time
   
• Fibonacci:
  How To Use Fibonacci Numbers in Forex and Stock Trading
  More About Using Fibonacci in Forex Trading
  How the Forex Market Reacts to Fibonacci Levels
   
• Tools, Indicators and Templates to Download:
  Download Heikin Ashi and Smoothed Heikin Ashi Indicator and Template for MetaTrader
  Have All timeframes on One Single Chart in Your MetaTrader Platform (MT4)