Using Technical Analysis in Real Live Forex Trading

Today’s post will be focused on applying the steps of technical analysis in discretionary Forex trading. These steps have been laid out in a guide, which you can access here. For more information on trading the Forex market with less discretion, rules based, and a set and forget style, please take a look at this link.

STEP 1: SELECTING A PAIR

The Forex market offers a wide selection of currency pairs to choose from. Actually picking one of them is not always as an easy task. For today’s article I thought about analyzing plus discussing this week’s (after Monday’s price action) Aussie and Kiwi weakness, GBP slight rebound so far, and the CAD weakness. When scanning through the individual charts I decided to focus on USDCAD because price is offering interesting decision spots on the daily time frame. The formation of interest is the triangle chart pattern (blue trend lines); the bottom and top of the triangle are the decision spots.

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STEP 2: IDENTIFY TREND

The trend on the weekly chart has been up: price built consecutive higher highs and higher lows (green circles) and price recently bounced off of the bottom channel line (green). The weekly trend is currently without doubt UP (also notice that the resistance line has been broken (red)).

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The trend on the daily chart is also UP: price is moving up in an uptrend channel and it is above the 50 ema close as well (magenta). Furthermore price respected the 50 Fibonacci retracement level and its first target at the 27.2, which is a typical trending characteristic.

With the weekly and daily chart in an uptrend Forex traders can conclude that trend traders are in search of long opportunities, reversal trades are looking for smart shorts, and range traders are probably skipping this pair.

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STEP 3: IDENTIFY PATTERNS

Let’s review the candle stick and chart patterns on various time frames.

Let’s start with the weekly chart. Last week closed bearish but the candle did not break the candle high and low of 2 weeks ago. I need to be cautious of the high at 1.11 which is the high of the last 2 weeks. No chart patterns.

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The daily chart shows a pinbar formation on Friday at the 78.6% Fibonacci level and support trend line (blue). It also had a strong bullish candle on Monday (with a close near the high). There was also a previous chart pattern visible: an expanding wedge (purple lines). This pattern is quite rare and price managed to break above it in the meantime, adding to the bullishness.

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STEP 4: IDENTIFY SUPPORT AND RESISTANCE

When I review the daily chart I am able to see that many resistance lines have already been broken. The trend seems to be the winning the clash with support and resistance. One line can be added to the chart (purple) but this trend line only has 2 hits. The biggest resistance could be last week’s high at 1.11.

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CONCLUSION:

The uptrend looks strong at the moment. Let’s take a look at what spots traders can act:

  1. Reversal traders could attempt shorts at the 1.11 weekly highs
  2. Reversal traders could attempt shorts at the -61.8 target at 1.12 and weekly top at 1.1270
  3. Reversal traders could attempt shorts upon the 4 hour shooting star (red circle) as price can always overextend in a trend (riskier trade)
  4. Range traders would look for other pairs
  5. Trend traders can look for longs at any of the Fibonacci levels (green box). The best is to wait for price action confirmation signals such as candle stick patterns at the Fibs (green arrow)
  6. Trend traders could trade the break of resistance (red and dark red) but this will take some time before price retraces and breaks (purple arrows)

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Do you agree with the above analysis and conclusion? Do you want to add something to the above mix? Let us know!

Thanks for your comments and shares, and Happy Trading

  

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