The recent
movements in the currency markets in November reflected the deteriorating
sentiment by traders and investors regarding the state of the global economy. Increased
uncertainty related to the European debt crisis played a major role in the
decision of many to move funds into the relatively safer harbours of the USD,
the JPY and away from the EURO. These movements were also in line with my
general forecast for the financial markets for this quarter, following the
strong closing signals for October on many of the Monthly Charts (see October Article). However, regardless of the nature of the underlying economic conditions, traders can continue to profit from changing risk sentiments by paying close attention to the signals on
the Daily and Weekly Charts during these periods.



 



Three recent examples
of short-term trades that I made on my real account in November will
illustrate how one can have an edge in profiting from the increased market
volatility. The rationale for these trades along with the risk, reward and
other considerations are provided and are likely to prove useful to you in your trading
strategy.



 



TRADE RATIONALE



 



It is important to trade in the direction of the weekly range
of the currency as signaled by the Daily Chart and even more important that
this signal be supported by the Weekly Chart. Once these two  time
frames are in sync, you are very likely to see high probability
trade setups. The other features of these trades are that,



 




  • Entry is on the 30 Minute Chart after the signal is given on the Daily Chart

  • The 30 Minute Chart must have a strong setup with an entry signal given between 12 00 am & 12 00 pm EST.



 




  • The Profit Targets are set to coincide with the 100
    pip-range area from entry.



 




  • The targeted Risk-Reward ratio is at least 2.5 to 1.



 




  • They are exited no later than 3 days (usually less).



 



What I have
discovered over several years of experimenting is that the setups and signals
that are seen on the 30 Minute Chart are the most reliable after the Daily Chart
has provided the signal for the currency. These setups on the 30 Minute usually
lead to the reliable 4H signal, which once formed, is a good confirmation that
we will see further moves in the weekly range direction.



 



 I have also noticed that although the Forex is
a 24-hour market, the most profitable movements tend to take place within the
above-mentioned 12-hour window when the European and US markets are in full
swing. Movements outside of this period tend to be very small, slow and
volatile and are usually the embers of the larger moves earlier on.



 



The 100-pip
range area appears to be a good ´sweet spot´ for your profits because it is
usually hit within a short time, allowing you to move from one trade to another
within the same day or week.  With an entry on the 30 Minute Chart, the ratio between
your Limit at the 100 pip mark and your Stop Loss tends to be an attractive 2.5
to 1, allowing you room for losses.



 



TRADE EXAMPLE 1



 



EURO USD



 



The Daily signal
that was used for this trade occurred on November 23rd. This was a bearish
U-turn that tested the Support of the broken Pennant before resuming the
bearish trend. It also followed the strong bearish U-turn signal that was
already given on the Weekly Chart, providing additional support for this trade.



 

DAILY CHART



WEEKLY CHART


TRADE SETUP



 



In looking for
an entry opportunity from this currency pair, I noticed that the 4H Chart was pulling
back and setting up for a U-turn below the support of its broken Range. If this
pullback eventually gave way to a strong bearish signal, it would be the
confirmation of the resumption of the bearish direction as given by the Daily
Chart. However, because the size of the 4H signals is usually large when
completed, it is usually better to anticipate it by trading the 30 Minute signals
that lead to these 4H signals.



 



The reliable 30
Minute signal on this Euro trade eventually came in the form of a break of the
uptrend line that led to the breakout bearish and the formation of the 4H
signal. Entry was upon the break of this line with the Stop Loss being placed
above the high.



 



4H CHART


30 MINUTE CHART



After just over
a day, the trade was exited after a 131 pip drop which turned out to be the last
bearish move before the pair began to turn bullish. One thing that was ´lucky´
about the trade was that the Stop Loss was tested very closely when the market
rallied once more at the 1,3400 area before declining to the target. This
highlights an important point about how I recommend that we trade.



 



If we are confident
that in most cases our trades will be successful, it is better that we do not
watch the heart-stopping price movements after we have entered the market.
Apart from the stress that it involves, it puts a lot of doubt in our minds about
the trade and can tempt us to pre-maturely exit a good trade. Although our losses
might be smaller than if we allowed the market to take out our stop loss, we
end compromising our profit potential. For this reason, I recommend only monitoring
the window or tab on our platform that indicates that we are still in the trade
without showing either the gain/loss or the chart itself.



 



TRADE EXAMPLE 2



 



EURO CAD



 



This trade took
place during the last week of November when the Daily Chart broke the support
of its range within the Weekly Chart’s Pennant pattern. This was an indication
that we would be starting a bearish trend over the next few days until the Support
of that Weekly Chart Pennant is hit.



 



DAILY CHART


WEEKLY CHART




The follow-up setup
on the 30 Minute Chart  was a Range that would
lead to the formation of the 4H signal. Entry was upon the break of this range
with a target set for the 100 pip area and after 3 days, the trade was exited
for 98 pips. This 100 pip area also coincided with the temporary end to the
trend as the market then began to move sideways.



 



4H CHART


30 MINUTE CHART



Weekly range
traders are likely to hold on to their trades until the move is completed
closer to the Support on the Weekly Chart for larger gains. However, other
traders tend to find it stressful to be holding on to their trades for that
long when other opportunities can arise in other
currencies. This choice will depend on the personality of the trader and his or
her trading goals.


CHF JPY



 



In this 3rd
and final trade, the Daily Chart broke the trend line that had defined the
uptrend for October to indicate the start of a bearish move in favour of the JPY. The Weekly Chart
was already in a downtrend and was briefly testing and U-turning at another
broken trend line, confirming that the overall bearish direction would
continue.



  



DAILY CHART



 






 



WEEKLY CHART



 









The setup on the
4H Chart was a U-turn that led to a bearish signal. Using the 30 Minute Chart for entry to
anticipate that 4H signal, I noticed that the setup was in the form of a
Descending Pennant. When this was broken with a bearish signal below Support,
entry was made with a Stop Loss placed above the Resistance of the Pennant and
the Limit set for the 100-pip area.



 



4H CHART







 30 MINUTE CHART



 






Within a short
time of just 18 hours, the market broke to the 100 pip area where the trade was
closed for 94 pips. Although this and other 100-pip moves can take a few hours
within the same trading day to reach their targets, some of them may take a few
days and require greater patience on the part of the trader.



 



CONCLUSION



 



These three
trades are typical examples of how one can aggressively trade several
short-term 100-pip moves within the space of a few days. This strategy can be
traded in all market conditions and is likely to be successful in most cases so
long as the signals on the Daily Charts are strong and clear and supported by
the Weekly Chart. 


One minor drawback of this approach is that the 2.5 to 1
risk-reward ratio is small relative to what you can get when holding out for the
end of the Weekly
Range trade for a 3 or 4
to 1 ratio. However, in many cases, there will be a pullback in price after the
30 Minute signal is given allowing one to enter at a better price to widen your
ratio for the 100-pip target. The wider the ratio, the larger your profits and the greater the cushion you have for losses along the way. Happy trading.

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