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A lesson on trading with the stochastic indicator on the GBP/JPY by:  James ‘Big Dog’ Boyd.

The stochastic is a great tool to monitor the trade to see how much room we have left to go up or down. The stochastic again tells us the bullish or bearish sentiment in the trade. In this example we look at both bearish and bullish examples on the GBP/JPY.

GBP/JPY Chart #1

Caption #1: 1- GBP/JPY short at a diagonal level of resistance on April 6th. 2 – MACD confirms rollover, stochastics crosses to the downside. 3 – GBP/JPY pair selling off at resistance.  Indicator Settings: MACD Hist setting = 6,13,9 and Slow Stochastics setting = 5,3.

GBP/JPY Chart #2

Caption #2: GBP/JPY confirms a stochastic “pinch” after 5 days (April 13th).  Once the stochastic pinches we have 2 options… 1) Exit the trade.  2) Make sure the stop is appropriate.

When the stochastic is oversold, buyers in this case buy the GBP/JPY.

 ***KEY*** Watch the width between the 2 lines of the stochastic. When the GBP/JPY falls, monitor the trade by looking at the separation between the stochastics (you may have not hit your stop loss at this point). If the 2 lines are still apart they have potentially some room to drop. If they pinch, BULLS are buying the GBP/JPY back. If that’s the case, invoke # 2.

GBP/JPY Chart #3

Caption #3: GBP/JPY confirms that it is going to hold the higher low. Stochastic crosses back up representing that bulls are coming back into the trade.

If the stochastic cross back down, you have a greater chance in getting stopped out.

REMEMBER, when the stochastic pinches like in photo #2, we have 2 options — 1) Exit the trade 2) Make sure the stop is appropriate.

 

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eurgbp.jpg I’ve fooled around plenty with Bollinger Bands, but they aren’t part of my regular trading routine. Nonetheless, I often poke my nose around what various things are up to, and notice a nice pattern on EUR/GBP.

The trend is up, and the bands have been stair-stepping up. It’s a great pattern, with the bands being at a support/resistance area (I drew my own lines that I felt were a bit more accurate). And it’s a pattern that seems soon due for another step up.

The last 3 times the break in resistance was signaled by a close above the band. There’s a lot of BBands traders who love this kind of stuff. Personally I think the best method would be to use that close above the band accompanied with a buy signal in whatever your method is.

Let’s see where this goes. We’ll try a little experiment with the ol’ bands and see what happens after the next close above the top band. And remember – our saving grace as traders is commitment to a method, or system. It’s understandable if you are still learning what the indicators do. But that should be a short road. The longer road that gets you somewhere is using one of them a lot. You start out not that great with it, but get better and better and that’s where profits lie.

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gbpjpy.jpg Looks like we are getting a bounce lower off a small resistance level on the GBP/JPY, unsurprisingly. All is well with the downtrend.

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gbpjpy8.jpg After the carnage in stocks today (more later), the GBP/JPY is eyeing the downside again. If you traded the pair on the hourly chart, you were stopped out in the last few days. But oh, what a run! And if you gave back too much in gains, time to devise an exit strategy that captures more of the move.

And so I present … the GBP/JPY hourly triple top! Ta-da! Notice where I drew support (“neckline”) to breakout from, and the green oval target below, which by the way, happens to be at another support level: the turning point bottom.

Most other crosses have remained in the dumps, it’s the pound that’s shown some strength. But the fundamentals of the pound remain week, and some short term strength is nothing to be excited about. It’s born out technically in the trend on the daily chart. As we get into the Asian session tonight, I’d like to see the break of this triple top as Asian investors jaws’ drop from seeing the damage in US stocks and their own follow suit.

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intrmarket.jpg Today is the first day I look at the S&P500 ($SPX) – representing the average of US stocks – and think “this may be a pennant”. If I can get a triangle shape out of short term support and resistance, it’s a pennant. And price coiling like this at support is pretty threatening to that support. Not good for stocks.

Interestingly, I found myself thinking of the GBP/JPY which already broke lower. US stocks may be a bit of a “barometer” for other markets, but smart money often leads in other markets, such as currencies. Looking at the GBP/JPY works just fine because it is a major carry pair. The carry trade is a canary in the market mine: it is very sensitive to global economic changes..

leadership.jpgIt’s a negative feedback cycle. Odds of stocks breaking lower increase with the pennant coiling at support, and the break lower already of GBP/JPY. If stocks do break, this will fuel GBP/JPY further.

* By the way, I don’t say this enough, but if you’re new to trading do not feel like you have to know all of this! All different people read this blog, and the intent is education. I find things like this intermarket analysis business give me a little edge here and there in trading. The great bulk, though, is mastering a trading style by sticking with certain rules consistently. Then you add little stuff like this. Keep reading things like this with your “observer’s cap” on and it gradually sinks in.

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gbpjpy6.jpg Remember 213.50, how we talked about how a breach lower than this point would resume the bearishness? The pair has been flopping around above that for a week but in the wee hours it broke lower. Finally, dang it.

If you missed it or are not in yet, fear not. It is doing a typical retest of that level from beneath, trying it out as resistance now. It should hold. Remember, our whole premise is that the pair has broken a head and shoulders on the daily chart and it’s looking nasty.

I was going to clean my lines up last night but notice how I have lines all over from last week. They are irrelevant now because they were short term and we’ve moved beyond them. Illl erase them now, all but the thick horizontal line which is not resistance.

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shaysworthy1.jpg Today in the daily audio FX we break down the essentials of the Bank geeks testimonies to tradeable action and information. We discuss the intermarket relationships of pumping liquidity into the U.S. markets, did the BOE really hold rates – do you need more reason to short the GBP? China – the latest government that thinks they can fix commodity prices, which historically speaking spells disaster.

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