Press review - page 139

[Sergey Golubev]

Overbought vs. Oversold (baseed on dailyfx article)

• Overbought means an extended price move to the upside; oversold to the downside.
• When price reaches these extreme levels, a reversal is possible.
• The Relative Strength Index (RSI) can be used to confirm a reversal.

Like many professions, trading involves a lot of jargon that is difficult to follow by someone new to the industry. It’s our job as instructors to fill in as many knowledge gaps as possible to make the education process as simple as possible. Today, we will take a look at what it means for a currency pair to be overbought or oversold, and most importantly, what trading opportunities arise from these situations.

Overbought vs. Oversold

These two terms actually describe themselves pretty well. Overbought describes a period of time where there has been a significant and consistent upward move in price over a period of time without much pullback. This is clearly defined by a chart showing price movement from the “lower-left to upper-right” like the chart shown below.

Learn Forex: USDJPY Hourly Chart – Overbought

The term Oversold describes a period of time where there has been a significant and consistent downward move in price over a period of time without much pullback. Basically a move from the “upper-left to the lower-right.”

Because price cannot move in one direction forever, price will turn around at some point. Currency pairs that are overbought or oversold sometimes have a greater chance of reversing direction, but could remain overbought or oversold for a very long time. So we need to use an oscillator to help us determine when a reversal is actually occurring.

But, we must be patient before we enter our trades, because sometimes the RSI can stay overbought or oversold for quite awhile. The worst thing we can do is try to pick a top or a bottom of a strong move that continues to move into further overbought or oversold territory. So we must wait until the RSI crosses back under 70 or crosses back above 30.

When the RSI falls below 30, same rules apply. We want to wait until the RSI crosses back above 30 before we place a buy trade.
Putting RSI to Work

[Sergey Golubev]

Why Traders Lose Money (based on dailyfx article)

• There is a large chasm between trading and analysis.
• Analysis can assist with winning percentages, but this doesn’t always equate to profitability.
• Traders need to learn to manage risk if they ever hope to be consistently profitable.

While the title of this article can have broad implications with numerous explanations, we’re going to do our best to reduce the answer to this query to the most logical and basic explanation.

When a trader first gets started, it might be hard to imagine how getting control of losses can seem an impossible task. It may even feel like the cards are stacked against you… situations in which you’re right in your analysis, yet you still lose on the trade and watch capital disappear from your trading account.

So, a natural question is why some traders consistently make money while others lose, even when they’re right. That is what we will be investigating in this article.

The Difference between Trading and Analysis

Many new traders come to the market with a bias or point-of-view. Perhaps this is built from a background in economics, or finance, or maybe just a keen interest in politics. But one of the biggest mistakes a trader can make is harboring the expectation that ‘the market is wrong and prices have to come back.’

But let’s face it: Markets are unpredictable, and it doesn’t matter what type of analysis you use. As new information comes into the market, traders and market makers price it accordingly; because these folks don’t want to lose money just as much as you don’t want to lose money.

Is this to say that analysis is worthless? Absolutely not: It merely means that analysis is only a part of the equation of being a successful trader. Analysis is a way to potentially get the probabilities on the trader’s side, even if just a by a little bit; a way to maybe get a 51% or 52% chance of success as opposed to a straight-up coin flip.

Good analysis, whether it be fundamentally-driven or technically-driven, can be right a majority of the time. But no form of analysis will ever be right all of the time. And this is the reason that there is such a large chasm between analysis and trading.

In analysis, it doesn’t matter how wrong you are when you aren’t right. In trading, this matters quite a bit. Because even if you’re winning on 70% of your trades, if you’re losing $3 for every trade in which you’re wrong but only making $1 every time that you’re right, you’re still losing. It might feel good, because 70% of the time you’re walking away from your positions with the feeling of success; and as human beings this is something we generally strive for (to feel good).

The example below shows how bad risk management can destroy even a strong winning percentage of 70% success.

But logically, it doesn’t make sense to embark on this type of endeavor because the goal of trading is to make money; not necessarily to just ‘be right’ more than 50% of the time.

How to actually trade analysis

First thing first, traders need to crystallize what their actual goal is in trading in markets; and point-blank, that goal should be to make money.

After that, traders need to expect that they will, at times, be wrong.

So given these two facts, the next logical assumption is that without being able to control the damage from those instances in which we’re wrong, the prospect of profitability is a distant one.

So risk management isn’t just a preference or a style of trading: It’s a necessity for long-term profitability. Because even if you’re winning 90% of the time, the losses on the other 10% can far outstrip the gains that are made on the 90%.
I fully realize this isn’t necessarily exciting information. When I teach risk management, rarely do a see a student-trader ready to burst out of their seats to go and manage some risk. Most people want to hear about entry strategies, and analytical methods to try to get those odds of success tilted even higher in their favors.

But until a trader learns to manage their risk, much of this additional work is a moot point. Because as long as the risk exists that one bad position can and will wipe away the gain from many other ‘good’ positions; that trader is going to struggle to find profitability.

So, to properly trade analysis one needs to first observe proper risk management. Because trading isn’t just ‘guessing’ and ‘hoping’ that we get it right. Profitable trading is implementing analysis while properly managing risk factors; implementing a defensive approach so that when one is wrong, the losses can be mitigated and when one is right, profits can be maximized.

How can one begin to use ‘proper’ risk management?

We’ve already encountered one of the biggest mistakes of risk management, and that’s controlling the size of the losses relative to the size of the gains.

The solution is simple; implementing it not as much. As human beings, we often follow our gut instincts or our ‘feelings.’ But in trading, we have to keep the bigger picture in mind. When we place a trade, we often try to win on that one trade. This can keep traders holding on to losers for far too long, and closing out winners way too quickly.

[Sergey Golubev]

Trading the News: U.K. Retail Sales (based on dailyfx article)

• U.K. Retail Sales to Contract for Second Time in 2014
• Private Sector Spending Increased 7 of the 12 Months in 2013

The British Pound may face a larger correction over the remainder of the week as U.K. Retail Sales are expected to contract 0.5% in March.

What’s Expected:

Why Is This Event Important:

A decline in private sector consumption may prompt a bearish reaction in the GBP/USD as it limits the Bank of England’s (BoE) scope to normalize monetary policy sooner rather than later, but the data print may exceed market expectations as Governor Mark Carney sees a stronger recovery in 2014.

Sticky price growth along with the slowdown in private sector credit may drag on consumption, and a marked decline in retail sales may prompt a larger pullback in the GBP/USD as it dampens the outlook for growth and inflation.

Nevertheless, positive real wage growth paired with the ongoing improvement in the labor market may prompt a further expansion in household spending, and a better-than-expected print may heighten the appeal of the sterling as it puts increased pressure on the BoE to raise the benchmark interest rate off of the record-low.

How To Trade This Event Risk

Bearish GBP Trade: U.K. Retail Sales Disappoints

• Need red, five-minute candle following the release to consider a short British Pound trade
• If market reaction favors selling sterling, short GBP/USD with two separate position
• Set stop at the near-by swing high/reasonable distance from entry; look for at least 1:1 risk-to-reward
• Move stop to entry on remaining position once initial target is hit, set reasonable limit

Bullish GBP Trade: Household Spending Unexpectedly Picks Up

• Need green, five-minute candle to favor a long GBP/USD trade
• Implement same setup as the bearish British Pound trade, just in opposite direction

Potential Price Targets For The Release

GBP/USD Daily

• Bullish RSI Momentum Continues to Favor Fresh Highs
• Interim Resistance: 1.6850-60 (78.6% expansion)
• Interim Support: 1.6400 (61.8% expansion) to 1.6430 (23.6% expansion)

February 2014 U.K. Retail Sales

GBPUSD M5 : 64 pips price movement by GBP - Retail Sales news event

Retail sales out of the U.K. beat across the board in February and sent GBP over 50 pips higher against the greenback. Textiles saw heavy weakness relative to other stores while predominantly food stores had a healthy 1.9% gain vs. a 3.7% decline in January. After the Pound pulled off key resistance levels on Wednesday, room remains for another test of resistance if we do see another beat this month. Note that we have U.K. GDP data to kick off event risk on Tuesday of next week.

MetaTrader Trading Platform Screenshots

GBPUSD, M5, 2014.04.25

MetaQuotes Software Corp., MetaTrader 5, Demo

GBPUSD M5 : 30 pips price movement by GBP - Retail Sales news event

[Sergey Golubev]

Forex Weekly Outlook Apr 28 – May 2

Currencies drifted sideways in the post Easter week, and now we have a very busy week with top tier events. The all important inflation release from the euro-zone, GDP in the US and the UK, the FOMC meeting, the buildup to to Friday’s Non-Farm Payrolls and other events all promise lots of action Here is an outlook on the market-movers for this week.

The week after Easter provided some interesting developments. This time, US data was quite mixed: durable goods orders climbed nicely, but jobless claims disappointed and new home sales plunged. Will the skies clear in the upcoming week? In the euro-zone, Draghi tried to play down the euro once again, with diminishing success. He might be forced to act soon. One extreme action would be buying gold with printed euros. A central bank that is acting, but in the other way, is the RBNZ: a second rate hike in New Zealand certainly supported the kiwi. Its neighbor, the Aussie, was falling after weak inflation data. The pound remains near 4 year highs.

1. US Pending Home Sales: Monday, 14:00. Signed contracts to purchase existing homes fell 0.8% in February, declining for the eighth straight month, indicating the housing sector goes through a rough patch. Pending home sales fell 0.2% in January. Analysts expected the index to rise 0.1% this time. The cold winter probably played a role in discouraging prospective buyers. Pending home sales are expected to rise by 1.0% this time.
2. UK GDP: Tuesday, 8:30. Britain’s economic recovery weakened slightly in the final quarter of 2013, with a 0.7% growth rate, following 0.8% in the third quarter. The service sector was the main locomotive of GDP growth. Manufacturing grew 0.9%, though construction suffered a 0.3% fall in output. However, wage growth increased less than price inflation, indicating smaller income. However, GDP growth in 2013 was the highest since 2007 with a 1.9% expansion rate. Britain’s estimated GDP for the first quarter of 2014 is expected to be 0.9%.
3. US CB Consumer Confidence: Tuesday, 14:00. U.S. consumer confidence edged up in March to its highest in more than six years posting 82.3 points following an upwardly revised 78.3 in February. Economists expected a mild improvement to 78.7. Consumers expect the economy to continue improving with a pick-up in growth in the coming months. However labor market assessment was more pessimistic in March. Consumers also anticipated larger price increases, with expectations for inflation in the coming 12 months. Consumer confidence is expected to edge up further to 82.9.
4. Japan rate decision: Wednesday. The Bank of Japan left its monetary policy unchanged in April in line with market forecast, Governor Haruhiko Kuroda said on at the press conference following the rate statement that the BOJ may decide on additional monetary easing to boost the economy, although Prime Minister Shinzo Abe, did not ask for any additional measures by the BOJ to achieve the goal of an annual 2 % rise in consumer prices by fiscal 2015. Kuroda noted that the economy is in a growth trend but is still needs to attain the inflation goal and beat deflation risks. No change in rates is expected despite the weaker than expected inflation numbers from Tokyo for April.
5. Euro-zone CPI Flash Estimate: Wednesday, 9:00. Annual consumer inflation in the Euro area member states was 0.5%, lower than the 0.7% posted in February and the lowest since 2009. Economists predicted a 0.6% inflation rate. This was the sixth month of low inflation defined by the ECB as the “danger zone” of below 1%. Mario Draghi suggested that the bank will take bold action should the outlook deteriorate. Inflation is expected to gain momentum with a 0.8% reading, in part due to the shift in date of Easter, from March in 2013 to April this year. Inflation below 0.5% could force the ECB to act.
6. US ADP Non-Farm Payrolls: Wednesday, 12:15. The ADP report of job creation in March edged up to 191,000 from 178,000 posted in February, suggesting that the downside trend in the last few months has ended. Goods-producing sector employment increased by 28,000 jobs in March, but the main gains came from the construction industry which added 20,000 jobs over the month; compared to an average of 16,000 during the prior three months. Manufacturers added 5,000 jobs in March, the same as February. Service-providing employment rose by 164,000 jobs in March, up from the upwardly revised 153,000 in February. ADP early jobs gain report is expected to reach 212,000.
7. Canadian GDP: Wednesday, 12:30. The Canadian economy rebounded in January with a growth rate of 0.5% from a weather-related contraction of 0.5% in December. Production rose by 1.0%, led by a boost in manufacturing, mining, construction, and oil and gas extraction. Services climbed 0.3% with gains in most sectors. According to forecasts, the yearly growth rate should go beyond 2%. The Canadian economy is expected to show a 0.2% expansion rate in February.
8. US Advance GDP: Wednesday, 12:30. The US economy expanded at an annual rate of 2.6% in the last quarter of 2013, despite the government shutdown and the debt ceiling ordeal. The pace of growth weakened from 4.1% in the third quarter but still indicated US gross domestic product increased quite strongly in the last half of 2013, a pace unseen since 2003. A weak first half of the year impeded growth to 1.9% for all of 2013, down from 2.8% in 2012. The fourth-quarter enjoyed healthy gains in consumer spending, personal consumption rose by an annual rate of 3.3%, the strongest pace in three years. The GDP news were good for investors. US stock markets rose after several days of losses. Early estimates of GDP growth forecast a 1.1% rise in the first quarter of 2014 due to the effects of the cold winter.
9. US FOMC Statement: Wednesday, 18:00. In the last FOMC statement released in March Federal Reserve Chair Janet Yellen raised the possibility of an earlier- than-anticipated increase in interest rates. The Fed is likely to taper bond buys for the fourth time to $45 billion / month, continuing the current policy. After Yellen dropped the forward guidance in her first decision, no other policy changes are likely. The focus could be on how the Fed sees the economy. If it expresses worries about the winter slowdown, the dollar could slide, and if it is upbeat on a spring bounce, the dollar could rise. The data is mixed, so the Fed might adopt a cautious approach. The bigger fireworks will probably wait for June, when the data will be clearer and a press conference accompanies the decision. For the upcoming decision, the GDP release made earlier on the same day could “steal the show”..
10. Janet Yellen speaks: Thursday, 12:30. Federal Reserve Chair Janet Yellen will speak in Washington DC at the Independent Community Bankers of America’s Annual Policy Summit. She may talk about the growth trend in the US economy and may refer to her statement regarding the rate hike expected in 2015. Market volatility is expected.
11. US Unemployment Claims: Thursday, 12:30.The number of Americans filing initial applications for unemployment benefits jumped by 24,000 last week to 329.000 due to temporary layoffs in the week before Easter. Economists expected a milder rise to 309,000. However the US economy is on a growth trend and the average of applications is declining. A year ago, claims stood at 343,000 indicating this year, employers hold back layoffs and increase hiring. The number of unemployment claims is expected to decline to 317,000.
12. US ISM Manufacturing PMI: Thursday, 14:00. The U.S. manufacturing sector registered a mild pick-up in March compared to February, reaching 53.7. However the climb in production indicates that the U.S. economy is strengthening after the cold winter. Economists expected PMI to increase to 54.2. Overall, surveyed purchasing managers were optimistic regarding current economic conditions reporting a rise in demand. U.S. manufacturing sector is expected to continue its recovery with a reading of 54.3.
13. US Non-Farm Employment Change and Unemployment rate: Friday, 12:30. The US job market continued to progress in March gaining 192,000 jobs after a 197,000 addition in the previous month. Private employment exceeded the pre-recession peak for the first time, indicating a growth trend in the US economy and supporting the Fed’s decision to continue tapering. Economists expected a higher reading of 199,000. Meanwhile, Unemployment rate remains unchanged at 6.7% however, a half-million Americans started looking for work last month, and most of them found jobs. The rise indicates that hiring increased. The US labor market is expected to expand by 211,000 jobs while the unemployment rate is predicted to decline to 6.6%.

[Sergey Golubev]

Strategy Video: Ranking the Best Breakout Potential

• There are many breakout-based setups in the FX market ranging to imminent to stubborn
• Breakouts of technical necessity are likely to cool quickly while the stubborn could develop serious trend
• We look at the opportunity in GBPUSD, USDCAD, NZDUSD, the Yen crosses and EURUSD congestion

We have watched longingly this past week as a range of high-profile technical patterns further shaped their breakout potential without making the final move. Between markets running out of room, a docket full of major event risk and over-extended fundamental themes nearing a flip; the risk / potential of finally realizing these trades looks to be at hand. In the weekend Strategy Video, we look at the scope of breakout opportunity - from an imminent GBPUSD move to more resilient EURUSD pattern - and how these setups should be approached.

[Sergey Golubev]

USDJPY Fundamentals (based on dailyfx article)

Fundamental Forecast for Japanese Yen: Bullish

• US Dollar at key risk of break versus JPY ahead of critical event risk
• Two key price levels to watch on the USDJPY exchange rate

[Sergey Golubev]

GBPUSD Fundamentals (based on dailyfx article)

Fundamental Forecast for Pound: Bullish

• British Pound Looks for a Lifeline Following Bank of England Minutes
• GBP/USD Stalls Below Key Gann Resistance
  
  

[Sergey Golubev]

GOLD (XAUUSD) Fundamentals (based on dailyfx article)

Fundamental Forecast for Gold: Neutral

• Gold Price at Risk Near-Term on a Return of USDollar Strength?
• Rising US Yields Push Gold Price towards April Low, $1277 Tipping Point

[Sergey Golubev]

Nikkei forecast for the week of April 28, 2014, Technical Analysis

The Nikkei did very little over the course of the week, as we continue to hang about the ¥14,500 level. The market should be relatively well supported from the previous week’s gains though, so are looking for move above the ¥15,000 level in order to start buying. At that point time we would be convinced of the validity of the continued uptrend, inserting four ¥16,400 or so. Selling is not an option at this point, as we feel that there are far too many supportive areas between here and ¥13,000 to be bothered doing so.

[Sergey Golubev]

DAX forecast for the week of April 28, 2014, Technical Analysis

The DAX attempted to rally during the week, but found too much in the way of resistance at the 9700 level to continue. With this, we pulled back enough to form a shooting star, which of course is a bearish sign. This sign isn’t one we are willing to take as a selling opportunity, but rather a chance to buy at lower levels in the meantime. We are looking for supportive candles below, and then will be willing to get long at that point as this market has been trending higher for some time now.