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Picture-perfect head and shoulders pattern

Forexmentor.com Forex Trading Price Action

We at www.forexmentor.com sincerely hope that you had a great Labor Day weekend unless, of course, you live in a country where it is celebrated at a different time of the year – like Australia, China, New Zealand, etc.!

Courtesy Christoph Lahrs, there is a picture-perfect head and shoulders pattern forming on the USD/CHF daily chart. Further, if you look closely, you will observe positive divergence on MACD histogram to price. And, if you look even more closely, price is above the 200 EMA on the 4 hour, 1 hour, 15 minute and 5 minute charts – at least as at 8:30 pm ET Monday, September 3/07.

The head of the H&S pattern is at the 200 EMA, but price is below the 200 EMA on the weekly chart – so, there is the possibility that price will advance from here. But, let’s not forget that the overall trend is down. Any trades to the long side from here are counter the big trend, and should be taken with extreme caution.

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Effectiveness of the 200 EMA

Forexmentor.com Forex Trading Price Action

All this week, I have been focusing on the effectiveness of the 200 EMA. More specifically, I have been working with the hourly, 15 minute, 5 minute and 1 minute charts. As an example, where you see price below the 200 EMA on the top three charts, but above it on the 1 minute, you know where price is headed – down!

This is probably one of the most powerful trading strategies you can add to your arsenal. I have talked about it this week in relation to the USD/CAD pair, and have illustrated its effectiveness in the AM Review section at www.forexmentor.com over and over again.

That aside, we are still technically in an uptrend for that pair, but we need to see some further proof that a bona fide bottom is in fact in place on the daily chart. We are experiencing a lot of weakness right now, where I would have expected strength – given the extent of the credit crunch initiated by the sub-prime mess south of the 49.

See latest sample AM Review at: http://www.forexmentor.com/sampler/

Lesson for the day

Forexmentor.com Forex Trading Price Action

After last week’s spectacular rout in the carry trade, and its spill-over effect on the ten or so associated currencies, we seem to be settling into a period of relative calm (before the storm?) after subsequent retracements.

Take the USD/CAD pair, for example. The demand (or support) trendline in place on the daily chart is holding quite nicely, as price plays with the 30 EMA. So, technically, from a position trading point-of-view, we’re still in an uptrend. That said, we have had some nice day trading opportunities to the down-side (read, short trades) – just simply by paying attention to the relationship of price to the 200 EMA in the various timeframes.

By that I mean for a good part of Sunday and Monday (at least up to the point of writing this piece on Monday, as at 8:27 pm ET) price was below the 200 EMA on the hourly, 15 minute, and 5 minute charts and, every time price poked its head above the 200 EMA on the 1 minute chart, it represented a good short trade (like whacking a mole every time it rears its head above ground).

So, lesson for the day: Whenever you see a definable trade in place, with price respecting the 200 EMA on the higher-level charts, look for price to behave differently on the 1 minute chart, and take appropriate action. Simple as 1-2-3, or should we say Ka-Ching – take it to the bank! Stay tuned at www.forexmentor.com for more of these gems.

See latest sample AM Review at: http://www.forexmentor.com/sampler/

Most currencies are in a free-fall

Forexmentor.com Forex Trading Price Action

All of a sudden, traders love the greenback, and it has nothing to do with fundamentals – just raw emotion. They have also rekindled their love for the yen, now that the carry trade is suspect, in light of the so-called credit crunch in the U.S. and beyond (as a result of the sub-prime debacle and its tentacles into other markets and financial instruments). Most of the other currencies are in a free-fall, including the Canadian dollar. Who could have guessed, eh?

Traders are seeing the greenback as a safe haven, as the dust settles from the sub-prime mess. A drop in U.S. trade deficit numbers yesterday also gave a lift to the greenback. The financial markets are facing their worst shakeup in about five years. It’s about time. Traders are looking for a safe haven, and one of those hiding places is the greenback, which all of a sudden doesn’t look all that bad as a place to park money in this blustering storm. Traders are unwinding their riskier equity and bond bets, and favoring U.S. Treasuries instead. All of this turmoil is offering up some great trading opportunities for forex traders – day and position traders alike.

Most are short situations, except for the USD/CAD pair (my favorite), which is a recommended buy by the Danish Yske Bank. Add to that the fact that the commercial traders (Big Dogs) are extremely short the CAD, as well as they are with light sweet crude oil, and you have one heck of a good mix for further price increases for the pair. Brought to you by www.forexmentor.com, where serious forex traders hang out.

See latest sample AM Review at: http://www.forexmentor.com/sampler/