Synapse’s Forex Blog

GBP/JPY - January 4, 2009 - 04:00 GMT

Happy New Year’s Day Everyone! Let this be the year for everyone!

Second, sorry I have been hesitant on this update I’ve been having, and still am having some issues with my trading platform, making it unable for me to take screen shots with the most up to date information from the market. I was able to get a couple weekly chart snapshots from last Thursday that should still be rather relevant. However Daily and 4 hour chart are going to have to wait until tomorrow when I can get this sorted out.

————————————————————————————–

First weekly chart, for those of you that read the analysis a couple weeks back I talked about a Falling Wedge pattern that had formed and that it had broken the trendline by a mere 1-200 pips. For the size of the falling wedge, 200 pips should not have been the size of the breakout, the breakout needs to be closer to 1000-2000 pips in size. However as many of you know, we stalled. We just couldn’t get higher than 138. Using the basic knowledge of how a trend works, every high that we created was a little bit lower than the last….every low that we made was a little bit lower than the last. In other words we were in a downtrend.

I began looking at the only solution I thought was possible, the market was readjusting for a prolonged stay within the confines of the pattern. Re-drawing the lines still made the pattern look nice and was not really a hassle. After all, it is the market that defines the pattern and it is our job to identify it. Sometimes the market makes a mistake and needs to redraw itself.

GBP/JPY Weekly Chart - 1

GBP/JPY Weekly Chart - 2

This is the basic gist of everything that I see this week on the GBP/JPY. Since I won’t be able to post anything more recent until later tonight or perhaps until tomorrow. I’ll just explain what I have on my charts in hopes that you will have seen or see what I am seeing.

The Falling Wedge is very clear. I used the High of the Daily Candle on October 30th, and the High of the Daily Candle on November 3rd. These two candles encompass the entire wedge although not all points touch this trendline. No matter where you draw your trendline, make sure it looks right, this is the most important aspect. In either case you should have a daily candle on January 2, 2009 that either bounces off your trendline or pokes below it and closes above it. This as I see it we have ‘broken out’ of the wedge but it may take a day or so before momentum gets its head in the game. We are coming out of the holiday trading season so things make be sort of sluggish.

First Initial Targets for this breakout are going to be just under 150, where I plan for the market to regroup, and gather additional momentum that suggests a massive correction. The key number I am looking at is 148.65. I expect this number to keep us under 150 at least on the first run up. It may take a few days but we should break 150, and I am expecting to reach 165. I do NOT expect us to go any higher than this if we reach it. This number is too significant to break right now, and the market in its fragile state is not prepared to go any higher than this. These may be optimistic targets right now, but I don’t think the market will have any trouble reaching them.

Of course there is always the doom and gloom scenarios guys, what if this trade doesn’t work out. How will I know? Its actually rather simple. We have a double bottom at the all time historic low from 1995 and now 2008. If we break lower than this forget about buying. I am personally looking at 129.00. Keep an eye on daily candles, 4 hour candles, and anything that looks like the market is trying to push lower and fast. If there is some unrelenting pressure that keeps forcing us down and we take 129 out, please do not stand in its way and try to be brave and weather the storm.

Personally, I think last call buys are going to take place just above 132.

I really hate that I cannot elaborate more than this without visuals to help. Hopefully I can have the other part of this analysis with Daily and 4 hour Charts before the US session begins.

Leave me a comment below if you would like me to run through an analysis of a pair other than GBP/JPY. It can be almost anything, but please try and make it not too exotic. Eur/Cad, Eur/Aud, Gbp/Chf….etc those work…but nothing like Usd/Sng, or Usd/Zar kind of thing.

Always remember not to overtrade, trade smart consistent, and keep your head in the game. This is one of many opportunities that the market offers. Only trade if you agree with what I see.

Good Luck and Happy Trading!

Zack P

GBP/JPY - December 30, 2008 - 21:55 GMT

Hello Guys,

Wanted to give a little quick update before I give a thorough analysis, just to get it out there.

In short, the move north to 138/139 was a readjustment in the market to keep the falling wedge intact for a prolonged period of time.

GBP/JPY however is trading in the small area where the upper and lower trendlines of the falling wedge converge, this means that GBP/JPY’s movements are very limited unless it is deciding to choose a direction.

A breakout of a falling wedge is typically bullish, however since this economic crisis has started we have had a couple bearish breakouts, aka trend continuations. When these sort of trends continue they move VERY FAST.

There is a Historic Low at 129.30 ish, from 1995. I do not know what this number compares on other brokers, but I will be using 129.00 as a buffer.

On the long side, an early entry can be made as soon as 130.60.

Otherwise 132.00 and 133.50.

Because this pattern was readjusted and is still typically bullish, I have more bullish entries than bearish.

Regardless of which direction is traded, I use stoplosses that take recent support/resistance into effect. If you use a 50 pip stoploss you may be stopped out on a false breakout, only to see that you would have been right the second time around.

If a Bearish move occurs, it will happen quickly, dont be a bull if the bearish move happens. Have an open mind.

Sorry this is brief, a better and more visual analysis to come in a few hours.

Good Luck and Happy Trading,

Zack P

Just giving the heads up that I won’t be trading this week and possibly next week. Volatility is too low for my liking and there is the holidays of course. If you choose to trade during this time, be safe and smart.

I’ll re-evaluate my position on the market next week, as of right now I don’t like the trading conditions and am going to lay low for a week. If next week looks better, I’ll consider it, however we still have New Year’s.

If you read the analysis last week and were looking for a follow up considering the late week action last week. I have not decided my official position. I am torn between a bullish bounce off the 132 ‘new’ support of the falling wedge, versus market re-adjusting to accommodate the holiday into the falling wedge. I am still leaning towards the bulls, but the bears had their way with the market last week.

In any case, Happy Holidays Everyone!

Zack

11:30 GMT - December 15, 2008

Hey Guys,

Just wanted to draw your attention to the 1 hour USD/JPY Chart. There is a Bullish Pennant that has formed that we are awaiting breakout.

On the downside we have formed a clear support at 90.46, there are likely to be many traders with sell stops at about 90.35. However, we have the big “psych” number 90.00. There will be additional sell stops at about 89.90 because of this. With that being said, a big number like 90.00 is not going to go easily, as there will definitely be many Buy Limits hanging above it around 90.10.

On the upside at the time of this writing the nearest resistance that formed in correlation with the pattern is at 91.09.

Recommended Trading, Buy at 91.15, take profit before 92.00 there is likely to be Sell limit orders there and a flux of bears entering the market.

If you want to trade on the downside, you can trade a break of 90.35 but target 20 pips. If you want to trade the 90.00 level, set a sell stop at 89.90, but ONLY ENTER if the market bounces off of 90.00 and retests 90.45 and THEN moves down and breaks 90.00 again.

Anyways heres the chart:

Good Luck and Happy Trading!

Zack P

Hello Everyone,

I thought I would give you a Holiday Heads Up with what I see the market doing for this week, as well as some tradable lines. Just going to jump right into it, so here we go.

GBP/JPY has been trading in a Falling Wedge since mid-october of this year. At the time we had no idea it was going to form this pattern, as time went by though the market began to paint the masterpiece. Our job, is simply to trade what it is showing us. Wedges are typically seen as continuation patterns in regards to the prior trend. However when we begin to see rising and falling wedges in the market it is important to note if the trend is with or against the continuation aspect. In a Bearish Trend (which we are in) a Fallin Wedge (which we are in) is regarded as a BULLISH REVERSAL. Let me say that again, on a daily scale, it looks as if we are gearing up for a reversal. It does not mean that we are going to see 180 or 200+ anytime soon, it may simply mean that we rise above 150.00 and stay there.

To give you a preliminary visual of how to view wedges and their intended directions, here is a simple chart to show the basics.

You should be able to see the basic concept from this. The one that is relevant to us is the one in the upper right hand corner. Without holding back any further, here is the daily chart so you can see what we are actually looking at on our charts.

There are a couple of important things to note when we are looking at this Daily Chart. Indicated by the red line, we can see that over the last week and a half the market has gone below 134, but it has not been able to close below this level. If you were trading the markets while it was below 134, you would also know on both counts that it was below 134, volatility was high and the reign of bears under 134 was very short lived. It didn’t even spend a couple hours below 134. Next thing we see is Friday’s Daily Candle. Market closed above 136 and the lower shadow (wick) on that candle is nearly 400 pips in length. Failure to close below 134, long wick, the potential for bulls to flood the market is growing. As many of you should also know by now the lowest GBP/JPY has ever been was back in early 1995 when we touched 129.32ish area. We are having trouble reaching that area. A potentially bullish sign. Last but not least we have this issue of the falling wedge in a bearish trend. A quick look at the CCI shows us that all the market needs to do is move higher and we will break the bearish trend. From the looks of it, we are going to break the bearish trend this week. Be on the lookout for bullish pressure on the market. My bias, I will be extremely bullish, extremely, if we break the resistance line of the falling wedge.

Now with everything we must look at the opposite side. Just because the falling wedge in a bearish trend is typically a bullish reversal, it does not mean it will be. Remember a correlation is not causation. Falling wedges or Falling Channels are USUALLY bullish breakouts but they don’t need to be. Below I have two examples that occurred in the last few months on the Daily and 4 hour charts for GBP/JPY. The first one is a Bearish trend, falling wedge when price had just broken the 200 level when things first started getting underway. The second example illustrates a falling channel and a break below 150 for the second time this year. Remember that when trading in a descending or falling pattern in a bearish trend, a bearish breakout needs to be extremely fast because the pattern itself already has a certain amount of bearish pressure to it. Looking at the patterns below you will see this is clearly evident.

Notice that after each breakout there was a drop of 1000+ pips in a relatively short amount of time? The bearish breakout needs to breakaway from the pattern, in order to do that it needs to move much quicker than normal. On a side note, many people often like to trade gaps in the market. In the first example, you can see the falling wedge, and when the market opened the following week, it created a gap in price, and at the same time it completed a bearish breakout of the falling wedge, making the wedge a continuation pattern. This type of gap is called a breakaway gap, because it completes a pattern breakout. These types of gaps are typically not filled, or if they are it may take several weeks or months or longer.

With all that being said, I don’t think that there will be a bearish breakout of our current formation because of the historical low. This is a strong support, and the global economy although still very weak seems to be stabilizing as more pressure is being put on the United States Dollar. From a global perspective, this is not a bad thing. Each nation needs to take its turn being weak, the dollar has been artificially strong during all of this, and it has been taking its toll on other nations.

Moving on, since many of you do not trade Daily Charts or are able to stand watching a trade for several days (other than those that you made an error like not placing a stoploss) I will be zooming in to the 4 hour charts. Not a whole lot going on here. I would like to note the strength of the 140.90 level. Using the Nick B scalp mentality, this should be quite an obvious line to draw. We hit it once, and retested it a second time. On the second test we had a shooting star candle, and a nice ‘V’ shape reversal. On a side note, if we break the 141 level this would also put us outside of the falling wedge. Since there is bullish pressure on the market I will be looking to take a long position on a break of friday’s high around 136.56, but I may just wait for the 141 level.

That about wraps it up guys. I will be looking and anticipating a bullish reversal for this week. Why now? I think that the markets want to return to a level that there is no uncertainty or volatility is not too high. Next week is full swing holidays, I celebrate Christmas, but there are others Hanukah (or whatever the official spelling is, always confused me (chanukah)) and Kwanzaa, although if I’m not mistaken Kwanzaa is geared a little more towards the end of the year. Anyways looking at it this way if we have a nice bullish breakout this week, next week the market is free to become a flatline with all the traders out of the market knowing that we are not going to make new unseen lows/highs across the board. I hope that makes sense.

Be cautioned in your trading, I am expecting another high volatility week, even though its mid december already. I will be in the chatroom as much as possible to answer questions and call some trades as I see them, as I always do.

Leave any questions you have below in the comments

Good Luck and Happy Trading!

Zack P

Hey Guys,

I’ve had a few questions about how to trade news releases successfully. In the chatroom I posted the ideology of how to trade based on the 1 minute time frame.

The truth is, is that you don’t need to look on the one minute timeframe, you look on whichever timeframe has the appropriate set up, and shows the entire range of the spike.

Ideally, you are looking for a spike up, and a spike down, and looking for a candle that closes at or around its opening price. Also known as a Doji Candle, this candle will allow you to see the range clear as day.

All news releases do not give you a solid range to trade, if don’t see a nice set up, don’t trade.

Here is the ideology again, as well as today’s NFP report via 30 minute charts on GBP/JPY.

GBP/JPY 30 Minute Chart reflecting Non Farm Payroll Release December 2008

If you are looking for easy, no brainer trades. Trading a news range is straightforward and very simple. Allowing the News range to define itself first allows you to avoid being in the trade when news is going on, avoiding obvious spread increases and highly increased volatility. You only job is to determine if a News Spike is tradable…basically does it look like a good set up with a very clear range. When in doubt, don’t. Its a judgement call so use it wisely, if you have to think about it too much, you are in doubt…

Good Luck and Happy Trading!

Zack P

Good Day Everyone,

Today I posted a chart in the chatroom and it also had my analysis of GBP/JPY for the next day or so as to what I see is likely to happen. Also, it is color coded so any text/trendlines in the same color are referring to each other.

Take a look and leave questions/comments at the bottom. Hope it helps you out.

Zack P

GBP/JPY | 1 Hour Chart | 4:00 ~ 8:00 GMT, November 20, 2008

Hello Everyone,

This is the first of many In Depth Trade analysis where you will see in detail how trades develop and why. The goal here is to help make you feel comfortable trading and give you wisdom over time to help you make successful decisions in your own trading rather than irrational ones that have the potential to be devastating. Enjoy.

Looking at the chart above, its clear that during the first hours of the US session today there was an economic release or something that triggered the market to move up rather quickly. However, the market did not seem ready to sustain a bullish movement because we immediately turned around and began heading for the bottom again. If you are someone who trades the Daily timeframes you may have noticed that this sudden spike/reversal were only a means to try and catch stoplosses of those who were anticipating a very bearish move down past a break of 139.00. Since we are only working with the 1 hour timeframe though, we need not concern ourselves with whats happening on higher timeframes for the current timeframe will show us everything we need to know.

Since then the market has been on a very heavy downtrend. On the CCI this downtrend was supported by a continuation pattern (I haven’t covered this yet) But it has yet to break the lower trendline.

So what am I thinking? We opened the market and reached a low around 140.62, I think that this support level needs to hold if we are going to get a bullish signal, I will be waiting for the next two hour candles before I suspect that we will get our signal. We are currently trading at 141.85 and we are beginning to potentially look bullish, but there is still a lot of room for the bears. We have our potential trade, all we need to do now is observe it and wait for the confirmation.

Checking up on the market about an hour later and we see that we had a slight bullish move up. Candle wise, this may be considered the beginning of a Bullish Harami Reversal pattern. What is important to note on this chart is whats happening with the CCI indicator. You can clearly see that the CCI is being ‘broken’ and that the wick of the candle on our chart is poking above the corresponding trendline. Simply showing the trendline we are looking at on the CCI versus what it looks like on the price chart. Its important to take note of nearby Support/Resistance that may be relevant to the trade we are about to enter. When you enter a trade the CCI is showing us where the next candle’s momentum is most likely to be, if the nearest Support/Resistance is broken in addition to the trendline break, this constitutes a safer trade entry as momentum will be in your favor at the time you enter your trade. It is also VERY crucial to note that the CCI is not a predictive indicator, or leading indicator. The CCI repaints like all indicators because it is subject to whatever the current price is, so as price changes it will change with it until that candle closes preventing the CCI from changing its previous position. This is why its important to wait for confirmation of a trendline break because in the last 4 minutes of a candle being open you may see price drop significantly, and what used to be a trendline break on the CCI suddenly becomes a trendline bounce and a trend continuation. If you entered the trade prematurely, this can have very negative effects on your account.

Candle closes and we successfully have a trendline break. At the opening of the new candle you can see that the CCI is showing momentum is rather flat. There are two possible entries. Since we having broken the trendine looking for a BUY position you can enter immediately at the open of the new candle, or you can set a pending order for when price breaks above the high of the previous candle. I have labeled both on the chart. Stoplosses are placed below the most recent significant lows. I usually like to give myself a tiny buffer.

Here is a chart of the trade in progress a few minutes into the new candle. You can see that the CCI is beginning to curve down. This should be of no surprise, remember the CCI is showing wherever the current momentum is. If the candle is bearish, chances are the CCI is also moving in a downwards direction, and vice versa for a bullish candle. There is a reason that we use recent Support/Resistance when we determine where to place the stoploss for our trades. The CCI allows us to see what we should already know about the market. The market is constantly moving in trends, and while these trends form, they begin to form Support/Resistance levels. Since we are only trading the current market movements we only need to concern ourselves with the closest Support/Resistance that formed. When momentum on the CCI shifts(Trendline Break) it can just as easily continue in the opposing direction, however in order to do so it will need to break the level that the market already defined. This makes the placement of stoplosses relatively easy and should make you feel comfortable with a trade you are in. Trades using the CCI are meant to be short-term or relative to whatever timeframe you are watching or observing. If stoplosses are triggered it is most likely that the opposing force will temporarily have control of the market direction. This does not mean that if you are stopped out reverse your position, but rather to wait for the next set up, its best to enter the market with a fresh mind, clear head and no pre-dispositions, such as a losing trade only seconds before.

Well In this frame we see that our stoploss was triggered. Although it is unfortunate, it does happen, they can’t all be winners. Notice that as our stoploss was triggered the CCI had also reversed and was leading towards a more bearish momentum. The CCI is showing where the current momentum lies, it will follow wherever price goes but does not predict. The only way that the CCI acts as a ‘leading’ indicator is in the sense that the momentum of a previous candle will be carried into the next candle, however momentum does not need to do this, if it did trading would be far too simple and everyone would be successful. The fact of the matter is the market is unpredictable and can do anything at anytime anywhere, your job as a trader is to use a simple filter to determine the best possible places to catch a few pips here and there. Our trade was in profit by +30 pips at one point in time, momentum was in our favor, but ended against us.

So our trade is over, resulted in a loss, but what happened with the rest of the day? Well, if you used the safer entry on the trade, your trade was never activated. The 142.68 level that we were looking to get broken never did break and as of the latest frame acted as a reversal point on the hourly chart two more times later in the trading day. Apparently our safer trade entry held a much bigger significance than we had previously thought. The bearish pressure on the market was no doubt as the downtrend continued, some lengths news related others note, but all movements shown in accordance with the CCI and regular trendlines. A few examples of trendlines are provided for your viewing pleasure.

Not a great way to start off the Detailed Trading Record, but sometimes a losing trade first can keep your mind focused. Kick you back to reality and make sure that you are not overconfident with your ability to trade the market.

Statistics:

Leave some comments/feedback for things you liked, things you think I need more of or questions you may have.

Good Luck and Happy Trading!

Zack P

Pending Orders

“Whats the difference between a buy stop and a buy limit?”

Does this question sound familiar? If it does, don’t worry, many people that have been trading for months do not know the difference between a limit and a stop order is. Trading terminology can be kind of difficult to remember for any trader when they first enter into this business. So its important to make it easier on ourselves to give our brain time to adjust to a new concept until it just becomes natural.

With a ‘Stop’ order, this can be a Buy Stop or a Sell Stop, you are looking for price to travel in one direction, activate your order, and keep going in the same direction; Continuing the trend. Think of it this way, you are driving your car down a road, you come to a ‘Stop’ sign, and then you keep driving in the same direction.

With a ‘Limit’ order, (Buy or Sell), you are looking for price to travel in one direction, activate your order, and then reverse in the opposite direction; Reversing the trend. Again, you are driving your car down a road and you suddenly come to a dead end, the road’s ‘Limit,’ you are forced to turn around and go back the way you came.

I hope this makes a little more sense. If you are still a visual person, I have included a chart below representing each type of order.

Pending orders are a useful tool to automatically enter a trade when you may not be immediately available at your computer. Placement of pending orders is solely at the discretion of the trader, and they completely rely on price. As with regular Market Orders, Pending Buy Orders are executed at the Ask Price, and Pending Sell Orders are executed at the Bid Price.

The downside to using pending orders is that you are not able to view price action as the trade is being entered, and thus you are not able to offer your logical analysis of whether to enter the market or not. Pending orders are fully automated once entered into your platform. Some pending orders may be activated prematurely if the spread of the currency pair was increased at the time of execution due to high volatility or an economic news release.

The advantage to using a pending order is limited to being able to enter a trade in a circumstance that would normally require your presence in front of your computer. It enables a trader a little freedom from the charts.

I hope this helps, any feedback is appreciated.

Good Luck and Happy Trading!

Zack P

5:58 GMT - Friday, November 14, 2008

Hello Everyone,

Couple things. USD/CAD resistance was an upwards sloping trendline. Immediately after I posted the trade I edited the stoploss on it to adjust for a prolonged wait before a drop.

Therefore if you were just scalping the breakout from the pending order you should have exited with +30-50 pips.

If you happened to stay in the trade and were unfortunate to get stopped out. I have a revised entry.

My Trade Recommendations:

————————————————————————————–

Market Outlook

In the middle of the US Session there were sudden rises/drops across several currency pairs. Up until now they have all been slowly forming continuation patterns in the direction of the sudden rise/drop from before. I would recommend sticking with trading in the direction of those sudden moves that we saw from New York’s Thursday Session (Which does in fact recommend a trend reversal on higher timeframes).

Remember that right now the overall trend is still bearish for most pairs that are traded here(GBP/USD, GBP/JPY, EUR/USD). If you look closely on the 1 hour or 30 minute chart you will be able to spot several supports/resistances that have formed after the market made the sudden highs/lows earlier today. IF we break those support/resistances in the direction of the monthly trend, I would recommend continuing the monthly trend, and not trading the counter.

The market is forming continuation patterns for counter trend trades as a result of the price movement from the US session. If these patterns fail to break the highs/lows that were created but instead break the retracement moves, chances are the pattern itself failed to complete and the monthly trend will continue, at least enough to retest some significant supports. As this may sound a bit confusing I will post a few examples but I will leave the rest for you.

Good Luck and Happy Trading

Zack P