Jason Boudrias's List: Forex - Henry Liu - Education

• The key to determining the Right Timing rests on Market Liquidity.  Market Liquidity is defined (Wikipedia) as:

   

  … Market liquidity is an asset’s ability to be sold without causing a significant movement in the price and with minimum loss of value. Money, or cash, is the most liquid asset, and can be used immediately to perform economic actions like buying, selling, or paying debt, meeting immediate wants and needs. However, currencies, even major currencies, can suffer loss of market liquidity in large liquidation events.

• Here is a quick  rule of thumb for determining what currencies to trade at what time:

   
   
  • 5:00pm ~ 3:00am EST – AUD, NZD, USD, JPY
   
  • 3:00am ~ 8:30am EST – EUR, GBP, CHF, USD, JPY
   
  • 8:30am ~ 5:00pm EST – EUR, GBP, CHF, CAD, USD, JP
• Note that USD and JPY are available to trade during all hours, since USD covers 84% of all exchanges, and JPY is considered as a reserve/carry currency. 
• Here are some ideas to get you started on plannin for the right timing:
• What to do around market closing time? I’d expect some profit taking as traders protect their profits… You know, going home and not having to worried about open positions, so whatever gains you saw during the session, expect some retracements… and it is probably best to get out and take your profits.
• What to do during the middle of the trading session? I usually gauge middle part of the session at least 3 hours away from the next market open, and it usually means since there are still plenty of time, if I am in a trade with good fundamental reason, I would extend my TP and let it ride…
• What to do around market opening time?  I’d pay attention to 2 major opens, the European and U.S. open; if I see strong movements during previous sessions, I’d usually expect the market to turn around unless the reason for the strong movements is a long lasting one… Let’s say that we saw some sell-off in EURUSD on risk aversion sentiment due to Australian news… I believe EURUSD could turn around at the open, especially if it is trading weaker during Asian session… However, if the reason for EURUSD weakness is due to some rumor or news out of Europe for another Greek Bailout or something, then expect the market to be even more bearish… 

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• Far too many times Forex traders get into the market without the right reason, or for that matter, without a good enough reason.
• Far too many times Forex traders get into the market without the right reason, or for that matter, without a good enough reason.
• Far too many times Forex traders get into the market without the right reason, or for that matter, without a good enough reason.
• Far too many times Forex traders get into the market without the right reason, or for that matter, without a good enough reason.
• we need to identify The Real Reason behind our trading decisions.  Ask yourself why are you in this particular trade, is it because you saw how the market jumped 30 pips in the last 5 minutes? Or did you have a strong fundamental reason to take this trade?  Is it because you’ve been sitting in front of your PC the whole day and you haven’t made any money? Or you took this trade because it was the entry level you’ve been waiting for the whole day?
• To wrap this up, here’s a great reason to be in the market - Economic News Releases:
• Since we get about 30 high impact tradable news releases a month with potentially hundreds of pips of movements per release, I’ll say that news trading is a great reason to be in the market… considering also the fact that the bulk of market movements takes place during the first 45 minutes after the news, you get the most out of trading in a relatively short time, plus the fact that some  high-impact news could change the long-term trend of the market, which puts you in an excellent position to get in just as the trend changes… I can’t think of a better way of trading…

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• “Trend is your friend.” 

• So in short, here are the two majors things I look at when determining the trend:

   
   
  1. Market Perception
   
  2. Risk Sentiment

• Market Perception

   

  There is a saying that when it comes to trading, perception is everything… But I believe that sometimes perception is even more powerful than the actual event.  That’s why we hear the term “Buy on rumor, Sell on news” being thrown around almost daily.  So what is perception?  It is when the market believes something, it doesn’t matter if it is true or not, market will act on it… Case in point, if market believes that the Federal Reserve is going to announce a rate hike, then we will see USD getting bought off sharply… As a matter of fact, market will position itself so much in advance (Buy on rumor) that at the time of the actual announcement, traders may even SELL USD as the effects of the Rate Hike have already been priced in, thus the term “Sell on news”.  This is one of the strong reasons that drive the trend, and if you can just pay attention to what’s happening in the market today, it will certainly helps you to stay on the right side of  trend…

• Risk Sentiment

   

  Trend  may sometimes may be driven by emotions… When the market crashes or there are fears of crash, traders will sell off on their riskier holdings in order to minimize loss, and that can turn into a snowball effect… The opposite is true as well when the market is optimistic and everything goes up, because everyone and their cousins are trying to get a piece of the action… these are risk sentiments, or risk appetite / risk aversion sentiment.
• In Forex, if you see a combination of safe-haven currencies get stronger, then it is probably risk aversion…  For example, when you see USD, JPY, and CHF gaining across the board, then that is probably because traders are afraid and want the safe-haven status that these currencies provide… On the other hand, when you see EUR, GBP, AUD, NZD gaining across the board with USD and JPY weakening, then it is probably risk appetite as traders demand more return on their investments… Usually the higher the interest rate a currency provides, the higher the risk.

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• Here’s what Wikipedia has to say about support/resistances:

   

  A support level is a price level where the price tends to find support as it is going down. This means the price is more likely to “bounce” off this level rather than break through it. However, once the price has passed this level, by an amount exceeding some noise, it is likely to continue dropping until it finds another support level.

   

  A resistance level is the opposite of a support level. It is where the price tends to find resistance as it is going up. This means the price is more likely to “bounce” off this level rather than break through it. However, once the price has passed this level, by an amount exceeding some noise, it is likely that it will continue rising until it finds another resistance level.

• SUPPORT

   

  Basically a support or resistances are areas that the market is likely to “bounce” back… they are not called top/bottom because supports/resistances are meant to be broken, so don’t get married to a position thinking that a level is going to hold forever…

   

  So how do we identify these levels?  Well, technically, a support on a candlestick chart is when you have a low middle candle with 2 higher candles to the left and 2 higher candles to the right. 

   

  We usually only worry about support when the market is trending down, you know, paying attention only to potential reversals or “bounce” backs…

   

  RESISTANCE

   

  Resistance is exactly the opposite of Support, and on a candlestick chart, you are looking at a middle high candle with 2 lower candles to the left and 2 lower candles to the right… And of course, we only worry about resistances when the market is trending up, because we want to pay attention to the possibility of reversals or “bounce” backs.

   

  You may ask about timeframes, such as which timeframe do we use for these support/resistance levels?  I personally start from the 1Hour chart and up to find the next level… so if the market is going up and I don’t see the next resistance on 1H, I’ll go to 4H, Daily, and even weekly for find possible reversal levels…

   

  You can use these levels as your take profit targets, entry, or even stop loss… the key is to consider the trend and plan your entry…

• Support & Resistance Combined Forex Trading Strategies Entry Consideration

   

  Here’s how to put the first 4 strategies into consideration:

   
   
  1. Real Reason – AUDUSD pair – Why? RBA Interest Rate Decision
   
  2. Right Timing – During RBA Meeting scheduled time to take advantage of market volatility and possibly see market trend for the rest of the trading day…
   
  3. Correct Trend – Recent CPI q/q release puts RBA at a disadvantage, plus the global economic slowdown should add to the risk aversion sentiment… at the end of the day, AUD is a risk currency and it has been overvalued for too long… Also consider RBA might institute a series of rate cuts starting in May 2012, the outlook for AUD is bearish…
   
  4. Support & Resistance – Since we are looking for a SELL, we should look for levels to SELL or when AUDUSD is trending up to resistance areas for bounce backs… Here is what I see:
   
   

  

   

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  I see possible entries to SELL AUDUSD from 1.0427, 1.0446, 1.0460, and 1.0472… With 1.0472 being the ideal entry and 1.0427 being the most realistic as it is the closest to the current price action… I’ll probably settle for anything above 1.0450 level, since we may not see much momentum going upwards…

   

  As the market drops on weaker AUD, you can get out at 1.0355 ~ 1.0340 area, that is the first level of support and we may see a bounce back in the pair
• Just in case you missed it, let me repeat it again, market goes up when there are more buyers than sellers, and goes down when there are more sellers than buyers…
• In essence, if you pay attention to these support/resistance levels, you are going to be ahead of the game
• So when the market tests these levels again, isn’t it possible that the same reasons (regardless of whatever, they are irrelevant) would call for similar reaction in the market?  I believe so, and I have seen them working time and time again…

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