THE BEST TIME TO GO LONG (BUY) OR SHORT (SELL) FOR GBPUSD

What I will share today is the yearly trading cycle that is best suited for retail traders. Put differently, the safest months of the year to long or short. I have earlier discussed the period for a different purpose. If you want to know the best time to go long/short you will find the answer in the Monthly Price Action Analysis (MPAA). As a reminder, price moves for the first 6 months (Jan-June) in one direction (bull/bear), consolidates for the next 3 months (July-Sept), and closes for the last 3 months (Oct-Dec). For GBPUSD and most major pairs, prices reach their peaks (high/lows) twice in year i.e. May/June and Nov/Dec.

The best times for any retail trader to go long/short as long as the Cable is concern is therefore in the months May/June & Nov/Dec of every year. Nov/Dec are however not reliable because it is the end of the year. The big players after booking their profits, usually start on a clean slate and it could be bull/bear. November/December could go either way. On the other hand, May/June is the best period to take a decision on wheether to go long or short for the following reasons:

a) The ‘big players’ would have pushed the price in the desired direction for about 5 months
b) By this period, price would have moved by at least a thousand pips and more
c) After this period price generally don’t move far higher or lower, unless something dramatic happens
d) The highest/lowest prices for the year are usually recorded around this period
e) Most big players begin to book their profits and reverse their positions around this period of the year.

If you want to increase your chance of your success as a retail trader, roll your trading calendar from May to April of the following year, but always remember to book your profit between October-December.

I attached a monthly and a weekly charts for about 20 years period to clearly illustrate this above analysis.

MONTHLY PRICE ACTION ANALYSIS (MPAA) - GBPUSD

Successes in forex trading could only be achieved if you have the bigger picture within your purview. To achieve this it is important to realise that you can only have a ‘helicopter view’ of the market in the higher time frames. The higher time frames provide useful insights into the trading parameters within a given period of time, which could be up to 2-4 years. With this knowledge it becomes easier to proceed to the lower time frames and trade confidently within the established boundary.

For a better understanding of the picture, we will now discuss, the Monthly Price Action Analysis (MPAA). As usual we will use the GBPUSD monthly to explain the MPAA for the period December 2008 – January 2012.

A closer observation of the monthly chart for GBPUSD will reveal the following facts:

a) If the cable begins a new year around the lowest point in a yearly circle, the point usually serve as a circle for a bullish run (rise in price)

b) If the cable begins a new year around the highest point in a yearly circle, the point usually serve as a circle for a bearish run (fall in price)

c) Price moves for the first 6 months (Jan-June), consolidates for the next 3 months (July-Sept), and closes for the last 3 months (Oct-Dec)

d) Price generally consolidate around the concrete zones

The question at this point is what is the usefulness of the above analysis in a simple language? The benefit of the MPAA is that the accounting year for the ‘big players’ (banks, hedge funds, investment outfits, etc) starts from January and ends in December. At the beginning of each year, depending on the fundamental factors, the big players push the price to a direction determined by fundamental factors (it doesn’t matter whether it is bull or bear). By the middle of the year, these players used the next three months see whether the bullish/bearish run will continue or not hence the consolidation around this period. These players use the last three months to take their profit and close their books for the year. The big players will never leave roll over their profit to another year. That is the monthly circle for the Cable.

What is then my view for 2012? I.5300 is proving to be a very strong support on all time frames and most importantly the weekly candle. I expect a consolidation around this area before the next major moves, when all the market movers return by the end of this month/1st week of February. Whichever directing they are going, the weekly candles will tell us. Due to the concern with Euro, the sentiment is down but 1.530 has not been broken since August 2008. If the weekly candle breaks out of this zone and the next candle opens and closes below this level, then we should begin to look at for a test of 1.430 which is the next support.

I attach a weekly chart showing consolidation around the master charts levels. This area of weekly consolidation is where I called the concrete zone. The weekly charts can consolidate for up to three months. The consolidation area for now is between 1.5360 and 1.5780 (about 420 pips) and the Masterchart support is 1.530 until firstly, the body of a weekly candle closed outside and secondly a the body of a weekly candle opens and closes outside this level. A pin outside 1.530 is a false breakout.

What I am trying to do here is to explain this process and give you knowledge to apply it to any situation. To gain confidence in your analysis pick the chart for any currency pair e.g. EURUSD, GBPJPY, AUDUSD, and try the MPAA through this simple process:

Ø Identify where the prices on the monthly chart are in Dec/Jan over a period of 2-3 years
Ø Identify the highest and lowest point for 2-3 years
Ø Identify weekly chart price reaction around the concrete zone
Ø Identify the consolidation areas (concrete zone)

You can post your charts here and I will endeavour, I will review them and tell you where you need to improve.

I attach the monthly for GBPUSD in support of MPAA and the weekly, daily, H4 and even H1 charts to show price reaction within our current 400 pips concrete zone.
50PPAA will tell you the immediate direction and read the mindset of a successful trader to know how to react to what you see in our charts.

I wish you successful trading in 2012.

THE MASTERCHART AND THE DRAGON (GBPJPY)

 

Those who have been following my previous posts on Mastercharts, would have read that the cyles for GBPJPY is between 1300-1500 pips. As volatile pair, the Dragon has little respect for the Masterchart support/resistance levels and would often violate these levels by as much as 300 pips. The best strategy for dealing with this volatility is to create a buffer zone of 300 pips around the Masterchart levels. For example 1000 pips price movement from 120-130 will have its buffer zones at 117-120 and 130-133 price ranges. You will only look for opportunities to either go long or short within the buffer zones. If you trade this way, you will avoid entring trades premature and getting severely burnt in the process. I attach herewith the followng 100 PPAA and 200 PPAA charts in support of this analysis

 

 

As I have mentioned before, the Masterchart for AUDUSD is 1500 pips divided into two equal parts of 750 pips each i.e. 0.9500, 1.0250, 1.1000. If you look at the monthly chart 1.0250 has been holding for the the past four months. The weekly candle broke it once and jumped back again and is currently consolidating between 1.0250 and 1.0420. The monthly charts says a re-test of 1.0650 is a possibility, but the weekly candle needs to break out of either 1.0250 and 1.04200 for us to know the direction.

200 PPAA - Day Traders1. Divide your Masterchart into 5 equal parts of 200 pips each

2. For Day traders you will trade in the direction of the weekly candle at the break of every 200 pips. Your trading range is 200 pips and pick
whatever pips you are able to within this range using H4 candles as a guide. If the trend is strong on H4 candles you can allow your profit to
run if you are able to monitor the trade.

3. Most of the time price completes 500 pips move before any significant retrace. The first 500 pips is what you should concentrate on.

4. For your stop loss keep it at any ratio you are comfortable with but not more that 2% of your account.

200 PPAA - Medium/Long Term Traders

1. Divide your Masterchart into 5 equal parts of 200 pips each

2. Your trading range 1000 pips.

3. Use the 200 PPAA to determine your Risk/Reward Ratio which is 4:1. What this means is that you look for buy/sell after in the last 200
pips of 1000 pips price movement, which is your entry zone.

4.To enter a trade you search for pins of the weekly candles within this zone or a weekly reversal candle (reversal candle is the first weekly
bearish or bullish candle after about 800-1000 pips price movement).

5. Most of the time price completes 500 pips moves before any significant retrace. The first 500 pips is what you should concentrate on.

6. With Risk/Reward ratio of 4:1 you put your SL for sell within the next buy zone (after 1000 pips) and your SL for buy within the next sell
zone (after 1000 pips) provided this is within 2% of your trading account.

What is the difference between 100 PPAA and 200 PPAA? For 100 PPAA your risk is lower but you will have fewer trading opportunities. For 200 PPPA, your risk is higher, but you will have more trading opportunities. I used GBPUSD as an example of this analysis. You can pick the charts for other major pairs and prepare simiilar charts. Remember for GBPJPY the cycle is 1300-1500 pips and AUDUSD the cycle is 1500 divided into 750 pips each.

Preparation is important FX.

100 Pips Price Action Analysis (100 PPAA)

100 Pips Price Action Analysis (100 PPAA)

I was unable to post to this blog for sometime because I lost the password.  I have recently, recovered the password and will be post more regularly.  Today, I will share my analysis on 100 PPAA within the Masterchart. 100 PPAA and 200 PPAA are the analyses price action within the Masterchart levels using 100 pips and 200 pips price movement respectively. Here is exactly what to do:

100 PPAA - Day Traders
1. Divide your Masterchart into 10 equal parts of 100 pips each

2. For Day traders you will trade in the direction of the weekly candle at the break of every 100 pips. Your trading range is 100 pips and pick whatever pips you are able to within this range using H4 candles as a guide. If the trend is strong on H4 candles you can allow your profit to run if you are able to monitor the trade

3. Most of the time price completes 500 pips move before any significant retrace. The first 500 pips is what you should concentrate on.

4. For your stop loss keep it at any ratio you are comfortable with but not more that 2% of your account.

100 PPAA - Medium/Long Term Traders

1. Divide your Masterchart into 10 equal parts of 100 pips each

2. Your trading range 1000 pips

3. Use the 100 PPAA to determine your Risk/Reward Ratio which is 9:1. What this means is that you look for buy/sell after in the last 100 pips of 1000 pips price movement, which is your entry zone.

4.To enter a trade you search for pins of the weekly candles within this zone or a weekly reversal candle (reversal candle is the first weekly bearish or bullish candle after about 900-1000 pips price movement).

5. Most of the time price completes 500 pips moves before any significant retrace. The first 500 pips is what you should concentrate on.

6. With Risk/Reward ratio of 9:1 you put your SL for sell within the next buy zone (after 1000 pips) and your SL for buy within the next sell zone (after 1000 pips) provided this is within 2% of your trading account.

I attach herewith the GBPUSD charts in support of the above analysis.

ANALYSIS

GBPUSD MPAA - The best time to begin to look for short is between April- June (Wait) 1000 PPAA: 1.6270-1.630 is the place to short (wait) Weekly - The weekly candle has been consolidating since Jan. 29. The valid weekly pins were pins were given on the 2nd & 26th of February Daily Trade Friendly Chart: - The sell signal was given on the 1st and 8th of February EURUSD MPAA - The best time to begin to look for short is between April- June (Wait) 1000 PPAA: 1.3600-1.3630 is the place to short (wait) Weekly - The weekly candle has been bouncing between 1.300 - 1.3500 for about 5 weeks. The valid weekly pin was given on 19th February. Daily Trade Friendly Chart: - The sell signal was given on 24th of February GBPJPY MPAA - The best time to begin to look for short is between April-June (Wait) 1000 PPAA: 130-133 is the place to short - 135 is the round figure (wait) Weekly - There is no pin on weekly candle yet, where this week candle closes will determine whether we will have a pin at 133.48 (Wait) Daily Trade Friendly Chart: - The sell signal was given on 16th of March 133.48 My parameters for trading The general guide on these parameters is available on the mindset of a successful trader. What I will provide here are the practical elements of the mindset. Trading should be guided by clear parameters. If these parameter are not met, there is no point entering a trading. Here are my trading parameters now in the order of priority: 1. Monthly Price Action Analysis (MPAA) - There are clear months for long and clear months for short. Read my posting on MPAA to understand this circle 2. 1000 Pips Price Action Analysus (PPAA) - Major players trade 1000 pips. For short term trades divide the 1000 pips into 4 equal parts of 250 pips. You can begin to look for long in the first 250 pips and long in the last 250 pips. Personally I prefer the first 150 pips and the last 150 pips. For the Yen pairs extend the 1000 pips to between 1300-1500. 3. Trade Weekly pins - If there are not signals in the first and second parameter, the weekly pins (topmost and bottoms) will give you clear signals concrete zones. Concrete zones could be between 300 to 500 pips. You short as close as possible to the top of the concrete zone and buy as close as possible to the bottom of the zone. Pins after about 3-4 weekly candles are most reliable. 4. Daily Trade Friendly chart: If there is no signal on MPAA and 1000 PPAA and you want to trade for 200 pips or less check the daily trade friendly chart, a touch of the red zone is a good signal to sell, while a touch of the yellow zone is a reliable signal for buy. It is usually more profitable to trade in the direction of the weekly. If you sell when the trend is up on the weekly chart, take profit on the touch of 50 points on the daily RSI. If you buy when the trend is still down on the weekly take profit on the touch of 50 Points on daily RSI 5. 50 Pips Price Action Analysis: No matter the parameters you are using go to 50PPAA to actually place trades, that way you gets trades at the best discount. I attach some charts, but will find time and attach more later.