FOREX TRADING

Bollinger bands will help you to predict big trending moves, act on big trend reversals and finally, time trading positions with greater accuracy for bigger profits.

Here we have related Bollinger bands to the currency markets (as it is here that they are most useful) – but they are useful in all financial markets.

What are Bollinger Bands?

Developed by John Bollinger, Bollinger bands are volatility bands drawn around a simple moving average.

You calculate Bollinger bands using the standard deviation of price over the same period as moving averages and plotted as lines above and below the moving average.

As moving averages have been traditionally used to identify the underlying trend, Bollinger bands combine this with the volatility of the individual market (or the standard deviation) – to plot a trading envelope.

The distance between upper and lower Bollinger bands reflects the volatility of the market traded.

As prices force themselves away from the longer-term average, the standard deviation rises – and thus the bands will fluctuate in varying amounts, away from the average.

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By Malika Sharma

Swing Trading indicators are what the professional traders use. Indicators support the professional traders on their decision making technique. The banks and the professional traders use the indicators to the maximum achieving better results. The stock charts need to be well described through the use of indicators. Generally, an indicator perfectly complements the stock charts. Try to be careful while placing a large number of indicators on a single stock chart as it might result into complicated charts to read and analyse. Some of the indicators which are usually used by the traders are namely moving averages, stochastic indicator, and relative strength indicator.

Moving averages are considered to be the most traditional and widely accepted type of an indicator. They are preferred as they easily help in identifying the trends. The professionals of the trading industry want to have a view of the trends for the long terms. This could be best viewed by using 150 and 200 moving averages. These type of moving averages are normally used when you are about to place an indicator on the stock chart. Identifying the trends is one of the purposes of the moving averages while the other reason is to have a brief knowledge about support and resistance areas.

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Daily Technical Analysis

EURUSD Outlook

The EURUSD still trapped in range area of 1.4450 – 1.4250 yesterday. I think the best strategy remains to short around 1.4450 or to long around 1.4250 with tight stop loss. Bullish scenario will be confirmed by a close above 1.4450 today targeting 1.4600 – 1.4800 this week while bearish confirmation will be confirmed by a close below 1.4250 targeting 1.4127 – 1.4000 area this week.

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Daily Technical Analysis

EURUSD Outlook

The EURUSD has been consolidating in range area of 1.4450 – 1.4250 in the last two weeks. I am expecting a break on either side to see clearer direction. The bearish scenario was interrupted since the violation of the bearish channel (red channel) but the bullish momentum also still limited so far. For me, nothing is confirmed. While conservative traders may stand aside in this situation, aggressive traders still can use range trading strategy, which is to short around 1.4450 or to long around 1.4250 with only tight stop loss. Break above 1.4450 should confirm the bullish scenario at least testing 1.4600 – 1.4800 area this week while break below 1.4250 should trigger further bearish momentum re-testing 1.4170 – 1.4127 area before aim for 1.4000 area.

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EUR/USD closed higher due to short covering on Monday as it consolidated some of this month’s decline. The mid-range close sets the stage for a steady to higher opening on Tuesday. Stochastics and the RSI are turning bullish signalling that sideways to higher prices are possible near-term. Closes above the 20-day moving average crossing are needed to confirm that a short-term low has been posted. If its renews this month’s decline, the 38% retracement level of the 2008- 2009-rally crossing is the next downside target.

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Weekly Technical Commentary

USD/JPY

Chart Levels:

Support 88.00..87.35..86.00..84.82.
Resistance 89.80..90.80..91.35..92.33.

This week: →
This month: ↘

The sharp rally from a multi-year low at 84.82 has turned into ‘triangle’ consolidation. The US dollar is no longer oversold and most elements of this chart still suggest a short USD/JPY position. Long term while below 92.00 downside pressure is maintained, while the closer we get to 85.00 the more the authorities will be tempted to intervene. In fact the early December high at 90.78 might in fact be a new lower interim high. Decent futures volume over the last two weeks suggests many are cutting out of stale positions ahead of expiry and year-end. These will have to be re-built next year.

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Daily Technical Analysis

EURUSD

The pause in Euro rally triggered by Dubai World debts payment delay so far expected to be temporary as after hit bottom at 1.4827, Euro recovered quickly, closed much higher at 1.4985 on Friday and the trendline support still did a good job prevented further bearish attack thus technically keep the bullish scenario intact, especially if price able to move consistently above 1.5062 today, which is technically potential to be tested after rebound from 1.4827. However, note that the false breakout from 1.5062 area (see my daily chart below) also hide a potential bearish view and price could make another downside attempt testing the trendline support and 1.4827 once again, especially if price break below 1.4920/00 area today. No one knows whether the impact of Dubai World is only a temporary panic reaction last week or will continue to shake world stocks market thus could bring the Dollar higher this week. The bias is bullish in nearest term testing 1.5062. Valid break above that area should trigger further bullish momentum towards 1.5140/50 area

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Daily Technical Analysis

EURUSD

Yesterday I said that EURUSD need a consistent move above 1.5150 resistance area to continue bullish towards 1.5300. The fact was, price never got higher than 1.5150 and bullish momentum was rejected. I was right at this point until price unexpectedly made further bearish momentum, fell below 1.5062, bottomed at 1.4959 and closed at 1.5006. I have to admit and realize that my technical study was completely a mess. After broke above 1.5062 and topped at 1.5143 on Wednesday, I thought a movement towards 1.5300 should not be that hard. Well, my 1.5150 bullish target area was easily hit, but my second bullish target around 1.5300 was not. Technically the bias reverse to bearish, especially in nearest term with 1.4920 support area to be tested. Break below that support level should trigger further bearish momentum towards 1.4850/20 area, but as long as the bullish trendline support hold (see h4 chart below), the bullish scenario in longer term remains intact, especially if price able to break above 1.5062 today, testing 1.5150 area once again. Note that bearish reversal scenario warning is now can not be ignored especially if we have further bearish below 1.4820 with 1.4625 and 1.4450 as technical target. I think I will stand aside for now as situation is very tricky, but probably consider about open long position if price move near trendline support area or 1.4850/20 area today with tight stop loss.

On fundamental point of view, the risk aversion came back into play yesterday. Bloomberg reported that Dubai World proposal to delay debts payment shook investor’s confidence. Stocks in Asia, US and Europe dropped significantly while Yen and Dollar benefited from this situation. Well, I think it’s the time that we should not be too optimistic about global economic recovery. It’s true that we have some significant improvement and have good reasons to be optimistic, but things are just still far from being stable and investor’s panic selling on Dubai World debts payment delay prove that. The Japanese Yen is the most currency appreciated in this situation, lead ’safe heaven’ currencies strengthen. However, I am concern about possible intervention by Japanese government to weaken the Yen as traders may respond to it thus potentially wane the Yen and Dollar rally.

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