For this patter to become official, the EUR-AUD must advance above the high of 1.2616. It is not only a resistance here, but crossing this level would also complete the Cup with Handle pattern. At this point, the EUR-AUD would be officially, from a technical perspective, in an uptrend, with a target of around 1.2950 or so.

Rebounding from a steep correction, the CAD-CHF returned to its prior high for the trend at 0.9400. Couple of weeks ago, the price found support at the 50% Fibonacci retracement level or 0.8934. This confirmed the bullish sentiment, in particular when combined with rising volatility, as shown by the ATR.

Now the CAD must close above the 0.94 handle, in order to continue its rise. The ADX is rising, supporting a trend gaining momentum, and the price is above all important support levels. However, breaking key levels is not always easy, so we must on careful of potential fake breakout. The CAD-CHF is likely to attempt a move soon, perhaps even today.

All of the Japanese Yen pairs have been advancing strongly for several months now and the NZD-JPY is no exception. Here the price gained over 1100 pips, reaching as high as 68.32. At this point, however, this pair went through its first significant correction of the uptrend and dropped to 65.31, before recovering to the 68.33 on Wednesday.

For the rally to continue, the NZD-JPY must close above this level on daily basis, which could prove difficult. The RSI developed a divergence, suggesting that the trend is not as strong. Another indicator, the ADX is in concurrence, having gone flat and not rising any longer. All this points towards a continuation period in the NZD-JPY, even if the general sentiment is still bullish.

Mike K.

When trade moves our way, we always hope it is going to progress even more. We try to squeeze every possible pip out of the market, which is only natural. After all, most of us are in the market to make money, not because we are in need of mental challenge. For that, one can play chess or try to decipher writings of Nostradamus. Unfortunately, this amounts to finding a top/bottom, in order to fully monetize trade, which is exceedingly hard to do. This typically creates situations when a transaction, after being profitable for some time, sheds gains and even turns negative. Very unpleasant feeling, yet one that everybody is familiar with. One starts to question own ability as a trader often leading to self-doubt and undermining entire enterprise.

What to do, then? There is no simple answer, but for most traders setting targets for trades should be as important as the entry set-ups themselves. If market reaches projected value, in most cases trade should closed and profits pocketed. It worked as planned; objective was met on correct analysis, job well done. And yes, very often the moves will continue, making as feel as if we left “money on the table”. While this is certainly strong emotion, it is not nearly as debilitating as the ones mentioned before. Trader’s job is not necessarily to be great predictor of things, or not even to be right, but to make money on those occasions when we are right. Give it some thought.

There are strategies that employ trailing stops, without having objectives. All methods that rely on crossovers of indicators and oscillators fall into this category. In addition, tracking market progress with stops just under/above most recent bottoms/tops is like that. I employ some of these methods form time to time. Strategies like that will not capture entire move, something that must be accepted before even starting to trade one. Nature of this kind of methods is such that many trades will end in small gains and losses, but few will deliver huge moves, hopefully making more money than losing. Trading like this is absolutely OK, as long as rules are observed. One just must be aware of limitations.

What about if trade is going along fine, but is short of objective? Should it be closed, because of emergence of negative market news? What if our opinion changes? What if the trade takes too long? What if….? No one straight, fit all answer to this. Trading is an enterprise involving many variables, constantly shifting elements. Some of them can be categorized, while others demand discretion, which gets better with experience. This week I made such decision in a trade that was featured on these pages.

On Sunday, I discussed the possibility of bullish reversals in the GBP-NZD and the GBP-AUD. Both of them looked very similar, approaching likely breakout levels. Because the GBP-NZD was the first to breach its resistance that was the trade I took. I estimated here the potential here to be as much as perhaps 1000 pips, yet I closed the trade for only 300 pips gain. Why? For a simple reason – time.

Because this particular set up developed on the intermediate term chart, reasonable expectation for the trade to achieve its full potential is measured in weeks. Chances of a corrective move of consolidation during such long time span are high. Am I willing to sit through it or should I pocket smaller gains if they happen fast? Since I was in the black 300 pips within one day, I decided to take these pips. Admittedly, there was element of luck involved, because the rally continued only for another 50 pips before the current correction kicked in. However, this is precisely what I was trying to avoid. Even though I still think the GBP-NZD will go higher, there is no telling when. Of course, it does not always work out so well, but on longer-term charts, it makes sense to me to forgo some profits for the benefit of time.

Mike K.

The rally in the EUR-CAD, which lifted it from 1.2875 to 1.3479, hit an obstacle last week. It came as a combination of things, which included the 100 SMA, previous resistance level and overextended price. Bollinger bands, with the price clearly above, demonstrated that particular aspect. A bearish candlestick pattern, the dark cloud cover, marked the turning point.

By now, the EUR-CAD retreated to 1.3025, where it found an earlier established support. The price movement is likely to slow down now, trapping this pair in a consolidation, also defined before the latest advance. We should expect smaller price swings, within the 1.3025-1.3241 range. Eventual breakout will probably determine the next direction of the EUR-CAD.

AUD-JPY.

Among the best performing currency pairs in 2012, the AUD-JPY, the AUD-JPY has shown significant gains. Last week it reached as high as 87.99, where it encountered a strong resistance. Together with severely oversold RSI indicator, that proved too difficult to cross, at least for now. The price developed a reversal pattern and turned south, touching 84.80 in early Wednesday trading.

While this correction appears sharp, it is of normal proportions, considering the size of the preceding rally. In fact, it might not be much larger. It depends what happens at the next supported level, or the 84 area. We should watch carefully, because the AUD-JPY could resume the uptrend from there. Otherwise, the price will head for the 81 handle, where the main trendline is waiting.

GBP-NZD.

Finally, after a prolonged slowdown, the GBP-NZD started to increase in volatility. The price moved higher, taking cue from multiple divergences with technical indicators. On Monday, in one swift jump, the GBP-NZD broke the minor resistance at 1.9130. It continued to advance on Tuesday, reaching 1.9483, almost the implied resistance of the 1.95 level.

Here things get tricky for this rally. The price developed a large shooting star, which is a bearish candlestick reversal pattern, probably marking the extent of this run up. For a full-blown reversal, we need to see another large bearish candlestick on Wednesday, now in early stages of formation. The short-term direction of the GBP-NZD depends on how the price will close today.

CHF-JPY.

In line with most other Japanese yen pairs, the CHF-JPY hit an important high last week. Its impressive advance pushed the price to 90.23, a resistance level from an earlier high. There the rally lost momentum, and the CHF-JPY started to pull back. In early Wednesday trading, this correction touched as low as 87.67.

So far, the price has not reached any established support levels. Because of that, we can use the Fibonacci retracement levels for some possibilities. The 38% is at 87.00, while the 50% is at 85.70. If the CHF-JPY is going to retain the general bullish sentiment, one of these levels should become a support. If not, this correction could turn into a bearish reversal, but we need to see more price development.

Mike K.

For the last two months, the GBP-AUD has been in a consolidation, still in historic bear market. This downtrend has lasted for, well, almost forever, since late 2008, with very few corrective rebounds along the way. In mid February, the price made another all time low at 1.4621, but for all practical purposes, it is drifting sideways. The question is, are we dealing with another consolidation, before another leg down, or is it a slow-building rounded bottom. Rounded bottom could be confirmed on a breakout above 1.4900, suggesting a rally to about 1.55 within weeks. The best thing about rounded bottoms is their staying power. Once properly formed, they tend to hold for a long time, meaning that a rally from here should last for weeks or even months.

The GBP-NZD is in almost identical situation to the GBP-AUD. The main difference is that the February low of 1.8629 is not the all time extreme. That took place last year at 1.8542. Otherwise, the picture is the virtually the same, a consolidation within the downtrend or a rounded bottom. For the GBP-NZD, the key resistance is at 1.9130. If the rounded bottom materializes, this pair could certainly rally to 2.0200 or so relatively fast. Of course, the reversal process is not complete, but worth watching.

While on the subject of the Kiwi… The NZD-USD sold off last week, especially on Friday. Because the price closed near the daily extreme, I will be looking for a short-term reversal on Monday, much as I did a week ago in Yen pairs. Using hourly chart, I want to see a bullish reversal candlestick pattern, one that stands out. The target here must be proportionate to average price swings, so it will be on a small side, 25-30 pips. In addition, gaps are always possible, possibly creating trading opportunities. Have a great trading week!

Mike K.

I was looking for short-term and admittedly smaller corrections in the Yen pairs in early trading. In case of the AUD-JPY, my objective was only 50 pips. The signal was a bearish reversal candlestick pattern on hourly chart, which turned out to be a harami. It followed a suitably large, but short-lived continuation, exactly what I sought. Needless to say, it captured only a portion of the potential, although that was mitigated by taking more trades.

Since all of the JPY crosses presented virtually the same opportunity, I made few more trades, including this one in the beast. Because the GBP-JPY moves more under most circumstances, my objective was more ambitious. In the end, I settled on 75 pips gain here. I would expect these pairs to consolidate now for some time and then we shall see what is likely to happen next.

Mike K.

I was looking for another short opportunity, on breakouts under minor lows, under 1.3200. The sell order adjusted, moved higher to 1.3197. It started good enough, unfortunately, the news of bailout hit the wires and the Euro exploded to the upside. My trade was headed, gutted and filled by the market within one minute of the announcement. At least I had a good sense to have a stop loss order, which limited the pain to only 30 pips.

After the initial surge, the EUR-USD settled down for couple of days. The volatility was gone, the price drifted sideways, giving it appearance of a cup with a handle patter, which is bullish. Cups are reasonably reliable as chart formations go, of course, the timing is always tricky. Here it presented two buying opportunities. One at 1.3300, on the initial bullish breakout and the second possibility came at 1.3345, when the handle was completed.

I became a little impatient, opting for the first option, in another account. This particular trade delivered what was expected. My objective was 70 pips, which proved to be far short of potential. Still, winning trade is never bad, so no complaints. By the end of Friday, the EUR-USD rallied to 1.3486. This is probably overextended in the short-term, but that is a subject for another post. Have a great weekend!

Mike K.

1. Plotting Fibonacci retracements on a short time frame.

This is perhaps the greatest mistake made by traders when using Fibonacci tools such as the Fibo retracement tool. Why is this so? In Forex, the market activity in a short time frame such as the 15- minutes or 1-hour time frame is too short to effectively determine the trend of a currency. What the trader may see as a strong downtrend on a 1-hour chart or a 4-hour chart may actually be a retracement on a daily chart. Trying to plot a Fibonacci retracement tool on the shorter time frame will only end in disaster. The trend pattern of currencies on a longer time frame such as the daily chart is usually a better determinant of the trend. The best thing to do here is to use the longer time frame to determine the trend, apply the tool and then switch to the shorter time frame to make your entry determination.

2.Over-reliance on the Fibonacci tools

In Forex, it is a bad practice to use only one indicator to carry out your technical analysis. Confirmation of the entry is best done using two or three indicators that supplement each other, and the Fibonacci tools are not an exception.
To give an example, let us assume a currency pair is undergoing a downward retracement following a particularly strong uptrend. Where do you possibly think the retracement will halt, especially given the fact that there are five possible retracement levels (23.8%, 38.2%, 50%, 61.8%, 100%)? This is where you have to turn to other indicators such as the Stochastics, MACD or RSI for help. For example, if I get a Stochastics cross at an oversold level (i.e. Stochs crossing upwards at

Always confirm entries with more than one indicator.

3. Misapplication of the Fibonacci Tool

Many times, traders simply misapply it. What does misapplication mean? Fibo tools are best plotted from the swing high to the swing low. If the trader does not use the highest or lowest points on the chart for tracing the tool, an inaccuracy has set in and this is a clear example of misapplication. Another example is tracing the tool from a candle shadow to a candle body or vice versa. A trader must be consistent. For the best results, always trace from the tip of the upper shadow (the wick) of the candle making the high, to the tip of the lower shadow of the candle making the swing low.

These are the common mistakes made by traders when using the Fibonacci tools. Avoid these mistakes to get the best results possible from your Fibonacci tools.

Article was written by Alexander Collins who started his own Forex blog recently. Need Fibonacci, Camarilla, Pivot point calculators? Download all these Forex trading tools at PipBurner.

This put a kink in my plan of going short the EUR-USD in early trading. On the plus side, it also kept me from a losing trade, since my intended entry level was not touched. In addition, I like gaps as they present good trading opportunities – most of them are filled, or closed within few hours. That is what I expected to see, so I followed minor lows on the 5 M chart with sell orders, raising them as the rally continued.

First good shorting level was at just above 1.32. My sell order was filled at 1.3202. Unfortunately, this trade brought only 11 pips, as the price did not collapse as I expected. I had another, similar one later in the day, but the result was similar – minor gains. Since the gap was not filled within a day, it could stay open for a while longer, perhaps another day, perhaps a week. Even though, my intentions are still to sell the EUR-USD just under the latest low of 1.3199, looking for 50 pips.

Mike K.

The BoJ will be followed on Wednesday with policy meetings in the USA and New Zealand. While the RBNZ announcement has the highest probability of some action, all eyes will be on the FED. Nobody expects a change this time, but it will be the first meeting when the central bank releases its interest rate projections. It goes without saying that everybody wants find out when FED expects the first interest rate hike and how much tightening is projected in the following years. Also, in recent few weeks public comments by regional FED presidents seem to signal a willingness to ease monetary policy further this year, the so-called QE 3. Latest fundamental data has been mostly positive, indicating economic growth, well, recovery in the USA. That does not rule out any action, but it probably pushes any announcement of a major policy move out to meeting later in the year. We will find out in few days.

Recently the uptrend in the AUD-CHF has become very choppy, as if ready to reverse. Corrections are bigger, volatility is higher, possibly building a top on the intermediate term chart. I would like to short it if the price dips under the recent low of 0.9695, with entry at 0.9690. This trade, if filled, will attempt to capture 120 pips. Alternatively, if the AUD-CHF continues higher and makes a new high, it is likely to form a divergence with the MACD. In such event, it could offer a decent shorting opportunity.

Another currency pair of interest is the EUR-CAD, also on the 4H chart. Here the price already bounced from the low of 1.2875 to 1.3147, perhaps forming a bottom. I want to go long on a bullish breakout with entry at 1.3155. The target is 1.3300. There is a small complication; I would like to see a little more pullback first. Not necessarily much lower, but I do not want to enter into a trade if the EUR-CAD rises right after the open. Initial opening moves often lead to false breakouts, something I want to avoid. After the first few hours, the order becomes valid.

While waiting for those trades, which could take some time because of relatively large time scale, I will look for shorter-term opportunities. One of them could materialize in the GBP-USD, among others. After a sharp rally on Friday, the cable is likely to go through a correction. Preferably, I would like to see a little continuation, but the signal itself will be a bearish reversal candlestick pattern on the hourly chart. Objective will be 50 pips, although details will have to be worked out once the entry is confirmed. Have a great trading week!

Mike K.

Euro has been rising most of the week, as if market participants expected a solution and some stability in the common currency. Realistically, the EUR was due for a rebound; it had been oversold against most currencies. This run-up was a combination of a technical bounce and the anticipated good news from Greece, and in case of the EUR-USD, it reached 1.2986. It will be interesting to see how the Euro reacts to that, but one should consider the possibility of “buy the rumor sell the fact”. Meaning, the EUR could fall again once the supposedly good news is finalized.

My Friday trading was focused on short-term transactions at the start of the London session. As it turned out, the EUR-USD presented a good opportunity, with nice trading range established just before the session started. The first move of the day was down, triggering a sell order at 1.2951, under the minor support. Turned out to be a good trade but it did not maximize the potential here. Alls said, though, it was a good end to a good week. Have a great weekend!

Mike K.