These Are Some Things I Look For When I Fade The Gap
Today’s column will be
brief, but hopefully it will convey some solid trading ideas in the FX market.
Yesterday was one of those days that demonstrated tremendous range but more
importantly, velocity. On top of that, four of the major currency pairs all set
up simultaneously and for all the same reasons.
HVT
traders know that a favorite trade of mine is a Fade
the Gap trade. They typically only happen on the opening, and is the
only time I usually buck the trend. FX presents a trader with some different
rules. While most of my HVT rules apply in FX, there are a few that simply need
to be overlooked. Some of the most robust trades in FX are counter-trend
trades, like the ones in the charts below.
Buying or selling a currency simply because it
appears oversold is foolish. There needs to be adequate evidence that a
reversal is truly in order. I look for the following characteristics as a way
to identify a trade that has a better than average chance of working.
1. Oversold/overbought oscillator
2. Steep sell-off or rally. (A slow grind up or
down rarely offers much of a bounce.)
3. Key technical support or resistance
As you can see from the charts below, these
characteristics were met. The most important component for me was the
significant support / resistance areas that were briefly tested before a quick
turn. I was in the trades for about 4 hours and netted 133 pips. It is rare
that trades come together so nicely, but when they do, you need to be there. FX
futures traders were left out of these trades as the Globex market was
closed when these were executed. Yet another reason to trade Spot FX, not the
futures.
^next^
FX Preview
(prior to release of jobs data at 5:30 AM PST)
EUR:
solid support at 1.2660-1.2680, down-trend intact, look for short trades
GBP:
remains one of the stronger pairs, a move back above 1.8986 will negate current
down-trend
AUD: no
real opinion either way, seems inconclusive at this point, wait for better
technical pattern
CHF: the
technical picture has improved dramatically from just a few days ago.
Resistance at 1.2450-1.2430
I wanted to thank everyone who signed up for the
beta test email list for my FX service over the last three weeks. Your comments
and suggestions were great. My
FX Service is now live, many thanks for helping shape the final
product.
As always, feel free to send me your comments and
questions.
Dave