British Pound Technicals

[Soultrader 12]

I am curious to know if currencies can be traded strictly off technicals? Traders often tell me to watch out for news in the currency market. But with the amount of news that comes out everyday... is there a set of news one needs to watch out for depending on the currency? For example, what sort of news affects the British Pound? I have attached a picture of the pound with some technical analysis. Technically speaking, if this chart was the emini futures... this particular level would be good enough for me to look for a short setup. (based on technicals) What are your thoughts?

[Art Krantz 10]

Fault lines can be compromized in the absense of news output sure. However, most of the hard & fast moves usually occur on the back of a Fundamental release. Minus the immediate danger of a key economic reading, prices will trade with a technical bias, & the British Pound likes channels. Just look at a 240 or a 30 minute spec chart if you're intending chasing price within the open-close session.

 

The impact of the big dog releases are keyed in depending on where the big players are looking on a week to week basis, & sometimes on a day-day level. It also doesn't help when the rumor mill gets cranked up either They usually begin doing the rounds a day or so before a major event. Prices can & frequently do become extended on a regular basis. If you're well versed on your pair of choice, you can bounce off the technicals intraday.

 

I could elaborate, but I'd possibly fill this thread & bore you to tears

 

I'll just say, ignore the fundamentals at your peril. The releases used to be a darned sight easier to trade than they are now. Even when you line your data research up & cube it, the price strikes get stretched due to all the breakdowns & revisions.

 

Even the top drawer analysts calling out the reccomm's to a spot desk in real time have to be on top of their game to blanket the current data strikes, & these cats have the cutting edge terminals wired into the circuit.

 

Your best bet is to fit your technicals extremely tight to your surroundings & be aware of when the Big Dog Data is setting up. Watch the price moves a day or so prior to the major news, & keep your eyes on prior weekly, monthly limit lines. These levels usually trigger the desk flows.

[Soultrader 12]

Thank you very much for your reply Art. If I was to plot daily pivots on the BP, what close time should I be using? I understand they are traded 24/7?

 

Also, one thing I have trouble understanding is the volume element with forex. The British Pound futures will show volume while the Forex will not. Futures is referred as spot? And Forex cash?

 

How reliable is the volume in the currency futures? Im still very new to currencies and the basics are still very confusing to me. I am not confident if I can apply the same understanding I have in the futures market to the currencies market. It seems like banks control most of the price movement with Forex. No floor traders.. no pit noise, makes it a completely different game to me. Thank you.

[Art Krantz 10]

I see you utilize a volume fix on your price representation. If you're tech trading through the Futures route, then I guess that will assist in shining a light. Whatever floats your boat.

 

As to your actual triggers? again, that's determined by your set up log & individual trade preference.

 

I work a very similar process to Anna & Buk. Anna's ops are specific time engineered & level dependant. We grade a channel according to the larger level & whether it's supply or demand related. Buk's are a little more slack given his guy's loosen off the stops & their objectives are wider placed.

 

A simple % grid or chock quadrant will time you in if price is channeling though, whatever your aims.

 

Long as the level warrants previously high level activity & the Big Figure back it up? (weekly, monthly s/d line or a confluence area determined by a math rule), the quad will help to identify a probable strike base in the absense of data. Of course all bets are off leading into a key release as the bias will be wholly determined by the consensus/actuals & any revisions or backwriting.

 

Doesn't really matter what means you identify to climb on, as long as your techs match the bias. A strategy structured exclusively around patterns better be tested thoroughly though, otherwise it'll ship you in & out on so many false signals you'll wonder whether you're on this earth or fullers LOL.

 

 

 

[Art Krantz 10]

If I was to plot daily pivots on the BP, what close time should I be using? I understand they are traded 24/7?

 

Also, one thing I have trouble understanding is the volume element with forex. The British Pound futures will show volume while the Forex will not. Futures is referred as spot? And Forex cash?

 

How reliable is the volume in the currency futures? Im still very new to currencies and the basics are still very confusing to me. It seems like banks control most of the price movement with Forex. No floor traders.. no pit noise, makes it a completely different game to me. Thank you.

 

We use the 5pm New York closing print (interest strip) as the Pivot Line calculation.

 

Can't help you with your Futures queries I'm afraid. We don't trade them at this office. 100% of our flows are via spot deals.

 

The money flows & contacts we communicate with don't trade Ftrs.

[notouch 10]

Fibonacci set ups often work perfectly for the GBP and on both the intraday and daily time frame. It looks to me like we may be about to form the right shoulder of a head and shoulders top on the daily chart. Fundamental releases are not as important as some people claim. Often they just provide a good opportunity to fade the kneejerk spike in favour of playing the longer term move. Remember most currency trading has nothing to do with investing or speculation but is normal business transactions so even if there's a shock CPI release, importers and exporters still need to exchange currencies.

 

However, there are some big market movers for each currency which you have to watch if you're not to get taken out by a spike. Investors and speculators are focused on interest rate differentials for the most part and to a lesser extend on trade balances. Interest rate announcements are big market movers. On Wednesday we have the minutes of the last Bank of England meeting and everyone wants to know how many members voted in favour of the no-hike decision and how many supported a hike. The quartlerly inflation report is a big market mover. CPI moves the market (Bank of England has a target of 2% and the governor has to write a letter if it deviates by more than 1% above or below that). Retail sales and industrial production are also market movers. Also anything that moves the US dollar like non-farm payrolls and FOMC day also moves GBP/USD.

[notouch 10]

 

Also, one thing I have trouble understanding is the volume element with forex. The British Pound futures will show volume while the Forex will not. Futures is referred as spot? And Forex cash?

 

How reliable is the volume in the currency futures?

 

Spot is another word for cash. So the difference is between forex futures and spot forex. There is no reliable way of measuring volume in the spot market. ESignal provides volume but it's fairly worthless because it includes bucketshops like FXCM that have nothing to do with the interbank market. I think you can get volume based on some interbank banks but it's of limited use because it's incomplete.

 

The marketdelta website has some interesting material on the use of volume for Euro futures but you have to remember that the futures market is only a fraction of the spot market.

[Soultrader 12]

Thank you Art and notouch for the thorough explanation. Makes alot more sense now With Forex futures, the BP futures must reflect the price in the spot market? This means that they move identically and trade at the exact same price level? Or are they similar to dow cash and dow futures trading at different levels.

 

Im probably going to start learning the BP from now and see if I can come up with even one decent trading setup that can I can hold on a longer timeframe (1-3 days) to supplement my current intraday futures trading. It should be interesting....

 

Why is it that the only available pairs to trade are the major currencies? Do the minor ones exist but just not popular to trade? Thanks

[notouch 10]

They don't trade at exactly the same price level because of interest rate differentials. Let's say you want to buy USD/JPY on the spot market with leverage. What you are actually doing is borrowing JPY (at an interest rate of 0.25%) and investing in USD (at an interest rate of 5.25%). So every night you get paid interest. If it was the other way round you get charged interest. So while British Pound futures are identical to GBP/USD because there is no interest rate differential (both countires have 5.25% interest rate) there is a difference in Euro futures compared to EUR/USD and Yen futures compared to USD/JPY to reflect the fact that with futures you don't pay or earn interest. They move identically though so if EUR/USD goes up by 20 pips then Euro futures will also go up 20 pips.

 

There are about 15 pairs to trade on GLOBEX. Some spot brokers allow you trade 30 or so pairs.

[notouch 10]

Just looked at the CME website. There are about 40 pairs to trade.

 

CME Australian Dollar

CME Brazilian Real

CME British Pound

CME Canadian Dollar

CME$INDEX

CME Chinese Renminbi

CME Cross Rates

CME Czech Koruna

CME E-mini Euro FX

CME E-mini Japanese Yen

CME Euro FX

CME Hungarian Forint

CME Israeli Shekel

CME Japanese Yen

CME Korean Won

CME Mexican Peso

CME New Zealand Dollar

CME Norwegian Krone

CME Polish Zloty

CME Russian Ruble

CME South African Rand

CME Swedish Krona

CME Swiss Franc

 

The above against the USD plus a lot of cross rates (like EUR/GBP).

[Anonymous 11]

Ignore the news. Not just with currencies, but with all tradables.

 

The major issue with news and currencies has to do with brokers widening the spread. This is not an issue if you trade CME currency futures.

 

In truth, currencies trade more technically than most other markets. This is one reason for their increasing appeal among retail traders. To be sure, the Non Farm Payroll (NFP) can make for a volatile trading day, but you can choose to not trade on that day, or just wait until the news is out and go with what the market is telling you, not what you think the report means.

 

But as I see you showing Pound futures, I don't think you have to worry about spreads like most spot traders do. A 3 pip spread can become 20 pips or more during a NFP release. That can kill a strategy that is looking to only take 10-15 pips out of the market.

 

While the market is 24 hours, it is not true that it should be traded at anytime. The best times start at 0200 EST and go to about 1300 EST. On Fed days, that would extend past 1400. If you want to be more precise, the best times are when the futures are open (Both currency and index) in Chicago. For pivot points, you should use the CME close if you trade there or your forex broker's close time, which is usually 1700 EST.

[milliard 10]

Ignore the news. Not just with currencies, but with all tradables.

 

The major issue with news and currencies has to do with brokers widening the spread.

 

Would you mind expanding on those comments please?

 

Particularly the news comment.

[Soultrader 12]

Thank you PivotProfiler. I am starting to understand this game step by step. Besides the Non Farm Payroll and Fed days, is there anywhere I can find a list of news that will move the GBP? I have this personality that I need to know everything possible about something before I even attempt it.

 

Also, what time open would you use for the currencies? I would also like to hear some of your thoughts regarding volume for the currency futures. I have been trading the eminis relying heavily on tape. Now, with currency futures is the tape reliable? If the spot is controlling the majority of the price action, I dont feel too comfortable relying on the information that is present on tape. Thank you.

[Art Krantz 10]

Market sentiment in FX is driven primarily by the economic and geopolitical news, whether short or medium term related. The key players in the currency market - Multinationals, Central Banks, Hedge Funds and the top tier Investment Banks that service them don’t give a stuff whether a triple top or double bottom prints an hourly touch on the EU or Sterling. Instead, they formulate their trades by analyzing the most recent economic news and geopolitical developments.

 

Sure, technicals are critical for timing, but they don’t drive prices. Smaller players can front-run the big dogs due to their flexibility & the fact they carry less baggage, which is where a good all round comprehension (tech & fundamental) of the price chain bears fruit.

 

The benefits being, the small guy can hop on & off the momentum generated by the order flows, which get churned week in, week out thru the fundamental (sentiment) of the big guys.

 

Sentiment can often take hours/days to filter thru whilst the funds re-adjust & juggle their books etc. This is where technicals will become extended, floated, bounced & re-set.

 

FX is probably the most multifaceted instrument class out there. The dynamics more or less demand a consistant & varied approach. To drop one in (exclusive) favor of the other is surely transacting with one hand tied behind your back isn’t it?

 

Where do you suppose the overbought/sold riders emanate from? Like I mentioned earlier, the rumor mill amongst the tiered desks accounts for a good portion of intraweek momentum, & if that's not expectation based on fundamental weight I don't know what is.

[Anonymous 11]

Market sentiment in FX is driven primarily by the economic and geopolitical news, whether short or medium term related. The key players in the currency market - Multinationals, Central Banks, Hedge Funds and the top tier Investment Banks that service them don’t give a stuff whether a triple top or double bottom prints an hourly touch on the EU or Sterling. Instead, they formulate their trades by analyzing the most recent economic news and geopolitical developments.

 

 

It is a known fact that currencies have the highest propensity to trend. This is why technical work so well. Personally, I used Price and Volume and follow the Professional Money, but those that do use technicals alone can do well.

 

If you believe that the big boys only operate on larger timeframes, then it is true that economic fundamentals drive the market.

 

If you believe the fundamental tenant of technical analysis, then you believe everything that is known about an instrument is already reflected in price.

 

Sure, technicals are critical for timing, but they don’t drive prices.

 

This is true in any market. Price is driven by imbalances of supply and demand. This is also what gets most traders in trouble. The fact that RSI is above 80, does not make any market turn. What makes it turn is increased supply or demand by the Smart Money.

 

The benefits being, the small guy can hop on & off the momentum generated by the order flows, which get churned week in, week out thru the fundamental (sentiment) of the big guys. Sentiment can often take hours/days to filter thru whilst the funds re-adjust & juggle their books etc.

 

True most small guys are not taking positions for 6 months or longer like some large big money players do. However the Smart Money operates on all timeframes. Sentiment is thus not as static, nor as slow developing, as that implies.

 

Where do you suppose the overbought/sold riders emanate from? Like I mentioned earlier, the rumor mill amongst the tiered desks accounts for a good portion of intraweek momentum, & if that's not expectation based on fundamental weight I don't know what is.

 

There is no such thing as overbought/oversold. This is one reason retail traders get in trouble. They are trading off of something that does not truly exist. Like I said, the market does not turn because RSI is in oversold territory.

 

However, if you suppose that overbought/oversold exists then one has to really understand what it means. In other words, a viable definition of overbought/oversold, would also be a viable definition of trend. The strongest trends tend to have the most overbought/oversold readings. They tend to "not respond" the most to such readings. That is, retrace the least to such a reading.

 

Trends(bodies) in motion tend to stay in motion. This is a basic law of physics and it is true in the market (laziness principle). The proper use of techincals is to define trend and momentum, not predict it.

[Art Krantz 10]

You present some very pertinent points, most of which cannot be disputed.

 

The smart money doesn’t however trade off an exclusive (technical) diet. They take advantage of the emotive peaks in the market. Those peaks are heavily biased around fundamental direction.

 

The actual data prints are often of secondary importance. Most of the activity leading into & away from a key number or item of interest revolves around the expectation. And to a large degree, that is emotion based.

 

I think we’re both more than aware of why prices become whipped on a consensus-actuals imbalance, that’s obvious. But the supply/demand zones are merely by products of emotion, & that is virtually always orchestrated by the smart money & their positioning.

 

Those operators will, as you say, do business across a variety of timeframes, but they will definitely be conducting their business with more than one eye on the non-technical grid.

 

Which is where my comment came from regarding overbought/sold riders. What I should have said was ‘overstretched’, which of course is when we witness the handover of dollars from the dumb to the smart operators, on whichever timeframe we choose to observe.

 

I don’t dispute the importance or technical validity of the supply/demand area’s. But in the bigger picture, they’re simply holding zones. And those zones will, at some point, be manipulated on the back of the fundamental drivers.

 

The bottom line of course is, that if you possess the skills & experience to extract a regular wage from the markets trading either path, then that’s all that matters.

 

Personally, I think it’s counter productive to ignore news & generic fundamentals. It dilutes the options. But then that’s just my view. And of course, it’s healthy to hold & encourage opposing views!

[milliard 10]

You're going to get swamped on those credits Arty!

 

You oughta know better than to step into that ring.

 

Hey Buko, has he been spoofing me all this time LOL.

[Buk 10]

Hey Buko, has he been spoofing me all this time LOL.

 

hahahaha......don't go prodding him while he's asleep!!.......I'm saying nothing & as an added precaution:-

 

'Buk hands Andre a bullet proof vest'..........

[Soultrader 12]

Thank you Art for your comments. I find the Forex markets a completely different game from what I am used to. I feel like Livermore moving from the bucketshops to the brokerage house for the first time. The tape is lags and is uselss!

 

Art, you have it right on the point about fundamentals. I have been studying a couple pairs based on technicals but these news will break through any pattern S&R like it never existed! I try to get in on the reaction from the news in the futures market but it seems like with currencies, once they go they never look back. I may have to develop a strategy using bracket sell/buy orders.

[Art Krantz 10]

Pleasure!

 

I wish I had a few more answers, but unfortunately I don't. We're just like everybody else out there, looking to stay alive & grab a crust.

 

I guess it depends on how you want to play these candidates. Pivotprofiler makes some very solid points on the technicals, & I totally agree with him regards his observations around the supply/demand zones. notouch also hit on a couple relevant points regards Fibs & the radar data releases. It’s good to see your site attracts quality personnel with sensible commentary.

 

These candidates are highly strung & prone to whiplash as you’re finding out. But we all play them with differing views & back up artilliary. No-one has the monolopy on correct procedure, but I guess eventually we migrate to what works best with the information & experience we possess? Objectives also rank high on the tick list.

 

I note you’re a heavy tech operator. That’s cool, nothing wrong with playing any instrument via a high percentage tech base, but you got to be aware of any impending data that’s likely to kick price around the park. Especially if you’ve legged in on close quarters inside a defined range or whip zone.

 

Long as you can bodyswerve the bullets & don't blow up, you’ll find your balance. Like you say, it aint easy, but then nothing worth achieving rarely is?

 

All the very best with your endeavors.

[keymoo 10]

Forex Forum, Forex Calendar, Forex News @ Forex Factory has a good list of reports that will move the currency. If you don't want to trade the news release then make sure you're flat before the reports marked in red on that page.

[Guest KhurramNaik]

dailyfx.com has the weekly schedule of international economic indicators, pay attention in particular to national bank target rate changes (especially, of course, Bank of Japan given the importance of carry trades right now).

[Soultrader 12]

Yea I just added the forexfactory calendar on the site directly. Take a look at the new economic calendars

[notouch 10]

Could you add the colours too? The little red, orange or yellow symbols. The red ones are the real market movers. That's the best thing about the forexfactory calendar.

[Soultrader 12]

Notouch,

 

Colors for important dates? Im not sure what you mean by red, orange, yellow symbols.