The Forex Chronicles

Gold Continues To Trade In Narrow Range Around $1200

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Death Cross

If you are a regular reader of this site, you will know that I recently posted about the death cross that has just occurred on the weekly chart of gold.

This is basically where the 50-period moving average crosses below the 200-period moving average, and is generally considered to be a very bearish signal.

Since then the death cross has been confirmed, but it hasn’t resulted in a wave of sellers using this as an opportunity to drive the price lower.

This is not unexpected because these weekly signals can take a long time to unwind, but if you drop down to the daily chart, you will see that the price is really struggling for direction right now.

Narrow Trading Range

In recent weeks the price seems to have been glued to the critical $1200 level, and has struggled to break decisively above or below this significant round number with any real momentum or conviction, as you can see below:

Gold Narrow Trading Range - September 2018

So far this month it has recorded a low of $1187.8 and a high of $1214.4, but has remained in a very narrow trading range for several weeks now.

Inside Bar

In addition to trading in a very narrow range, we have also had a series of three consecutive inside bars in the last three trading sessions (if you include the Sunday session), which is always worth noting because these inside bar patterns will often present you with a profitable breakout opportunity when the price closes above or below the initial set-up bar.

Trading Opportunity

From a trading perspective, it is very hard to trade any instrument that is basically trading sideways with no clear direction, but it is still good to see such a pattern because it usually leads to a profitable set-up when the price eventually breaks out of this range.

This is particularly true when you have a series of inside bars within this sideways trading range, as is the case here.

Therefore it might be worth watching the price of gold in the coming weeks because there could be a strong price move when the price closes above or below both the set-up bar and the previous high or low of this trading range.

A downward break would arguably be preferable because we have already seen a death cross on the weekly chart, and there could subsequently be a lot of downside potential.

Nevertheless, an upward price breakout could still be worth trading because there is always the potential for the price to move back towards the 200-day exponential moving average or the 100-day exponential moving average, which currently stand at $1253.9 and $1228.3 respectively, before heading south once again.

The point is that these sideways trading ranges and inside bar formations can be very profitable to trade because in many cases the longer it remains in the range, and the longer the price trades within the initial set-up bar, the bigger the breakout once the price closes outside of this range.

To demonstrate this point, you only have to check out these two inside bar range breakouts that occurred on Bitcoin and the GBP/JPY pair last month.

AUD/USD Continues Trading In Range After False Breakout

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Price Action in 2018

The AUD/USD hit a peak of 0.8136 back in January this year, but since then it has been in a fairly steady and consistent downward trend throughout 2018.

Indeed at the time of writing, the price of this particular currency pair is trading at 0.7273, which shows just how strong the American dollar has been this year.

AUDUSD Price Chart 2018

By drawing trendlines connecting the highs and the lows, you can see that the price has been consistently sold off at the top of the channel, and bought up each time it has traded near the bottom of the channel.

However the price did actually close strongly below this lower trendline earlier this month, suggesting that there was enough momentum to take it a low lower, but this didn’t actually turn out to be case.

False Breakout

This false breakout raises two interesting points about price action trading. First of all, not all price breakouts turn out to be profitable. Even if you have a clearly defined channel or trading range, it doesn’t necessarily follow that the price will move strongly upwards or downwards once it closes outside this range.

Secondly, it reconfirms the point that you need to be careful trading continuation patterns when the trend has already been in place for a long time already (approximately 8 months in this case). Yes there is a chance that there will be another wave downwards, but there is also a strong chance that there won’t be enough momentum to take it much lower.

With long downward trends such as this one, there is arguably more profit to be made from trading an upward price breakout because this would signify that the downward trend is over, and a new upward trend is emerging, in which case there is a lot of upside potential because it could easily move 2 or 3 times the range of the current channel.

Trading Opportunities Going Forward

At this moment in time, I wouldn’t feel comfortable going long at the bottom of the channel and going short at the top of the channel because I feel that we are due a breakout very soon.

Furthermore, I wouldn’t really want to be opening any short positions on the AUD/USD pair even if the price closed below the lower trendline once again because I’m not really confident that this pair has the potential to fall much lower.

Therefore I personally would only consider opening a long position right now, and only when the price closes strongly above the upper trendline.

If it did so, I would probably look to close half the position at the EMA (200), which is approximately 1 x the range of the channel, before moving my stop loss up to break-even and targeting 2 x the range of the channel with the second half of the position, which would give a target price of approximately 0.7700, just short of the 61.8% fibonacci retracement level.

However these are just my own personal views and in now way represents trading advice.

Brent Crude Still Struggling To Break $80

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September Price Action

It has been very interesting to watch the price of Brent Crude this month because it has been getting very close to the $80 level without actually breaking through this key level.

I said before that $80 is acting as strong resistance, and the third significant doji candle from yesterday provides further evidence that the market just doesn’t want to see the price go higher than $80.

In that particular trading session, the price reached a high of $79.69 before being driven back down to a low of $77.81. It then closed the day close to it’s opening price at $78.23, which is why we have another doji candle.

Brent Crude Doji And Divergence

The Significance of Doji Candles

These doji candles generally indicate indecision in the markets, but when they occur at a possible high or low of a trading range and are close to key levels of support and resistance, they often provide good reversal signals, and that seems to be the case here.

Every time there has been a doji candle forming after a flirtation with the $80 level, the price has subsequently dropped and there has been a good opportunity to trade the downward breakout, ie when the price drops below the low of the doji candle the following day.

On each occasion the price has dropped enough to generate a decent profit before resuming it’s gradual upward trend once again, but there are signs that this upward trend is starting to run out of momentum.

RSI and Stochastic Divergence

As you can see from the daily chart of Brent Crude above, the price keeps on creeping higher, as indicated by the rising exponential moving averages, but the RSI and stochastic indicators are struggling to make new highs. In fact the peaks are actually getting lower each time.

So there is clear divergence on both of these indicators, which suggests that momentum is running out and as a result of this, there could be a significant reversal just around the corner. Therefore the 200-day exponential moving average, which currently stands at $72.51, may be a realistic target.

Trading Ideas

I will be watching the price of Brent Crude very closely when the markets open on Monday because it will be interesting to see where the price goes from here. There are potentially two scenarios that could create a high probability set-up:

  • The price drops below the low of the doji candle ($77.81), in which case it may be worth opening a short position a few pips below this level.
  • There is an inside bar whereby the trading range of the entire day (and maybe a few subsequent days) falls within the high and low of the doji, in which case it might be an idea to watch and wait until the price breaks below the low of the doji candle for an opportunity to go short.

If the price goes higher and breaks above the high of the doji candle, then it may finally breach the $80 level, in which case it might be worth opening a long position or forgetting about opening any trades altogether.

With divergence on the RSI and stochastic indicators, as well as a nice doji candle near the $80 level, a short position is looking a lot more appealing at the present time.

As always, I just want to point out that these are just my own thoughts and opinions. I am not recommending any trades whatsoever. You should always do your own research and make your own decisions when trading the financial markets.

Opening Range Breakout Trade on GBP/USD – 21 September 2018

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Introduction

Opening range breakout trades can be some of the easiest and most profitable trades that you can make if you are a short-term day trader, particularly if you like to trade the main GBP and EUR pairs.

However this is not always the case. It all depends on the overnight trading range because the best set-ups will have a really narrow trading range (the smaller the better) because then there is much more potential for the price to move quite significantly when the markets open at around 8.00 AM local time.

In a perfect scenario, you will have a very small overnight trading range compared to the daily average true range (as indicated by the ATR indicator), and that’s exactly what we saw today with the GBP/USD pair.

GBP/USD Breakout Trade

It is only 9.30 AM in the UK at the time of writing this article, but the price has already moved enough to make a decent profit from this opening range breakout strategy.

GBPUSD Opening Range Breakout - 21 September 2018

In this example the overnight trading range of the GBP/USD pair was just 16.7 points between 00.00 and 7.00 AM, which is a fraction of the average daily trading range of 92.9 points.

Therefore when the price broke downwards out of this range just after 7.00 AM, this was a good opportunity to open a short position and trade the opening range breakout.

The best strategy is often to take a small profit when it presents itself with half your position, such as 10-20 points, for example, move your stop loss to break-even and then let the other half run for as long as possible, and this would have been a profitable strategy today.

As you can see from the chart above, the price has already moved more than 50 points from the closing price of the breakout candle (which is where most breakout traders would enter a position), and we are only a few hours into the trading session.

Closing Comments

The point of this article was simply to demonstrate how profitable it can be to trade opening range breakouts.

It’s not every day that you get the perfect set-up, even if you watch many of the major currency pairs, because the price will often have moved quite a lot already in the overnight session, but if you are patient enough to wait for the ideal set-ups when the overnight range is really small, you can potentially generate some excellent profits.

ThePipsMasterUK Trader Profile

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Who is ThePipsMaster UK?

ThePipsMasterUK is a trader from the UK who has successfully become one of the most profitable signal providers on ZuluTrade in recent months.

This particular trader is currently ranked 10th on ZuluTrade (as of 18 September 2018) out of the thousands of signal providers that offer their services on this site, and currently has more than 4400 subscribers following them who have chosen to trade their signals automatically in their own accounts.

This is largely because they have an overall success rate of around 98%, and have generated a total profit of 2867 pips in the 26 weeks that they have been trading.

I’m sure you will agree that this is an exceptional trading record, which is why I wanted to profile them on this site and keep an eye on their results in the future to see if they can keep up this impressive record.

Therefore I have included this widget that automatically displays their overall trading statistics in real time, and has links that will enable you to open an account with ZuluTrade and follow their signals yourself if you so wish:

Trading Performance Update (March 2019)

I originally said below that I worry that this type of trading strategy isn’t really sustainable in the long run because when you are targeting small gains every day and using significantly larger stop losses, it only needs one bad call to wipe out months of profits, and unfortunately that’s exactly what has happened in recent weeks.

After opening overnight long positions on the EUR/USD pair on 4/5 February, the price never hit his modest price targets and after the EUR/USD started to fall, he and his copiers have had to anxiously wait for a reversal for the last month or so.

ThePipsMasterUK advocates a stop loss of 150 points, but when the price looked like it was going to take out these stop losses, he made the costly mistake of extending the stop loss to 250 points for each position (which is never a good idea), and after another price fall, he has now closed all of his trades for a huge loss of 1337.9 points.

As you can imagine, this has devastated the accounts of both him and his thousands of copiers, and many people have understandably stopped copying him, despite the fact that he is still over 3000 pips in profit overall.

However the problem is his money management rules because unless he can find a way to tighten his stop losses and still make money in the long run, these blowouts will inevitably occur again in the future.

Trading Strategy

The signal providers on ZuluTrade don’t provide full details of their trading strategies because they could easily be copied by other traders, but they do tend to provide a brief overview of their strategies, and in this case ThePipsMasterUK has revealed that he is using an overnight trading strategy on the EUR/USD pair.

So in other words, they focus exclusively on this one pair, which is good because it means that they know exactly how this particular behaves, and they only ever trade this pair overnight when the markets are quieter, volatility is reduced and the price movements are more predictable.

Profit Targets

If you take a closer look at their trading history, you will notice that this strategy looks for small gains from every trade, generally between 6 and 10 pips, with up to 8 positions opened at any one time. Therefore if the trades are successful, you could expect to make up to 80 pips profit per day following this trader.

Stop Losses / Drawdown

ThePipsMasterUK uses an arbitrary stop loss of around 150 pips, but this is largely to enable the trades to hit their target price without being stopped out for a small loss each time.

In reality these stop losses are never hit based on their previous track record, and the maximum drawdown so far has been 481.3 pips with a worst trade of 85.2 pips.

However the big worry for me is that when you are using large stop losses and are only targeting small gains with a high success rate, it only needs one bad trade to wipe out several months profit.

So far it hasn’t happened (it has now – see update above), but I have been in this game long enough to know that a big hit is inevitably going to happen at some point using this type of strategy.

Final Thoughts

Overall I have to applaud this trader, and am happy to see a fellow Brit achieve such impressive results in the 26 weeks that they have been trading, but I do worry that this type of strategy might not be sustainable in the long run.

ThePipsMasterUK has a remarkable 98% success rate, which is almost unheard of in the forex industry, but to maintain this kind of record over long periods of time is exceptionally hard to do, no matter how good your strategy is.

I myself don’t follow this particular trader and would probably worry about incurring a big hit every time the price moves 20-30 pips in the wrong direction, which seems to happen quite often, which is why I would probably feel more confident following ThePipsMasterUK if he tightened his stop losses and maybe lengthened his profit targets.

However he has said himself that he has no intention of changing his strategy, which is fair enough. I just hope that he can continue his success because I have seen many profitable providers crash and burn on ZuluTrade, and it would only need one or two bad trades for the same thing to happen here.