by Abe Cofnas
This morning I saw a classical set up for a bounce trade and I cant resist providing it to you.
Using a 15 minute chart on the USDJPY we see two Bollinger Bands. The standard band has a 20 and 2 set up. The additional band, I am calling the Outer Bollinger band has a 13 and 2.618 set up. The set-ups represent two technical metrics. First, the simple moving average. So the standard band as a simple moving average of 20 periods and the Outer band have a simple moving average of 13 periods. The second part of the set-up represents Standard Deviation. Simply put 2 standard deviations means that the price is about 97% of the time between the two bands. The Outer band has a 2.618 Standard Deviation which means that the price is about 99% of the time between the two bands, if you use the 13 moving average.
But lets get to the meaning of this without too much fuss over the statistics. Tactically, when we see a price point move near or outside both bands, we can conclude its doing something quite extreme. The implication is that the price cant stay there too long. Either its going to keep going up, or reverse. Keep in mind that in currencies, the price probing an extreme is not in itself a reversal signal. It got extreme for a reason! The reason or sentiment has to change for a reversal to occur. But there is a clue, to the set-up as to whether we have a bounce or reversal scenario. The clue is the shape of the Bollinger Bands. If the bands are flat or sideways, it is a good geometry for bounces. Think of a ball bouncing off a floor. A flat floor generates a straight up bounce!
Lets go back to the chart. You can spot bounce points in either direction after the price went outside the first band, rose to probe the second and penetrated the second outer band, but then reversed back in! Traders using one band dont get the added perspective of two bands!
To learn more about how you can take advantage of world events through the currency market, be sure to check out our currency trading courses!
To follow these events live with a free, real-time practice account, click here! Dont miss out on the worlds fastest growing market!
For today’s technical analysis, we will be looking at the daily chart for GBP/USD. As can be clearly seen, the pair has been experiencing a bullish trend for sometime. A close look at several indicators will show that this trend may be soon coming to an end.
The technical indicators we will be looking at are the Bollinger Bands, Relative Strength Index (RSI) and the Stochastic Slow.
1. The Bollinger Bands have already begun to widen, indicating that a price shift is likely to take place. As we can see, the price ticks are currently right along the upper band, telling us that the price shift is likely to be downward.
2. The Relative Strength Index shows the pair trading well into overbought territory. Traders can take this as a sign that downward pressure may occur in the near future, lending support to our original theory.
3. The Stochastic Slow shows a cross has formed above the upper resistance line. This is typically a sign that a downward correction will occur. This supports our original theory of an impending bearish move.
The GBP/JPY pair saw a sharp bullish movement during the past couple of weeks. Over this time period the pair gained over 700 pips, and soared from the 131.00 level to the 137.50 level. Currently, the pair is trading near to the 136.80 level, yet as several technical indicators show, another bullish movement could be impending.
• The chart below is the GBP/JPY 4-hour chart.
• The technical indicators used are the Bollinger Bands, the Slow Stochastic, the MACD and the Relative Strength Index (RSI).
• As demonstrated on the chart, a flag pattern has been formed. This indicates that further bullishness could be expected.
• The Slow Stochastic has completed a bullish cross, indicating that the bullish move might be imminent.
• The RSI is pointing upwards, providing yet another signal that the pair might be boosted soon.
• The next resistance levels are placed at the 137.50 and the 138.00 levels.
• The next support levels are placed at the 136.50 and the 135.80 levels.
Crude oil recently saw a sharp bullish movement that was initiated on July 30th. A barrel of crude oil gained close to $7 in less than a week, taking the commodity as high as the $82.90 level. However, after several failed attempts to breach through the $83.00 level, crude oil seems to be trading within a narrow range, and might even face a technical correction today.
• The chart below is the crude oil 4-hour chart.
• The technical indicators used are the Bollinger Bands, Slow Stochastic, MACD and Relative Strength Index (RSI).
• The bullish channel that took place until August 3rd seems to have reached its peak at $82.90.
• For the last couple of days, crude oil saw modest fluctuations, without showing a clear trend.
• The Slow Stochastic provides a series of bearish crosses at the moment, stating that the bullish trend is losing momentum.
• The MACD has completed a bearish cross for the first time in almost 2 weeks, suggesting that a bearish correction might take place soon.
• The RSI has declined below the over-bought zone and continues to point down, further indicating that a bearish move could be imminent.
• Crude oil’s two significant support levels appear to be at the $81.55 and the $81.00 levels.
• The next significant resistance levels seem to be located at the $82.60 and the $83.00 levels.
• Once crude oil will breach both of the levels (either support or resistance), it will be a strong indication for the beginning of a long-lasting trend.
