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Trading Support and Resistance

Trading Support and Resistance

This week we’ll begin with our monthly and weekly forecasts of the currency pairs worth watching. The first part of our forecast is based upon our research of the past 16 years of Forex prices, which show that the following methodologies have all produced profitable results:

  • Trading the two currencies that are trending the most strongly over the past 3 months.
  • Assuming that trends are usually ready to reverse after 12 months.
  • Trading against very strong counter-trend movements by currency pairs made during the previous week.
  • Buying currencies with high interest rates and selling currencies with low interest rates.

Let’s look at the relevant data of currency price changes and interest rates to date, which we compiled using a trade-weighted index of the major global currencies:

table01

Monthly Forecast December 2019

For the month of December, we forecasted that the best trade would be long USD/JPY. The performance to date is as follows:

table02

Weekly Forecast 22nd December 2019

Last week, we made no weekly forecast as there were no very strong countertrend movements. This week we forecast that the EUR/GBP currency pair will fall in value, as it made a strong counter-trend move last week.

The Forex market has maintained its level of activity, with 29% of the important currency pairs and crosses moving by more than 1% in value over the past week. Volatility is likely to be lower over the coming week.

Last week was dominated by relative strength in the Australian Dollar, and relative weakness in the British Pound.

Key Support/Resistance Levels for Popular Pairs

We teach that trades should be entered and exited at or very close to key support and resistance levels. There are certain key support and resistance levels that should be watched on the more popular currency pairs this week, which might result in either reversals or breakouts:

table12

USD/CAD

We had expected the level at 1.3119 might act as support, as it had acted previously as both support and resistance. Note how these “flipping” levels can work very well. The H1 chart below shows how near the beginning of last Monday’s New York session, the price bounced strongly off that level, forming a large bullish engulfing candlestick marked by the up arrow in the price chart below, which immediately broke to the upside. This trade did have a large stop loss though, which reduced its profitability somewhat and might have prevented many traders from taking this trade. This trade has given a maximum reward to risk ratio so far of just a little more than 1 to 1.

usdcad

That’s all for this week. You can trade our forecasts in a real or demo to test the strategies and strengthen your self-confidence before investing real funds.

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