forex trading outlook today - forex trading outlook for 2012 ; As we reach the close of 2011, some of the chatter I have run across is how to best position trading propositions for the upcoming year. Rather than devote an article toward speculation on fundamental perspectives in anticipation of potential economic impacts, the focus here will address examples of tools and strategies traders can use to manage their outlook.
Those who have followed my previous articles know that I use DiNapoli levels as a means of technical analysis. Aside from trading outright contracts, I also use specific option strategies. With that said, we will take a quick look back at 2011 Forex activity with some examples on how certain strategies played out and use the same context to evaluate considerations for the upcoming year.
To start, let’s look at a previous chart from 2011 where I will define some parameters with the DiNapoli technical indicators toward formulating an outlook. Then, we will look at a couple of strategies a trader could use to potentially manage that perspective. While the premise here uses historical data to form a trade bias, the content here is purely for educational purposes only and not a recommendation toward any investment decisions.
Looking at Chart 1, which shows EUR/USD from 2011, I have included some technical analysis tools using DiNapoli levels as a methodology to describe possible support / resistance levels using advanced Fibonacci. The areas labeled COP (blue), OP (green) and XOP (red) illustrate potential resistance levels as Fibonacci expansions forecast after the level C (1.25875) on the weekly chart. Both the red (1.33634) and purple (1.27956) levels stem from point A and represent potential support levels as Fibonacci retracements, all using DiNapoli studies.
The red curved line is the DiNapoli MACD Predictor. I have illustrated this indicator with the standard DiNapoli MACD below. In a nutshell, when looking at the standard DiNapoli MACD indicator, when the blue MACD line crosses above the purple signal line, it indicates a possible start of a trend and vice-versa. Having the red DiNapoli MACD Predictor line on the price chart in place of the standard MACD serves two purposes. It allows a trader to determine a specific price point at where crosses happen on the standard MACD and forecasts this value one time period ahead.
Let’s consider two trade scenarios that will be referenced in the remainder of this article.
Looking at the info box, the MACD Predictor value is 1.36098 with the bar close above at 1.36110 indicating the start of a possible uptrend. Let’s use this as the premise of our Outlook with a bullish perspective. If price moved and held below the predictor value (red line), we would assume we were incorrect. Scenario #1, how would you form a trade to match this outlook?
Let’s consider a different scenario. Referencing Chart 1, look at the green OP (1.4845) level of resistance (forecast from point C where price stalled before the retracement). Given the consolidation, how would you have realistically managed that outlook in hindsight?
Scenario #2, is there a way to earn on a trade given a sideways market?
One of the biggest challenges on trading higher timeframes is managing the risk one takes while waiting for a given outlook to play out with the emotions involved with watching the account draw down.
Let’s go to the question for Scenario #1 and assume our outlook is bullish with price at the start of a possible trend in its move above the DiNapoli MACD predictor. Given the weekly timeframe, I am selecting two targets assuming a continuation bullish with the first target at prior consolidation (near the OP 1.40450 level (green) prior consolidation). The second target would be the higher forecast XOP level (red) of resistance. In this simplified example, suppose we manage risk by exiting the trade if we are wrong using a percentage of the daily ATR (average true range with a value of 120 pips). We can achieve this by dropping timeframes, part of a combination of techniques taught in advanced DiNapoli seminars.
From our strategy, it comes down to selecting your instrument of choice. If you decided to purchase a one lot on spot Forex (~100K), given the outlook on a higher timeframe, the potential account risk on drawdown would be close to $1,200 (assuming 120 pips @ $10/pip). It would be slightly more on Forex futures ($12.50 / pip). On Forex futures, margin on a one lot would be approximately $2,500. Most traders do not have the patience or emotional endurance to wait for the strategy to play out trading outright contracts with possible large drawdown on their account.
From a different perspective, if we were to consider options on the euro currency to manage the trade outlook, Chart 2 outlines a “calendar swap” strategy using put options. On a side note, it takes traders getting used to the quote conventions of different platforms. On the illustration in Chart 2, just move the decimal 2 places to the left where 137.00 simply reads 1.3700.
Those who have followed my previous articles know that I use DiNapoli levels as a means of technical analysis. Aside from trading outright contracts, I also use specific option strategies. With that said, we will take a quick look back at 2011 Forex activity with some examples on how certain strategies played out and use the same context to evaluate considerations for the upcoming year.
To start, let’s look at a previous chart from 2011 where I will define some parameters with the DiNapoli technical indicators toward formulating an outlook. Then, we will look at a couple of strategies a trader could use to potentially manage that perspective. While the premise here uses historical data to form a trade bias, the content here is purely for educational purposes only and not a recommendation toward any investment decisions.
Looking at Chart 1, which shows EUR/USD from 2011, I have included some technical analysis tools using DiNapoli levels as a methodology to describe possible support / resistance levels using advanced Fibonacci. The areas labeled COP (blue), OP (green) and XOP (red) illustrate potential resistance levels as Fibonacci expansions forecast after the level C (1.25875) on the weekly chart. Both the red (1.33634) and purple (1.27956) levels stem from point A and represent potential support levels as Fibonacci retracements, all using DiNapoli studies.
The red curved line is the DiNapoli MACD Predictor. I have illustrated this indicator with the standard DiNapoli MACD below. In a nutshell, when looking at the standard DiNapoli MACD indicator, when the blue MACD line crosses above the purple signal line, it indicates a possible start of a trend and vice-versa. Having the red DiNapoli MACD Predictor line on the price chart in place of the standard MACD serves two purposes. It allows a trader to determine a specific price point at where crosses happen on the standard MACD and forecasts this value one time period ahead.
Let’s consider two trade scenarios that will be referenced in the remainder of this article.
Looking at the info box, the MACD Predictor value is 1.36098 with the bar close above at 1.36110 indicating the start of a possible uptrend. Let’s use this as the premise of our Outlook with a bullish perspective. If price moved and held below the predictor value (red line), we would assume we were incorrect. Scenario #1, how would you form a trade to match this outlook?
Let’s consider a different scenario. Referencing Chart 1, look at the green OP (1.4845) level of resistance (forecast from point C where price stalled before the retracement). Given the consolidation, how would you have realistically managed that outlook in hindsight?
Scenario #2, is there a way to earn on a trade given a sideways market?
One of the biggest challenges on trading higher timeframes is managing the risk one takes while waiting for a given outlook to play out with the emotions involved with watching the account draw down.
Let’s go to the question for Scenario #1 and assume our outlook is bullish with price at the start of a possible trend in its move above the DiNapoli MACD predictor. Given the weekly timeframe, I am selecting two targets assuming a continuation bullish with the first target at prior consolidation (near the OP 1.40450 level (green) prior consolidation). The second target would be the higher forecast XOP level (red) of resistance. In this simplified example, suppose we manage risk by exiting the trade if we are wrong using a percentage of the daily ATR (average true range with a value of 120 pips). We can achieve this by dropping timeframes, part of a combination of techniques taught in advanced DiNapoli seminars.
From our strategy, it comes down to selecting your instrument of choice. If you decided to purchase a one lot on spot Forex (~100K), given the outlook on a higher timeframe, the potential account risk on drawdown would be close to $1,200 (assuming 120 pips @ $10/pip). It would be slightly more on Forex futures ($12.50 / pip). On Forex futures, margin on a one lot would be approximately $2,500. Most traders do not have the patience or emotional endurance to wait for the strategy to play out trading outright contracts with possible large drawdown on their account.
From a different perspective, if we were to consider options on the euro currency to manage the trade outlook, Chart 2 outlines a “calendar swap” strategy using put options. On a side note, it takes traders getting used to the quote conventions of different platforms. On the illustration in Chart 2, just move the decimal 2 places to the left where 137.00 simply reads 1.3700.
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