Monday, June 3, 2013

Time for some technicals at Omicron Forex

Here at Omicron Forex we have a policy of using everything possible to assist in the ultimate goal of making profits. Fundamentals are, obviously, important, as is the use of the best Algorithmic tools to assist in the placing and management of trades.

The technical side of trading cannot be ignored either, not least because it is watched by many and can, for that reason, very often be a self-fulfilling prophesy.

So while we are waiting for possible fireworks later this week with all of the Aussie RBA, the European ECB and the US Bureau of Statistics due on stage, the RBA with its Cash Rate Statement today (Tuesday), [Edit: RBA keeps rates on hold] the ECB with its monthly press conference on Thursday and the Non-Farm Payrolls on Friday, we thought it might be an opportunity to look at a technical indicator, and how it would be used traditionally.

One popular technical indicator is the Stochastic, shown above. On the four hour chart at the time of writing it is indicating that it might be time for a trade, as the %K line looks like it is about to cross over the %D line which signifies the top of a cycle, and both are in an "overbought" situation, being above 80% (the top dotted line on the Stochastic chart) .

Dr. Alexander Elder, to whom we are grateful for our early training, was always fond of multi-screen systems, where successively larger time frames can assist greatly with the analysis of the current situation. The daily chart, for example, indicates that this pair is in a downtrend at present. Note the lower highs and lower lows. For this reason short trades only are indicated:

An even higher time frame, the weekly, shows something we have been aware of for some time, which is that AUDUSD has reached a very significant level of support, at 0.9600. The downward slope of the tangent to the peaks leading up to this point in time is also a bearish sign.

In fact, there are so many signs of a fall in this pair that prudent traders would be  wary. There is probably a build up of short positions, which makes the pair ripe for a short squeeze. This occurs when short term news, or indeed certain larger players, force the price up to the point where all those stop losses are taken out, which obviously requires buying. This in turn sends price temporarily, but sharply, higher before it falls down again. 

Be careful out there.

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