Outlook 2013 Seminar

Date: 26 January 2013 With James Chen, CMT Chief Technical Strategist FX Solutions, part of the City Index group of companies

About James Chen, CMT

Chief Technical Strategist, FX Solutions, part of the City Index group of companies. Active forex trader/analyst since inception of retail forex, using primarily technical analysis. Also traded equities and futures. Chartered Market Technician (CMT) Publish daily and intraday market analysis. Authored numerous articles in Forbes, Futures Magazine, Technical Analysis of Stocks & Commodities Magazine, and many others. Has appeared on CNBC, Bloomberg TV, Reuters News, Dow Jones, Associated Press (AP), International Herald Tribune, etc. Author of Essentials of Foreign Exchange Trading (John Wiley & Sons, 2009), Essentials of Technical Analysis for Financial Markets (John Wiley & Sons, 2010), and High-Probability Trend Following in the Forex Market (FX Street, 2010) DVD set.

Todays Topic:
Outlook 2013

Trade Entries and Exits

One way to get in:
1) The right direction at the best possible price Two ways to get out: 1) Loss - Where the market tells you youre wrong 2) Profit Preferably at a multiple of your defined risk

Key Principle: Trade T.P.B.

Identify the TREND. Watch for PULLBACK. Trade the BREAKOUT.

2) Pullback

Reward Risk

3) Breakout

1) Trend Underlying Principle: RISK CONTROL through stop-loss

3) Breakout 1) Trend

2) Pullback
Gold Hourly Chart

Entry Filters
Works for most strategies. Add a breakout criterion. When opportunity occurs according to strategy, get in only on breakout. This helps build a stronger case for a trade. Breakout above/below last bar. Helps to filter out trades without momentum. If breakout occurs, short-term momentum is more likely to be in your direction than if no breakout occurs.

Confluence

CONFLUENCE IS AGREEMENT Agreement among timeframes, technical tools, support and resistance, chart patterns, etc.
Where possible, look for areas where more than one technical factor provide rationale for a trade entry. The more rationale there is for a trade, the higher probability that trade will tend to be.

Confluence is NOT about paralysis by analysis.

Confluence factors can be simultaneous (preferred) or consecutive (acceptable). Confluence works because of the self-fulfilling prophecy, i.e., when multiple technical factors are present, there is a good chance that traders are acting upon one or more of those factors.

Key tools: S/R levels, trendlines, Fibonacci, pivot points, bar/candle patterns, chart patterns, moving averages, oscillators, volatility indicators, etc.

Forex trading involves a substantial risk of loss and is not suitable for all investors.

Examples of Confluence
Hourly, A A

daily, weekly timeframe all pointing in one direction.

horizontal support level coinciding with an uptrend support line.

38.2% Fibonacci level coinciding with a daily S1 pivot point as well as a horizontal S/R level.
A

major 61.8% Fibonacci level coinciding with a minor 38.2% Fib level.
average support coinciding with an uptrend support line. breakout of a pennant coinciding with a breakout of a major resistance level. hammer candle after a downtrend coinciding with major previous support.

Moving A A

Bollinger

Bands coinciding with strong support and resistance within a sideways trading range.

Forex trading involves a substantial risk of loss and is not suitable for all investors.

Moving (Trailing) Stop Losses

Long Entry

Initial
Risk Initial SL

Move stop loss by 50% of initial risk at each profitable move of 50% of initial risk

Divergences
Divergence an imbalance/disagreement where extremes (peaks and valleys) in price and an oscillator/indicator diverge in relative direction. Used primarily as a warning or confirmation of a significant potential price event. Price event can be a reversal, a consolidation, or a trend continuation. Used for supporting trade decisions that are derived from other technical and/or fundamental trading methods. Divergences add rationale for any trading decision confluence. Divergences often appear early, so they can serve as prior warning indicators. Divergences are anomalies. Usually, price and oscillator extremes should mirror each other. When divergences occur, there is an imbalance, or a disagreement, that may be corrected by a price event. Two categories of divergence regular (or classic) and hidden. Four types of divergence bearish regular, bullish regular, bearish hidden, bullish hidden.

Measuring Divergences
Price Oscillator: Stochastics, RSI, CCI, MACD, MACD Histogram, ROC, Williams %R, etc., or any other indicator that travels between horizontal bounds. On both price and oscillator, use trendline drawing tool to compare heights of swing high to swing high (peaks), or swing low to swing low (valleys). An equal high or an equal low can also be part of a divergence.

Types of Divergence
Bearish Regular Divergence during uptrend, higher high in price occurs with lower high in oscillator. Warns of potential bearish reversal or consolidation after uptrend. Bullish Regular Divergence during downtrend, lower low in price occurs with higher low in oscillator. Warns of potential bullish reversal or consolidation after downtrend. Bearish Hidden Divergence during downtrend, lower high in price occurs with higher high in oscillator. Warns of potential downtrend continuation. Bullish Hidden Divergence during uptrend, higher low in price occurs with lower low in oscillator. Warns of potential uptrend continuation. Regular divergence is often considered more intuitive loss of prevailing momentum. Hidden divergence may be considered more reliable, as it confirms movement WITH the trend instead of AGAINST the trend.

Bearish Regular Divergence

Bullish Regular Divergence

Bearish Hidden Divergence

Bullish Hidden Divergence

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