ACCURATE WARNING ON USD CAD AND GBP USD WEAK SIGNALS HELPS AVOID SERIOUS TRADING LOSSES
Within the last 24 Hours, I had been looking at the possibility of Shorting the USD CAD for a projected gain of 50 Pips following the Bearish Candlestick Signal that was formed on its Daily Time Frame. This was going to also be within the context of a Pennant Consolidation Setup that appeared to be forming that would see the pair declining over the next few days.
USD CAD DAILY CHART POSSIBLE PENNANT
However, instead of providing the required Bearish Signal on the 4 Hour to confirm this move (part of my Trading Strategy), a weak signal was given that was not enough to justify the trade.
USD CAD 4 HOUR CHART SETUP AND WEAK SIGNAL
With weaker than expected Candlestick Signals like this, it increases the possibility of a reversal to either start a Trend Change or form a Consolidation as highlighted above.
This was then sent to a fellow trader as a warning about the potential for a reversal that meant abandoning the potential trade…
SCREENSHOT OF EMAIL SENT
(This is the Trade Setup I use to remind me to stay disciplined. FXCM Charts are used to identify market direction and signals. I use FxPro however to actually trade. FxPro sends me an email alert so Im not tempted to interfere with my trades. Here I assumed a Strong 4 Hour Candle that would close at the 1.2420 area.)
However, those traders who do not look at the 4 Hour for guidance or who dont pay attention to the difference between weak and strong signals would have been caught out by the reversal as predicted…
USD CAD BULL CANDLE REVERSAL
This would have led many wondering why this downtrend suddenly turned Bullish. Was it due to Stop Loss Hunting? A Major Market Moving Economic Data Release? Neither.
WEAK VERSUS STRONG 4 HOUR SIGNALS
What you will find is that Breakout Signals on the 4 Hour Chart - which controls the Lower Time Frames - that are too weak have an increased chance of leading to reversals. This is why it can appear as sudden and unexplained trend changes on the lower charts.
A similar situation can be seen here on the GBP USD that I was also looking at. Again, instead of providing the desired signal to continue the 4 Hour Uptrend, a weaker than expected signal was given which on the lower charts would have appeared as a fairly strong bullish movement…
GBP USD 4 HOUR CHART REQUIRED BULL CANDLE
However, as can be seen here, the market did what it normally does with weak signals - takes them out…
GBP USD 4 HOUR CHART REVERSAL
Another Trading Loss avoided.
So in a nutshell, knowing the Technical Factors that actually control the Forex will be key to our Long-Term Trading Success in this Dangerous Financial
MAIN ASPECTS OF ACCURATE WARNING
Knowing How Counter Trend Lines behave during Trends is Crucial to Anticipating Reversals
Mastery of Candlestick Patterns on the Daily and 4 Hour Charts is key to Predicting Market Direction
Waiting for the 4 Hour to give us a Signal is sometimes needed to validate the Signals of the Daily Chart
Not Having to Rely on Economic Data to Trade and Accurately Predict the Forex.
Your Trading Guru.