Successes in forex trading could only be achieved if you have the bigger picture within your purview. To achieve this it is important to realise that you can only have a ‘helicopter view’ of the market in the higher time frames. The higher time frames provide useful insights into the trading parameters within a given period of time, which could be up to 2-4 years. With this knowledge it becomes easier to proceed to the lower time frames and trade confidently within the established boundary.
For a better understanding of the picture, we will now discuss, the Monthly Price Action Analysis (MPAA). As usual we will use the GBPUSD monthly to explain the MPAA for the period December 2008 – January 2012.
A closer observation of the monthly chart for GBPUSD will reveal the following facts:
a) If the cable begins a new year around the lowest point in a yearly circle, the point usually serve as a circle for a bullish run (rise in price)
b) If the cable begins a new year around the highest point in a yearly circle, the point usually serve as a circle for a bearish run (fall in price)
c) Price moves for the first 6 months (Jan-June), consolidates for the next 3 months (July-Sept), and closes for the last 3 months (Oct-Dec)
d) Price generally consolidate around the concrete zones
The question at this point is what is the usefulness of the above analysis in a simple language? The benefit of the MPAA is that the accounting year for the ‘big players’ (banks, hedge funds, investment outfits, etc) starts from January and ends in December. At the beginning of each year, depending on the fundamental factors, the big players push the price to a direction determined by fundamental factors (it doesn’t matter whether it is bull or bear). By the middle of the year, these players used the next three months see whether the bullish/bearish run will continue or not hence the consolidation around this period. These players use the last three months to take their profit and close their books for the year. The big players will never leave roll over their profit to another year. That is the monthly circle for the Cable.
What is then my view for 2013? I.5300 which has proved to be a very strong support on all time frames and most importantly the weekly candle since 2008 was eventually broken in February 2013. If the weekly candles fails to break above 1.5300 and the weekness of the Pound continues, a retest of the support at 1.430 is a strong possibility. You need to however follow one weekly candle at a time.
I attach a weekly chart showing consolidation around the master charts levels. This area of weekly consolidation is where I called the concrete zone. The weekly charts can consolidate for up to three months. The consolidation area in the chart was between 1.5360 and 1.5780 (about 420 pips) and the Masterchart support is 1.530 until firstly, the body of a weekly candle closed outside and secondly a the body of a weekly candle opens and closes outside this level. A pin outside 1.530 is a false breakout.
What I am trying to do here is to explain this process and give you knowledge to apply it to any situation. To gain confidence in your analysis pick the chart for any currency pair e.g. EURUSD, GBPJPY, AUDUSD, and try the MPAA through this simple process:
Ø Identify where the prices on the monthly chart are in Dec/Jan over a period of 2-3 years
Ø Identify the highest and lowest point for 2-3 years
Ø Identify weekly chart price reaction around the concrete zone
Ø Identify the consolidation areas (concrete zone)
For a better understanding of the picture, we will now discuss, the Monthly Price Action Analysis (MPAA). As usual we will use the GBPUSD monthly to explain the MPAA for the period December 2008 – January 2012.
A closer observation of the monthly chart for GBPUSD will reveal the following facts:
a) If the cable begins a new year around the lowest point in a yearly circle, the point usually serve as a circle for a bullish run (rise in price)
b) If the cable begins a new year around the highest point in a yearly circle, the point usually serve as a circle for a bearish run (fall in price)
c) Price moves for the first 6 months (Jan-June), consolidates for the next 3 months (July-Sept), and closes for the last 3 months (Oct-Dec)
d) Price generally consolidate around the concrete zones
The question at this point is what is the usefulness of the above analysis in a simple language? The benefit of the MPAA is that the accounting year for the ‘big players’ (banks, hedge funds, investment outfits, etc) starts from January and ends in December. At the beginning of each year, depending on the fundamental factors, the big players push the price to a direction determined by fundamental factors (it doesn’t matter whether it is bull or bear). By the middle of the year, these players used the next three months see whether the bullish/bearish run will continue or not hence the consolidation around this period. These players use the last three months to take their profit and close their books for the year. The big players will never leave roll over their profit to another year. That is the monthly circle for the Cable.
What is then my view for 2013? I.5300 which has proved to be a very strong support on all time frames and most importantly the weekly candle since 2008 was eventually broken in February 2013. If the weekly candles fails to break above 1.5300 and the weekness of the Pound continues, a retest of the support at 1.430 is a strong possibility. You need to however follow one weekly candle at a time.
I attach a weekly chart showing consolidation around the master charts levels. This area of weekly consolidation is where I called the concrete zone. The weekly charts can consolidate for up to three months. The consolidation area in the chart was between 1.5360 and 1.5780 (about 420 pips) and the Masterchart support is 1.530 until firstly, the body of a weekly candle closed outside and secondly a the body of a weekly candle opens and closes outside this level. A pin outside 1.530 is a false breakout.
What I am trying to do here is to explain this process and give you knowledge to apply it to any situation. To gain confidence in your analysis pick the chart for any currency pair e.g. EURUSD, GBPJPY, AUDUSD, and try the MPAA through this simple process:
Ø Identify where the prices on the monthly chart are in Dec/Jan over a period of 2-3 years
Ø Identify the highest and lowest point for 2-3 years
Ø Identify weekly chart price reaction around the concrete zone
Ø Identify the consolidation areas (concrete zone)
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