book 50 by joel

Author:joel [joel]
Language: eng
Format: epub
Publisher: Microsoft
Published: 0101-01-01T00:00:00+00:00

Trading cross rates

Figure 8: CAD/JPY daily chart, Heikin Ashi

It may well make sense from time to time to see beyond one´s own nose and trade markets that are not in the focus of the international traders community. You usually hear nothing or almost nothing in the press and on the internet of enough interesting markets. As they find less observation, the trader will usually experience less "competition".

Often, this means that the trends are better and the rules of technical analysis function better. However, don´t let yourself be fooled: here too, or perhaps rather here, big players are on the road, as the above example of the CAD/JPY (Canadian Dollar - Japanese Yen) clearly shows.

If I trade the so-called cross rates (currency pairs, where the US dollar is not one of the currencies), I like to watch as a swing trader on the daily chart. This often gives me a long-term perspective over several years. I can see how the big players trade those currencies. Here you will often find daunting trends that can last years.

So it pays well, to deal with these markets. I prefer to watch those charts on weekends, usually on Sundays. Then, I am not involved in daily operations and two days of abstinence from the stock market gives me the necessary distance to see things that I overlooked during the week.

If we consider this example in CAD/JPY in more detail, we see here again a classic false downside breakout after the pair had found a support at 71 (bottom horizontal line). The break of this support lasted only two days.

The long shadows under the two black Heikin Ashi candles suggest that buyers caught this market again (we know these buyers now). The further development of the chart clearly shows that this fakeout was exactly the start of the upward trend that followed. What you see (downward breakout, arrow), is the exact opposite of what was actually intended.

After the smart money had covered with CAD/JPY lots at the low, they started to trade this pair up, day after day. Then, there were even another two good opportunities for fake traders to get in the market at a good price (two arrows on the right). Again, the big players helped diligently to keep the price within the trend channel.

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