A MAJOR Support on AUD/USD NOW!

There is now a lot of attention on the AUD/USD. The reason for this is that it has just hit it’s 11 year low!

There are fundamental reasons for this (fires, Coronavirus,…) but I don’t really believe the AUD can fall indefinitely. Sooner or later it will bottom out and I think this moment is coming!

Look back in the past

When a trading instrument falls to its multi-year lows and you want to look for a place where it could bottom out, then it is best to load some historical data and check out if the price was as low or lower in the past.

If you load enough of historical data, then chances are that you will find out that the price actually was as low or even lower at some point in the past.

Check out the volumes

The next thing you want to do is to use Volume Profile tool to look into volumes and their distribution. The important thing is how the volumes were distributed in the past, when the price was as low as it is now.

When you do this, you may be able to identify a strong Support which would mark a place where the price could stop falling and reverse.

I did just that on the Monthly chart of AUD/USD:

AUD/USD Monthly chart analysis

In the chart above you can see that the price is now hitting an area where it already was in 2009.

The first thing that should get your attention should be the strong rejection of lower prices (in 2009). I marked it in the chart.

This rejection tells us that the price was falling rapidly. There were three months of crazy selling. Then the price turned and went into a crazy uptrend.

This means that sellers were pushing the price downwards but then very strong buyers came in and with massive force and aggression started a new uptrend.

You can learn more about the Rejection setup here:

Rejection setup explained

Volume Profile analysis

If you look into the volume distribution in this rejection area from 2019, then you can see that there was a significant Volume Cluster created around 0.6500.

This Volume Cluster points us to the place where the buyers who turned the price in 2009 placed lots of their buying positions. For them, this is the most important place in this whole rejection!

As you can see, currently the price is getting into this area again. Will those buyers from 2009 still be there defending their positions? I think they will!

I know it is over 11 years, but strong volume zones like this one don’t just get forgotten. Markets have good memory!

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What happens now?

Now I think the chances are that the downtrend will stop and possibly turn. Price is approaching a strong volume area which will most likely be defended by strong buyers. Those buyers will try to push the price upwards again.

Remember that this is a Monthly chart, so this may not happen today or tomorrow! It could take a few months! With trades like this patience is the key!

Check out the Swap!

If you are into trading such long-term trades as this one then there is one thing you should always consider before entering your position! The thing is Swap.

Swap is a payment you will pay (or sometimes receive) when you hold any forex position overnight.

If you trade on Monthly charts it is possible that you will hold your position for many weeks or months! Every day you will pay (or receive) Swap.

IMPORTANT: Every broker has a different Swap!

My advice is that before opening a long-term position you check your brokers website and see what is the swap you will pay or receive. There should be a table that will look like this:

 

In this table you should be able to see the trading instrument you want to trade and Swap for Long and Short positions.

In this example, you would pay $3.79 (per lot) every day you hold a Long on AUD/USD and $0.09 if you hold a short.

Ideal scenario is when the Swap is positive and you actually receive money for holding your position.

This was for example the case of a short on EUR/USD I held over a year. Apart from +1.600 pip profit I was also getting a positive Swap every day. Because I held the trade over a year, the positive Swap increased my profit from this trade by 20%.

I wrote more about this EUR/USD trade here:

EUR/USD short trade: Prediction

EUR/USD short trade: Commentary

I hope you guys liked today’s article. Let me know what you think in the comments section below!

Happy trading!

-Dale

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A MAJOR Resistance on GOLD

I received quite a lot of emails from people asking me to do an analysis on Gold. I am not surprised by this. Gold prices are surging again and people are getting interested (again).

Today I am going to do a big picture analysis and point out the most important support and resistance zones.

The BIG picture

If you want to do an analysis of any trading instrument, it is always best to start from the big picture. By the big picture, I mean THE BIG picture!

In this case, I pulled 10 years of data and printed it on the Weekly time frame.

This allows me to see the complete BIG picture.

The next thing I did was that I draw my Flexible Volume Profile over the whole 10-year area.

Result? A 10-year Volume profile with two really clear heavy volume zones. Those are the most crucial areas in the whole 10 year period!

And the most important zones in those two heavy volume areas are the places where the volumes were the heaviest. Those are the volume peaks or you can also call them “local POCs“.

One is around 1665.00 and the other is 1285.00

You can see this on the Weekly Gold chart below:

 

Support at 1285.00

Let me first talk about the 1285.00 area.

As you can see from the picture, there was a very long rotation (2013-2016). I remember that when Gold started rotating there, people started to lose interest in it.

You know, this is funny. In rotation like this big financial institutions are building up their positions, getting ready for an action and what the rest of retail traders do? They lose interest. They get interested again only when there is a strong trend. But at this point it is usually late! This is something to think of! But let’s now get back to the topic!

So, from this long rotation price finally shot upwards. What does this tell us? That it was mostly buyers who were accumulating their positions in the rotation!

When the price re-visits this area again, it is pretty likely, that those buyers will become active and aggressive again and that they will drive the price upwards.

This is why I think that the Point of Control (POC) of this area is a really strong support.

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Resistance at 1665.00

Now the price is going aggressively upwards. Lots of people finally realized there is an uptrend and that they would also like to have some piece of the cake.

We who use Volume Profile know, that this idea is pretty risky.

The reason is that the price is heading towards a major volume based resistance.

If you look at the Weekly chart again, you can see that there was a strong rejection of higher prices in the past.

This means that in 2010 the price went aggressively upwards, then a rotation started (2011/2012) and then a sell-off (which ended in 2013).

There were pretty massive volumes accumulated in the rotation before the price changed its direction (2011/2012). Sellers were building up their selling positions in this rotation and then they pushed the price downwards into a new trend.

Currently, the price is getting near this heavy volume area again.

Even though it has been 8 years since the price was at those levels, I still believe that there will be a reaction.

Where exactly? The most important place in this heavy volume area is in it’s POC (1665.00). This is the place with the highest probability of a strong reaction.

 

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How to manage such trades?

If you like this sort of long-term analysis and long-term trading, then you need to remember that for such trades you need to have wide enough Stop Loss and Take profit.

I am not going to tell you where to place it, but with time frames like these (weekly or monthly) you need to let the trade breathe and develop! You cannot expect an immediate reaction.

Want to learn more?

If you found this interesting, you may also like to read another two articles I posted here about this sort of long-term trading:

How To Plan Long-Term Investments With Volume Profile

A Story Of A +1,600 Pip Trade

I hope you guys like this analysis and that you found it helpful.

Have a GREAT weekend and I will see you on Monday with a new Weekly Trading Ideas Video!

 

Happy trading!

-Dale

How To Plan Long-Term Investments With Volume Profile

One of the best things about Volume Profile is its versatility. You can use it across timeframes, and of course on all possible trading instruments. In this article, I’m going to walk through how to use the Volume Profile to find and plan trades that are basically long-term investments rather than the usual intraday or swing trades. To give you some idea what I have in mind – stop losses for such trades are in hundreds of pips, with a take profit stretching over 1,000! These very long-term setups many take months or years develop and trigger. Following your entry, you can be in the trade for another few months. Crazy, right? Well, it sounds crazy only if you look at it from the point of view of an intraday or swing trader. Imagine yourself being, for example, a stock investor. This kind of trading is much closer to that style than it is our typical day trade or swing trading setups.

The great thing about those trades is that you can plan them way ahead and then just set a limit order and all but forget about it. After you do your analysis and set your limit order, you don’t need to spend time thinking or managing this trade another minute. This type of trade is ideal for people who like investing but don’t really want to sit in front of the computer analyzing charts every day.

Let me now show you how to plan this type of trade. I will demonstrate on a current investment opportunity I see on the EUR/USD.

EUR/USD Long Term Position Trading

I made this analysis with a Monthly chart (1 candle = 1 month). This chart shows you the past 14 years.

The first thing that caught my eye was the price bouncing off one support zone three times. I marked those three strong reactions in blue color. Those three strong reactions were back in the years 2008, 2010, and 2012. Because of those extremely strong reactions to this area I consider it a strong support zone. As you can see the price finally went past this strong support at the end of 2014. When such a strong support gets breached, it becomes a strong resistance zone. Even though the price hasn’t returned to this area since the end of 2014, it remains a really strong resistance zone. This support becoming resistance is the first step and the first confirmation of this type of trade setup.

The second confirmation of this level is a significant volume cluster that got created within a strong trend. I call this a Strong Initiation Setup. I usually trade this setup as an intraday or swing trading setup, but it works very nicely for an investment trade setup like this one. The idea behind the Initiation Setup is that the strong sellers that were pushing the price lower, were adding to their short positions at the volume cluster and then continuing the aggressive selling activity. When the price returns to this volume cluster, those sellers will likely be defending their positions, and they will start the aggressive selling activity again. This should push the price lower again.

The two reasons above would be enough for me to consider this a good level to trade from. Additionally, I spotted one more confirmation of this strong resistance zone, which is the 161.8% Fibonacci extension. To make myself clear – I personally don’t give Fibs much value in my analysis or decision making (as they are somewhat discretionary) but having another confirmation is a good thing. Still, I would never base a trade solely on a Fibonacci extension level. In this case, I used the high and the low of the significant sideways price action channel formed between 2015 and 2017. We can consider this channel as a sort of temporary equilibrium place which the market saw as fair value for the EUR/USD over the last 2+ years. The high and low in this area is quite strong orientation point. When I used the Fibonacci extension in this area I noticed that a very significant extension of 161.8 % is basically in the resistance zone I identified earlier (exactly at 1.2561). Bingo!

How To Enter The Market

So, those are three pretty solid confirmations of our resistance zone. Let’s now have a look at how to trade it.

Let’s start with the Profit Target placement. In this case, I would suggest placing the PT at the place where strong volumes were accumulated right before the uptrend started in 2017. This is pretty strong support zone, and I think it would be quite risky not to take your profit slightly before the price reaches this zone. I think 1.0700 is a logical place to quit this short trade with around +1,700 pips of profit. The distance is really far, and it will most likely take many months for the price to get there. If you personally prefer a tighter take profit, you can look to take profit (or part of it) at 1.1700 which is also a very strong support zone (reason being is the volume cluster along with the 100 % Fibonacci).

A good place for a Stop Loss is around (or just a little bit above ) the 200 % Fibonacci extension at 1.3086. Apart from the Fibonacci, you can see that the high volume area basically ends there. If the price goes past the heavy volume zone, it won’t work as resistance any longer. As such, should that level break it is best to have your stop loss in that area.

 

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Second Trade Setup Scenario

If my first scenario doesn’t work and the trade ends in a Stop Loss, the game won’t be over yet. At least not for me. Here is what I will do:

If I take a Stop-Loss, then I will wait for the price to get back to the place where I originally went short and I will go long. Reason? Support becomes resistance (and vice versa), remember? 🙂 Such a strong level is usually not left without a significant reaction and for that reason, if my first attempt fails, I won’t be discouraged but I will wait and enter a reversal position.

The Profit target for the reversal position will most likely be around 1.3600 because it is a strong volume area. It is basically the Volume Accumulation setup there (= strong resistance). The Stop Loss could be little below the 100 % Fibonacci and below the heavy volumes. This is around 1.1600. Those volumes and the 100 % Fibonacci would be the last barrier which would be likely to stop price. If that fails there would be no reason to remain in the long position anymore.

So this is my investment idea for the EUR/USD. As you can see it isn’t really that complicated. Especially if you do this kind of analysis from time to time you will get better, faster, and more confident in doing it. Planning such a trade could realistically take you 10-20 minutes. After that, you can just set a limit order and check your trade once a week or even less!

Money Management & Risk Per Trade

I would like to stress one very important thing. You need to calculate the volume of your trading position before you enter the market. Having, for example, a 500 or a 1,000 pip SL requires you to adjust your position so you don’t risk more than your money management plan will allow. I would keep your risk per trade between 2 % and 5 % of your total account balance. With that being said, this is only a guideline and you must adjust your risk per trade based on your own risk tolerance.

Happy trading

-Dale

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