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Wednesday

How to Trade the Pin Bar – MACD Strategy

The pin bar – MACD strategy involves using candlesticks (or OHLC bars) and the MACD indicator to form a simple trading method. This system is best used in 4-hour charts – and if used correctly – should provide simple profits.


But before we go through the strategy, learning how candlesticks work is essential. Candlesticks contain data on open, high, low, and close values for each period. The thin lines on the top and bottom represent high/lows of a particular time period. The high is called the upper shadow, while the low is called the lower shadow. If a forex pair closes higher than the opening price, then a hollow candlestick is formed while a black one is formed if the close is lower than the opening price.

A pin bar is a candlestick whose upper shadow or lower shadow is far longer than the other one, and is often accompanied by a small real body. A bullish pin bar contains a long lower shadow, a small body and a small upper shadow, whereas a bearish pin bar contains a long upper shadow, a small body and a small lower shadow. A bearish pin bar is shown in the picture below.


Shadows – or wicks, as they are called – represent buying and selling pressure. A long upper wick would show that the bulls tried hard but the bears overcame in the end – thus, the bears won and the sentiment is likely to continue in the near future.

Once the concept of the pin bar is understood, the strategy should become easy for a trader. His trading should be in a 4 hour timeframe with only MACD as a technical indicator (default settings of 12,26,9 are recommended). This strategy works with all currencies – it’s that simple!

Once the trading setup is understood it’s time to go over the rules. These are as follows:

1.The 4 hour MACD should be below 0 (and likely to be bearish).

2.A bearish pin bar is spotted on the graph.

3.Set your stop loss 1 pip above the highest point of the pin bar,just so you don't wipe out your account.

4.Your trading objective should be to have a 1:2 risk-reward or even better. 

The rules for buy trades are the same, except the 4H MACD should be above 0, and the stop loss should be 1 pip below the lowest point of the wick.



The chart above shows two short entries, as pin bars were seen and MACD was below 0. The trade ended with a 116 pips profit, while the second ended at break even.






Monday

USD/JPY Technical Analysis

On Friday all eyes were on Bernanke as it was thought that he would lay some ground for the FOMC meeting and decision on 13th September.Although it was said that action was necessary to facilitate the labour markets,traders were still unsure whether QE3 was coming or not.This week we won’t see quantitative easing affecting our charts.

The Japanese Yen has been strengthening and has recently caught the eyes of the Bank of Japan and Ministry of Finance.Meanwhile,the US Dollar has been declining itself again.The price action and low volatility still haven’t made a case for intervention,but Bank of Japan may intervene at some point.They are known for stealth tactics.



Examining the 2 hour frame chart above,we can see that the pair been moving sideways since the past month.However,the past 10 days saw a significant sell-off,after which the price has been edging lower.Currently,the pair is hovering between the support level of 78 and the resistance level of 78.7,and it is most likely that the price should stay here for most of the time. However,in case it breaks the support level,a short trade could be initiated,whereas a long trade could be executed in case the resistance level breaks.


MACD has been moving down and sideways throughout the past week,but has stayed below 0. This shows that there is a bearish atmosphere as the price continues to move within the support and resistance levels.However,currently MACD is edging upwards,which may indicate signs of a weak rally – since it is still below 0.

Stochastics have been moving upwards lately and should reach the overbought level if the pace continues.They are likely to oscillate less than 10 times throughout the week,so they should be taken in consideration with other signs.

Since the pair is trading sideways,one could look for signs of price oscillations.If these oscillations become long enough,one could initiate long and short trades along the waves.



USD/CHF Technical Analysis

Fundamental: The price of USD is still uncertain as Ben Bernanke’s announcement on the 31st did little to confirm QE3.Therefore,this week won’t be affected by these measures. Nevertheless,USD is moving downwards since the past month,but may stay towards the upper side of the bearish channel.

Technical:


The 2H chart shows the current bearish channel USD/CHF is in. A regression analysis since the 25th of July shows that the price tends to oscillate in the boundaries,but since the past 10 days it has remained in the lower end of the channel.If the price breaks out from the resistance line at 0.9667,then a long position would be applicable.However,it is most likely that the pair would continue to plummet.Therefore,the support line at 0.9448 should be seen as a breakout could see a steady fall of the pair. 

MACD is bearish as it is below 0,but is moving sideways.This shows some uncertainty in the market,but the bias is towards the negative side.Stochastics have fallen from the overbought level,and are currently moving upwards again.However,the price is still largely stagnant so support and resistance levels may be better indications.


The USD/CHF bearish pattern is occurring due to the fall of USD,as seen in the chart below:



USD seems to be moving sideways since the past few weeks,but it is in a larger bearish pattern.An introduction of QE3 could make it plunge,along with the USD/CHF pair.

MACD on the USD is bearish and below 0,signalling a decline.Stochastics have just reached the overbought level and are coming down again.Therefore,both signals are bearish for USD. However,if they break out from the upper channel at 10,033,then a long trade for USD/CHF would be favourable.





GBP/USD Technical Analysis

Fundamental: Those who were tuned in for Ben Bernanke’s Jackson Hole speech would be left disappointed as the Fed did not commit to QE3. There is uncertainty in the market whether quantitative easing will occur or not,nevertheless,it should not affect this week’s outlook.


USD has been declining since the past month,however,it is likely to remain on the upper side of the bearish channel it is currently in. A breakout from the upper channel line at 10,040 would signal a bullish rally, which could be bearish for GBP/USD, provided GBP does not rally as well.

Trade numbers for UK have been disappointing,with a £10 billion short-fall on the goods/services balance.Exports to Europe are weakening as the UK tries to find other markets.The country’s central bank will be expanding its QE program to £425 billion,up from £375 billion. 

The UK PMI for August is 49.5, which is better than expected. Consumer goods producers have also seen their outputs increased, so GBP has been appreciating. This is a good sign for the economy, but the outlook is still poor as demand and investment spending are weak.


Looking at the 2H chart,we can see the GBP has been edging upwards lately.The 2 month regression channel shows that GBP/USD has been bullish,even though it is highly oscillating. From the 21st of August,it has stayed in the upward level of the channel, where a lot of support and resistance lines exist.If the price breaks through from the 1.59 resistance level, a long trade may be favourable.On the other hand,if the price breaks the support level of 1.5812,it could move in the lower level of the channel,and even hit the lower end.Given the current circumstances,a bullish rally is more likely. 


Stochastics are currently moving sideways. Even though they are currently in a bullish mode, the signal is quite uncertain. MACD is still pointing higher, but its trend is not as strong as before. 

Therefore, support and resistance lines should be given the most importance. Any breakthroughs can trigger long or short trades.

Sunday

EUR/USD Technical Analysis

Fundamental: The most important news for the pair was Ben Bernanke’s speech at Jackson Hole on the 31st. The central bank still hasn’t clearly announced that the next round of Quantitative Easing will occur, and the conference suggested that it will stay on the side lines for the time being. QE depreciates the USD and appreciates the pairs, so a serious decline in the dollar is still away.




The chart above shows the USD with regression channels. The price is moving in a downward channel so far. Any confirmations of QE3 will pressurize the price to plummet further.

An important event to look out for is the announcement by European Central Bank president Mario Draghi, as he plans to introduce measures which should address the problems of Spain and Italy. These measures are likely to include buying bonds of the two nations to reduce their borrowing costs. EUR is currently strong in anticipation of these measures,however,if they are found to be ineffective the pair could plummet once again.

Technical:


Examining the H2 timeframe, EUR/USD has been rising weakly since the past week. A 10 day regression analysis shows that the pair is making gains and is currently staying on the above line of the channel. This is reflected by the current market view that ECB will introduce effective measures, and that the Fed may introduce QE3. 


Stochastics are currently bullish and edging towards 80, signalling that there may be some gains made in the coming day. MACD, however, is moving sideways – and even though it is currently bullish – it signals uncertainty in the market. 

EUR/USD is best traded on market news these days, as any sign of good or bad news shifts the price significantly. The bullish rally could easily be reversed due to the ECB; it is well known that the European Central Bank is quite divided and has yet not reached to a permanent solution.

On a closer view of the chart, the pair seems to be showing bearish signs. Friday’s close ended with a shooting star candle, and if the price breaks through the support line of 1.2425, a sell-off rally may occur. On the other hand, if the price exceeds the resistance lines of 1.2692 and 1.27, then long trades would be more favourable. However, a bearish mood exists for this week so any signals for shorting should be picked up.