Tweet

People who say that technical analysis doesn’t work and is all hocus pocus voodoo stuff are out of their minds. I will personally tell every trader I meet or come in contact with to ignore nay-sayers and non-believers of technical analysis.

In this article I’m going to show you some incredible examples of perfect technical analysis and how you can use it well in advance to position yourself for very profitable trades. If you are leaning to the non-believers side and have your doubts about using mostly technical analysis to base your trades on, then hopefully I will change your mind by the end of this post. I would love to hear your comments at the end of it!

Eur Jpy Daily Candlestick Chart

Eur jpy was at a top of 170 in mid-2008 from where it dropped to a low of 112 in early 2009. This was an incredible crash. The initial low was in October 2008 though, so the second time it started bottoming at that level in early 2009 you could be pretty sure that a few months of recovery were ahead.

A good way of determining some sort of target for the retrace is by putting a Fibonacci level on it, and after such a big retrace it is reasonable to expect a 50% retrace which was a level of around 141. Usually this would be a good place to enter a short position (of course depending on current circumstances when it gets there).

As you can see on the chart it is pretty clear that there was big resistance at the various major Fibonacci levels on the way up. First at 23.6% which was around the 126 level. Then at the 38.2% which was around the 134 level. You can see how many times it bounced on and off those levels.

Unlike most major markets, Eur jpy did not go up in a trending way but it turned to a sideways range for many months.It was possible to draw an ascending trendline from the early 2009 112 low (black ascending trendline on the chart). Towards teh end of 2009 Eur Jpy finally broke down through that ascending trendline and we know that a breakdown of a strong ascending trend line usually leads to further downside.

An immediate break and close below the ascending trendline could be sold but there is always a risk of a false break or retest of the broken ascending trendline first. It would have been possible to seel that break and make a nice 100-200 pip profit provided you closed your position for a profit because it bounced straight back up to the 134 Fib level over the next couple of days and tested the broken ascending trend line.

Then it dropped straight back down to that same 126.86 level (horizontal red line on chart) from where it made another daily reversal candle. This was an indicator for more upside again because a double bottom usually bounces up again and is rarely a continuation. However, now there was a setup for a third test of that 126.86 level which would likely break through (3rd test of a level usually breaks through it).

Once again, Eur Jpy tested that 38.2% Fibonacci level which this time also coincided with the descending trend line (drawn from the 170 top in mid 2008 over the 138 level top in Oct 09). When it bounced off that 38.2% Fib level again it was a good profitable potential entry point for a short sale. If you still didn’t believe in the coming decline, it was possible to enter s hort position the 3rd time it hit that 126.86 level and rested there for a while. It dipped a little below, then went up a little to test the 126.86 level from the bottom this time, and then it crashed to the 122 level.

Eur Usd Daily Candlestick Chart

Similarly to Eur Jpy and most markets, Eur Usd was at a top in mind 2008 and crashed to a low in late 2008/early 2009. From that low in early 2009 it has taken almost 12 months to correct and consolidate the crash.

Once again, the first low of Eur Usd was in late 2008. There you could have put a horizontal line over the 132 level or drawn a triangle that it was consolidating in. You could have traded the breakout in the long direction once it broke to the upside of the resistance or triangle.

As you can see the upwards movement was rather violent and lasted for a long time. It was halted by the horizontal resistance (red horizontal line on chart) which had proved to be resistance and support to as far back as 2007. Then Eur Usd crashed back down to it’s low level of late 2008 and formed a slightly higher bottom.

Over the next months Eur Usd created an ascending wedge pattern (which we know is a bearish pattern. From Sep 09 the RSI started showing a negative divergence with the price action (meaning the RSI was making lower highs and the price higher highs). This was a warning to not enter new long term long positions and actually start looking for a short entry.

Once that ascending wedge finally broke to the downside it was time to hop on the short wagon. First target was the horizontal red line on the chart (the proven support/resistance from all the way back to 2007). Eur Usd blasted right down through that support level. It stopped at the orange horizontal line on the chart, which also seemed like it has support/resistance in the past but not as clearly. And now look what happened…

Yes it bounced, but up to where? The red horizonal line on the chart, the proven support/resistance. And from the red horizontal line it carried on it’s downwards path back to the orange horizontal line on the chart. Once again, it dipped just below it and then came back up a little to test that orange horizontal line. When it failed again there it was possible to enter a new short position with a stop just above the horizontal orange line (minimal risk) with the expectation of a few hundred pip decline (which is exactly what occurred).

My personal target was the green horizontal line on the chart which as you can see is a nother strong level of support/resistance in the past. Eur Usd has closed just a little below this level.

Conclusion:

So as you can see from the above charts which I have explained in detail you can now see how to use technical analysis to determine low-risk and highly-profitable trades well in advance from any chart and most time-frames. I am not suggesting that technical analysis is able to predict the future accurately 100% of the time because there will be exceptions and sometimes things will not go as they should. That is why you always use a stop loss at a place where the risk/loss is acceptable to you and is hardly going to affect your account in a serious manner.

Technical analysis is a method and system that allows you to determine entry points for trades that have a low risk but a high potential profit. With good technical analysis you should get anywhere between 6-8 out of 10 trades correct which is enough to be a winning and successful trader in the long run.

It’s not just on these few charts that I showed you today on which I use and apply technical analysis. All my analysis I do every week is based on technical analysis and if you go back through some of the older posts you can see the (positive) effect of most of those calls and trades).

I want to invite you to subscribe to Forexhabits.com and you will receive all my updates and analysis for free. This way you can learn from me or criticise me if you think I’m wrong, but either way we can keep in touch!

SUBSCRIBE TO FOREXHABITS HERE