New book by Larry Connors Click here Improve your trading - See how
Take a look at the 3-hourly chart of EUR/JPY below. It features Bollinger Bands overlaid. Something quickly stands out. The Bands have gotten extremely narrow in the last half day. This is after being extremely wide as the result of the crosses sharp drop from about 145.50.
The reason this is something worth noting is that narrow Bollinger Bands are generally a sign that the market is ready to do something interesting - to start a new directional move. That being the case, it becomes a question of trying to figure out which way things are going to go.
The daily chart can help a bit in that regard. As the chart below indicates, the situation in the longer time frame is a little different. The sell-off of the last few sessions has pulled EUR/JPY down to the 20-day moving average (middle line) and the Bollinger Bands are contracting. We appear to be in something of a consolidation phase. If the market holds up above about the 143.50 level, we would expect a rally back to at least test the recent highs.
How quickly such a bounce moves the market back up to 145.50 could actually be a good indication of whether there is likely to be much beyond that. A slower build could help the market consolidate enough to allow for the launch of a significant new leg higher. If we just see a jump over the course of a couple of days, though, it would be more likely that such a rally would be short-lived.
John Forman is the author of The Essentials of Trading (Wiley) and a near 20-year veteran of trading and investing across a wide array of markets and instruments. He is also Managing Director & Chief Trader for Anduril Analytics. His daily market commentary and analysis can be found in the Anduril Trading Report.
About TradingMarkets | Contact | Advertise | Careers | Link to Us | Site Map | Help | Terms & Conditions | Privacy Policy | Return Policy | Testimonials | Feedback
The Connors Group, Inc. ("Company") is not an investment advisory service, nor a registered investment advisor or broker-dealer and does not purport to tell or suggest which securities or currencies customers should buy or sell for themselves. The analysts and employees or affiliates of Company may hold positions in the stocks, currencies or industries discussed here. You understand and acknowledge that there is a very high degree of risk involved in trading securities and/or currencies. The Company, the authors, the publisher, and all affiliates of Company assume no responsibility or liability for your trading and investment results. Factual statements on the Company's website, or in its publications, are made as of the date stated and are subject to change without notice.
It should not be assumed that the methods, techniques, or indicators presented in these products will be profitable or that they will not result in losses. Past results of any individual trader or trading system published by Company are not indicative of future returns by that trader or system, and are not indicative of future returns which be realized by you. In addition, the indicators, strategies, columns, articles and all other features of Company's products (collectively, the "Information") are provided for informational and educational purposes only and should not be construed as investment advice. Examples presented on Company's website are for educational purposes only. Such set-ups are not solicitations of any order to buy or sell. Accordingly, you should not rely solely on the Information in making any investment. Rather, you should use the Information only as a starting point for doing additional independent research in order to allow you to form your own opinion regarding investments. You should always check with your licensed financial advisor and tax advisor to determine the suitability of any investment.
HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING AND MAY NOT BE IMPACTED BY BROKERAGE AND OTHER SLIPPAGE FEES. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER- OR OVER-COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.
The Connors Group, Inc.
10 Exchange Place, Suite 1800
Jersey City, NJ 07302
© Copyright 2009 The Connors Group, Inc.
