Hello traders! This week’s newsletter comes to you from warm and sunny Tampa, Florida, where I have the pleasure of teaching a class to 16 up-and-coming forex traders. As we approach the end of 2017, I’d like to recap a bit of what has happened this year, and hopefully get an idea of what’s coming up in 2018.
Due to space constraints, I won’t be able to post a couple dozen charts, but I’ll refer to a few along the way here, so please feel free to check your own charts along with me. The dollar index ($DXY) started the year at about 102.40, and is now around the 94 mark, showing definite dollar weakness. The index bottomed out in September around 91. So, overall, the dollar has lost a lot of ground but is currently slowly rallying. While this is interesting information concerning the forex market, individual currency pairs are much more fascinating!
The NZDUSD started the year at about 0.6930, and as of the time of this writing is trading at the exact same price. While this may sound as if the pair didn’t move much at all in 2017, the truth is this pair has had no less than four 400 pip moves over the past 12 months. Not too bad!
The AUDUSD started 2017 at about 0.7200, and is currently trading at 0.7555. Overall, the AUDUSD has had several large swings, three of them over 500 pips!
The EURUSD started the year at about 1.0465, and is currently at 1.1740, after reaching a high of almost 1.2100. While the EURUSD had a few couple hundred pip moves, the big one was the 1500 pip rip that really got going in April.
The USDJPY is a very interesting pair, as are most of the JPY crosses. Please, go look at your own platform to see a weekly chart of the USDJPY.
OK, I’ll show you mine instead. Notice the lower highs and higher lows, going all the way back to 2012! The closer we get to the apex of this huge triangle, the larger the move will be when it finally breaks out. The analogy is compressing a spring: the bigger the spring, and the longer you try to compress it, the more it will “snap” or bounce back. As you can see from this chart, it wasn’t THAT long ago that the USDJPY had huge, easy, extended moves of several thousand pips at a time! Expecting at least two of those moves from this pair in 2018.
Speaking of pairs that can have a lot of movement to them, check out the GBPJPY. Love it or hate it, this pair can have RIDICULOUS moves when it gets going. Five hundred pips in a multi-month move?! The GBPJPY frequently does that kind of move in a WEEK.
A word of caution: while the GBPJPY (and other highly volatile pairs) are great when you get ahold of a winning trade, with huge (potential) reward comes huge (potential) risk. Many forex traders I know will take half or even quarter normal position size on this beast for their initial position, then scale in to their trade as it works in their favor.
So, we have talked a little bit about what has happened, and the potential for big movers on the horizon. How about some predictions for the 2018 forex market?
I believe the “compression” in volatility will continue through the first quarter of 2018, perhaps even until late summer. However, the longer the compression, the bigger the moves afterward! Which will be a great thing for traders with good risk management skills, which I hope you all have. I am not nearly smart or psychic enough to predict where things will be in three months, let alone by the end of 2018! What I do know is, I like to buy retracements to a good demand zone in uptrends, short rallies to good supply zones in downtrends, and add to WINNING trades if there are a lot of potential moves left. I know, I know, these rules are incredibly complicated. If you’ve been reading my newsletters for a few years, or even attending some of my on-location classes, you should know by now that I prefer things to be very simple. Why make things complicated if it doesn’t make you more pips?