forex case studies 2015

8/11/2019 Forex Case Studies 2015

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FOREX

CASE

STUDIES

REAL TRADE

EXAMPLES


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3/21

Case study 1

Trading EUR/USDAhead of FOMC

Meeting, Eurozone CPI Release

Eric Dale is a seasoned currency trader. His tradesetups are based on sound fundamental andtechnical analyses. On January 4, Eric notices thattechnicals are signaling some real downside risk inEUR/USD. e preliminary technical analysisprompted him to consider a sell (short) position inthe pair.

In order to assess the macro-economic or fundamental scenario, Eric opens the economic calendar. He finds thattwo major economic events are due today:

Fundamental Analysis

At 9:00 GMT, Eurostat is scheduled to releaseEurozones Consumer Price Index (CPI) report forDecember. CPI is considered the best gauge forinflation over a specific period of time. Aer somemore research on the economic release, Eric comes toknow that analysts are expecting a decline inEurozones CPI to 0.7% in December as compared to

0.9% during the same duration a year before.Generally speaking, a high CPI reading (close to 2%)is seen as bullish for EUR/USD and vice versa.

Eurozone CPI

At 14:00 GMT, Federal Reserve is due to announcea Federal Open Market Committee (FOMC)decision on the pace of monthly asset purchaseprogram and benchmark interest rate aer a two-daymonetary policy meeting. Eric again opens somenews websites and finds that analysts are, almostunanimously, expecting tapering in monthly asset

purchase program worth $75 billion and no changein benchmark interest rate.

US Monetary Policy Meeting

Aer thorough research, Eric concludes that the fundamentals are reinforcing his preliminary technical analysisabout the potential downside risk in EUR/USD. He plans to conduct an in-depth technical analysis to make a finaldecision.

Fundamental conclusions
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Case study 1

A long shooting-star candle on the daily chart gave Eric a preliminary indication for the potential downside risk innear future. Aer applying Fibonacci extension levels on the daily chart, Eric comes to know that the price tookretracement from 261.8% fib level resistance as demonstrated in the following chart.

Technical Analysis

e current market price is 1.3800; Eric knows thatthe price will face huge resistance near 1.3891 because

now it is a confluence of 261.8% fib level and theshooting star resistance. So he makes his mind toopen a sell position around 1.3800 if the EurozonesCPI comes worse than expectations or in line withexpectations. e data is due just a few minutes later.

Analysis

At 14:00 GMT, the Federal Reserve announces a $10billion cut in the monthly asset purchases program,trimming it down to $65 billion and leaves the inter-est rate unchanged. e US dollar appreciates aerthe US central bank decision and consequently, theEUR/USD accelerates the downside movement.Fortunately, a mere couple of hours aer the Fedannouncement, EUR/USD hit 1.3670 and Eric gets130 pips Take Profit (TP), with a dollar value of$130.

Eric earns $130 as Fedannounces tapering

Eurozones CPI data comes worse than the forecast.Eurostat report shows that CPI declined to 0.5% in

December, more than the market expectations. Ericsells EUR/USD at 1.3800 with 0.10 lot and placesstop loss at 1.3900, he sets his initial target around1.3670. e current leverage of Erics account is 1:400so $34.50 will be in use for this trade. Eric risked $100on this trade as his stop loss was exactly 100 pips.EUR/USD began falling following the CPI releasebut aer 40 pips slide Euro halted the downsidemovement as investors turned their focus to FOMCannouncement.

Eric sells EUR/USD


5/21

Case study 2

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6/21

Case study 3

Identifying the Buy Opportunity in

USD/JPYthrough MACD DivergencePaul Anderson is an experienced technical trader.His technical analysis is based on differenttechnical indicators and price action signals. OnFebruary 5, Pauls trading system generated a coupleof bullish signals about USD/JPY. He decided toconduct an in-depth technical analysis on the pairfor a potential buying opportunity.

Paul was excited to see some strong positive divergence within the four-hour timeframe. MACD was showingHigher Low (HL) while the price had printed a Lower Low (LL), as demonstrated in the following chart.

A strong bullish signal is generated when the price prints LL but the oscillator (such as MACD, RSI or CCI) failsto follow the price movement and shows HL. Similarly, a strong bearish signal is generated when the price printsHL but the oscillator shows LL. Divergence is considered one of the most authentic tools for technical analysis.

Positive Divergence

Paul noticed that both the Relative Strength Index (RSI) and the Commodity Channel Index (CCI) were retreat-ing from oversold territories. is was the second major signal for a potential bullish reversal in USD/JPY.

RSI & CCI
http://www.forexillustrated.com/out/usd-jpyhttp://www.forexillustrated.com/out/usd-jpy


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Case study 3

Aer getting adequate bullish signals from technical analysis, Paul then checked out the economic calendar. He

found that no major event was due on February 5. A few medium-level economic reports about the US economywere, however, scheduled for release on that day.

An RSI reading below 30 is considered an indication of oversold sentiment while a reading above 70 showsoverbought sentiment among traders. Similarly, a CCI reading below -100 gives an oversold signal while areading above +100 shows overbought sentiment. In the oversold market, price mostly takes bullish reversaland vice versa.

e report shows the number of people who gotemployed in the US over a specific period of time. It isa monthly report which stirs moderate volatility inUS Dollar (USD). On February 5, the report gave the

downbeat reading of 127K; analysts had predicted180K new jobs in January.

ADP Employment Change

e report, released by the Institute of SupplyManagement (ISM), shows the performance of theUS services sector over a specific period of time. OnFebruary 5, the report posted the upbeat reading of

54.0; market was expecting a 53.7-point reading inJanuary compared to 53.0 in the month before.

ISM Non-Manufacturing PMI

e report, released by Markit Economics, measuresthe performance of the US services sector during aparticular time period. On February 5, the reportshowed a 56.7-point reading in January; this wasbroadly in line with the expectations.

Markit Services PMI

Based on the strong bullish signals from technicalanalysis and mixed US economic reports, Paul finallyopened a long (buy) position in USD/JPY at 101.00.He kept the stop-loss at 100.50 and the take profit at102.50. His lot size was 0.10, i.e., he risked $50 for a

$150 potential profit. Aer two days, his analysisturned out to be correct and he enjoyed 150 pips or a$150 profit.

Paul went long and earned $150


8/21

Case study 4

Identifying a Sell Opportunity in

USD/CHFthrough Trendline ResistanceAbdullah Khan has been trading currencies for along time. His technical analysis is mainly focusedon trendline support/resistance levels and pricepatterns. In addition, he also keeps an eye onfundamental events. On February 12, he realizedsome serious downside risk in the USD/CHFwhich prompted him to conduct an in-depthtechnical analysis for the pair.

Abdullah drew trendlines on the daily chart which showed a downward slope channel in the pair. e slope chan-nel further revealed that the price faced rejection at the channel resistance three times in the recent past.

To confirm the bearish sentiment on the pair, Abdullah inserted Fibonacci levels on the daily chart. He then cameto know that both the 50% fib level and the channel resistance were at the same point: 0.9027.

Technical Analysis
http://www.forexillustrated.com/out/usd-chfhttp://www.forexillustrated.com/out/usd-chfhttp://www.forexillustrated.com/out/usd-chf


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When two or more resistance or support levels combine at the same point, such point is known asconfluence. Confluence support and confluence resistance are considered the best levels for entry.Based on the repeated rejection around channel resistance and the confluence resistance, Abdullahconcluded that his technical analysis as very bearish for the pair.

Based on the strong bearish signals from the technicalanalysis and a relatively calm fundamental outlook,Abdullah decided to open a short (Sell) position in

USD/CHF at 0.9027. He placed the stop-loss at0.9057 and the take profit at 0.8927. His lot size was0.10, which means he risked $30 for a potential $100profit. e analysis turned out to be correct andAbdullah got his target within 24 hours.

Abdullah sold USD/CHF andearned $100


Switzerlands Consumer Price Index (CPI) for themonth of January was due on that day. Analysts hadpredicted 0.1% reading against the same reading themonth before. e actual outcome came exactly inline with the expectations. In the US basket, themonthly budget statement was due for release.Economists were expecting a $27.50 billion deficitfor the month of January. However, the actual deficitcame out to be $10.42 billion. Since the US budgetstatement is considered a medium-level economic

report, high volatility was not expected inUSD/CHF.

Case study 4


10/21

Case study 5

Long-Term Trade Opportunity Identified

by Inverse H&S PatternSarah Robertson is an experienced independenttrader. Her trades are based on different pricepatterns and extensive fundamental research. OnFebruary 27, Sarah observed the Inverse Head &Shoulder (H&S) pattern in NZD/USD whichgave her a potential buying opportunity in the pair.

Inverse H&S is one of the most famous and reliable price patterns among traders. e pattern consists of a head,two shoulders and a neckline. e neckline is derived by joining the peaks of the two shoulders. A breakout

through neckline confirms the authenticity of the H&S pattern. Traders tend to buy an asset if the price breaks theneckline of the inverse H&S pattern.

Sarah decided to wait until the price breaks the neckline, which was around 0.8347. Meanwhile, she decided to goover the fundamental events relating to NZD/USD.

Inverse H&S Pattern


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Since the trade opportunity identified by the InverseH&S Pattern was long term, Sarah decided to study

all of the major events which were due in next 2-3weeks. She came to know that the most significantevent pertaining to New Zealands economy was theinterest rate decision by the Reserve Bank of NewZealand (RBNZ). e event was due on Wednesday,March 12. Sarah conducted some more research toget clues on the RBNZ rate decision. She learned thatthe RBNZ was expected to increase the interest rateby 0.25% to 2.75%, according to the medianprojection of different economists surveyed by

Bloomberg.

Generally speaking, the currency of a country ispositively correlated to the interest rate, i.e., if thecountry increases the interest rate, the currency alsotends to appreciate and vice versa. Sarah was veryoptimistic that if the RBNZ announced an increase inthe benchmark interest rate, NZD/USD would riseconsiderably.

Case study 5


On March 3, the price broke the neckline, confirmingthe Inverse H&S Pattern. Aer getting favorablesignals from both the technical and fundamentalanalyses, Sarah eventually opened a long (buy)

position in NZD/USD at 0.8350 with 0.10 lot size.She placed the stop-loss at 0.8300 and her target was0.8550, which means she risked $50 for the potentialprofit of $200.As expected, RBNZ announced an increase in thebenchmark interest rate by 0.25% on March 12 andconsequently, NZD/USD rallied above 0.8550.us, Sarah got the Take Profit (TP) worth $200.

Sarah Earned $200


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Markit Services PMI

e services sector Purchasing Managers Index(PMI) released by a private firm Markit Economicsshowed that the services sector in the US grew by

55.7 points in December compared to 55.9 pointsthe month before. A lesser reading is seen as bullishfor Gold.

Fundamental AnalysisA number of major economic events pertaining to the US economy were due on January 6. Jonathan decided towait for the outcomes of the events before opening a buy trade in Gold.

Case study 6

e Parabolic Stop and Reverse method or simply Parabolic SAR is a famous technical indicator. It generates buyor sell signals through the placement of dots. When the dots show below the candles, it means the bulls have starteddominating the price and the upside rallies are likely in the near future. Conversely, if the dots show above the

candles, then the indicator generates the opposite i.e., bearish signals.

On January 6, Jonathan noticed that the Parabolic SAR had generated some real bullish signals, reinforcing thedouble-bottom pattern. In addition, some other technical indicators such as the Relative Strength Index (RSI) andCommodity Channel Index (CCI) were also showing oversold readings. ese are more signals for potentialbullish reversal.

Parabolic SAR

Factory Orders

e manufacturers in the US received 1.5% moreorders in November as compared to 0.5% decline themonth before. Analysts, however, were expecting a

1.8% increase in the November orders so the datadownbeat the expectations.

Jonathan Goes Long and earns $1000

Aer getting a couple of strong bullish signals through the technical analysis and downbeat US data, Jonathanfinally opened a long (buy) position in gold. He bought a 0.10 gold lot at $1240 an ounce. He placed the stop-lossaround the swing low of the previous daily candle which was $1218; his long-term target was $1330. A couple of

days later, US non-farm payrolls came in worse than expectations and gold shot to $1265. is further encouragedJonathan to keep his trade open. When the precious metal reached $1290, he brought his stop-loss at breakevenpoint, i.e., at the price of entry. Now, Jonathan was completely risk-free. Fortunately, gold never approached $1240aer his entry and kept printing new highs until the yellow metal hit $1340 on March 3. us, Jonathan achievedhis target and earned $1000.


14/21

Case study 7

Identifying Buying Opportunity in

USD/RUR amid the Ukraine Crisis

Samuel Rae is an experienced currency trader. Heloves to trade exotic currency pairs. Sam came toknow about the Ukraine crisis through the media.Being a vigilant news trader, he soon realized thatthe Russian ruble might hit fresh all-time lowsagainst the greenback in such a scenario. Hedecided to buy USD/RUR on dips.

A referendum was due on March 16 in Crimea (aUkrainian territory where almost 70% areRussian-speaking) to decide whether the people wantto join Russia or restore the 1992 constitution. Aerconducting an extensive research on the referendum,Sam found that an overwhelming majority of Crimeawas likely to vote in favor of Russia. e westerncountries had already threatened that if Russiarecognized Crimea, it would have to face strictsanctions, similar to what it had suffered in the ColdWar era.

Two things were clear from the news analysis: Crimea was expected to vote in favor of Russia

Russia was expected to face sanctions from thewestern countries

It was very obvious that the Russian currency andstock markets would react sharply on any sanctionsfrom the west. It was a strong indication that aer thereferendum, the Russian ruble could hit new lowsagainst the dollar.

Crimea Referendum

It is generally observed that in a crisis situation, theRussian Central Bank always intervenes into the openmarket to support its currency. ere was a possibilitythat the Russian bank might cap the USD/RUR aerthe referendum. us, Sam decided not to open a buyposition ahead of the referendum. He wanted to seethe actual results of the referendum and then thereaction in the market.

Central Bank Intervention

ings happened exactly as Sam expected. Crimeavoted to join Russia and Russia promptly recognizedCrimea. e western countries rejected thereferendum and started imposing sanctions on Russia.To avoid the steep fall in ruble, the Russian centralbank intervened which consequently appreciated theRussian currency against the US dollar. is was anideal scenario for Sam because he knew that the bankwould not be able to support the Russian ruble for along time, especially when the US monetary policywas due on March 19. Sam was ready to buy

USD/RUR on dips.

Crimea Joins Russia,USD/RUR Tumbles


15/21

Case study 8

Identifying Long-Term Trade

Opportunity in Silveraer ChinasManufacturing Slowdown

Michael Harding has been trading commoditiesfor the last 10 years. He loves to identify and tradethe long-term trends in the metals for big profits.

In February, Mike came to know about themanufacturing slowdown in China whichprompted him to look for potential tradeopportunities in precious metals.

On Wednesday, February 19, HSBC Holdings PLC said that Chinas manufacturing activity slowed down inFebruary for the third month in a row, a sign that the worlds second largest economy is struggling to maintainsteady growth. e HSBC Manufacturing Purchasing Managers Index (PMI) declined to 48.3 points compared to49.5 points in January; analysts had predicted a decline to 49.4. A PMI reading above 50 shows expansion in themanufacturing activity and vice versa. Since the Asian nation is the largest consumer of the precious metals,investors always tend to sell gold and silver on negative developments relating to China.

Manufacturing Slowdown in China

Mike found that silver was testing the crucialresistance area around $21.80-$22.00, i.e., the76.4% fib level. Moreover, the current level was thelast major resistance before the swing high of theprevious wave. Technically, price mostly takes deepcorrection from the last resistance level before theprevious high.

Technical Analysis

China grew at 7.7% in 2013, the slowest pace inmore than a decade. Economists believe that thepace of growth is expected to slow down furtherduring the course of the current year. Slow growthin the Asian nation means low demand for silverand other precious metals. Moreover, the FederalReserve policymakers clearly indicated in theJanuary meeting that the central bank wanted todrop the entire Quantitative Easing (QE) programby the end of October this year. e end of the

stimulus means stronger US dollar (USD) or, inother words, cheaper silver because the prices ofcommodities are negatively correlated to the dollar.

Macroeconomic Scenario
http://www.forexillustrated.com/out/silverhttp://www.forexillustrated.com/out/silverhttp://www.forexillustrated.com/out/silver


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Case study 7

e Federal Reserve kept the interest rate unchangedand reduced the QE by $10 billion to $55 billion asexpected. USD/RUR shot up and within a six-hourduration, Sam collected the $125 profit. Samspatience and extensive research is a perfect role modelfor beginner traders who oen lose in the volatilemarket.

Sam Earned $125

Traders were widely expecting another tapering (activities used by the central banks to improve the conditions foreconomic growth) on March 19 from the US Federal Reserve aer a surprise jump in February non-farm payrolls.Sam bought USD/RUR with a 0.50 lot size at 35.90, which was the 161.8% fib level. He carried out the trade with

15 pips stop-loss just ahead of the monetary policy decision from the Fed. His target was 36.15, i.e., 25 pips or $125profit.

Technical Analysis


17/21

Case study 8

Mike Concludes His Analysis& Sells Silver

Aer getting strong bearish signals from both thetechnical and fundamental analyses, Mike decidesto go short on silver. He sells the white metal at$21.80 with a 0.10 lot size, keeping the stop-loss at$22.20, well above the 76.4% fib level resistance.


18/21

Identifying the Buy Opportunity in

GBP/USD Ahead of US Non-Farm Pay-Angela Ripley is an expert currency trader. Hertechnical analysis is based on trendlinesupport/resistance, Fibonacci levels, MACDdivergence, and overbought/oversold signalsthrough RSI and CCI. Moreover, she keeps a closeeye on macro-economic events and daily newsreleases. On February 7, Angela noted the repeatedrejection in GBP/USD around 1.6250 that

prompted her to conduct an in-depth technicalanalysis for a potential buying opportunity in thepair.

Like a typical technical trader, Angela first inserted Fibonacci levels into the chart. She found that 1.6250 was 50%fib support of the last major rally. 50% fib level is considered the most significant support/resistance level amongcurrency traders; it is observed that price takes a rebound from 50% fib level in almost 65%-70% cases. Angela felt

a strong bullish feeling about the pair. However, her technical analysis was incomplete; she wanted to get somemore confirmation signals.

Angela conducted swing analysis on the daily chart. She found that 1.6308 was the swing low of the previousdownward wave. It is pertinent that in about 70%-80% cases, price takes retracement from the very first support

level aer the swing low of the previous wave. In the case of GBP/USD scenario, 50% fib level or 1.6250 was thefirst support level aer the swing low of the previous wave. is was the second strong signal for a long-termbullish reversal in the pair. erefore, Angela was feeling very much convinced about the buy trade.

Technical Analysis

Case study 9
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Furthermore, Angela found that the Relative Strength Index (RSI) and the Commodity Channel Index (CCI)were also showing oversold readings. An RSI reading below 30 and a CCI reading below -100 are considered over-sold signals among traders.


Aer getting numerous Buy signals from the tech-nical analysis, Angela moves onto the fundamentalanalysis. She found that Britains docket was emptyfor the day; however, in the US, the labor depart-ment was scheduled to release non-farm payrolls andunemployment rate reports for the month of Janu-ary. Upon further research, Angela came to know

that analysts were expecting a better non-farmpayrolls reading as well as a decrease in the unem-ployment rate for January. According to the medianprojection of different analysts, non-farm payrollsrose by 150K in January compared to 113K increasein the month before. e unemployment rate tickeddown to 6.7% in January compared to 6.8% in theprevious month. She decided to buy GBP/USD incase of worse than expected US job data.

In the US morning session, the labor departmentreleased the reports showing that non-farm payrollsin the US rose just by 75,000 in January, missing the

median projection of analysts by a long shot. Moreo-ver, the unemployment rate also rose to 6.9% contraryto the forecast.Angela bought GBP/USD promptly aer thereleases; her order got filled at 1.6287. She placed thestop-loss at 1.6230 and the take profit at 1.6650. Shebought the pair with a 0.10 lot size which means thevalues of her risk and reward were $57 and $363,respectively. Just an hour aer the entry, Angelastrade was in $110 profit. Being a seasoned trader,Angela didnt close the order before her target. Even-tually aer the one-week patience, she got her targetand earned $363.

Angela bought GBP/USD andearned $363

Case study 9


20/21

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