In a field where many praise continuous movement, many forget that pushing back is also a strategy. As a trader, your capital is your most valued asset and once it’s gone, it’s never coming back. Thankfully, there are ways to cut your losses and protect your profits. With the right strategy, a Stop Loss can even save your capital for your next investment.
As the name suggests, a stop loss is an order that limits your potential losses from trade and protects the pips from returning to the market. However, while a stop loss is designed to help keep pips in check, many traders do not know how to set a proper one, leading to an ungraceful early exit.
So how does one exactly set a proper stop loss?
While there are other strategies employed in setting stop losses, let’s discuss three fool-proof approaches to setting a proper stop loss: fixed-based, trend-based and volatility-based.
Fixed-based stop loss
The simplest way to set a stop loss is to do a fixed-based stop loss. It’s a stop loss order with set previous we start entering the position based on our money management calculation. For example, when we do some analysis, we know based on the Price Action strategy that we have a level that we want to set as the stop loss level, then we enter based on that level to create a better Risk and Reward trade. So we set the Stop Loss already in that level, then we just let the trade goes, on some certain level we may close our trade manually when we got the profit, or the trade hit the Target Profit level, or after certain movement, we can move the Stop Loss to the Entry Price.
Trend-based stop loss
In a trend-based stop loss, the order is placed at a level that invalidates the current trading set-up. For instance, in an uptrend market, you can identify three points: the lowest, the middle, and the highest downtrend. Using a trend-based approach, a stop loss order may be set on the lowest downtrend for optimal loss cutback, as the price is relatively low compared to that of the highest point. In this approach, identifying where the set-up may fail can help you exit before a bigger loss appears.
Volatility-based stop loss
A volatility-based stop loss, on the other hand, uses a technical analysis indicator called the Average True Range (ATR). Using this approach, the stop loss order is set at an ATR beyond the area of value, which involves two variables: the current ATR value and the swing low value (lowest price point). The current ATR value is simply deducted from the swing low value, resulting in the stop loss level at which you can set your stop loss order.
Pro tip: ATRs can be adjusted in multiples based on your trading set-up. Setting a narrow stop loss widens your position size but puts you at risk of a premature stop-up, whereas setting a wider stop loss may narrow your position size but gives you relatively more stability in controlling your movements.
Stop Losses and Stop Hunting
During a particular time when there is low volatility in the market, many traders use stop hunting as a strategy to open trading opportunities. Stop hunting is a strategy that forces traders to exit by purposely triggering stop loss orders, creating a high-volatility market, and presenting unique short-term trading opportunities which may be profitable for some traders.
For traders holding long-term positions, stop hunting causes continuous losses. In this case, setting the stop loss order at a definite level below support and above resistance can help avoid the occurrence of stop hunting.
Stop Losses in the long run
At the end of the day, a loss is still a loss. However, a small loss is a hundred times better than a burned capital. While it’s true that you can be stopped up from time to time, stop-loss orders not only can protect your capital and your profits, but can also give you time to reevaluate your trading setup to minimize even more losses than that afforded by a stop-loss order.
Written on October 25, 2022 at 10:54 pm, by anakin
U.S. equities traded higher over the course of yesterday’s trading. The Dow Jones Industrial Average gained 1.34% to close at 31499.62. The S&P500 gained 1.19% to close at 3797.34. The tech-heavy Nasdaq Composite gained 0.86% to close at 10952.61. The Dow came back from its best 3-week stretch since Nov 2022 and closed at the highest level in 6 weeks, relieving the selling pressure of this year.
The benchmark U.S. 10-year treasury yield has dropped 0.04% from the highest and is currently trading at 4.228%, however, overall it’s recovering from the earlier decline on Friday when WSJ’s report strikes investors’ concern.
The U.S. CB Consumer Confidence comes out on Wednesday will reflex the DXY, with 108.00 in Sep and 103.6 in Aug, a higher expected reading should be taken as positive/bullish for the USD, while a lower-than-expected reading should be taken as negative/bearish for the USD.
Due to the Chinese leader Xi Jinping going for his third term as leader and unveiling a new leadership team, the Chinese technology companies suffered a huge impact on Monday, Tech giants Alibaba and Tencent closed down more than 11% in Asia, and Baidu was 12% lower while food delivery firm Meituan tanked more than 14%. Also, the came out of these two policies “zero-Covid” and “tightened regulation on the tech sector “, investors assume could be a negative for private firms.
Main Pairs Movement
The Dollar Index lost 0.02% over the course of yesterday’s trading. The release of the downbeat US S&P PMI data that landed at 49.9 with an estimation of 51.2, terminated DXY’s attempts of shifting into positive and restricted the upward trend in the DXY.
EURUSD gained 0.07% over the course of yesterday’s trading, and it even hits 0.99, this could be a sign that some investors are putting bets on the meeting on Thursday from European Central Bank.
GBPUSD gained 0.25% over the course of yesterday’s trading. The UK S&P Global PMIs for October didn’t show a good sign for the 4th quarter, however, the ends of the US Treasury yields on Monday show a positive side of the economy.
Gold gained 0.08% over the course of yesterday’s trading. The tepid growth-related gold markets corresponded with the DXY market and the market will continue being lacklustre before the US GDP data comes out.
Technical Analysis
EURUSD (4-Hour Chart)
The EUR/USD pair edged higher on Monday, advances steadily towards the 0.990 area and paired some of its earlier losses following the release of weaker US PMI data. The pair is now trading at 0.9870, posting a 0.14% gain on a daily basis. EUR/USD stays in the positive territory amid renewed US dollar weakness, as the disappointing PMI surveys dragged the greenback lower to the 112.0 area and provided some support to the EUR/USD pair. The US S&P Manufacturing PMI drops to 49.9 in early October, which fell short of market expectations of 51.2 and showed that business activity in the US manufacturing sector has contracted slightly. Moreover, the Services PMI and the Composite PMI both fell short of analysts’ projections. For the Euro, the downbeat PMI data in the Eurozone also further indicated that the Euro area economy is headed toward a recession. The ECB event on Thursday will be the focus this week as investors are anticipating a 75 bps rate hike by the central bank.
For the technical aspect, RSI indicator 61 figures as of writing, suggesting that the pair has limited upward potential as the RSI failed to push higher and consolidated around 60. As for the Bollinger Bands, the price failed to climb higher and started to decline, therefore some downside momentum can be expected. In conclusion, we think the market will be bearish as long as the 0.9874 resistance line holds. The technical indicators also remain directionless above their midlines.
Resistance: 0.9874, 0.9986, 1.0035
Support: 0.9757, 0.9667, 0.9551
GBPUSD (4-Hour Chart)
The GBP/USD pair was little changed on Monday, remained under slightly bearish pressure and steady hovered around the 1.1300 level amid the disappointing PMI data from the UK and the souring market mood. At the time of writing, the cable stays in negative territory with a 0.07% loss for the day. The lower-than-expected US PMI data makes it difficult for the US dollar to gather strength, but the GBP/USD pair failed to preserve its upside traction as investors remain cautious on the first day of the week. For the British pound, Rishi Sunak will become the new UK Primer Minister after winning a leadership contest and the transition from Liz Truss to Sunak could take place on Tuesday. As for now, investors are trying to figure out how PM Rishi Sunak will approach the fiscal plan. Meanwhile, the disappointing release of the flash UK PMI prints also fueled worries about a bleak outlook for the UK economy and weighed on the cable.
For the technical aspect, RSI indicator 51 figures as of writing, suggesting that the bullish bias stays intact in the near term as the RSI stays above the mid-line. As for the Bollinger Bands, the price remained under pressure and dropped towards the moving average, therefore the downside traction should persist. In conclusion, we think the market will be bearish as the pair is heading to test the 1.1228 support. Bears can have better chances if the pair extends its slide below that support.
XAUUSD witnessed a fresh supply near the $1670 region, over a one-week high set earlier this Monday and extends its intraday descent through the first half of the European session. The gold fell back around the $1650 level and erodes a part of Friday’s goodish rebound from the vicinity of the YTD low. On the data side, the US Manufacturing PMI figured 49.9, which is lower than the expected 51.0, seen as bullish traction for XAUUSD and attracted some buying in the earlier US trading session. Furthermore, the US dollar index made a comeback and rebounded from over a two-week low. Then lost upside momentum and slid to the 120.00 level as of writing, with reports that some Fed officials are signalling greater unease with an oversized rate hike. Apart from that, the European Central Bank and Bank of England are also expected to deliver a jumbo rate hike at the upcoming policy meetings. This turns out to be another headwind driving flows away from the non-yielding yellow metal. Also, a recovery in the risk sentiment – as depicted by a positive tone around the equity markets, was seen weighing on the safe-haven gold.
From the technical perspective, the RSI indicator 54 figured as of writing, suggesting that the gold price was mildly growing in the four-hour chart scale. As for Bollinger Bands, the yellow metal was priced above the 20-period moving average and the gap between the upper and lower bands was little changed, signalling the price have no clear tractions until breakthrough the resistance of $1662, also around the upper band.
This week, the Bank of Canada, the European Central Bank, and the Bank of Japan will announce their interest rate decisions, with expectations of possible rate hikes.
Meanwhile, the US is scheduled to release its Flash Services PMI, Advance GDP, and Core PCE Price Index. The UK and Eurozone will also be releasing their PMIs.
Australia will also release its Consumer Price Index, while Canada is expected to publish its Gross Domestic Product.
Flash Services and Manufacturing PMI – Eurozone, UK and US (24 October)
The Flash Services Purchasing Managers Index (PMI) for France may decline slightly to 51.9 from 52.9 in September, while analysts forecast that Germany will see a decrease in the Flash Services PMI from 45 to 44.8.
The UK’s Flash Services PMI is expected to remain at 50, while the US is forecast to rise from 49.3 to 50.
Germany’s manufacturing PMI for October is forecast to fall to 47 from 47.8 in September. The UK may see a rise to 48.4 from 47.5.
CB Consumer Confidence – US (25 October)
US consumer confidence in September 2022 rose to 108 from 103.6 the previous month. Data also showed that US consumers were optimistic about their finances and the economy in general.
Analysts expect consumer confidence to slow down slightly over the next few months, but they predict it will remain above 100, indicating that US consumers are still feeling good about the economy.
Consumer Price Index – Australia (26 October)
The Consumer Price Index in Australia rose 1.8% in the 2nd quarter of 2022 over the previous quarter. Analysts forecast a slight dip in CPI for the 3rd quarter, between 1.1% and 1.5%.
Bank of Canada Rate Statement – Canada (26 October)
In September 2022, the Bank of Canada raised its target for its overnight rate by 75bps to 3.25%, saying that rates would need to rise further, given the inflation outlook. In its October meeting, policymakers forecasted that the Bank’s overnight rate would increase by another 50bps to 3.75%.
The European Central Bank raised its main interest rate by 75bps at its September meeting, signalling further hikes in the coming months. The market is already pricing a further 75bps increase in October to 2%.
Advance GDP – US (27 October)
The US economy shrank 0.6% in the second quarter of 2022, matching the second estimate. This confirms that a recession is underway. Economists expect an increase of 2% in the third quarter of 2022.
Bank of Japan Outlook Report – Japan (27 October – tentative)
The Bank of Japan maintained its key short-term interest rate at -0.1% in October and signalled that it would continue to raise rates in future meetings.
Although inflation in Japan is 2.5 to 3%, and the Yen is hitting its weakest level in more than 20 years, we still expect that the interest rate will remain unchanged at -0.1%.
Gross Domestic Product – Canada (28 October)
The gross domestic product (GDP) increased by 0.1% in July, matching the pace of growth in June. The GDP may be slower at 0% in August.
Core PCE Price Index m/m – US (28 October)
The Core PCE prices in the US, excluding food and energy, increased 0.6% in August from its previous month’s revised rate of 0.0%. The consensus estimate is for a 0.4% rise in September.
U.S. equities traded higher over the course of yesterday’s trading. The Dow Jones Industrial Average gained 2.47% to close at 31082.56. The S&P500 gained 2.37% to close at 3752.75 The tech-heavy Nasdaq Composite gained 2.31% to close at 10859.72. Equities hit the best week since June despite the 10-year Treasury yield surging to its highest level since 2008, the next move of the central back on curbing inflation will be crucial for the market.
The benchmark U.S. 10-year treasury yield has dropped 0.16% from the highest and is currently trading at 4.219%, the drop is considered a reflection of the possibility of the Federal Reserve could begin to slow the pace of hikes.
The upcoming PMI monthly Composite Reports released by Markit Economics shows the percentage of respondents reporting an improvement, deterioration or no change since the previous month, which captures business conditions in the manufacturing sector of the EU and UK.
About the ECB meeting, it seems a 75 basis points interest rate hike is a done deal, and the deposit rate reaching 3% by March next year to beat inflation, besides, there might be a prospect of another jumbo hike in December according to the 75bp increase. Also, Governing Council is considering to start reducing the bond portfolio, which will remove liquidity from the market and additional monetary tightening.
U.S. GDP(QoQ) of Q3, 2022 will be announced on Thursday, Oct 27, in view of the persistently challenging environment, with historically high energy costs and rapidly rising interest rates, as the very high inflation, especially in food and household costs, we have less optimistic about GDP forecast.
Main Pairs Movement
The Dollar Index lost 0.05% over the course of yesterday’s trading. The Greenback strength is at a three-week high as rising global bond yields weigh on equity markets and Asian currencies, and the greenback is more robust against all its G-10 peers
EURUSD gained 0.2% over the course of yesterday’s trading. The comeback was from the announcement about of combating inflation and the meeting on Thursday with European Central Bank.
GBPUSD gained 0.78% over the course of yesterday’s trading. Retail Sales declined by 1.4% in September, and the estimate was 0.5%, the core sales tumbled 6.2% YoY in September with an estimation of 4.1%, which indicates the high inflation in the UK.
Gold gained 1.57% over the course of yesterday’s trading. Gold is headed for the second consecutive weekly decline, and the higher borrowing cost will continue denting the non-yield metal.
Technical Analysis
EURUSD (4-Hour Chart)
The EUR/USD pair edged higher on Friday, regaining upside momentum and rebounded towards the 0.9800 mark amid speculation the US Federal Reserve will debate smaller rate increases starting in December. The pair is now trading at 0.9842, posting a 0.61% gain on a daily basis. EUR/USD stays in the positive territory amid renewed US dollar weakness, as the safe haven greenback is losing ground and retreats to the 112.7 area amid a less hawkish stance from the Federal Reserve. The latest reports showed that the Fed could debate on whether and how to signal plans to approve a smaller increase in December, as few officials signalling greater unease with big rate rises to fight inflation. For the Euro, the concerns about a deeper global economic downturn and the protracted Russia-Ukraine war could keep acting as a headwind for the shared currency.
For the technical aspect, the RSI indicator is 60 figures as of writing, suggesting that the pair is preserving its bullish momentum as the RSI climbs sharply towards 70. As for the Bollinger Bands, the price regained upward strength and crossed above the moving average, so a strong uptrend continuation can be expected. In conclusion, we think the market will be bullish as the pair is testing the 0.9861 resistance. The rising RSI also reflects bull signals.
Resistance: 0.9861, 0.9921, 0.9986
Support: 0.9757, 0.9667, 0.9551
GBPUSD (4-Hour Chart)
The GBP/USD pair edged higher on Friday, coming under selling pressure but then rebounded back to the 1.1300 area despite the release of the disappointing UK Retail Sales figures. At the time of writing, the cable stays in positive territory with a 0.30% gain for the day. The Wall Street Journal reported that Federal Reserve officials are likely to debate then whether and how to signal plans to approve a smaller rate increase in December, which led to a goodish recovery in the equity markets and weighed on the greenback. For the British pound, the UK Retail Sales declined 1.4% MoM in September, which is worse than market expectations of -0.5% and suggests that consumers are feeling the pinch of high inflation. On an annualized basis, UK retail sales also plunged -6.9% in September. Therefore, the downbeat UK data further fueled the growing fears of a deeper economic downturn and exerted bearish pressure on the GBP/USD pair.
For the technical aspect, RSI indicator 53 figures as of writing, suggesting that the upside is more favoured as the RSI stays above the mid-line. As for the Bollinger Bands, the price witnessed fresh buying and touched the moving average, therefore the upside traction should persist. In conclusion, we think the market will be bullish as long as the 1.1131 support line holds. A sustained strength beyond the 1.1390 mark might trigger a short-covering rally and allow the GBP/USD pair to reclaim the 1.1470 mark.
Resistance: 1.1390, 1.1476, 1.1566
Support: 1.1131, 1.0968, 1.0392
XAUUSD (4-Hour Chart)
As the US dollar failed to preserve its upside momentum after the Wall Street Journal mentioned that Fed officials are split about December’s rate hike on an article, the pair XAU/USD regained bullish strength and rose sharply towards the $1,647 level during the US trading session. XAU/USD is trading at $1655 at the time of writing, rising 1.59% on a daily basis. Fed officials are adjusting the pace of rate increases as they try to cool down inflation and policymakers are weighing whether to hike rates at a slower pace in December. Therefore, the US bond yields retreated lower after the article was published, providing strong support to the dollar-denominated gold. The report has also offset the impact of the hawkish tone of the Fed officials’ recent comments, as Philadelphia Fed President Patrick Harker reiterated on Thursday that the bank will keep raising rates for a while.
For the technical aspect, RSI indicator 57 figures as of writing, suggesting that the pair is preserving its upside strength as the RSI stays near 60. For the Bollinger Bands, the price extended its intra-day rally and climbed towards the upper band, therefore the upside traction should persist. In conclusion, we think the market will be bullish as the pair is heading to test the $1666 resistance line. The pair seems to be well supported by the $1620 support and a break above the $1666 mark could open the door for additional gains.
Resistance: 1666, 1681, 1705
Support: 1620
Economic Data
Currency
Data
Time (GMT + 8)
Forecast
CNY
GDP (YoY) (Q3)
10:00
3.4%
CNY
Industrial Production (YoY) (Sep)
10:00
4.5%
EUR
German Manufacturing PMI (Oct)
15:30
47.0
Written on October 24, 2022 at 12:00 am, by anakin
U.S. equities traded lower over the course of yesterday’s trading. The Dow Jones Industrial Average lost 0.3% to close at 30333.59. The S&P500 lost 0.8% to close at 3665.78. The tech-heavy Nasdaq Composite lost 0.61% to close at 10614.84. Equities rose in the first half of the American trading session, as the initial jobless claims figure came in below analysts’ expectations at 214K. Equities retreated during the second half of the American trading session as short-term treasury yields spiked above to multiple-year highs.
The benchmark U.S. 10-year treasury yield has topped 4.2% and is currently trading at 4.229%– the benchmark’s highest level since 2008.
Looking ahead, the Conference Board’s Leading Economic Indicator (LEI) index has signalled a worrying future. The Conference Board’s index pointed 0.4% down from the month before and is off 2.8% for the six months period. In combination with the LEI and the Fed’s aggressive rate hike, the camps arguing against further rate hikes are growing by the day.
AT&T earnings came in above analyst expectations. AT&T’s EPS came in at $0.65, beating estimates by 10.78%. More importantly, the telecommunications giant still managed to improve not only its top line but also its bottom line.
IBM earnings also came in better than analyst estimates. The company reported Q3 EPS of $1.81, an 0.7% upside surprise. Revenue for Q3 also came in above market expectations at 14.11 Billion.
Main Pairs Movement
The Dollar Index lost 0.05% over the course of yesterday’s trading. The Greenback lost steam during Asia and European trading sessions, but quickly retrieved losses during the American trading session as the 10-year treasury yield broke above 4.2%.
EURUSD gained 0.09% over the course of yesterday’s trading. Germany’s September PPI surged to 45.8%, year over year, much higher than anticipated. Inflation will continue to act as a headwind for the shared currency.
GBPUSD gained 0.14% over the course of yesterday’s trading. British Prime Minister Lizz Truss’ resignation from the office roiled markets. The British Pound fell against the Dollar late in yesterday’s session as yields rose.
Gold gained 0.02% over the course of yesterday’s trading. The non-yielding metal was able to hold on to earlier gains despite strong demand for the Greenback.
Technical Analysis
EURUSD (4-Hour Chart)
EURUSD erased a major part of yesterday’s losses and was trading above the 0.9800 level as of writing. Although the overnight receded demand for the US Dollar underpinned the European currency, the market mood remains sour. Global stocks remain on the back foot, struggling to leave the red. Even though, US government bond yields maintain upward pressure. The sensitive 2-year Treasury bond yield surged to a multi-year high of 4.61% on Thursday, and 10-year note yields 4.12%, unchanged on a daily basis. Apart from this, UK political noise also attracts some buying for EURUSD. The British Pound is up amid Prime Minister Liz Truss’s announcing her decision to leave the government after the failed attempt to bring financial stability. Meanwhile, the increasing speculation of a potential recession in the region – which looks propped up by dwindling sentiment gauges as well as an incipient slowdown in some fundamentals, adds to the sour sentiment around the euro.
From the technical perspective, the RSI indicator 49 as of writing, suggests that the currency has no clear direction to move and would hover in a range from 0.9710 to 0.9870. As for the Bollinger Bands, the pair now pricing at the lower area, and the gap between upper and lower bands tends to be closer. We think the pair would put into sideway and trade around the 20-period moving average, 0.9800.
Resistance: 0.9870, 0.9920, 1.0000, 1.0190
Support: 0.9765, 0.9718, 0.9665, 0.9550
GBPUSD (4-Hour Chart)
The GBP/USD pair advanced higher on Thursday, regaining upside momentum and touching a daily high above 1.1320 level following Prime Minister Liz Truss’s resignation after only 45 days. At the time of writing, the cable stays in positive territory with a 0.15% gain for the day. The US dollar witnessed some selling despite the higher US Treasury bond yields and expectations of the Fed hiking rates by a larger size at November’s meeting, as US Initial Jobless Claims for the last week dropped unexpectedly to 214K and came less than market expectations. For the British pound, the headline news that Liz Truss resigned as Prime Minister of the UK has provided support to the GBP/USD pair, as it makes an end to the political crisis that led to the recent chaos in the financial markets. Meanwhile, the new PM will emerge from a new leadership election at the Conservative Party next week. However, the growing worries about a deeper UK economic downturn could limit the upside for cable.
For the technical aspect, RSI indicator 47 as of writing, suggests that the pair is facing slightly bearish pressure as the RSI stays below the mid-line. As for the Bollinger Bands, the price remained under pressure and dropped towards the lower band, therefore the downside traction should persist. In conclusion, we think the market will be bearish as the pair is heading to test the 1.1186 support. The downward trajectory could further get extended towards the 1.0968 mark if the pair break below that support.
Resistance: 1.1390, 1.1476, 1.1570
Support: 1.1186, 1.0968, 1.0392
XAUUSD (4-Hour Chart)
XAUUSD bounces off a new three-week low touched earlier this Thursday and sticks to its modest gains as the US dollar edges lower and trims a part of the previous day’s strong gains. Gold was priced at $1630 marks as of writing. Furthermore, growing worries about a deeper global economic downturn and the prevalent cautious market mood act as tailwinds for the safe-haven yellow metal. However, the prospects for a more aggressive policy tightening by major central banks keep a lid on any meaningful upside for the non-yielding gold. The markets have been pricing in jumbo rate hikes by the European Central Bank and the Bank of England. The Federal Reserve is also expected to stick to its aggressive rate-hiking cycle. The CME’s Fed Watch tool indicates a nearly 100% chance of the fourth successive supersized 75bps rate increase at the next FOMC policy meeting in November. This, in turn, pushes the yield on the rate-sensitive 2-year US government bond to a 15-year peak and the benchmark 10-year Treasury note to its highest level since the 2008 financial crisis. Elevated US bond yields should keep the US dollar from any meaningful drop, which weighs on the gold.
From the technical perspective, the RSI indicator 37 as of writing, suggests that XAUUSD was under heavy selling pressure. As for the Bollinger Bands, the gold was priced in the lower area and the gap between the upper and lower bands has no clear tendency. We think the path of least resistance for gold is to the downside.
U.S. equities traded lower over the course of yesterday’s trading. The Dow Jones Industrial Average slid 0.33% to close at 30423.81. The S&P 500 lost 0.67% to close at 3695.16. The tech-heavy Nasdaq Composite lost 0.85% to close at 10680.51. U.S. equities snapped a two-day winning streak as treasury yields rallied; however, the three major indices are still on track for a positive week.
U.S. treasuries rallied as recession fears mounted. The 10-year treasury yield soared past 4.1% and was last seen trading at 4.144%. The U.S. 2-year treasury yield, which has historically been viewed as an early indicator of the Fed interest rate target, is currently trading at above 4.5%.
Shares of ASML, one of the world’s most important companies in the semiconductor supply chain, jumped 6% on Wednesday as the company reported better-than-expected earnings. ASML reported 5.77 billion euros in revenue, beating analyst forecasts of 5.41 billion euros. ASML showed resilience in earnings despite a downtrend in the semiconductor sector.
EV giant, Tesla, reported adjusted earnings of $1.05 per share, beating analyst estimates of 99 cents per share. Tesla shares dropped 5% in extended trading, however, as revenue came in below analyst estimates at $21.45 billion. Tesla CEO, Elon Musk, has been critical of the pace of the Fed’s interest rate hike. When asked if Tesla is concerned about the impending recession, Elon Musk replied that Tesla would be “pedal to the metal come rain or shine.”
Main Pairs Movement
The Dollar index gained 0.81% over the course of yesterday’s trading. The soaring short-term U.S. treasury yield and souring market sentiment have both acted as tailwinds for Dollar bulls.
EURUSD dropped 0.82% over the course of yesterday’s trading. EU CPI came in at 9.9%, year over year, slightly more than the expected 10%; however, the 9.9% still marks a multi-decade high. Inflation continues to weigh on the Euro and the economic outlook of Europe.
GBPUSD dropped 0.9% over the course of yesterday’s trading. U.K. CPI came in at a red hot 10.1%, year over year, beating estimates of 10%; furthermore, the core inflation climbed to 6.5%.
Gold dropped 1.4% over the course of yesterday’s trading. The non-yielding metal snapped its two-day winning streak amid demand returning for the U.S. Greenback.
Technical Analysis
EURUSD (4-Hour Chart)
The EUR/USD pair declined lower on Wednesday, extending its daily losses and dropping towards the 0.978 area during the US session amid mounting recession fears and a risk-off market mood. The pair is now trading at 0.9766, posting a 0.87% loss on a daily basis. EUR/USD stays in the negative territory amid a stronger US dollar across the board, as the rising bets for aggressive rate hikes by the Fed and renewed growth-related concerns both provided support to the greenback. The central bank is widely expected to increase the Federal Funds Rate by 75 basis points for the fourth consecutive time, which would translate into a further economic slowdown. For the Euro, the Eurozone inflation arrives at 9.9% YoY in September, which missed market expectations of 10.0%. However, the soaring bets for European Central Bank’s (ECB) hawkish monetary policy should limit the losses for the shared currency.
For the technical aspect, RSI indicator 45 figures as of writing, suggesting that the pair is preserving its bearish momentum as the RSI dropped towards 40. As for the Bollinger Bands, the price witnessed persistent selling and crossed below the moving average, so a downtrend continuation can be expected. In conclusion, we think the market will be bearish as long as the 0.9861 resistance line holds. A bearish extension could be expected if the pair break below the 0.9718 support.
Resistance: 0.9861, 0.9921, 0.9986
Support: 0.9718, 0.9667, 0.9551
GBPUSD (4-Hour Chart)
The GBP/USD pair suffered from losses on Wednesday, failing to preserve its upside traction and accelerating its decline below the 1.1240 mark on a hotter UK inflation release and a worsening market mood. At the time of writing, the cable stays in negative territory with a 1.01% loss for the day. The rising US Treasury bond yields continued to lift the US dollar higher as there is nearly a 100% chance of the fourth successive supersized 75 bps rate increase at the next FOMC meeting in November. For the British pound, the headline UK Consumer Price Index (CPI) refreshes a 30-year high and rises by 10.1% YoY in September, which comes higher than market expectations of 10.0%. The data lifted bets for a jumbo 100 bps rate hike by the Bank of England in November but failed to lift the GBP/USD pair higher as the looming recession risks have overshadowed the hotter UK CPI figures.
For the technical aspect, RSI indicator 42 figures as of writing, suggesting that the downside is more favoured as the RSI stays below the mid-line. As for the Bollinger Bands, the price remained under pressure and dropped towards the lower band, therefore the downside traction should persist. In conclusion, we think the market will be bearish as the pair is heading to test the 1.1162 support. Sustained weakness below that level could pave the way for a further near-term downward move.
Resistance: 1.1390, 1.1476, 1.1566
Support: 1.1162, 1.0968, 1.0797
XAUUSD (4-Hour Chart)
XAUUSD continues losing ground through the early North American session and hits a fresh three-week low, pricing at $1631 as of writing. The downtick was sponsored by a strong pickup in demand for the US dollar, which tends to weigh on the dollar-denominated yellow metal. At the writing time, the DXY index has regained a significant part of its weekly losses amid rising bets for an aggressive rate hike by the Fed. The US central bank remains committed to bringing inflation under control and is expected to deliver another supersized 75bps rate increase at the next policy meeting in November. Hawkish Fed expectations triggered a fresh leg up in the US Treasury bond yields and continue to act as a tailwind for the buck. The yields on the rate-sensitive 2-year US government bond rallied to a new 15-year peak and the benchmark 10-year Treasury note hit its highest level since 2008. This is another factor driving flows away from the non-yield gold.
For the technical aspect, RSI indicator 33 figured as of writing, suggesting that the gold amid heavy selling pressure, edging lower in the near-term could be expected. As for the Bollinger Bands, gold priced below the lower band and the gap between the upper and lower band became larger, indicating the price would be slide back towards the YTD low, around the $1,615 area, which remains a distinct possibility.
Candlestick charts existed in Japan for a century before the West even created what we now know as the bar and point-and-figure charts. Steve Nison eventually introduced the candlestick pattern to the West through his book, “Japanese Candlestick Charting Techniques,” and it is still being used widely by traders around the world as one of the most effective technical trading tools that help to predict price direction.
Here’s everything you need to know about the famous candlestick pattern.
What is a candlestick?
The candlesticks in a candlestick chart are rightly called so because of how they look. A daily candlestick represents a market’s opening, high, low, and closing prices for that trading day. It also has a “real body,” which is essentially the price range between the opening and closing of a trade. If it is empty, it means the closing price is higher than the opening price. If it is filled in, on the other hand, it means that the closing price was lower than the opening price.
In some instances, however, traders shade a down candle with red and an up candle green, which is why you’ll see a colourful candlestick chart.
What are the basic candlestick patterns?
Since candlesticks are created based on the upward and downward movement of prices, they may look random at first glance. But these candlesticks form patterns that traders look into in analysing market movements and making the right trading decisions.
Bullish Candlestick Patterns
Let’s take a look at the bullish candlestick patterns. We are all familiar with the long black line that encompasses a real body and represents an extremely strong movement. This is one of the most attractive patterns that traders want to see on charts.
Here are 5 powerful bullish candlestick patterns:
Bullish engulfing pattern
In a bull market, the bullish engulfing pattern represents when buyers are more in control than the sellers. Here, you’ll see a long green real body engulfing a small real body, which indicates that buyers have more leverage, and prices could go up.
A morning star is a pattern that indicates the start of an upward climb following a downward trend. A bullish signal is generated when three candles appear in a row, with one session showing a long body and the other two forming small bodies. Most traders watch for this signal because it can help predict future market moves up or down.
Three White Soldiers
Three White Soldiers is a bullish candlestick pattern that consists of three consecutive long white candlesticks. This indicates that the bears are losing grip on their control, and the bulls are taking over. The longer the successive candles, the more significant it is. It has one of the highest reliability rates among all reversal candlesticks, with a minimum requirement for at least 3 consecutive white candles to form this pattern.
Hammer
The Hammer Candlestick Pattern is a bullish reversal pattern that signals a potential reversal of the current downtrend. It has a long black body followed by a small white body, with the lower shadow of the black body extending well below its high point. The Hammer is a popular phenomenon for candlestick pattern traders to watch as it can signal an upcoming price change in either direction of an asset’s price action.
The Piercing Pattern
The Piercing Pattern is a bullish reversal pattern, which occurs after a downtrend and signals that the market is reversing to the upside. The first candlestick of this formation is called a white body and has a long upper shadow, while the second one has no shadow at all.
You can use these bullish candlestick patterns to find good entry points. The three white soldiers, for example, is a reversal pattern that indicates the market bottom and the beginning of a new up-trend. A bullish engulfing pattern can be used as an entry point when the price breaks above the resistance level. The morning star pattern has a high probability of success because it forms after a downtrend and signals an upward price movement.
Bearish Candlestick Patterns
Bearish candlestick patterns are used to predict market reversals. A reversal pattern can be thought of as a warning sign that something has changed and it is time to take action. Here are 5 of the most popular bearish candlestick patterns.
Bearish Engulfing Pattern
Like the bear trend, this pattern develops during an uptrend when there are more sellers than buyers. Here, you’ll see a long red real body engulfing a small green real body, which indicates that the sellers have more leverage and prices could go down.
The Hanging Man is a single candlestick with a long lower shadow. This pattern is considered a bearish reversal pattern and can be used for trend reversals and the continuation of a falling market.
The long lower shadow indicates that the price opened higher than it closed but fell during the session. The upper shadow is shorter than the body or wicks, which shows that prices closed near their low for the day. The opening price must be well above the closing price to qualify as a hanging man pattern; otherwise, it would be classified as an evening star instead.
Bearish Evening Star
An evening star is indicative of a topping pattern, which is represented by the last candle on the pattern opening right below the small real body from the previous trading day that can either be red or green. A bearish evening star means buyers are stalling, and there’s more active selling on the market.
Dark Cloud Cover
The Dark Cloud Cover is a bearish pattern that occurs when a small bearish candle follows a large bullish candle, which is completely engulfed by the large bullish candle. The pattern indicates that the bulls are losing momentum and that their price rally may end soon. It’s also considered to be a continuation pattern because it forms after an uptrend has been in place for some time.
Bearish Harami
Indicating that there’s indecision on the part of buyers, a bearish harami is something that you should watch because it can lead to a further uptrend or if a down candle follows the pattern, it could mean that prices will be sliding.
Continuation Candlestick Patterns
Traders use these patterns to confirm market direction and help you make informed buying and selling decisions.
Here are 5 of the most popular patterns.
Doji
The Doji is one of the most widely used and popular candlestick patterns. A Doji is a candlestick with a small body (less than half the length of the previous day’s body) and no upper or lower wick. It is a sign of indecision, which can be interpreted as evidence that buyers and sellers are evenly matched, so there isn’t any clear direction for a price to go in next.
Spinning Top
A spinning top candle is a candlestick with a small body and a long wick. It’s called “spinning top” because it looks like it’s about to fall over but never does.
This pattern is considered either bearish or bullish, depending on the previous market trend and other factors like volume, price action, and open interest in the option you’re trading.
Rising Three Methods
The Rising Three Methods pattern is a bullish reversal pattern that consists of three candles. The first candle on the chart represents the uptrend, while the second and third candles represent a price decline. The third candle closes above the second candle’s midpoint, creating a new high.
The Falling Three Methods
The Falling Three Methods pattern is a reversal pattern consisting of three candles, three long-bodied red (or black) candles followed by two long-bodied green (or white) candles.
The first candle in this pattern is usually a Doji candle or an Engulfing candle. The third and fifth candles can be either Bearish Engulfing Candles or Dark Cloud Cover Candles.
Mat-Hold Candlestick Pattern
Mat-hold candlestick pattern is a bullish reversal pattern that indicates that the bulls are in control. It is made up of a long black candle with a smaller white body and then a Doji candlestick that appears above the high of the first black candle. This means that the bears have been exhausted, and bulls are ready to take over again. To trade this pattern, wait for confirmation signals such as price breaking above resistance levels or falling through support levels after they form within successful patterns like Hanging Man Candlesticks.
Takeaway
Centuries ago, the Japanese discovered that emotions play a huge part in how investors make decisions when trading, and it also influences how assets move. Today, candlestick patterns continue to guide traders on the choices they need to make, depending on how the market is going and the attitude of other traders.
So, if you’re new to trading, make sure that you learn all about candlestick patterns and the other basic strategies that will help you make the right choices. You are making a huge investment, after all, and it only makes sense that you master the craft to succeed.
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