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FOREX FOCUS
Access to foreign exchange trading has opened up exciting trading options for the
retail trader. You can now trade alongside corporations and institutions in a highly
liquid market that is global, traded around the clock, and highly leveraged. Before
jumping into this market, however, we must understand the factors that affect the
forex market. With that in mind, STOCKS & COMMODITIES has introduced Forex
Focus to better prepare the retail trader to participate in the currency market.
FOREX FOCUS X X X
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Triple tops and triple bottoms (Figure 3) are
X BUY O X O X O much less common than their double siblings. But
X X X O X O X O when these triple tests of support/resistance occur,
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their breakouts tend to be more meaningful. As a
guideline, the more tests of a given support/resis-
X O X O X O SELL tance line occur, the greater the significance of its
X O X O X O eventual break.
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Again, the requisite 45-degree angulation on
P&F trendlines makes for a strict environment for
O O O determining dynamic support and resistance lines.
Triple-top breakout (Up) Triple-bottom breakout (Down) Perhaps because of this, tradable trendlines on
P&F charts are not nearly as prevalent as those on
FIGURE 3: TRIPLE TOPS (UP) AND TRIPLE BOTTOMS (DOWN). When triple tests of support/ bar or candlestick charts. But when a good trendline
resistance occur, breakouts tend to be more meaningful.
does occur on a P&F chart, breakouts often tend to
be decisive (Figure 4).
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Triangles on P&F charts are also less prevalent
than those on bar/candlestick charts. Among other
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reasons, this is due to the much stricter price
X O X X BUY X criteria on P&F charts. But as with trendline breaks,
O X O X X O when proper triangles form on P&F charts,
O X O X X X O breakouts tend to provide solid trading opportuni-
ties (Figure 5).
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There was a time when these trading opportuni-
O X X O X O ties were becoming progressively scarce as P&F
O O X O O SELL charting fell severely to the wayside, overshadowed
O X O by its more mainstream bar and candlestick cousins.
But as traders and analysts have increasingly searched
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for innovative ways to interpret financial markets,
Break above bearish Break below bullish P&F charts have recently enjoyed a surge of re-
resistance trendline support trendline newed popularity. This has especially been the case
FIGURE 4: BREAK ABOVE BEARISH RESISTANCE AND BREAK BELOW BULLISH SUPPORT.
with forex traders.
Note the 45-degree angulations on P&F chart trendlines. Breakouts from well-formed P&F Uniquely suited to the idiosyncrasies of trading
trendlines often tend to be decisive. the foreign exchange market, P&F charts have
proven their worth as a classic and valuable tool in
the forex trader’s toolbox.
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X X O X James Chen is the chief technical analyst for FX
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Solutions, a leading foreign exchange
marketmaker. He is also a registered Commodity
X O X X BUY O X O X
Trading Advisor (CTA). Chen conducts forex trad-
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ing seminars and writes frequent articles and
X O X O X O X O X O analytical reports on the currency markets. He
X O X O O X O O SELL may be reached via email at jchen@fxsol.com.
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