Ok Gang, if you want access to the extra video on the MT4 platform as well as the other lessons I talked about during this morning’s FXStreet chat.  Head on over to raghee.com and register…the FXStreet members book special is also available on the raghee.com home page.

Any questions, just send ‘em over to fxsupport@raghee.com

Once you watch the video(s) be sure and let me know what other topics you’d liket o see me cover.

A big thanks to all of you who joined me for last week’s monthly webinar.  I recorded the session and will be producing it today so as long as all goes well the playback will be available later today.

By the way, just for those of you who may have missed it…you can access the Raghee Report for two weeks using the following username and password:

u/n   fxstreet

p/w   trial

http://www.ragheereport.com

Last Thursday during my FXStreet webinar, I mentioned I would share some links and insights into how and why I use the U.S. Dollar in my forex trading.  We had a great in-depth discussion of this and I thought it would be great to follow that up with some notes from that conversation.

First off, my familiarity with the U.S. Dollar comes from years of being a futures trader.  I started my career in trading in the futures market.  The U.S. Dollar Index is a futures contract I keep on my trading screen anytime I am trading the forex.  I use the NYBOT (New York Board of Trade contract.

This feed is not one that comes with any forex charting that I am aware of.  I have sen some other Dollar Index feeds but they are not the NYBOT feed which is the most accurate look at the U.S. Dollar.

This feed is not cheap however and each individual can decide for themselves if the live exchange fee is a reasonable price to pay.  If you are a full-time trader, I think the live is feed is a must.

However all is not lost if you do not want nor feel you are ready for the live feed.  There are places to get 30 minute delayed data and charting.  You can go right to the exchange, www.nybot.com

You can also get delayed data and charts at www.quote.com.  I use eSignal for all my charting so the www.quote.com site is a place I visit.  To bring up a quote and chart, use the symbol DX A0  - that DX <space> A0 (zero)

Once you have the feed the best thing to do is use it as a secondary confirmation to the price action on the majors (EUR/USD, GBP/USD, USD/CHF, USD/JPY).  The correlation is strongest with the EUR/USD (inverse) and USD/CHF (direct).  Be sure to always check the price action of the U.S. Dollar Index against any pair you want to use it with.  Correlation does change; sometimes it is stronger, sometimes it is weaker.  For example, right now there is very little correlation with the USD/JPY.

When there is correlation however the U.S. Dollar Index can provide tremendous insight into support and resistance.  This is exactly why I want to know not only where the Index is trading but the support and resistance on the chart.  Think of the U.S. Dollar Index like the Dow Jone Industrial Average for stock traders.

I start each of my webinars with a look at the U.S. Dollar Index and you can get a better idea of how and why I use it during my twice weekly webinars as well as this month at my three hour presentation for FXStreet

OK, well it’s big for me anyway because I a honored to be doing this month’s FXStreet presentation.

Here’s the information and I hope you can join me for my three hour, in-depth look into charting and forex.

DATE/TIME:

Thursday May 24, from 13:00 to 16:00 GMT
(New York time is GMT-4, London time is GMT).

TOPICS:

How to apply market cycle analysis to your own trading
How to to scan for trading opportunities
Utilize multiple time frames effectively
Use the Wave
How to apply confirmation indicators
Psychological numbers
Finding chart patterns the correct way
Which hot zones to watch
Powerful intramarket analysis

For those of you who have attended my twice weekly chats, this is a great opportunity to learn how to set up the trades that I scan for each day.

I wanted to follow up my USD/CHF post form yesterday with some risk and trade management commentary.  It’s hardly enough to know when to enter alone.  That is only 1/3 of the trade as far as I am concerned.

The other 2/3 you ask?

That is what today’s post is all about.  The other 2/3 is risk management and trade management.

So here’s the Swissy as it trades this morning after yesterday’s breakout.

There’s a lot going on here so let’s look at each price and see how it figures into the management as we move into today’s FOMC statement.  By the way, 5.25% and no change is already discounted into the market and so that means the bulk of attention will be places on the accompanying statement, that is ofcourse unless there is some sort of surprise cut/hike.

Chart created with eSignal 8.0 and EZ2Trade Charting Collection plug in (www.ez2tradesoftware.com)

Let me add that this work is done at the time of the entry and not afterwards.  A trader must know the point of validity (POV), and at least two profit targets before entering the trade.

So we already know the breakout trigger.  Let’s talk about the stop loss.  The first stop places at the time of entering the trade is what I call a "risk based stop loss".  This simply means that the stop represents a loss of capital if hit.  This stop is based on the point of validity which represents where the trade is no longer valid.  Without knowing where the trade is no longer valid, how can a trader know at price to get out?  This is not based on a fixed percent or pip level.  It is based on support and resistance — just as the entry was.

The point of validity here is the other side of the asymmetrical triangle which is all the way down at 1.2000.  While this may be the POV, I will not use it.  It’s too far away and represents too much risk and there are other support levels that I can utilize to place a stop loss.  But always start with identifying the POV.

The next level I direct my attention to is the near term low of .2105.  I can live with that.  It’s represents around a 60 pips of risk and for a daily chart this is very realistic.  I have also noted the low at .2142 which is today’s near term low and certainly could be a stop loss a trade could use today, but the stop loss can be cheated in no closer that this.

The first two profit targets (PT) are the .2195 level.  This allows us to step out before the size at "00" comes in and since "00" is also going to be psychological resistance as prices move higher, we should respect it.  The second profit target is the .2150 as I will use the "50" which is also very likely to be psychological resistance.

This trade is only going to move higher if the U.S. Dollar Index moves higher and it looks like a the 82.00-82.03 resistance on the U.S. Dollar Index will correlate closely with the 1.2200 level on the USD/CHF.

My candles are also colored blue which signals a neutral zone which is what we want leading into a momentum trade.

The sideways, three o’clock Wave on the daily Swissy was short lived as the U.S. Dollar’s break higher finally allowed the Swissy to do what it seems to have been wanting to do:  trade higher.

The move was pre-confirmed and I would consider this a asymmetrical triangle as there is a horizontal support level sitting at the 1.2000 level. Aggressive traders could have taken the initial break at 1.2165 through the lowest of the cluster of downtrend lines.  This does leave a sufficient amount a room to run the 1.2200 level but the more conservative trader can wait for the top downtrend line to break which would put the buy at 1.2205.  This would likely demand an 82.00 break of the U.S. Dollar Index and certainly support at the 1.220 in the Swissy.

Also notice that I turned on a little-used feature of the EZ2-Wave study that signals when the Wave is on the strong, neutral, or weak side if the Wave.  I have mentioned this positioning in both my books and you can refer to them to see how you can better judge the direction and strength of the current trend with this understanding.  You certainly don’t need the color coding but it is a great visual cue.

The blue candles signal a neutral price action and this is exactly what we want as we set up a potential momo entry.  The neutral candles also signal the "pause" between uptrends and downtrends where the market congests or consolidates.  Put that together with the three o’clock Wave and the visual is clear that the trend is sideways.

Everyone has there own set of tools and rules for the market. The cool thing about a site like FXStreet is that you get a look into many different styles.

My selection of tools is not a matter of "this is the best" but rather "this is my preference".

Rather than a blog entry today, how about a "vlog" entry today.

Here is the link to a 14 minute discussion of how I treat and trade before and during fundamental events. It is not about trading the data but rather setting up a trade going into the data. It’s about trusting that price will allow you to track those "elephant footprints in the sand" rather than discounting and analyzing news events at a moments notice.

Enjoy!

…and feel free to email me at raghee@ez2tradesoftware.com

I think sometimes we forget what support and resistance really means.

We draw all our lines and levels and then think our job is done.  In reality though it has just begun.  Each line and level is a "decision level".  We as traders must decide what each price means and what the reaction is most likely to be.

If I see prices heading lower, approaching a support level, I will expect prices to bounce off it until it breaks.  The opposite goes for resistance.  Expect it will hold — until it doesn’t.  This chart of the U.S. Dollar Index futures shows the point very well.

There are very distinct levels that the U.S. Dollar that prices reacted to.  The support levels of 81.25 to 81.27  and the resistance levels of 81.70 to 81.72 are currently containing price action.  Until prices break the support or resistance I will expect prices to continue to bounce within these levels.

So let me address some mechanics to these levels. 

There are two types of support/resistance levels:  soft and solid.  Soft levels have a large variance.  "Variance" is the difference in price between the touchpoints that make up the level.  For example, the support level has a variance of two pips (81.27 - 81.25 = 2)  Soft levels typically have a variance of greater than five pips while solid levels are under five pips.  I say typically because each market has varying spreads which can contribute to wider acceptable variance.  For the most part though, five pips while cover the major pairs.  If you need greater than five pips that means that you are probably looking at a more obscure cross rate.

The levels on the U.S. Dollar are invaluable.  I have always said that the U.S. Dollar Index is a secondary confirmation and it still remains so.  Today’s levels also shed light on the potential follow-through of the U.S. Dollar-correlated pairs.  The 30 minute EUR/USD was showing a potential breakout higher.  This was a great looking set up however with the 30 minute U.S. Dollar trading near what was a double bottom at the time, there was a higher chance that prices would bounce off support rather then trade lower.  This was even more the case since the double bottom was also a 30 day low.  Monthly and yearly highs and lows are key levels.

Pushing the boundaries of the chart means that we must identify these support and resistance boundaries before assuming a trend will persist or that a trend will even begin.

By the way, thank you to those of you who wished me a quick recovery.  The flu I got was bad and basically put me out of commission for two weeks.  So thanks for your patience.  I am back on my feet and catching up with everything.  This month will also begin my new schedule at FXStreet.  I will be presenting in the FXStreet webinar room twice a week on Tuesday and Thursday, 13:00 GMT.