(Please click on the accompanying chart to enlarge.)

Price action on the USD/JPY 4-hour chart, as shown, has approached and retreated today from a key resistance level around 108.40-108.50. At the same time, a short-term uptrend support line has formed. These two levels, to the upside and the downside, should now represent the short-term support/resistance levels to watch for in terms of potential breaks or bounces. Any strong and clean break of upside resistance, especially, should represent a solid potential breakout opportunity.

- James

James Chen is the Chief Technical Analyst at FX Solutions, a leading Forex broker. He is also a registered Commodity Trading Advisor (CTA) and a Chartered Market Technician (CMT) Level 3 candidate. At FX Solutions, Mr. Chen writes daily currency analysis, conducts forex trading seminars, and has authored numerous articles on currency trading and technical analysis for major financial publications. His upcoming book, Essentials of Foreign Exchange Trading (John Wiley & Sons), will be released in early 2009.

The trailing stop, especially in Forex trading, is pure genius. And I’m not just talking about automated trailing stops, but manual ones as well. The trailing stop epitomizes the concept of letting your profits run and cutting your losses short. Theoretically, a well-placed trailing stop can allow a position to extend ad infinitum as long as price continues to trend in one direction, while simultaneously locking in hard-won profits.

Setting profit limits, on the other hand, is a good and common practice, especially if there is some logical technical basis for choosing that price level. But let’s face it, trying to pinpoint a precise profit target is a hit-or-miss affair, especially in the roller coaster ride that is currency trading. One of the worst things to happen to traders is having price just miss a profit limit by a hair, and then reversing on a dime to turn a substantial profit into a loss. Trailing stops are geared towards preventing this type of disaster.

If executed properly, trailing stops can generally do wonders for Forex traders, especially for medium- and long-term trades. The most common practice for manually trailing stops is to place the trailing stop right below the last swing low, or pullback, in an uptrend. The opposite is true in a downtrend. Automated trailing stops, on the other hand, follow price by a set number of pips. Whichever method is used, whether manual or automated, trailing stops can potentially be the difference between an average trader and a consistently profitable one.

- James

James Chen is the Chief Technical Analyst at FX Solutions, a leading Forex broker. He is also a registered Commodity Trading Advisor (CTA) and a Chartered Market Technician (CMT) Level 3 candidate. At FX Solutions, Mr. Chen writes daily currency analysis, conducts forex trading seminars, and has authored numerous articles on currency trading and technical analysis for major financial publications. His upcoming book, Essentials of Foreign Exchange Trading (John Wiley & Sons), will be released in early 2009.

(Please click on the accompanying chart to enlarge.)

As noted on yesterday’s USD/CHF video below, the bearish technicals on the 4-hour chart, as shown to the left, were indicating that upward momentum had perhaps waned, and that a turn back down might be impending. These technical indications included a rejection yesterday near a significant horizontal resistance line around 1.0530, and clear bearish divergence on Stochastics. This morning, price indeed moved down to around the 23.6% Fibonacci retracement level as of this writing. If there is any further momentum to the downside, clear support resides around the 1.0330 region, which coincides with the 38.2% Fibonacci retracement level.

Mid-Morning (NY Session) Update: As of this writing, price has retraced most of the downward move from earlier this morning. The 1.0530 region should continue to act as resistance to the upside.

- James

James Chen is the Chief Technical Analyst at FX Solutions, a leading Forex broker. He is also a registered Commodity Trading Advisor (CTA) and a Chartered Market Technician (CMT) Level 3 candidate. At FX Solutions, Mr. Chen writes daily currency analysis, conducts forex trading seminars, and has authored numerous articles on currency trading and technical analysis for major financial publications. His upcoming book, Essentials of Foreign Exchange Trading (John Wiley & Sons), will be released in early 2009.

At my webinar on Technical Carry Trading that I gave here today, it was requested that I post some of the past articles I have written regarding this high-probability, technical/fundamental hybrid strategy. Thank you to everyone that attended. Here are some links to online versions of my magazine articles on this subject:

1) Stocks, Futures and Options (SFO) Magazine (May 2008): https://www.mta.org/eweb/docs/pdfs/Chen_0508.pdf

2) Stocks, Futures and Options (SFO) Magazine (March 2008): https://www.mta.org/eweb/docs/pdfs/Chen_0308_reprint.pdf

3) Futures Magazine (April 2007): http://www.futuresmag.com/cms/Futures/Monthly%20Issues/Issues/2007/04/Editorial/Markets/APR07TechTalkChen

- James

James Chen is the Chief Technical Analyst at FX Solutions, a leading Forex broker. He is also a registered Commodity Trading Advisor (CTA) and a Chartered Market Technician (CMT) Level 3 candidate. At FX Solutions, Mr. Chen writes daily currency analysis, conducts forex trading seminars, and has authored numerous articles on currency trading and technical analysis for major financial publications. His upcoming book, Essentials of Foreign Exchange Trading (John Wiley & Sons), will be released in early 2009.

(Please click on the accompanying chart to enlarge.)

As of this writing, price on the EUR/USD daily chart, as shown to the left, has just tentatively poked its head slightly below dynamic support in the form of the long-term uptrend support line. Keep in mind that as of now, though, this was just a tentative poke. It is not yet considered a bonafide break. But keep a close eye on this pair for any subsequent fast-breaking action to the downside. If this does not occur today, we could still be looking at an impending bounce (even if a small false break occurs).

Update: As of Wednesday afternoon (New York session), support has indeed held strong, as price has made a pronounced bounce up off the uptrend support line.

- James

James Chen is the Chief Technical Analyst at FX Solutions,
a leading Forex broker. He is also a registered Commodity Trading
Advisor (CTA) and a Chartered Market Technician (CMT) Level 3
candidate. At FX Solutions, Mr. Chen writes daily currency analysis,
conducts forex trading seminars, and has authored numerous articles on
currency trading and technical analysis for major financial
publications. His upcoming book, Essentials of Foreign Exchange Trading
(John Wiley & Sons), will be released in early 2009.

(Please click on the accompanying chart to enlarge.)

Like the breakouts on the other majors that occurred yesterday, the USD/CHF break above downtrend resistance (as shown on the daily chart to the left), turned out to be a great breakout trading opportunity thus far. As of this writing on early Wednesday morning (New York time), the dollar has held the ground that it gained yesterday on all the majors, and then gained a bit more on top of that this morning. Whether there is additional follow-through on the breaks should be evident as the morning progresses.

- James

James Chen is the Chief Technical Analyst at FX Solutions,
a leading Forex broker. He is also a registered Commodity Trading
Advisor (CTA) and a Chartered Market Technician (CMT) Level 3
candidate. At FX Solutions, Mr. Chen writes daily currency analysis,
conducts forex trading seminars, and has authored numerous articles on
currency trading and technical analysis for major financial
publications. His upcoming book, Essentials of Foreign Exchange Trading
(John Wiley & Sons), will be released in early 2009.

Just a quick reminder - I will be holding a webinar today (Wednesday, July 30) at 16:00 GMT (or 12:00 Noon, New York time). It is on one of my favorite subjects, technical carry trading. It will be a Premium webinar, so you need to be a Premium member of FXstreet.com in order to attend. If you are a Premium member, please click on the following link for more details and to register for the webinar: http://www.fxstreet.com/live/sessions/session.aspx?id=1f00a3fc-96b0-42e6-afe5-92419b58221b . If you’re not a Premium member, I will be doing many ongoing Open webinars on various topics in the near future. Thank you!

- James

James Chen is the Chief Technical Analyst at FX Solutions, a leading Forex broker. He is also a registered Commodity Trading Advisor (CTA) and a Chartered Market Technician (CMT) Level 3 candidate. At FX Solutions, Mr. Chen writes daily currency analysis, conducts forex trading seminars, and has authored numerous articles on currency trading and technical analysis for major financial publications. His upcoming book, Essentials of Foreign Exchange Trading (John Wiley & Sons), will be released in early 2009.

(Please click on the accompanying chart to enlarge.)

This is a late Tuesday afternoon (NY) alert on the accompanying EUR/USD daily chart. Price has reached down and tentatively retreated from a major long-term uptrend support line today. This uptrend line extends back about a year. More updates on this pair to come …

- James

James Chen is the Chief Technical Analyst at FX Solutions, a leading Forex broker. He is also a registered Commodity Trading Advisor (CTA) and a Chartered Market Technician (CMT) Level 3 candidate. At FX Solutions, Mr. Chen writes daily currency analysis, conducts forex trading seminars, and has authored numerous articles on currency trading and technical analysis for major financial publications. His upcoming book, Essentials of Foreign Exchange Trading (John Wiley & Sons), will be released in early 2009.