Technical Analysis of the Currency Market: Classic Techniques for Profiting from Market Swings and Trader Sentiment

CHAPTER 10

Setups! Setups! Setups!

Technical analysis tools in and of themselves are useless. Only when we apply them to intelligent, logical trading strategies do they prove their worth and help us make money in the currency market. What follows are several trading setups designed to exploit the value of technical indicators in currency trading. These are generalized setups and by no means are a holy grail to untold riches. In fact, I can assure you that all of these setups will fail at one time or another. Hopefully, however, these trading ideas will fail intelligently; that is, either they will fail frequently but with small losses or they will fail with much larger (though not debilitating) losses but only occasionally. Regardless of the outcome, the purpose of this chapter is to show you how to use technical analysis to develop a methodical approach to trading the currency market. Why is method so important? Because it is the only way we can study, analyze, and improve our techniques. Seat-of-the-pants, instinctive trading may work well for some traders, but ultimately it is extremely limiting. In fact, this is the critical value of technical analysis—for it allows the trader to systematically apply his ideas to the market and objectively measure their success.

Some of these ideas I trade myself, while others have come from the fertile minds of friends and colleagues. However, as always, I note that no two traders are alike nor will they trade alike. Therefore I present these ...