February 7 2022
For most retail traders it is extremely difficult to see through the fog of macro economics that plays such an important roll in trading forex . It’s often very difficult for new retail traders to gasp the idea of market sentiment.
However it is far easier to see entry and exit points on charts. So it is hardly surprising that traders gravitate towards some type of technical analysis.
Personally, I try to encourage the use of a simple system like Point & Figure. The reason being it is easy to understand, and follows the market flows using the simply economic rules of supply and demand.
Tops and bottoms are well defined and entry points can be clearly seen as buy and sell signals. Risk management is easy as you can see the reversal points where market sentiment will change.
In simple terms each column of X shows the price movement going higher, if the market corrects lower a O is entered into the next column.
If we look at the price action in fig.1 read from the bottom left corner. the price went from 110.60 to 110.80 and then fell back to 110.60., from here the price moved up to 111.00 making a new high. The making of a new high tells us the buyers are in control of the market. Therefore 111.00 is a buy signal signified by a higher X than the previous column of X’s.
Although after the 111.00 buy signal the price fell back to 110.80, a second buy signal soon followed at 111.20.
Following our initial buy signal at 111.00 a series of buy signals followed at 111.20, 111.60 and 111.80. However, Sellers at 112.00/20 stopped further upside progress and a double top was formed. This was followed by a 111.60 sell signal signified by a lower O than the previous column of O’s. The sellers are in control and price then feel to 111.00.
On reaching 111.00 the market made 3 attempts to break the downside at 110.80 and failed. This was followed by a 111.40 buy signal.
It is hard to ignore such simple entry points, however if you followed this USDJPY 20 pip chart it would be likely you would be up 200 pips for the last 2 weeks trading.
If you want to know more about point and figure charts, and using them in your trading just drop us a line at email@example.com