Technicals Tell Us To Buy Risk
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Technicals Tell Us To Buy Risk

Authored by Ivan Delgado

Ivan Delgado is a decade-long Forex Trader. Feel free to follow Ivan on Youtube. Join thousands of traders who follow Ivan's insights to increase their profitability rate by learning the ins and outs of how to read and trade financial markets. Ivan has you covered with in-depth technical market analysis to help you turn the corner.

Let’s get started…

Scan Of The Markets

The indices show the performance of a particular currency vs G8 FX. A video on how to interpret these indices can be found in the Global Prime’s Research section.

The markets are slowly returning to life after a lukewarm ending last Friday ahead of July 4th Independence day in the US. The Forex market is expressing ‘risk on’ flows at the open in Asia while equities remain underpinned overall. These punchy moves in Asia are in line with the premise I’ve been promoting of a re-alignment in forex trends.

This conducive environment in risk dynamics is one that we’ve morphed into in a slowly but steadily manner after a meritorious bull run by the S&P 500 into 3,150.00 and the Nasdaq at record highs. What makes the ‘risk on’ phase especially convincing this time is the concordance in FX flows where commodity-linked currencies and GBP top the leader board, while USD and JPY under perform.

As of late, the market has been swinging between the fears of a rollback in the opening of global economies due to a resurgence of coronavirus and ignoring the news as the vast provisions of liquidity by the Fed and other Central Banks spark ‘risk on’ moves.

So far, the latter, that is, a market turning a deaf ear and oblivious to the dire situation on the ground continues in favor of a further ignition in the equity bubble courtesy of the excess liquidity that’s been thrown into the financial system. It means renewed lockdowns in Germany, Spain, increase cases in US hotspots are not moving the needle. The risk-seeking conditions are as logic-defying as it may sound.

Which takes me to the next point. One that as of late I’ve been endorsing in almost a daily basis. One must disengage in treating financial markets as a vehicle that expresses rationality. Many times over, it won’t work, especially during these times where normal channels of price discovery have been distorted by Central Banks.

Instead, stick firmly in your technical-oriented edge, and follow what the price in front of you is telling you. Now more than ever technical must bring the level of sanity to your decision-making process that is not found by the irrationality of fundamentals. Remember, we as small fishes must adapt to the different currents and technicals are a great compass to use as a reference of the type of winds blowing.

At this point, you have a choice to make. Either refusing to swing in the direction of the ‘risk dynamics’ current or jump on board aiming to smartly speculate on what the price is telling us. From my readings, we are at a crossroads where the big picture ‘risk on’ trend for more than 2 months appears to be re-aligning with last week’s risk trade flows.

This view gets backed up by the all-bullish signals emanating off the S&P 500, not to mention the Nasdaq, the upside bias in GBP/USD, the AUD/USD making further strides towards 0.70, the Yen index getting in serious technical trouble, the breakout-type pattern in the making in AUD/JPY market for instance, and the list goes on.

Pay attention to what the market is whispering instead of lamenting the grossly overpriced equities or that risk-off currencies are not trading in the most logical manner judging by fundamentals. The market tends to follow the path of least resistance and, at this stage, it’s disengaged from certain logic like COVID 19 spikes = risk-off. Not considering longs in risk assets might be an overlooked disservice to your P&L.

By the same token, when the re-alignment between technicals and the perceived somber fundamentals occur, it shouldn’t alter in the slightest your neutrality in how you approach the markets either. As a technical trader, which is the profile best fitting the majority of the readership receiving this report, let these components guide you all along.

As a template to follow what technicals are telling us and disregarding altogether hunches or gut-feeling type entries based on fundamentals, you can always follow the daily video I produce via Youtube. That’s your opportunity to learn my thinking process to define the contextual state of any instrument via its structure, momentum and volatility.

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Insights Into Market Flows

This analysis is conducted on a multi timeframe dimension. Ultimately, it is the traders’ call, via a set of entries thoroughly backtested, to enter a position, hence the video is mainly intended as a way to educate traders in upping their analytical skills.

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Recent Economic Indicators & Events Ahead

Source: Forexfactory

If interested in the best ‘free of charge’ News Indicator that displays data on past and future news in the Forex market via MT4, check this YouTube video I produced. The indicator allows you to save time, avoid mistakes. It’s spot on!

Important Footnotes

MARKET STRUCTURES

Markets evolve in cycles followed by a period of distribution and/or accumulation. To understand the principles applied in the assessment of market structures, refer to the tutorial How To Read Market Structures In Forex.

SMART MONEY TRACKER 

In order to assess the market momentum of a particular asset, I’ve promoted for years the idea of using what I call the smart money tracker. The settings and the indicator can be obtained via our Discord room, where traders from all walks of life interact frequently. In this video I lay out the elements I look into to call trend directions.

SUPPORT & RESISTANCE

Unlike levels of dynamic support or resistance or more subjective measurements such as fibonacci retracements, pivot points, trendlines, or other forms of reactive areas, horizontal areas of support and resistance are universal concepts used by the majority of market participants. It, therefore, makes the areas the most widely followed. The Ultimate Guide To Identify Areas Of High Interest.

FUNDAMENTALS

It’s important to highlight that the daily market outlook provided in this report is subject to the impact of the fundamental news. Any unexpected news may cause the price to behave erratically in the short term. Monitor the event risks via Forexfactory.com & refer to Fundamentals vs Technicals In Forex.

PROJECTION TARGETS

The usefulness of the 100% projection resides in the symmetry and harmonic relationships of market cycles. By drawing a 100% projection, you can anticipate the area in the chart where some type of pause and potential reversals in price is likely to occur, due to 1. The side in control of the cycle takes profits 2. Counter-trend positions are added by contrarian players 3. These are price points where limit orders are set by market-makers. You can find out more by reading the tutorial on The Magical 100% Fibonacci Projection