riding the price roller coaster

8/7/2019 Riding the Price Roller Coaster

1/9


2/9

Riding the Price Roller Coaster: Three Techniques for Spotting Market Twists & Turns | gftuk.com 2

Buy the Ticket, Take the Ride

E ven novice traders know howthe unexpected twists and turnsof nancial markets can bethrilling, surprising and often frightening.

Getting into the market without a solid

trading plan and a sound foundation in

technical and fundamental

analysis is a little like getting

on a roller coaster without a

safety harness. The rst abrupt

change in direction is likely to

throw you right out of the car.

While markets are subject to periods of increased

volality and unpredictable acvity, they also have the

tendency to trend. Fortunately, there are a number of tools

and techniques that traders can use to both forecast

potenal outcomes and help manage risk in almost any

market condion.

Because of its trending nature, being able to spot potenal

market tops and booms (points at which the market may

reverse a trend) can be a great help in determining when

and where to enter and exit the market. At GFT, we use anumber of techniques to help forecast price movements

and trend reversals.
http://www.gftuk.com/http://www.gftuk.com/http://www.gftuk.com/


3/9


Relative Strength Indicator (RSI) Roller Coaster Strategy

An interesting way that we determine a

potential change in a trend on a shorter-

term time frame is through our RSI Roller

Coaster Strategy.

There are just a few basic components of this strategy:

*Note: This guide does not constute a recommendaon to follow a

parcular trading strategy. Each trade should be considered carefully as to

how it ts with your individual trading strategy, including risk tolerance.

To take a long (buy) position:*

To take a short (sell) position:*

RSI reading should be less than 30.

An up-candle should form and close sending an RSI reading to greater than 30.

Consider going long at the market price on the open of the next candle.

Set prot targets and risk management levels based on your individual

trading strategy and tolerance for risk.

RSI reading should be greater than 70.

A down-candle should form and close pushing an RSI reading to less than 70.

Consider going short at the market price on the open of the next candle.

Set prot targets and risk-management levels based on your individual

trading strategy and tolerance for risk.

1.

1.

3.

3.

2.

2.

4.

4.

The strategy hinges on using the RSI to alert you to overbought or

oversold market condions and tends to be more ecient in range-

bound environments where oversold and overbought situaons signify a

change in the trend. Typically, when the RSI rises above 70 the market is

overbought, while a reading below 30 represents an oversold market.

Let us show you how to add the RSI indicator in DealBook360.Contact GFT at 0800 358 0864 in the UK or +44 (0) 207 170 0770

internationally. You can also click here to start a live text chat.

Overbought70

30

Oversold

Overbought A market that has risen to the point where it may be considered to

be overvalued and may present an opportunity to sell.

Oversold A market that has fallen to the point where it may be considered to be

undervalued and may present an opportunity to buy.
http://www.gftuk.com/http://www.gftuk.com/https://server.iad.liveperson.net/hc/79256968/?cmd=file&file=visitorWantsToChat&site=79256968&byhref=1&SESSIONVAR!https://server.iad.liveperson.net/hc/79256968/?cmd=file&file=visitorWantsToChat&site=79256968&byhref=1&SESSIONVAR!http://www.gftuk.com/


4/9



The EUR/USD four-hour chart above shows the RSI Roller Coaster in acon from

early to mid February 2009. The pair ranges with no clear trend over the course of

a couple of days. The RSI reading nally breaks below the 30 level aer a temporary

decline. The RSI Roller coaster strategy then sets up as the candle sends the RSI back

above 30 and triggers a potenal buy signal.

Shorter-term me frames tend to produce an abundance of potenal RSI Roller

Coaster formaons. On the one-hour chart above, the USD/CHF developed two

setups within 24 hours. During the rst formaon, the RSI briey spiked through an

overbought region, breaking above 70. However, a red candle pushed it below 70,

oering an opportunity to sell.

Later, a break to a fresh high took the RSI back into the overbought zone. Aer a

short consolidaon, the pair retraced (went in the opposite direcon) to around

1.1835 triggering the RSI Roller Coaster strategy as the indicator fell below 70.

EUR/USD 4-HR USD/CHF 1-HR

70

30

70

30

OVERSOLD OVERBOUGHT

Source:GFT Source:GFT

Although the examples in this section show how the RSIRoller Coaster strategy works with currency pairs, it canbe applied to any financial market traded, including shares,commodities, futures and indices - all of which are availableas contracts for difference (CFDs) and spreads bets atGFT. You can learn more about these by clicking here.
http://www.gftuk.com/http://www.gftuk.com/http://www.gftuk.com/http://www.gftuk.com/http://www.gftuk.com/


5/9



The RSI Roller Coaster may work on longer me frames, as well. In t he USD/

CAD daily chart above, aer a pronounced sell-o,the RSI lingered well below

30. However, a sudden rally helped pull it above 30, creang a potenal buying

opportunity around 0.9350. The market rallied nearly 1,000 pips over the course of

the next few weeks.

A second opportunity arose a lile more than a month later when the RSI moved

into an oversold condion and then quickly fell.

The RSI Roller Coaster strategy is typicallya low-probability/high-reward setup. You might haveto endure some mediocre or even negative rides whilewaiting for a single great one. In other words, itoften requires that you trade as often asyour risk-management strategy will allowto catch that one potential big win.Capital management is also essenal, hinging on small,

highly dened risks while waing paently for that

potenal big-prot trade. Half the value of this strategy

is in the rules themselves, while the other half is in strict

money management.

USD/CAD DAILY

70

30

OVERBOUGHT &OVERSOLD

Did you know we can show you how to setup this strategy at no cost? Call us at

0800 358 0864 in the UK or+

44 (0)207 170 0770 internationally. You canalso clickhere to start a live text chat.

Source:GFT
http://www.gftuk.com/http://www.gftuk.com/https://server.iad.liveperson.net/hc/79256968/?cmd=file&file=visitorWantsToChat&site=79256968&byhref=1&SESSIONVAR!https://server.iad.liveperson.net/hc/79256968/?cmd=file&file=visitorWantsToChat&site=79256968&byhref=1&SESSIONVAR!https://server.iad.liveperson.net/hc/79256968/?cmd=file&file=visitorWantsToChat&site=79256968&byhref=1&SESSIONVAR!https://server.iad.liveperson.net/hc/79256968/?cmd=file&file=visitorWantsToChat&site=79256968&byhref=1&SESSIONVAR!http://www.gftuk.com/


6/9


Stay on the Tracks with Double Tops and Double Bottoms

Price patterns on the charts can also oer

opportunities to forecast market movements.

In fact, double tops and double bottoms oer

possibly two of the easiest purely chart-based ways to

determine a potential trend reversal.

A double top is a sharp rise in the market followed by a retracement and

another sharp rally to the previous levels, nally concluding with another drop.

It resembles an M on the chart. A double boom is the opposite of a double

top, resembling the leer W upon compleon. These paerns typically occuraer a prolonged rally that takes the market to price extremes. Following t he

rally, a consolidaon occurs and the market changes direcon.

The EUR/USD chart above illustrates how a double top formaon may be structured.

Like that long rst hill of a roller coaster ride, the market rallied for roughly seven

months, establishing all-me highs, nally nding a top at roughly 1.60. Aer a

marginal decline, the pair experienced a three-month consolidaon followed by asecond test of the previously established high. The double top was conrmed aer

the pair cleared a previous retracement around 1.5300, followed by a substanal

decline to below the 1.4000 level.double top double bottom

Uptrend Rally for7 months

Declilne after aDouble Top

ClearedSupport

Consolidationfor 3 months

Top #1 Top #2

EUR/USD MONTHLY

Double Top A bearish chart paern that may signal an impending end to an uptrend.

Resembles an M on a chart.

Double Boom A bullish chart paern that may signal an impending end to a

downtrend. Resembles a W on a chart.

Source:GFT

You can identify double top and double bottom patterns inthe charts of any financial market traded, including shares,commodities, futures and indices - all of which are available asCFDs and spreads bets at GFT. Find out more about these

products by clicking here.
http://www.gftuk.com/http://www.gftuk.com/http://www.gftuk.com/http://www.gftuk.com/http://www.gftuk.com/


7/9


Stay on the Tracks with Double Tops and Double Bottoms

Though markets are prone to trending, they are also known for reversals. In other

words, what comes down will probably go up and oen in a dramac fashion.

The following USD/JPY example clearly illustrates a double boom formaon.

Aer a prolonged decline to mul-year lows, the pair nally emerged to form

the rst boom at around 87.00. A rapid retracement was followed quickly by a

retest of previous lows, creang the second boom. The pair then consolidated for

approximately a week before changing the trend. Finally, the paern and change

in trend were conrmed aer the pair breached the retracement level around 94.00.

No matter how much you think you know, roller coasterscan surprise you with an unexpected twist, turn or loop.Market movements can be that way, too.Many market movements can resemble a double top or double boom formaon.

As such, traders should remember that just because a market tests the same high

or low on two separate occasions, it does not automacally constute a viable

double top or double boom paern. These paerns are not complete unl the

market breaches the previous level of retracement.

For example, triple top and triple boom formaons are another strong potenal

reversal paern. Like a double top or boom, a triple top or boom will test thesupport or resistance two mes. However, whereas a double top or boom will then

move through a previous retracement, a triple top or boom returns to test the

support or resistance line one more me.

One of the most common mistakes traders make when trying to idenfy a potenal

double top or double boom is mistaking a triple top paern for a double top and

entering the market too early.

Prolonged Decline

Reverseand Rally

Bottom #1 Bottom #2

USD/JPY MONTHLY

Want to learn more about how you can use chart patternsto enhance your trading? Call us at 0800 358 0864 in theUK (44 (0) 207 170 0770 internationally) or clickhere tostart a live text chat and ask us about our free tool thatcan help you identify these and nearly 20 other patterns.Source:GFT
http://www.gftuk.com/http://www.gftuk.com/https://server.iad.liveperson.net/hc/79256968/?cmd=file&file=visitorWantsToChat&site=79256968&byhref=1&SESSIONVAR!https://server.iad.liveperson.net/hc/79256968/?cmd=file&file=visitorWantsToChat&site=79256968&byhref=1&SESSIONVAR!https://server.iad.liveperson.net/hc/79256968/?cmd=file&file=visitorWantsToChat&site=79256968&byhref=1&SESSIONVAR!https://server.iad.liveperson.net/hc/79256968/?cmd=file&file=visitorWantsToChat&site=79256968&byhref=1&SESSIONVAR!http://www.gftuk.com/


8/9


Anticipate Potential Market Reversals with Bollinger Bands

Bollinger Bands can be another way of

determining potential tops and bottoms. They

are a technical analysis tool that consists of

a centre line enveloped by an upper and lower band,

with the distance between the upper and lower bands

determined by market volatility. Typically, the more

volatile the market, the wider apart the bands will be.

In general, a move through either the upper or lower band indicates that thepair is either overbought or oversold. When this happens, t he probability of a

turn increases.

In the USD/CAD example on the right, a clear puncture of the upper band

occurs along with a triple top paern. The technical paern provides a

conrmaon, increasing the odds of a top. Following the spike, the pair falls

nearly 1,200 pips.

Of course, no indicator is correct 100 percent of the me, so its important to

conrm or enhance Bollinger Bands analysis with other types of technical

analysis such as Fibonacci retracements. Addional conrmaon may also be

aained using the other techniques described in this guide.

bollinger bands

triple top

USD/CAD MONTHLY

Let us show you how to apply Bollinger Bands to a chartin DealBook360. Call us at 0800 358 0864 in the UK(+44 (0) 207 170 0770 internationally) or clickhere tostart a live text chat.

Like RSI and double top and double bottom patterns,you can use Bollinger Bands to determine trends in anyfinancial market traded, including shares, commodities,futures and indices - all of which are available as CFDsand spreads bets at GFT. Learn more about these byclicking here.

Source:GFT
http://www.gftuk.com/http://www.gftuk.com/https://server.iad.liveperson.net/hc/79256968/?cmd=file&file=visitorWantsToChat&site=79256968&byhref=1&SESSIONVAR!https://server.iad.liveperson.net/hc/79256968/?cmd=file&file=visitorWantsToChat&site=79256968&byhref=1&SESSIONVAR!https://server.iad.liveperson.net/hc/79256968/?cmd=file&file=visitorWantsToChat&site=79256968&byhref=1&SESSIONVAR!http://www.gftuk.com/http://www.gftuk.com/https://server.iad.liveperson.net/hc/79256968/?cmd=file&file=visitorWantsToChat&site=79256968&byhref=1&SESSIONVAR!http://www.gftuk.com/


9/9


Step Right Up!Trading the nancialmarkets can bring a lotof emotions and not allof them pleasant. Whether youre

riding a rally or enjoying the free-fall

of a diving market, knowing when and

where a market will reverse is one of the

holy grails of trading.

Furthermore, the tools and ps described in this guide

may be helpful to traders hoping to enhance their trading

strategies to idenfy potenal market tops and booms,

but its important to remember that no tool, strategy,

p or trick can take the place of solid technical and

fundamental analysis. We encourage traders to study the

markets and develop a trading plan that best suits their

individual needs and goals.

Anyone who has risked real capital while trading

can tell you that the experience of the actual ride is

much dierent than how it may appear from afar.

Thats why these strategies for spong potenal turns

in advance can be so helpful in your trading possibly

even helping you gain a new perspecve on the markets.

If so, wed like to hear from you. Please e-mail us at

[email protected] .

For more informaon on tools, strategies and news, as

well as email trade alerts and daily market analysis,

visit guk.com.

Ready to start applying the strategies you learned? Click

here to get a risk-free pracce account or start a live text

chat now!

RISK WARNING: CFDs, spot forex and spread beng are leveraged products and may not be suitable for everyone as it is possible to lose more than your inial investment. Please ensure

that you fully understand the risks involved. GFT Global Markets UK Ltd. is authorised and regulated by the Financial Services Authority. CD04UK.041.062309

+44 (0) 207 170 0770UK M AIN

gftuk.comL IV E T E X T C HAT 2 4 / 7

0800 358 0864FRE E P HONE
http://www.gftuk.com/http://www.gftuk.com/mailto:info%40gftuk.com?subject=Roller%20Coaster%20Feedbackhttp://www.gftuk.com/http://www.gftuk.com/freetrial/http://www.gftuk.com/freetrial/https://server.iad.liveperson.net/hc/79256968/?cmd=file&file=visitorWantsToChat&site=79256968&byhref=1&SESSIONVAR!http://www.gftuk.com/https://server.iad.liveperson.net/hc/79256968/?cmd=file&file=visitorWantsToChat&site=79256968&byhref=1&SESSIONVAR!http://www.gftuk.com/http://www.gftuk.com/https://server.iad.liveperson.net/hc/79256968/?cmd=file&file=visitorWantsToChat&site=79256968&byhref=1&SESSIONVAR!http://www.gftuk.com/https://server.iad.liveperson.net/hc/79256968/?cmd=file&file=visitorWantsToChat&site=79256968&byhref=1&SESSIONVAR!http://www.gftuk.com/freetrial/http://www.gftuk.com/freetrial/http://www.gftuk.com/mailto:info%40gftuk.com?subject=Roller%20Coaster%20Feedbackhttp://www.gftuk.com/

riding the price roller coaster

Documents