I will stop going in depth on the signals from now on and point out the general trends and interesting highlights that CMF can tell us from August ’05 till the present (Sept. ’06).
Figure 8 - EUR/JPY during the second half of 2005.
- July is a month of Euro gains and accumulation for the pair. On the 21st, there is a large red candle that demonstartes how important it is to have proper risk management in the forex market. In other words, to have appropriate stop orders set up. The candle has a difference between its high and low of 340 pips, or a possible loss of $3,400 in one day for a single standard lot. This one day does not change price's direction and there is further accumulation and Euro appreciation.
- Once CMF hits +.25, we get another market top. Price drops for two weeks, then rallies for the next two, before falling once more. CMF moves up and down during this time, but it maintains positive readings above the zero line. The zero line acts almost as support.
- In the second half of September price action displays ranging conitions. CMF shows stronger positive measures, signifying that once investors are done consolidating the pair may take off in an upwards direction.
- In October price succumbs to the buying pressure and rises from 136 to 141.
- CMF hits a very high reading of +.40 and there is some retraction.
- The retraction is not long lived, and accumulation continues after the retraction. This can be seen by CMF staying at or above +.25 throughout November and the first half of December.
- The market peaks, and all of these accumulated long positions decide to sell at once (probably on some fundamental news event). The price of the pair free falls in the next two sessions. This is a second example of how important a proper stop loss or trailing stop is. Those two days produce a drop that is larger than 300 pips.
Concept – It is interesting to note how the indicator acts when there is such a large day(s) of movement. After about 21 sessions (the period for our indicator) in which the CMF is in negative territory, the huge candle is taken out of the CMF equation and we return to huge levels of accumulation.
Figure 9 - EUR/JPY in 2006.
- In February there is a downtrend in the CMF indicator. Price bottoms out when it reaches old support at 137 and when the CMF line reaches the zero line. The trend return to one of positive CMF and upward price movement as the bias of the last four out of five months suggest
- In April there is some divergence between price which is climbing to new highs, while CMF and therefore accumulation is waning.
- The pair heads downward in large weekend gaps until it reaches old support at 140. Selling pressure dries up and price continues heading upward.
- For June, July and August we see more of the same. CMF is positive; investors keep buying Euros and bring the pairs price up. Towards the end of August accumulation is lessening.
A trader trying to learn technical indicators should take this opportunity to continue this comprehensive examination and see what the pair has done since the start of September, using CMS's Visual Trading demo.
|
