Trading the Monthly Chart Is Lovely
The end or beginning of each month is the best time to check the monthly charts of the currency pairs and securities you follow. If you think &8220;monthly&8221; is a too long time frame for you and there is no enough opportunities on it to make enough profit for you, you are terribly mistaken. You don&8217;t believe me if I tell you that you can even make a lot more profit if you trade the monthly and weekly time frames only. This is what I will definitely do, if I get tried of checking the daily charts every day, but I never think about shifting to shorter time frame to have more trading opportunities.
By taking and holding the too strong trade setups you locate on the monthly chart, you can simply make thousands of pips every year. Unlike what most traders think, always so many strong trade setups and good trading opportunities form on the monthly charts. Additionally, monthly has a special characteristic and feature that no other time frame has. Do you know what it is?
It is the monthly chart that shows you the maximum and minimum of each market&8217;s capacity.
What does that mean?
Each market is like a container. It has a special capacity. For example, if you refer to EUR/CAD monthly chart, you will see that its price has been moving between 1.24291 and 1.74967 levels during the past 16 years.
Even EUR/USD which is a much bigger market, has a maximum (highest) and minimum (lowest) level (capacity). The lowest and highest EUR/USD price are 0.8225 and 1.6028 respectively. Some big changes in Europe and US economy is necessary if EUR/USD wants to break above the 1.6028 or below the 0.8225 level. Such changes usually don&8217;t occur so frequently. Maybe not even once every 15 years. Therefore, EUR/USD price is determined to fluctuate between the 0.8225 and 1.6028 levels.
It means the EUR/USD&8217;s container capacity is between the 0.8225 and 1.6028. This container can become bigger or smaller, but, some big economy changes are necessary to do that. Sometimes these changes never happen in some markets, specially when the market is not that big. For example, AUD/NZD has been moving between 1.0284 and 1.3648 levels since the middle of 1997. It tried to break above the 1.3648 resistance level in 2011, and below the 1.0284 level in 2015, and it almost succeeded to do that. However, the market could not handle it and so the price returned inside the same range.
It is the monthly chart which is the best to give you such invaluable information about the markets. Monthly chart of each market is the most complete certificate of that market that shows how the market main participants behave and think. It shows you when they buy and sell seriously to change the price direction.
That is why I say: Monthly Time Frame Is the King
In the same article, I showed you how big traders make money using the monthly chart only. Since that time, we had some live examples on this site, both from the setups that fully formed, and from the forming trade setups. One good example of the trade setups that formed is the NZD/USD monthly chart short trade setup that formed recently.
On July 2014, NZD/USD reached the 0.8841 level which was the highest price it had ever recorded until that time. It really had no way, but going down, because breaking above the 0.8841 level under that economic condition looked impossible, as there was no big changes, neither in US nor in New Zealand economy. The NZD/USD container was full and it was the time to empty it. Of course, it was still possible to break above the resistance level for the reasons which can be hidden to us, but there is a risk in each position you take, and that possibility was one of the risks that going short with NZD/USD had.
Therefore, although the 2014.07.01 monthly candlestick had not formed a 100 score short trade setup, because neither this candlestick nor the previous one, had broken out of Bollinger Upper Bands, we went short because of the too strong 0.8841 resistance level. NZD/USD is still going down.
One of the other features of trading based on the monthly chart is that, when the price reaches the too strong historical support/resistance levels and you take a proper position, you don&8217;t have to be worried about the market big participants to manipulate the price and make you lose, because it was the same big participants who created the strong support and resistance levels based on the maximum power and capacity they had. They cannot go beyond those levels even if the want.
Whereas when you trade the shorter time frames support/resistance levels and signals, chances are they are created by small participants while the big ones have been sitting on the fence and were doing nothing. But, once they decide to enter the market, they break through all the small support/resistance levels, and make so many retail traders who had positions based on the shorter time frames signals, lose money.
Trading the shorter time frames is like sailing with a small boat in a calm and quiet sea. It is good as long as the huge ships have moored at the harbors. But once they decide to leave the harbors, the small boats will be in trouble. The safest way for the small boats is that they wait for the huge ships to move and then they follow them with a reasonable distance.
These are the useful things you learn from the King, the monthly chart.
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EUR/USD is currently reacting to the support level/zone related to the 1997.08.01 monthly candlesticks. Please note that after so many years, the level can be be a precise and sharp level and the market reacts around a price range that we call it zone.
The 1997.08.01 level/zone is not that strong. So, it cannot make us take any positions. The market is still strongly bearish and a couple of bullish candlesticks cannot change anything.
So, no important news for EUR/USD market for now.
GBP/USD has already reacted to the 1.48123 support level which is not a too strong support level. In spite of this, the 2015.04.01 says that bulls are serious to take the control and take the price up, at least to retest the Bollinger Middle Band which is about 750 pips above the current price. The 2015.05.01 candlestick is closed with a too long upper shadow, which means the 1.48123 support level can be tested one more time:
After the 2015.05.17 candlestick short trade setup on the weekly chart, the price went down but reacted to the middle band strongly and now is going up. The 2015.05.17 trade setup was not a too strong 100 score trade setup after all, and so, we didn&8217;t expect the price to follow this trade setup for a long time.
The market reaction to the middle band on the weekly chart, is a signal indicating that most probably the market wants to follow the monthly chart reaction to the 1.48123 support level, and so it goes up. We have to have an eye on it to locate a buy signal to go long.
USD/CHF is moving sideways on the monthly chart. However, it seems bulls are taking the control and most probably the price will break above the 1.0239 level. Bollinger Middle Band is working as a support. USD/CHF has formed the lowest possible price, and it seems it is time to go up:
Breaking above the resistance line on the daily chart is a signal that USD/CHF wants to start its long upward journey:
Of course, 124.13 is not a too strong resistance level. Therefore, it is strongly possible that USD/JPY breaks above it, specially because this market is bullish and bulls have the full control now.
If it breaks above the 124.13 level, then it will go up for 1200 pips to reach the next resistance level at 135.19 which is much stronger than 124.13 level. If it breaks above that level too, then it will have to go up for another 1200 pips to reach the strongest resistance level at 147.71. That is the time it has to reverse and go down definitely, unless something really unusual happens:
There is a resistance zone from 1.27589 to 1.30622 on USD/CAD monthly chart. USD/CAD has formed a Saucer Pattern to go up and reach this resistance zone. Its initial reaction to the 1.27589 level was strong. This level is indeed the close price of 2009.02.01 monthly candlestick.
It seems bulls are serious to hold the full control, because although some strong bearish candlesticks formed when the price hits the 1.27589 level, the May monthly candlestick closed with a relatively strong bullish body. Therefore, it is strongly possible that USD/CAD goes up to test the 1.27589 to 1.30622 levels.
The last closed daily candlestick has closed with a strong bearish body, and so it has formed a strong Bearish Engulfing Pattern. It is not a 100 score short trade setup, because of the considerable lower shadow this candlestick has, and also the strong bull market which has made Bollinger Upper and Lower Bands far apart:
In spite of this, it seems 4hrs chart has formed an opportunity for those who want to take a possible down movement based on the above Bearish Engulfing Pattern. It has broken below a support level which is not that strong, but so far it seems it is valid because of the candlesticks reactions to this level. The 1.24167 level is the close price of the 2015.05.29 04:00 candlestick:
AUD/USD broke below a big Head and Shoulders Pattern by 2014.09.01 monthly candlestick. When this happens, then the next security price movement can be as big as the movement it had from the high price of the Head which is 1.10799, to the low price of the second shoulder which is 0.86592. It is a 2423 pips down movement. AUD/USD has already moved down for 1125 pips after the neckline breakout. Therefore, it is possible that it goes down to 0.6239 to complete the 2423 pips down movement.
Currently, it seems bears are getting exhausted. The market is going sideways on the lower time frames like daily, and it has formed a support level at 0.75326. If AUD/USD breaks below this level, then most probably it will go down to test the 0.6239 level:
Since several months ago, we have been waiting for a short trade setup to form below a strong resistance level/zone on AUD/JPY monthly time frame, like something that happened on NZD/USD monthly chart (see the explanation above).
AUD/JPY has not given us the chance to go short yet, but it seems it is going up to test the resistance levels once again. That will be a new chance to form a too strong short trade setup below or around the levels:
Let&8217;s cross our fingers for that.
AUD/CHF is currently right above the strongest support level it has ever had. That is the right time for so many monthly chart traders to go long and hold their position for several months or even a few years:
Some others who are more conservative, prefer to wait for a signal like a resistance breakout or a candlestick buy signal on a shorter time frame, to go long, to have a safer entry, because it is still possible that AUD/CHF goes down to test the support level one more time.
NZD/CAD has already touched the too strong resistance level/zone and has formed too big bearish candlesticks. Those who didn&8217;t have the chance to go short, can do it when NZD/CAD breaks below the uptrend support line: