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Contributors The Secret Behind the Best Currency Trades of My Career

It was one of the dumbest things I ever heard. And I heard it from my Graduate School Finance Professor.

I still remember sitting in class, thinking how foolish he sounded, when he said things like…

“Markets are efficient. Investors discount all new information quickly and rationally.” Since price studies cannot anticipate that new information, he believed using chart patterns to predict prices was completely useless.

But my professor and everyone else who believes in market efficiency is making a huge assumption.

They think emotions like fear, hope, overconfidence and greed play no role in how the markets move. In reality, markets are made up of people and their emotions drive the market.

Until very recently, the whole academic community ignored this fact, and preached that charts were useless.

But times are changing…

Now more investors are cluing in that studying charts works. All currency traders use them. Personally, I owe the best currency trades of my career to a handful of charting patterns.

My favorite charting pattern accurately predicted the 2008 stock market correction. More importantly, it can tell you when it’s time to sell any asset – stocks and currencies alike.

My Secret Will Make You a Better Investor

My favorite charting pattern is the “Head & Shoulders” (H&S) pattern.

It’s a reversal pattern, which means this charting pattern can tell you when markets are about to take a turn for the worst. It’s also one of the easiest charting patterns to spot.

Named for its appearance, the Head & Shoulders pattern tells you when an asset is about to break lower. And you can use it for pretty much all asset classes, including stocks, commodities, bonds, and currencies.

As you can see, you have a Head & Shoulders pattern when you see two peaks and a higher peak in the middle.

But what you really need to understand, to use this pattern, is the line that connects the bottom of the peaks, known as the “neckline.”

Once the price closes below that neckline, the pattern is complete. That tells you the chances of a downturn have dramatically increased. When that happens, you know sellers are in control of the market. For an individual investor, this means “Sell! Sell! Sell!”

This Could Have Saved Your
Retirement Plan Back in 2008

I never ignore a Head & Shoulders pattern. If you had been watching this pattern back in 2008, it could have saved your retirement fund.

No one could have predicted that Lehman Brothers was going to fail in 2008 and create a massive financial crisis. But this charting pattern warned investors to get out of the market way before stocks collapsed.

Take a look at the chart at the S&P 500 during the 2008 crisis. Notice the huge Head & Shoulders pattern here…

Head & Shoulders Warned Stocks Would Plunge in 2008

Click here to view larger image

This pattern gave the first sell signal when the price closed below the neckline at the end of 2007. The S&P 500 was trading around 1,400. The pattern was kind enough to give investors a second warning to get out of the market.

In April of 2008 the market rallied all the way back to the “neckline.” With this Head and Shoulders pattern, it’s common for the price to retest that line, before moving lower. When the prices failed to move above it, the H&S was basically screaming “sell, sell, sell.”

The market kept marching lower, until the S&P 500 finally bottomed in March of 2009. Any investors who sold when the Head & Shoulders pattern completed avoided a stock market plunge of 52%.

I use the Head & Shoulders pattern to figure out which currencies are ready to fall. That’s my signal to start selling.

If you see a Head & Shoulders in any chart, get ready to sell or go short.

Best Regards,

 

 

Evaldo Albuquerque
Editor, Exotic FX Alert

P.S. As I said, this one charting pattern has identified some of the biggest currency trades of my career. If you’re looking for those strategic plays that can make or break your portfolio, we may have a solution for you. Recently, my colleagues joined forces to create the currency trading portfolio of the decade – the long-term plays to buy and hold from now until 2020. Click here  to get all the details on this unique “set-it-and-forget-it” currency portfolio.

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