Using Technical Analysis to Help You Trade Big Events
In this video, Richard Adcock, a Corellian Academy Technical analyst, discusses how technical analysis and technical indicators (like Bollinger Bands) can help traders navigate high-volatility markets.
The premise of technical analysis is that the price reflects all known information. A comprehensive view of market conditions can be obtained by combining fundamental and technical approaches. Furthermore, Adcock notes that technical instruments such as Bollinger Bands are composed of a moving average (mid-average) and two standard deviation bands. Therefore, to gauge potential market movements, the mid-average and bands should be monitored, with the mid-average reflecting trends, while the bands increase with volatility.
This video presents a case study using technical analysis on USD/JPY before an FOMC meeting, highlighting a declining mid-average indicating a downward trend. The widening Bollinger Bands reflected increased volatility and set the stage for short positions. With resistance at the mid-average and support at the lower band, this set the stage for possible short positions.
It appeared that the USD/JPY had bounced ahead of the FOMC announcement, probably as a result of short-covering. However, technical analysis suggested this move was more likely to be a short-term blip since the mid-average remained at a strong resistance level.
Market expectations were aligned with the FOMC's decision to raise rates by 25 basis points. Technical analysis contributed to the understanding of the market's reaction. Following the initial sell-off, the price dropped to below the declining mid-average, indicating that the downtrend may continue.
It was illustrated in the video how traders faced a critical decision point after the FOMC decision. Despite the uncertainty of holding positions overnight, technical analysis provided valuable insight. Traders may want to consider taking profits or waiting for further signals if the subsequent sideways movement indicates a potential pause.
