- In case background is neutral in the current timeframe, you should check above timeframe. It must be strong for long entry.
- There are no strong signals before entry. It is a mistake to go long here. You see that the price is near long term and short term resistance (they are very close to each other). These resistances are a barrier for higher prices. If professionals were ready to cross this barrier we would have seen strong signals and up bars with wide spreads on high volume. Here we see no preparation for this move.
- Dynamic trend turned from red to green – it is o’k for long entry.
- This is not a good point to enter the market. For long entry you should look for down bar on low volume (no supply) – like previous bar.
In the previous AUDUSD analysis I noticed that there was no selling climax at the bottom of the market. Also there was no accumulation area. It means that bear move is not finished yet. When the price crossed down-trendline – we have 2 weak signals. Major supply (very weak signal on the top of the market) – this is an up-thrust which happened on the news that Fed postpones rate hike.
- At first background was neutral (right after weak signals). I waited until it turned to weak in the process of moving down.
- Very weak signal above the trendline.
- Dynamic trend turned from green to red
- Entry in an up-bar (price closed above dynamic trend) after background turned to weak
- Exit after strong signal (Demand) which appeared near long term support.
Total: 159Pips
It is always useful to keep in mind the big picture. In the monthly chart you can see how GBPUSD has been moving in a trading range since 2009. Now the price is in the middle of this trading range starting the move from the low limit.
In the previous GBPUSD analysis I stated that the price was coming to long term support level and it is possible that the price starts to move up. Later Analitical Trader detected strong signal (Minor Demand) and the price turned its direction. In this chart you can see key levels in GBPUSD. Resistance and support levels are very important in trading, because by analyzing the price behavior near these levels we can predict further movement. Look how the price notices the levels. Analitical Trader detects strong or weak signals when the price comes near the resistance or support levels and helps us to understand the next move. At the moment the price is near the long term support level and again there is a strong signal in the chart. So it is possible that the price will change direction once again. Look carefully for weak signals.
What was right in this trade?
- The background is weak. It means that imbalance of supply and demand in favor of supply – we should be looking for short entry.
- Weak signal (Minor Supply) before entry. It is better if we have several weak or very weak signals (supply or major supply).
- Dynamic trend turned from green to red.
What was wrong in this trade?
- Before the entry point we had wide spread down-bar on high volume. The next bar is up and in the chart appeared Major Demand (very strong signal). Therefore something was wrong in this high volume. For the next bar to be up it must have contained more buying than selling. Also this wide spread bar moved lower than previous low. Many traders set their sell-stop orders on the level of previous low. Those who went long set here their stop-losses. All this creates selling from the weak holders when the price crosses the level of previous low. Strong holders absorb this selling – that’s why the volume is high.
Risk management is very important in trading. You must expect losses, so you must plan for possible losses before placing a trade. Risk management techniques are designed to limit these losses. The most important part of risk management is the setting of stops, which must be placed every time. The Analytical Trader indicator will help you to find optimal level where to place your stop-loss and take profit.
This trade was opened based on the previous EURUSD analysis.
- Overall background is weak.
- Price was close to the resistance level (1.146) which several times has proved itself in upper timeframes. Here appeared weak signals.
- Dynamic trend turned from green to red. Entry – when the price comes closer to the dynamic trend. Stop-loss above the resistance level. After I saw strong signal I didn’t close the trade, because I thought that bear move still had potential. Strong signal here may be caused by triggering stop-losses of traders who went long when the price crossed previous high. But I moved stop-loss closer in case I was wrong.
- Exit by reaching take profit level.
Total: +112 Pips
One week has passed since previous EURUSD analysis. There was a very weak signal (up-thrust) in the weekly chart. But you need to look at the overall picture rather than one bar’s action. During 3 following bars the market didn’t respond to this sign of weakness. Though the background is weak, for the moment the market is not ready to fall. One of the reasons is that the US Federal Reserve on Thursday announced that it would keep interest rates near zero.
In order to understand the overall picture it is better to look at different timeframes. For example, if after weekly chart we look at daily chart, we can find very interesting picture:
Here we see how Euro has been moving in ascending triangle lately.
1,146 – is a resistance area. It seems that in this area some big seller or group of sellers place large sell-limit orders. Purpose – do not let the price to penetrate this level (they are not interested in higher prices). As soon as the price comes close to this area, sell orders are activated and the price bounces down. In one point this level was penetrated (high volume up-bar without result) and the seller had to defend the level by market orders.
Look at the lows – each time the move down stops higher and higher. The lows become closer to the resistance area.
It will be very interesting to observe development of this situation.
How we can use it in our trading?
Well, now we have 2 interesting for us areas: resistance and support area (up-trendline). We should be watching price behavior and volume near these levels. VSA techniques and Analytical Trader indicator will help us to identify imbalance between supply and demand, choose right direction. Look how accurately the indicator identified supply signals in resistance area right before the price moved down and demand signals when the price was near the up-trendline.
