At first I zoom out H4 timeframe. Here I see that AUDUSD is moving in stable downward trend.
Then I draw down trendline with several touches. Price has noticed this trendline several times. It means that now this line is a resistance for higher prices, because traders will place their sell orders at the intersection of price and trendline. The area above the supply (higher) trend line is known as overbought area. Analyzing VSA signals (weak or strong) we can assume whether this break-out was genuine or not.
At the moment we see no strong signals in the chart.
Background in H4 is neutral and in D1 is weak – we should be looking for short trades.
Let’s get a closer look at this picture.
There is no selling climax at the bottom of the market (after substantial falls have already taken place). Selling climax – it is an imbalance of supply and demand causing a bear market to transform into a bull market. The volume has to be extremely high on down-moves, accompanied by narrow spreads, with the price entering fresh low ground. Also there is no accumulation area.
Here we see only 2 no-supply bars (bars in the bottom of the market with low volume). It means that global downward trend is not over yet and now we have a reaction to this trend.
When the price crossed down-trendline – we have 2 weak signals. Major supply – this is an up-thrust which happened on the news that Fed postpones rate hike.
At the moment there are no strong signals, but dynamic trend is still up (green).
What was wrong in this trade?
- Background is strong. If the background is strong we have to be ready to open a long trade, not short.
- Price was too far from resistance level. Good entry for short trade – when we have supply near resistance or trendline.
- This is bullish volume – wide spread up-bars on high volume. It is confirmation that bullish trend is still in force and it is too early to go short.
What was right?
- This is a weak signal (supply) before the trade was opened. It means that there is imbalance between supply and demand in favor of supply.
- Dynamic trend turned from green to red.
In the previous GBPUSD analysis I noticed that the price was approaching Long Period Support and wrote that it is possible that the price starts reaction to the downward trend. Later I saw in the chart strong signal (Minor Demand). There was no high volume bar (effort) which was necessary to pass the support and it was clear that now we should expect prices to go up. It does not mean that this is a good point to go long, because background is still weak. But this would be wise to close short positions in this point.
The price was moving up, but the background was still weak. Therefore I waited supply or no-demand signal (better if it was near resistance) to open a short trade.
I found a good setup in M15 Timeframe:
- The background is very weak.
- Price is approaching Long Period Resistance.
- Here we can see at once several weak signals (supply), price is near the resistance.
- Dynamic trend turned from green to red, entry in up-bar. Stop loss above the resistance, later moved to break-even.
- Strong signal (Minor Demand): in VSA this is a shake-out – wide spread bar on high volume (weak holders are still selling, but strong holders already have bullish view in the market – that’s why high volume and bar closes on the high).
- Exit: Total 67 Pips.
I decided to prepare long term analysis for EURUSD before Federal Reserve System will announce its decision on September, 17 for the issue of raising interest rates. A rate hike would likely lead to a stronger dollar, and entice global investors to park more of their money in the United States instead of emerging markets. That could ultimately affect developing nations’ currencies, exports, and even employment levels. Also it will influence further development of EURUSD exchange rate. Right after the announcement there will be high volatility in the market, so it is better to avoid opening trades in short timeframes.
- This was a weak signal on the top of the market (no-demand bar) which marked the beginning of downward trend. Low volume on the top of the market shows that professional buying has withdrawn from the market. The market is unlikely to go up without interest in this move from the smart money.
- Here we see a very weak signal – up-thrust. The price is marked up and premature short traders are liable to panic and cover with buy orders. Traders looking for breakouts will buy, but their stop-loss orders are usually triggered as the price plummets back down. All those traders who are not in the market may feel they are missing out the move and start buying. An up-thrust is usually indicates lower prices. This action brings weakness to the market, but it is important to look at the overall picture – in this case wait confirmation of this effort and further weak signals.
The only wrong thing here is that the price has already moved too far before the entry point. Always important to remember that it is better to go long with the lowest price possible and to go short with the highest price possible.
- The first thing that we should do – this is to find out in which direction we will open a trade. In this chart we can draw an up-trendline (200+ bars) with more than 3 touches. This trendline is a support for prices and it will require effort and money from professionals to cross this support. We will be looking for long entry when the price is near the trendline and if there is no VSA signals (in this case weak signals) which would tell us that the trend is over.
- The background is strong. It means that imbalance between supply and demand is in favor of demand (more strong signals). It confirms that we should open a long trade.
- When we see strong signals near the trendline and there is no weak signals behind, we need to be careful and wait until dynamic trend turns from red to green.
- The price touched the up-trendline and moved up. Dynamic trend turned from red to green.
- Open a trade in entry bar (in this case in the down bar when the price didn’t move too far). Stop loss may be placed lower than support line (previous low) or in the place suggested by the Alert System indicator.
- Exit after weak signals.
