EURUSD has been in a strong uptrend after breaking out from a base last week. The prices also broke an important down trendline in a furious up movement, on high volume and wide range up bars. It’s now in a critical area that will be characterized by a high volatility.
In areas of previous resistances, this volatility and volume spikes are normal, and can be somewhat tricky to understand, but using VSA and Reversals this job is simplified as they’ll show the most important bars. We should first look at the background: it was strong during these movements, and so we should look for up reversals. In the hourly chart, the first one (zone 1) appeared at the same time as major supply, which is something to avoid. The other two (zone 2) were in an area of previous demand, and were soon confirmed by another strong VSA signal. Down reversals on the other hand, signaled less significant movements that lasted for a shorter amount of time.
EURUSD H1 – VSA, Volumes and Reversals
On to the current action (zone 3), Reversals showed a down Reversal, which marked almost the absolute high of this correction. Apart from that, after these such high volumes, I’d expect prices to continue further with small or no retracement. If they don’t keep advancing, it means much of that volume was supply hitting the market. The market has to show it’s not being conditioned by the supply anymore, with low volume bars or a successful bullish test, above the previous resistance.
Demand Near Support Failed Trade
- The background was weak – one should only look for short trades
- Prices had just broken a support. This is important because near a support, there will always be increased volumes from locked-in traders, which means any demand signals could just be from stoplosses being hit. You should wait for confirmation for the prices to break-through upwards again.
- A bit later there was a test bar (blue bar), testing for supply at lower prices (hence the lower low). As the prices failed to rally afterwards, it means the test failed and there was still too much supply in the market, namely from the big traders who sold before this movement started (where the Major Supply signals are present). This was an opportunity to close the trade earlier.
In my previous EURJPY analysis I pointed out that the prices were just testing a down trendline, and given the accumulation seen behind, it’d be wise to wait for an up-breakout of the resistance. Subsequently, this trade was taken based on these developments:
- The background was strong at the time of breakout, which maximizes our chances.
- There was accumulation behind, shown by multiple demand signals without the price going to new lows. Note: there is a difference between the older post chart and this one, as the previous was from GMT-5 feed, while this is from a GMT+2 feed, both in Oanda. Nonetheless, the market picture is fundamentally the same.
- The break-out showed increased volume not exactly on the break-out bar, but in the next one. This is usually fine, but I prefer to wait for confirmation when this happens. The confirmation was given a few hours later, after the low volume down bar was broken to the upside, showing clear lack of supply in the market.
- The first warning sign to exit was the extreme volume up bar, with no follow-up. Later a Supply signal from the Daily showed up, which confirmed the weakness. Closed when the trend turned yello. The take-profit from an alert would give an exit around these prices as well. However, if you have the time to manage your trade, and can react to changing supply/demand in the market quickly, trading without take-profit with this system also works.
Right now I’m holding a short position in the daily, as this weakness is just below a long-term down trendline. The correction is seeing relatively low volumes, but that could be normal after the distribution seen on the red bar. Either way, the trend is still down, and so, I’m just watching where the market takes me for now.
The trading guide on our website for VSA was just updated with new images, following the recent changes in the trading guide, after the 3.0 update on AT – Alert System. In each of the sections, you can now find the new charts explaining the concepts, showing successful and failed setups. Likewise, Alert System page was also updated.
Soon there will be new videos available, and an exciting new indicator, specialized in spotting important price zones. Stay tuned!
EURUSD M15 VSA Signal + Background
All the best,
Leonardo Barata
EURUSD has recently shown down Reversals across the different timeframes. In M30, where the rating setting 7 is working best for quite some time now, a down reversal was seen 1 hour ago.
Going down to M15, given that we have seen a reversal on an higher timeframe and using the filter of dynamic trend (200), this is a zone to look for down reversals. At the very least, closing any open long trades if the action develops that way. Here the rating 5 was chosen, but for more sensitivity, 9 could as well be chosen by its rating.
Euro/Yen has been ranging since the beginning of January, when looked at from a 4-Hours perspective. Volume-wise though, it has been very active, and understanding this activity is essential to know what the major players are doing.
- First there were several demand signals just as 2016 was starting. This halted the down move. Afterwards there stopping volume when reaching 129.0 area (red bars).
- More recently, there was a major shake-out, painted as Major Demand by VSA – there was a lower low made, yet prices closed on the highs of the bar, and above the previous support. This was a move to hit stop-losses which provided plenty of liquidity for professional buying.
- Approaching the down trendline, there was a no-demand test (pink bar) – as prices penetrated the trendline, the volumes didn’t keep up, which means there wasn’t much demand. On the next bar, prices refused to close down though, on a relatively high volume. This could mean renewed interest in an up move, and the confirmation will be the trendline break on good volume (checking the hourly might be the best). If the bearish test succeeds, as in a failure to seeing a breakout of the trendline and/or test’s high in the next bars, I’d expect prices to drift downwards onto the support. The ultimate level to watch for is the resistance at 129.074.
