GBPUSD is moving down and it is possible to draw a down-trendline with several touches. Market already turned six times near this line. Therefore it represents resistance to higher prices. The longer line is acting as resistance, the stronger it becomes and more difficult it will be to cross this resistance. Many traders have already detected this pattern and adjusted their trading accordingly. If professionals want higher prices, they will have to absorb selling from these traders. Volume in this case has to be high. Weak signals from VSA or Reversal signals will help you to understand whether the resistance will work this time or it will be broken.
What is interesting in H1 timeframe: low of last bar is exactly at the level of mid-term support (previous low).
EURJPY M30 Trade analysis:
- At the time of entry background was still weak – it is wrong to go long in this place, because only strong background is a sign that imbalance between supply and demand is in favor of demand.
- There were several strong signals before trend changed – it is o’k. Reversal signal is also confirming market turn.
- Dynamic trend turned from red to green – ok.
- Entry was made in a low volume down-bar – it is a good point to enter the market, because low volume in a bear move shows that there is no selling pressure. It means that professionals are not interested in lower prices right now. Only one thing – price has moved too far after the trend changed and there is a big risk that market will turn soon.
- This is a mistake that the trade was not closed after weak signals appeared in the chart. You should close the trade immediately after 2 Minor Supply or 1 Supply, Major Supply signals. Reversal signal is also supporting exit in this place.
One more trade in USDJPY opened after previous analysis. As I discribed, the market is moving sideways and 123.74 – is a key level which represents resistance to higher prices. Again price changed direction near this resistance. I waited another signals and shorted the market.
- Background turned to weak.
- Weak signal (Minor Supply) before trend changed. Reversal indicator also confirms market reversal in this place.
- Entry after dynamic trend turned from red to green (stop-loss is placed above long-term resistance)
- Exit by reaching TP level
Total: + 49 Pips
In previous EURUSD analysis you can find detailed review of price moving in ascending triangle and the place where the price has broken the lower line of triangle. After the support was broken the price had no resistance and was falling during 1 month until it approached long term support which was created by previous low in March 2015. It was the place where we could expect resistance to lower prices. Analytical Trader detected very strong signal (Major Demand) near support and market turned up. There was very high activity during this day (the volume was very high, price range was more than 450 pips compare to average which is about 100 pips). Background has already changed from weak to strong.
Let’s get a closer look at this place in lower timeframe.
Even in this timeframe you see the same very strong signal (Major Demand) in place of price reversal. Here we have 2 wide spread up-bars on high volume. Volume always indicates the amount of activity going on, the corresponding price spread shows the price movement on that volume. Volume Spread Analysis seeks to establish the cause of price movements, and from the cause, predict the future direction of prices. The ‘cause’ is quite simply the imbalance between Supply and Demand in the market, which is created by the activity of professional operators. When reading the market, try to see things in context. If you base your analysis on an effort versus results basis, you will be taking a very sensible and logical approach that detaches you from outside influences, such as ‘news’ items, which are often unwittingly inaccurate with regards to the true reasons for a move. In our case 2 up-bars with high volume – this is effort to go up. Next bars show result of this effort – it is also bullish.
VSA and Reversal indicators will be very helpful for beginners in VSA, because even without deep theory knowledge you can easily find imbalance between Supply and Demand and a good setup for long/short trade. “Reversals” is our new indicator which with high accuracy shows the place where price changes its direction. If you are good at VSA theory, still you can use VSA and Reversal indicators, because they help you to understand the whole picture just at one glance on the chart and confirm your own view in the market.
Near trendline trading: It is possible to draw a down-trendline with several touches. This trendline represents resistance for higher prices. The trade has been opened when the price was approaching this resistance.
- At the time of entry background was neutral. In this case you should check background in above timeframe: weak –for short trades, strong – for long trades. In this chart we definitely have a bear market – maximum of every wave is lower than previous one. It is not wise to open a long trade in this case (at first we should witness accumulation or selling climax).
- There were several weak signals before trend changed. It is unlikely that the price will break resistance when the market is weak (there is no strong signal near the trendline). As you see Reversal is also confirming market turn near the trendline.
- Dynamic trend turned from red to green and entry was made in a narrow spread bar on low volume – this is a correct setup for a long trade.
Actually this was a good place for a short trade if we would have entered the market after dynamic trend turned to red. We had all the necessary signals to be bearish.
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GBPUSD H4 with Sensitivity = 3 (FxPro feed), a low sensitivity that has been working well in this pair’s H4 for the past months
