Right after last short trade in EURAUD there was one more chance to use weak signal near the resistance level (this level has shown itself many times). Weak signal appeared during up-thrust. Up-thrust is a wide spread up during the bar, accompanied by high volume, to then close on the low. Up-thrusts are usually seen after a rise in the market or when the market is trading sideways. It is a sign of weakness – you do not normally see up-thrusts in strong markets. Up-thrusts are all moneymaking maneuvers helping the market-makers to trade successfully, at your expense.
- Background is weak
- Weak signal (Supply) near the resistance level
- Dynamic trend turned from green to red
- Entry when the price still didn’t move too far
- Exit by reaching TP level
Total +388 Pips
Earlier I noticed that short-term resistance in EURAUD has formed strong obstacle for higher prices. The price has noticed this resistance several times. Retail traders will set their sell-limit or market orders as soon as the price comes closer to the resistance level. If professionals want higher prices they will have to absorb this selling. Therefore volume will be high. Volume Spread Analysis can help us to understand whether the resistance will be broken this time (in Analytical Trader it is red bars, presence of strong signals before a move takes place and absence of weak signals).
In the above chart the price once again approached the resistance, but several weak signals suggest that there will be no rally. Therefore I found here the following setup for a short trade:
- Background is weak.
- Several weak signals (two supply signals and minor supply) near the resistance level
- Dynamic trend turned from green to red
- Entry when the price still didn’t move too far
- Exit after strong signal (minor demand)
Total +118 Pips
- 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.
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.
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.
