In yesterday’s post, we analyzed 3 pairs that could be headed to take a hit: USD/CHF, EUR/GBP, EUR/JPY. However, both EUR/GBP and EUR/JPY dried up on volumes, and they didn’t reach the target levels. The confirmation as a break of a low volume bar / SR level is especially important when the background is neutral/adverse.
In USD/CHF, we were looking for a possible LONG position reaching the trendline/support at 0.969.
In the chart we can see that there were low volumes near the support, giving a confirmation for a LONG trade during the London session. And why? This is because there is plenty of buying at this level, so any low volume bar is showing lack of supply in a critical zone.
- 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.