Dynamic trend: Turned up
Background: W1 – very weak; D1 – weak
Point 1: We can observe “Shakeout” with very large volume and a wide range, on a weak congestion zone. This movement alone indicates absorption of supply, but the subsequent down-bar indicates that the supply is still high, and the market is not ready to grow.
Point 2: “Test” with a low volume and an average range. Follow up-bar indicates the success of the maneuver.
Point 3: There was a breakout of the congestion zone with a high volume and wide range. In TF M15, a successful test occurred and then continued to grow.
Strategy 1: Consider buying if:
- The price breaks out the resistance level 1.079 and
- «No supply» occurs.
Strategy 2: Consider to buy if:
- The price pulls back to the support level 1.066;
- «No Supply» appears (down-bar with a narrow range and a low volume);
- And the price reverses up.
Strategy 3: Consider going to sell if:
- The price breaks down the support level 1.066 and;
- «No Demand» appears (up-bar with a narrow range and a low volume).
You can search «No Demand» and «No Supply» on a lower TF.
Know more about CONGESTION ZONES
After the confident 1.42450 and 1.40650 support breakout, prices haven’t managed to make the same thing with 1.38460 support, and now British Pound market tests the 1.40650 resistance level.
During previous 2 weeks bearish market confirmed its sentiment:
In point 1 prices tested 1.43890 resistance level which showed the interest from institutional players and was marked by VSA Indicator as W1 supply signal. Before that, in point 2, market showed, that there were no strong signs of the imbalance near 1.42450 support level which meant, that big players were not going to change its short positions to long ones.
There was a 1.42450 support level breakout on high volume which again showed initial sentiment of the market. As the result of that breakout, the 1.40650 support level went through as well, and the steady downfall of the market stopped at the level 1.3846.
Points 4 and 5 suggest that minor demand signals and low volatility on the bottom of the market is not the sign of the bearish trend finishing. The beginning of a sideways is possible, which is confirmed by neutral background.
Due to the absence of stronger demand signals on the bottom of the market, now it is too early to speak about the change in GBP market sentiment. In current situation it is important to see how the market will behave near the 1.4065 level and above it, if such situation happens. In case of a supply signal near the resistance, or no demand with a volatile down candle after it, it’s possible to take a short position, but only on weak background.
If there is 1.40650 breakout candle on high volume, it will be the time to start searching for long positions.
GBPUSD H4 – Downtrend and VSA
Having tested the 1.10050 short-term support in the point 1, the Euro went above 1.10440 level, and revealed, that there was no smart money interest near the 1.10684 long-term resistance, which was confirmed by low volumes in the point 2. The point 3 is the place where prices went beyond the 1.10440 level, and above average volume on down candle with the supply from VSA indicator showing the bearish sentiment of the market.
In the point 4 there was the 1.10050 and 1.09590 support breakout on high volumes – the good sign of confident bearish trend. Next evidence of down sentiment of the market is the point 5, the place, where prices successfully tested 1.09590 level resistance – it remained unbroken. Moreover, it was the good place for big players to add to short positions – that’s what they did, as the high volume volatile down candle showed. After that the 1.09150 level was went through, and the market eventually paused its down motions by 1.08380 level.
The current market situation can’t be called the end of the bearish trend due to the absence of the strong demand VSA indicator signals and to weak background.
Undoubtedly, there are demand signals in the point 6 and 7, but the volumes are not too high to be stopping volume and the up candle volatility after it, is around average.
So in the current situation the full picture will be seen at the 1.09150 resistance level. In case of high volume breakout candle, previous short positions should be closed and possibly reversed for long positions. If there are supply signals at the 1.09150 resistance level or low volumes near it as no demand signal, it’s possible to open new short positions or to add to current shorts.
This is a follow-up trade of previous EURUSD analysis. Price with high volume bars has broken lower line of ascending triangle (this is a good sign of genuine break-out). Later we had a weak signal (supply) near this line and price continued to fall.
- At the time of entry background was weak
- Weak signal (Supply) before trend changed
- Dynamic trend turned from green to red
- Entry in a low spread bar while the price didn’t move too far.
- Exit immediately after strong signal (Demand).
Total: + 160 Pips
As I noticed earlier, EURUSD was moving in an ascending triangle. You see how price several times noticed the long-term resistance. Every time Analytical Trader detected disbalance between supply and demand when the price approached the resistance level (by showing weak signals: Minor Supply, Supply, Major Supply). Once there was up-thrust – a sharp up-move beyond upper limit with wide spread bar on high volume closing on the lows (Analytical Trader detected Major Supply – very weak signal). Weak holders opened long trades during this move, hoping that this was a genuine break-out. Very soon their stop-losses were triggered.
Let’s get a closer look at this chart.
Last time when the price approached the long-term resistance we had 2 weak signals (Supply and Minor Supply). This has led to a price reversal. Right before the lower line of triangle was broken we saw several high volume and wide spread down-bars. The break-out bar was also on high volume. Therefore Analytical Trader can help us to predict whether the price is going to cross support/resistance levels or change direction. We just have to follow its instructions and it will significantly increase our chances to profit in the market.
In previous EURUSD analysis I noticed how the price is moving in an ascending triangle. The same pattern you can see in the above chart. Now Analytical Trader has detected bullish setup: Background is strong, dynamic trend turned to green. Only one component is missing – strong signal behind.
I want to note how accurately it showed SL (stop-loss), TP (take profit) and BE (break-even) levels.
SL level is below up-trendline – it is a safe place, because it will require effort to cross this trendline and it will not be easy to trigger SL in this level.
BE is right on a long term resistance – you will not get losses in case of false break-out.
TP is on the level of previous support and very high volume. There is a big chance that in this area the price may change its direction.
In H1 timeframe we see how the price crossed long term resistance (area of previous Major Supply) with wide spread up-bar on high volume. It tells us that this break-out is genuine. Before the break-out the price was moving in an ascending triangle – look how lows grow up.
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.
In March and beginning of April, while there were plenty of bad news for the Euro, with some commentators even speculating the Euro-zone would break, the professional money was actually accumulating. They do this using the added liquidity of people selling in panic, which allowed them to buy Euro’s without making the prices go against them. This can be seen by the green dots (Major Demand) of AT – VSA, and the very high volumes in that area.
Since then, prices have rallied and are now near the up trendline. It could see higher prices if the current downtrend in the lower timeframe’s is broken, and so it might be useful to check how’s H4 doing.
The down trendline was recently broken, but as the prices rose above it, the volumes dried out, in a clear demonstration of no demand. The last bar finally rejected the down trendline, on very high volume (red bar). This is bearish for the moment being, and I’d like to see this trendline being broken to take a long position.
In GBP/USD there were multiple demand signals near the lower part of the channel, but since their lows weren’t sustained for much longer, this wasn’t accumulation, but rather take-profits on short positions. My trade ideas in H1/H4 are either to wait for prices to get near the support at 1.508, or if prices sustain the most recent lows, I can start thinking of the most recent demand signals (with a very high volume red histogram bar) as accumulation, which could change the trend. A selling climax, a wide-range candle making lower lows with extremely high volume, and which Analytical would mark as Major Demand, could also mark the end of this trend.
EUR/USD on the other hand, already paused the downtrend ahead of the Pound, and more demand signals above the support at 1.081 would be a sign of accumulation (= long-term trend change). This could be bullish for GU as these usually go hand in hand.
In the most recent EUR/USD rally there was a short opportunity, at Thursday, as the background was weak and there were many weak signals, which made a significant downtrend very likely. Looking back, the major trend was still down, despite the pause at 1.08, and there was another important factor going on: the volumes of the most recent demand signals were surpassed the volumes of the most recent weak signals, which was an indication the rally was about to fail. The close was on a strong signal after the Dynamic Trend had already changed to up.