NZDUSD is moving in a trading range. The area between the upper and lower trend lines is known as the trading range. In VSA terms, the (sideways) market is trading within its range, and will continue to do so until applied (selling or buying) effort makes it break out.
A trader who uses VSA principles will analyse price action in the top and bottom quarters of the trading range, because important observations take place in these areas, as the price heads for the supply or support lines.
The area above the supply (higher) trend line is known as overbought and the area below the support (lower) trend line is referred to as oversold.
One more important line in this chart – long-term resistance. Price already several times reversed near this line. Therefore, it is important to observe price behavior near this area.
- Background was strong.
- Strong signals (2 Minor Demand signals) before trend changed. Reversal signal also confirms market turn in this place.
- Dynamic trend turned from red to green.
- Entry in a low volume down-bar. Stop-loss below previous low.
- Exit by reaching TP level.
Total: + 37 Pips
There is a very interesting pattern in AUDUSD chart. Movement is limited by two important lines:
- Upper limit: long-term resistance
On 04.12.15 we had high activity on the top of the market when price was near the level of previous high (look at the volume and spread). Then up-thrust happened. Up-thrusts can be recognised as a wide spread up-bar, accompanied by high volume, to then close on the low. Up-thrusts are usually seen after a rise in the market, where the market has now become overbought and there is weakness in the background. Up-thrusts are frequently seen just before a down-move. Analytical Trader has also detected weak signal (Supply) on this bar. The market started to move down. I want to draw your attention that high of up-thrust is slightly higher than long-term resistance (previous maximum). Usually traders place stop-losses on this level or buy-stops to open a long trade in this place. In our case the stop losses were activated, long trades were opened, but the market has immidiately turned down leaving the traders with losses. This is a quite reliable setup after which we can expect prices to fall.
- Lower limit (support): up-trendline with several touches (already 5 times market turned near this line)
The longer support is showing itself, the stronger it becomes. Reversal signals appeared each time before market turned.
Now there is a high probability that prices again approach the long-term resistance. This pattern is also known as an ascending triangle. Eventually market will break one of these lines. VSA and Reversal indicators will help us understand the direction of break-out. Usually it is accompained by high volume and wide spread bars.
In daily timeframe it is obvious that USDCAD is moving in Mark-up phase (market is rising). Up-trendline is supporting the price (price turned near this line 5 times already). Background is strong.
In H4 timeframe we can see that character of movement was changed after the price has broken resistance created by previous high (note that there was no weak signals in this timeframe or Reversal signal when price approached this resistance). After the resistance was broken, market started to move up with new pattern (angle is very steep). It is possible to draw another trendline here. There is no resistance at this price level. Background is strong, therefore we can look for a place to go long. But be careful if you see stopping volume or buying climax, because the angle of up-trendline is too steep. Very often you can see such movement before market reversal.
USDCAD M15 Trade analysis:
In this chart you can see a very popular entrance among traders – buy stop at the level of previous high. I will analyze this trade from the view of Analytical Trader.
- At the time of entry background was strong – it is a correct part for a long setup.
- There were several weak signals (two Minor Supply) before trend changed and no strong signals. It shows that selling has entered the market. It is very risky to go long in this case.
- Reversal signal also confirms that market can turn down in this place.
- Dynamic trend turned from green to red – it is wrong for a long setup.
- Trade has to be immediately closed after two Supply or Supply, Major Supply signals, because there is a big chance that prices will turn direction after this signal.
“Reversal” is our new indicator which accurately detects price reversals. It can be used alone and together with VSA indicator. In last case you will have the greatest advantage in your trading and the best view of the market.
AUDUSD was moving in descending triangle. It was possible to draw a down-trendline and market turned 4 times near this resistance. Lower limit of this triangle was a support line. Recently it was broken by wide spread down-bars with high volume.
The following trade was opened after another reversal near the down trendline:
- At the time of entry background was weak.
- Weak signal (Minor Supply) before trend changed. Reversal signal also confirms market reversal in this place.
- Dynamic trend turned from green to red.
- Entry when price still didn’t move too far (stop-loss is placed above down-trendline)
- Exit after 2 Minor Demand signals
Total: + 77 Pips
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).
