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.
- Background is weak – it is ok for short trades.
- There is no weak signal before the entry – it is a mistake to enter the market if you do not have confirmation from strong/weak signals. These signals show you the status of imbalance between supply and demand.
- Dynamic trend turned from green to red – it is o’k. If other part of a short setup is in order, you should look for up-bars with low volume (no demand). No demand means that the traders who matters (smart money) are not interested in higher prices. In this case – why should we?
- When you see a strong signal in the chart (Major Demand, Demand or two Minor Demands), it is time to close your short trade, because there is a big chance that the price will change its direction.
Always remember that it is very important to make a good entry. But it is no less important to timely exit the market.
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.
In the previous AUDUSD analysis I noticed that there was no selling climax at the bottom of the market. Also there was no accumulation area. It means that bear move is not finished yet. When the price crossed down-trendline – we have 2 weak signals. Major supply (very weak signal on the top of the market) – this is an up-thrust which happened on the news that Fed postpones rate hike.
- At first background was neutral (right after weak signals). I waited until it turned to weak in the process of moving down.
- Very weak signal above the trendline.
- Dynamic trend turned from green to red
- Entry in an up-bar (price closed above dynamic trend) after background turned to weak
- Exit after strong signal (Demand) which appeared near long term support.
Total: 159Pips
What was right in this trade?
- The background is weak. It means that imbalance of supply and demand in favor of supply – we should be looking for short entry.
- Weak signal (Minor Supply) before entry. It is better if we have several weak or very weak signals (supply or major supply).
- Dynamic trend turned from green to red.
What was wrong in this trade?
- Before the entry point we had wide spread down-bar on high volume. The next bar is up and in the chart appeared Major Demand (very strong signal). Therefore something was wrong in this high volume. For the next bar to be up it must have contained more buying than selling. Also this wide spread bar moved lower than previous low. Many traders set their sell-stop orders on the level of previous low. Those who went long set here their stop-losses. All this creates selling from the weak holders when the price crosses the level of previous low. Strong holders absorb this selling – that’s why the volume is high.
Risk management is very important in trading. You must expect losses, so you must plan for possible losses before placing a trade. Risk management techniques are designed to limit these losses. The most important part of risk management is the setting of stops, which must be placed every time. The Analytical Trader indicator will help you to find optimal level where to place your stop-loss and take profit.
