Thursday, December 10, 2009

AUDUSD—slight bounce

What was left from my long trade from two day’s ago profit stopped out at +5 pips in yesterday’s dip.

As I wrote yesterday, the pair looks a bit weaker than it did. After a few days of lower highs and lower lows, yesterday had a slight higher high and higher low. This may have been just a minor correction before another push upwards. It needs to break above .9406 to know for sure.

Both the three- and one-hour chart formed some interesting doji candles this morning. Doji candles can indicate trend reversals after an uptrend, even a small one such as what we saw overnight. For that to be the case, though, additional candles must confirm its signal, the market should be overbought, and the doji should be relatively rare on the chart. It’s important to remember that even if all three of these conditions exist, it doesn’t guarantee a trend reversal (there are no guarantees in trading, alas). It might only signal that the market is going to move sideways a bit.

On the three-hour chart, you can see a gravestone doji. After such a long bullish candle before it, I would have liked to see the third candle complete an evening star formation but it didn’t do so because it didn’t penetrate deeply enough into the bullish candle’s body. It should have looked like this:

Instead, as you can see, the third candle, while somewhat bearish was not very long. So far, no candle has confirmed the signal from the doji. However on the one-hour chart, there is what looks like the possibility of an evening star when the candle completes at 8:00AM.

Neither is the market overbought or oversold. What is interesting is that momentum seems sluggish as measured by RSI. It’s not shooting up on this small price rally so there doesn’t seem to be a lot of interest in the pair.

There aren’t numerous doji candles on the chart so one should take note of this one, however. One thing that reinforces it is that the market is at resistance. This means the stop can be tight, just above the doji high. I’d be a little careful with this since there’s an upper shadow that extended to .9188, several candles back but the stop can still be tight. Price is also at a fib confluence zone that I’ve indicated with the purple line. This reinforces resistance. Because of this, and given prior weakening signs I’ve written about, I decided to try a short position as you can see. Here’s the three-hour chart.

© Dianne Fecteau, 2009. No part of this material may be reproduced in any form, or referred to in any other publication, without the express written permission of the author.

My purpose in writing this blog is to show you how one trader, me, makes trading decisions and survives while trading Forex. One of the biggest problems I had when I first started trading was trying to apply the “rules” to actual trades. Another was the psychology—limiting losses and letting profits run. If you study my blog you’ll see how I deal with both those issues. So my writings are not trade recommendations but rather educational in purpose. You have to decide on your own approach to trading. Remember that trading is risky.

No comments:

Post a Comment