Wednesday, January 20, 2010

EURUSD—finally leaving its range?

Could the Euro finally be falling out of the bear flag? I’m cautiously optimistic. Why am I optimistic? Am I a big bad Euro bear? No, not at all. The Euro can go up or down as far as I’m concerned and my only interest is to be on the right side of its (or any pairs) movements.

The reason it’s good news is that the sideways movement that’s been taking place since December 22 had to end. Pairs pause in their relentless march up and down the price chart to catch their breath, to regroup, to give traders a chance to work out the laws of supply and demand. You can make money in these ranges. This one ranged from a low of 1.4217 to 1.4579 or 362 pips and I hope you made a couple of good trades in here. However, real money, with somewhat less stress, comes when the market starts trending again. One only hopes that this market is going to do so. If it doesn’t—if this is just an expansion of the current range, then this is what we’ll have to deal with.

What do things look like this morning for my short from 1.4325? It’s plus 155 pips as I write this at 6:00 AM EST. I just took some profits at +150 pips. A hammer formed on the three-hour chart a couple of candles ago. The current candle is edging down towards the bottom of that hammer. If it closes below it, then that’s a negative sign and we can probably expect to see more declines. It’s also oversold on both the three- and one-hour charts.

This has been quite a drop. Unless it’s a falling knife, there’s most likely a bounce in here somewhere. At the rally, one could short again depending on price behavior on the shorter-term charts. One could also short if it closes below the hammer on the three-hour chart. This is risky territory and stops must be super tight. If there is a bounce, the temptation for some traders will be to go long, thinking, perhaps, that it will climb back to the flag. Again, stops need to be tight.

If this was truly a bear flag, how far could the pair drop? The price target is roughly the length of the flagpole from the breakout point. In this case, that means down to 1.35 or so. As I wrote last week, hooah! Don’t get your deposit slips out just yet. Wait to see what the pair is going to do.

It’s currently in a support area at 1.4150/70. Next serious support levels are 1.4105, 1.4047 and 1.3828, Resistance is at 1.4220/52, 1.4320, and 1.4415.

Here’s the three-hour chart.

© Dianne Fecteau, 2010. 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.

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