Euro touched 1.2779 Friday before falling to what seems to be the bottom of a small range with support in 1.2667 to low 1.27 area. I wrote last week that only if the pair breaks above 1.2775 can one expect more upward price probes, possibly to 1.28 or 1.29. It hasn't happened yet. Since 1.2775 was the .382 retracement level (1.1892 to 1.3335) the failure on Friday would have encouraged me to go short had I been trading.
The low on Friday was 1.2677. On the hourly chart the low was a hammer candle so it should serve as support. Just below is the Thursday low of 1.2667 and just above is the short-term uptrend line of 1.2687. Also worth considering are the daily simple moving averages. The 10 is 1.2747; the 50 is 1.2772; the 100 is at 1.2720.
A small long near 1.2675 is possible but where will the stop be? Below 1.2588 is safest but that's a bit rich given the illiquid market. If you don't mind losing it in a downdraft, you could place it below 1.2650. Safer would be a short on a rally. However, this is likely to be a slow week with the US moving towards its holiday weekend so the best position might be no position at all.
© 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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Hi Dianne, Thanks for your previous reply. A question if I may. I notice that you use a variety of moving averages in your analysis for potential S&R. Are there any particular reasons you use certain periods? In the above analysis you mentioned the 10, 50 and 100. why not look for the 34 or 55 which are commonly use in FX.
ReplyDeleteFinally, In what situation you think one should use SMA or EMA?
Trevor,
ReplyDeleteI look at many moving averages over different time frames and have used both SMA and EMA as well as some of the other more esoteric ones (weighted, etc). For example, in my 1 July blog post, when discussing the weekly GBPUSD chart I noted how the 20 EMA capped price in several weeks. Some people like to use moving averages made up of fib numbers and I have done this. For example, in the 12 July post on the AUDUSD weekly chart I discuss the 21 EMA. I've also used the 34 and the 55 on weekly, daily, and shorter time frames.
What is the purpose of a moving average? For me, it's to identify support and resistance in most cases and possibly to add a piece of evidence to my analysis. Thus I'll run several. Lately I've seen groupings--several averages in the same price level and this is something that should be noted as it strengthens support or resistance. Why one type of average over another? Sometimes you can see some interesting behavior around different types of averages as well and this too is worth noting. An EMA is good for shorter term averages as they drop off older data. But I'm always playing with a mix of averages which I compare to many other things--patterns, candles, fib confluence, momentum, other support and resistance, etc. I don't trade a moving average trading system but I certainly take note when a 50 crosses over a 200 for example. But technical analysis is about weight of evidence. It's not based on one thing. This sometimes seems to be forgotten as people push their own approaches.
I disagree that the 34 and 55 are commonly used in FX. There is no real study to support that statement. The old standbys (50 and 200) are often used in every market. But to me it's not the particular length or type of the average but rather what, if anything, several averages add to my technical analysis.
As to what I put in the blog, my hope is that this will be a teaching tool to offset some of the pure garbage that is peddled about trading FX. Most people never show their real trades. I do. However I can't put everything in because I'd have writer's cramp and have no time for trading. So I choose to discuss those things that I think best illustrate whatever point I'm trying to make about why I got into or am getting ready to get into a trade.
Hope this helped.
Dianne
yes, thanks
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