Cable is coiling inside a symmetrical triangle on the monthly chart. It's possible it could get as high as 1.6346 before it's over (but this is based on the monthly chart and won't happen immediately if it happens at all). The bottom of the triangle is in the 1.44 area.
One can trace out wave three's beginnings (currently in wave one of three) where wave three will eventually take price below the former low of 1.3655.
The monthly chart can't really be traded in the short term but as I set up for picking up trading in September when the markets move back to normal (whatever normal means), it's worth analyzing them. What I do with this information is use it to inform shorter term trades? For example, unlike some traders I will trade against the longer term trend. But if the longer term trend is long and I'm going short, I'm going to trail my stop more closely, possibly take smaller positions, and exercise more caution in general. This is in addition to wanting more than two pieces of evidence for the trade which I usually do insist upon regardless of overall trend. Three is ideal.
In the case of the cable, the longer term monthly trend is down since 2007. However, I may look for longs if the shorter term charts indicate interest in getting to 1.6346, the top of the triangle. Eventually, though, the biggest moves are going to come from prices dropping, i.e. 1.63 to 1.44. A trader won't normally catch all of that move but there's no reason not to catch some of it. If, on the other hand, prices break decisively above the triangle's 1.6346 (and decisive can be a tough call in the volatile spot market) then one would look to buy pullbacks. What if the pair drops to 1.44? It would be the 5th touch of the triangle and a common breakout point. I'd expect a break downward since symmetrical triangles are often continuation patterns. But fake-outs are common so I'd still exercise a great deal of caution.
Note that on the monthly chart, it's five candles up from the bottom to the first top, nine candles down and now what may be five candles up. So we're looking at a top within the next two months possibly. Once you start using numbers such as five and nine, the fib number crowd starts to tremble. In the end it's only one piece of information so I don't get overly excited about it. But I do count to get an idea of what might be the time frame I'm looking at. You can see how I can build a quarterly trading plan.
Long term support is 1.4229 and 1.3655. Long term resistance is 1.6879 and 1.7045.
Here's the monthly 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.