The pair failed to base in the 81.38/81 area and has reached a low of 80.89. The highest probability is that it is heading for at least the nearest channel downtrend line at 79.92. This is near the 1995 low of .7970 so it's likely this would spark a rally as bottom fishers bought. How far that rally would go—well, it will depend on if the dollar can get a rally going something that, at the moment, looks unlikely. But you know the markets often turn when you least expect them to. There is positive divergence on the daily, three- and one-hour charts. On the hourly chart (not shown) a hammer formed with the low of 80.89 so that's the nearest support level. Below that invalidates the hammer.
The way I'm planning to trade this is to short rallies once a bottom seems to have been reached. I may take a short-term long if this morning's low holds but I'm doubtful a long could get much further than the 83.00 area and, more likely, 81.38/81. A .50 retracement from the 85.93 high would be 83.41. The 20 daily SMA is at 83.39.
Here's the daily 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.
Thursday, October 14, 2010
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