Instead of waiting for the rally, I decided to go long yesterday at 109.85 when it looked as though the 109.58, hammer low would hold. It was accompanied by an RSI failure swing on the hourly chart.
Now, though, it has rallied to resistance and I took much of the trade off the table for +80 pips. I've been interested in shorting this pair since last week. On the daily chart, Friday was a hanging man candle (spike high of 110.99) and yesterday was a bearish engulfing candle for an evening star formation. This suggests a drop is at hand. If the pair closes above 110.99, the evening star will be invalidated.
I've been analyzing this as an ABC correction with the C leg targeting 111.09 or 1.618 of the A leg. 110.99 was pretty close. Its high so far this morning is 110.78 and the last closed, hourly candle had an upper shadow. This hints the higher prices are being rejected. The angle of ascent is also very steep. I'm almost ready to reverse and go short. If I'm wrong, my stop can be tight and it won't eat up all the profits of the long trade I'm in.
Support is at 109.85, 109.58, 1.0895 (prior resistance), 108.50 and 108.00. Below that is a zone of support from 107.86 down to 106.83, then 106.24 and 105.83. If the pair manages a close above 111.24/33, there's resistance at 111.68/97, 112.52 from the 200 daily SMA and 112.20/44.
Here's the hourly 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.