Friday, February 18, 2011

EURUSD—three-hour chart

The most notable feature of the three-hour chart (to me) is the AB=CD pattern. It's very symmetrical and is valid by all the rules one applies to such a pattern.

Thinking about the psychology of the AB=CD pattern, sellers were active at point A and price dropped accordingly to the B point. When price rose, to point C, those who weren't in on the first ride down, jumped in. Some of the shorts from A took profits, fearful of further price rise, but that didn't happen and price again headed down to D. Here, though, bulls are waiting and willing to buy and price heads up. Those original shorts who didn't take profits at B or those who jumped in at point C decide to take profits which causes more buying to take place because that's what they must do to cover their shorts. Those who sold at point D are now getting nervous and may cover or are being set up for a short squeeze. Price, then, continues up which it is in fact doing. As it continues up, more timid bulls get bolder and that’s the dance we participate in.

The other thing notable on the chart is the channel. Last night price was slapped down at 1.3627, the upper boundary. While this is short-term bearish, the bulls aren't throwing in the towel yet. So far, price is finding support at 1.3546. This is near two speed lines which makes me a bit wary that it may rise from here.

Finally, this could be the beginning of the third of a third wave on the three-hour chart which should be a good downward move although there's some good support below.

Resistance is at 1.3627/50 and 1.3694. Above this, expect to see resistance at 1.3769 and then 1.3850/62.

Support is here at 1.3546, then the area between 1.3451 and 1.3462 is very strong. At least it was—third Friday's are option expiration day each month so let's see if that makes a difference.

Here's the three-hour chart:

© Dianne Fecteau, 2011. 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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