Euro pairs

As expected after weekly bullish candle, Euro closed higher but R1 (resistance area, see first Euro update) held and price was 13pips short of R2 at 1.3850.

Euro successfully tested bullish flag and a steep uptrendline on dailies. Then after breaking to the upside, it is now testing the broken downtrendline. From here, I am focusing on my scenarios A & B. If the uptrendline at 1.3684 fails & in particular Euro closes below 1.3648 swing low, then scenario A is in play. But if Euro successfully tests either current downtrendline or upcoming uptrendline, then scenario B is valid with target at R3 (1.3946/66). Current play is to buy the test of uptrendline at 1.3690/1.3700 with a stop right below 1.3648. In this case I am envisioning the development of Cup & Handle pattern. Ideally I would rather not see it close below 1.3685.

 EURCAD
On weeklies it is within a Falling Wedge. To me it means initial down but ultimate up. On dailies, Euro breakout from the bullish flag was a fake as the test now failed. It is a sell with a stop above 1.3541. First target is the bottom of what was bullish channel approximately 1.3085. I myself bought the test but my stop is now hit.

EURAUD.
This pair closed above weekly downtrendline since Jan 19 and so long as it holds, this pair is bullish. On dailies it is within symmetrical triangle & a close above or below it will tell us where it is going. Within triangle, it broke out of the range (1.3426-1.3563) but has now fallen back and that is bearish and that is how i feel on this pair now. Close below triangle will confirm if i am right. It can fall down to test 1.3426 first and if successful, then test weekly green downtrendline. 

 EURGBP.
Currently it is within a triangle which in turn is part of the weekly downtrend channel. This is bearish. Last Friday was a shooting star & 2nd down day will confirm that it is bearish. Breakdown below uptrendline confirms the downtrend.

To summarise, EURCAD is sell, EURAUD and EURGBP are potentially sell. Looks like stars are aligning for EURUSD scenario A.

Good luck trading

Eur Update Part 2

I compared monthly Euro arithmetic versus log-scale charts. On arithmetic scale, the pair is forming a Falling Wedge while on log scale it does indeed look to be within Converging Channel. Anyhow, thank you Edwards & Magee for suggesting log scale charts. The difference between the top downtrendline of the Wedge and the Channel is slightly over 200 pips. However, there is no difference at the bottom line. Compare the charts for yourself.

A note on omnipresent triangles:

In ¼ of the cases symmetrical triangles serve as reversals and come at the end of a major trend. Such reversal patterns form over several months as in the Euro chart above which took 18 months. Also note how clear-cut the pattern was.  Therefore use triangles on daily charts (check my NZDUSD post from Feb 15) only for short-term plays.

Finally, on the importance of rate differential as an additional analysis tool in FX world. The chart below tells it all

Good luck trading.

P.S. I am not into such things but I read last w/end was a full moon and the suggestion is to ignore patterns during full moon as they are usually invalidated. Does it mean Euro breakout from daily falling wedge is a head fake? Time will show.

Euro update: up expected

As I mentioned earlier, on a monthly chart Euro is within what appears like Falling Wedge. I checked the Bible of TA and it says such extended formations are not true wedges and on log scale charts they will look more like Parallel or Converging Channels (will confirm tomorrow). If you draw a line from the last two swing highs, then a Symmetrical Triangle Formation emerges but more on it on weekly chart. Here I would stick with the larger Wedge or Channel(?) Formations for my analysis. Looking back to 2000, Euro seems to be consolidating before an expected leg up above 1.60. However, as I wrote earlier, I think Euro may complete leg down first. On the chart you can see my five tentative long term scenarios. 

However, once we zoom into Weekly chart (where you can see scenarios more clearly), we can see a Symmetrical Triangle, a consolidation pattern. If Euro does nothing but meanders to the apex of the triangle at 1.3657, then this triangle will lose its significance. So, it better get moving & the latest weekly Bullish Engulfing Candle gives me such hope.

On dailies  things get much more interesting. Euro broke out of the Falling Wedge according to Scenario A described in my earlier post. This wedge gives me approximately 920 pips target to 1.45. Furthermore, the overall pattern from Oct 2010 looks like skewed W that developed into Cup & Handle, which gives me 1,000 pips target to 1.4580. So both targets are close to each other. Finally, the leg down from Oct 2010 of this pattern took place over 18days while the 920pips leg up over 17 days. This gives me approximate time cycle as well.  

All of this means Euro is going to play out according to my least preferred scenario E. It is the least preferred because it assumes that all of those monthly & weekly downtrendlines described above will fail to act as a resistance. While I respect the wedge and the cup & handle on dailies, I respect weekly & monthly downtrendlines even more. So, when Euro hits those downtrendlines, it should at the very least move sideways a bit before breaking out. That is why I will be shorting it tactically against my current long with a tight stop.

Resistance levels where tactical & strategic shorts should be considered & some profits taken:

R1: 1.3745/70   R2: 1.3850   R3: 1.3946/66  R4: 1.4150  R4: 1.4270/80

Follow up on my previous Euro trade:

Euro pierced the bottom of the downtrend wedge and then it bounced back. Needless to say my target of 1.3410 was rich by 17pips. With hindsight, I should have kept my target closer to that downtrendline.  Currently long at 1.3623

Good luck out there.

NZDUSD & Symmetrical Triangles: I taste blood

New Zealand Dollar has broken out of Symmetrical Triangle on Feb 10th. So, what do we know about these patterns. According to the Bible of Technical Analysis:

1. Triangles often form as a part of a larger and more important pattern of some other type. In other words, they are termed as Consolidation or Continuation Patterns. However, Edwards & Magee include this formation in the Reversal Formations section because at 1/4 times Triangles develop at periods of Major Trend change.
2. The odds are greatest as Continuation Patterns in the early stages of Primary Bull or Bear Markets but such odds decrease significantly as Primary Trends mature. 
3. The farther out into the apex of the Triangle prices push without bursting its boundaries, the less force or power the pattern seems to have. The best moves seem to ensure when prices break out decisively at a point somewhere between ½ and ¾ from the base (left-hand end) to the apex
4. No technical chart is 100% reliable, and, of all, triangle is the worst offender.

I think the reason triangles are termed as the least reliable is because of point 1. At the end of the trend, breakouts turn out to be fake. Interestingly, triangle is one of the reversal patterns in Elliott Wave Theory after final wave 5 has been reached. Here is a good example: EURUSD to 15.02.2011 (sorry i cut out bit too much from the right side & as a result you can not see actual prices). Pic tells much more than i can describe. 

If EUR closes below the apex of the latest triangle it will be in trouble.

Back to NZDUSD.

1. On weekly chart, NZD broke to the downside from triangle after an extended upmove from March 2009. It did not bother even to make a fake upside breakout, it just fell back.

2. Price broke to the downside 3/4 to the apex both on weekly & daily chart.

3.On weekly chart, it closed below two uptrendlines dating from June 2010.

4. Finally pay attention to to green lines which are broadening and are known as Broadening Formations or Inverted Triangles. They are part of the five point reversal like Head & Shoulders and as a rule appear at the end of the Primary Trend.

These four characteristics tell me NZD is in Sell. Now the strategic trade plan:

Sell any throwback to:

1) 0.7550 from Jan 6 swing low

2) 0.7580/99  - the red weekly uptrendline (2nd from below). 50MA (blue line) is right above as well and will hopefully act as a resistance. I say hopefully because flat MAs are useless either as a support or resistance. Green line on the chart @ 0.7660 is where i actually sold...lucky on this one but i will scale into this position as per trade plan.

Stop Loss @ 0.7640. Ideal stop is above rising triangle line (first from the top), currently at 0.7660

Target:  0.7170 approximately

 0.7900-0.7350=450pips => 0.7620-450=0.7170

 If you measure from broken weekly uptrendline, target is 780pips. At this point i am happy with 450pips.

Tactical Trade plan:

Resistance: two horizontal red lines & rising green 200MA. By the time NZD falls (big IF), 200MA will reach bottom horizontal line at 0.7356. The latter is particularly strong and we can use that level on a tactical basis to enter counter-trend buy trades with tight stops. I will post more about it if and when NZD plays out according to the plan.

Good luck Trading

Jesse Livermore quote:

"If a stock does not act right, do not touch it, because, being unable to tell precisely what is wrong, you can not tell which way it is going. No diagnosis, no prognosis. No prognosis, no profit"

EURUSD

I agree there may be bit too many trendlines on this chart  but lets try to make sense of them all.

On a monthly chart (not in this chart), Euro is at the top end of what looks like a falling wedge. Falling wedges are generally bullish but at this point i am inclined to play the downside targeting the bottom downtrendline of the wedge.

On a weekly chart, it is within a symmetrical triangle. While such triangles simply mean consolidation, we can play to the downside here as well, expecting Euro to hit the bottom of the triangle. We also have 3 weekly doji candles and Stochastics has rolled over which is bearish.

Finally, on a daily chart Euro made or is making a small Head & Shoulders reversal pattern. A) If i draw a downtrendline from left shoulder low to right shoulder low, then the neckline has not been broken yet. B) But if i draw a straight line, then neckline is broken. So, we have a question mark here.  Assuming option B, our target will be 160 pips to 1.3410 area which is where Fib retracement level is (blue line). I assume option B because sometimes one can go ahead without waiting for neckline to be broken if other signs indicate that price is ready to move down. In this case, I am talking about a broken uptrendline from Jan18th and Eur closed beneath it making lower low in the process. Finally, price is trending down within falling wedg.

Based on all these observations, we have 2 scenarios as you can see on the chart. I guess the third option would be straight down to the uptrendline.



 Trade:

Sold at 1.3560 and 1.3528. Stop is 1.3660. Target: 1.3410. 

Negatives:

Risk-reward is not fantastic and interest rate differential is Euro positive by slightly over 70bps. I will post a chart later which shows why interest rates play a very important role in FX world.

GBPAUD, GBPJPY, JPY & CHF

This pair has been in a very long downtrend and now it does appear to have turned corners, at least temporarily. As you can see from the chart, sterling made a closing low on Jan 29 2011 at 1.5165. Subsequent rally high brought it to 1.6165 on a closing basis on Jan 20th. Amazing, precisely 1000 pips in 21 days. Afterwards the pair consolidated forming a classic flag pattern and now we have confirmed daily close above the flag.

Trade plan is following:
Entry at 1.6022, the close of the candle on Feb 10. I will also add in a bit at 1.5885/90 area should the pair come to test flat downtrendline.

Stop Loss:
1. Less conservative stop is at 1.5870 which is 10 pips below the breakout candle low.
2. Ideal stop is slightly below 1.5800 since only a close below this level would tell me I am wrong. So, I will keep with option 2 and will not risk more than 8% of my account.

Target: 1.70. It is 1000pips counting from 1.60. In terms of time, target should be reached in +/-21 days.

Resistance to watch out for:
1. First top close at 1.6165. Close above confirms our trade is on the right track
2. Next range is 1.6360/1.6400. I will be looking for a close above 1.6350, Nov 11th swing high close. As you can see, 1.64/67 is a congestion area from March to May of 2010.

My FX provder does not have this pair, so i will have to do two separate trades of long GBPUSD and short AUDUSD

GBPJPY
Late entry, so keeping my position small. I will however add if the pair comes to test 132.60/85 area.
Stop is at 131.45. Initial target is 137.32. Afterwards 141.00 and 145.00
Turning long term bullish on this pair. USDJPY below also supports this trade and majority of retail traders appear to be short currently.  Details to follow...

JPY
A bit late into the party on this one too! Anyhow, downtrendlines are left behind and the pair is in the process of carving out W pattern. We also have 3 higher lows and most importantly price broke to the upside from almost symmetrical triangle. Can it be the beginning of long move up to 95? Never say never. Interest rate differentials are also starting to move against JPY.But, most retail traders seem long already, which is not supportive of this trade at least in the short term.
Entered at 83.05. Stop at 82.10. Target at 84.30. If the target is reached, I will then be looking forward to 200MA currently at 85.23.

CHF
Scaled in at several levels (dotted green lines) based on double bottom - W shape - formation and do not intend to do anything at this moment. Stop loss is below previous swing low (dotted red line). Price closed above 50% Fib retracement but stochastic is rolling over and it is possible that today will be a down day. My minor target is 97.50 but my major target is 1.0038. Patience is key.

This is my first post so sorry for cr@ppy charts. Hope to improve them going forward.
Good trading everyone