Only registerd users (ie TerraSeeds Tflow® graduates) can view this post. Graduates please log in with your UID and password that you use for Forum. Find out how you can be part of our privileged trading community. Email forex@terraseeds.com

After 2 weeks of rallying, Monday and Tuesday price movement suggests that the party might just be over. This definitely appears to be the case if we inspect the daily chart where

1. no bullish reversal pattern has appeared
2. resistance has been met

However bulls might not have given up whereas bears might not dare to be totally assertive. Let’s see why.

When we switch to the 4-hour chart, a number of observations can be made:

1. Weeks 23 and 24 are positive weeks with higher highs and higher lows made. Week 24 closed with gains from the week’s open.
2. A bearish reversal could be considered with certainty only if this week closes negatively and below the low of last week (24). Such a condition has not revealed itself.
3. Therefore Bulls upon discovering a strong support will show themselves. It might show today because price is supported at yesterday’s low.


Bull and bear story in EURUSD

4. On the other hand, we noticed that most days in week 23 and 24 closed with positive gains leading to the overall weekly gains. Monday and Tuesday this week has already turned out to be big losers. Bears are encouraged by this. They are also encouraged by the regret shown on Monday (bull trap)
5. Late bears who has not joined yet would be afraid because of the steep down. Therefore a good short will only come after retracement. This could be anyway from Tuesday high to last Friday (18 June) high or the high on Monday (21 June).

Summary:

• Because of the price failure on Monday (21 June), bears have a case to make for bearish reversal. This is supported by the daily chart.
• Bull won’t give up yet because they have reasons to buy at support based on momentum, support and resistance levels in the past 2 weeks.
• The next two-three days will be interesting for the daytrader. The objective of the game? See if support or resistance is stronger and who is more motivated. Just don’t make up your mind yet.

Support and resistance for EURUSD; essential rules for trading the FX market

Last week was yet another illustration on how important price confirmation is.

To recap what we discussed in Week 20 about the EURJPY, we stated that the double bottom would only be confirmed if price closed above the neck line (Yellow line). Well, price flirted with neck line but failed to break through it. What happened then? True enough, at the start of Week 21, EURJPY continued its downward trend.

Students of tflow® at Terraseeds were well prepared for this scenario and were able to pocket a neat profit. [See posting on Week 21: 145 pips in 2hr 45mins!]

So, Week 21 saw yet another new low for EURJPY in 2010.

However, an interesting scenario that was similar and yet not similar to the previous week (Week 20), took place in Week 21. What do we see on the H4 chart? Another double bottom!

EURJPY displays double bottom in Week 21

This time round, the double bottom was confirmed with the break of the neck line (White line) and price rose thereafter. You guessed it again! Students of tflow® at Terraseeds were quick enough to recognise this reversal and joined in the ride up! Towards the end of the week, news coming out of the Eurozone (Spain) pulled the breaks on this mini revival.

So question on everyone’s mind is: Is this trend reversal following the double bottom sustainable? Here is what we can look forward to, going into Week 22.

1. Continuation of the recent trend reversal (blue arrow) is only confirmed when the neckline support of the double bottom is broken (white neckline). A potential immediate resistance level would be the high of Week 21 at 113.67.
2. Resumption of the overall downtrend (red arrow) will take place if the white neckline proves to be a weak support. In this case, the lows of Week 21 (Lime parellel lines) could serve as a potential support levels. Or perhaps, yet another new low for 2010 would be reached. Would you bet against it?

I said it at the start; I will say it at the end. Price confirmation is key! Let the market show us the way…

4 Hourly chart of Gold seems to suggest a pending Head and Shoulders chart pattern, which could hint towards a bearish reversal.

4 Hourly Chart of Gold

We are currently near on the high of the Right Shoulder, should it complete its formation, this could mean that Gold could fall beyond 1100 level.

The current Price level is also near to Week 18 high, which could be a resistance level. The resistance zone is emphasized by a confluence of an equidistant channel with the horizontal resistance level.

However, the bearish view will be invalidated if Price attempts to break beyond the high of the Head formation.

Only registerd users (ie TerraSeeds Tflow® graduates) can view this post. Graduates please log in with your UID and password that you use for Forum. Find out how you can be part of our privileged trading community. Email forex@terraseeds.com

Only registerd users (ie TerraSeeds Tflow® graduates) can view this post. Graduates please log in with your UID and password that you use for Forum. Find out how you can be part of our privileged trading community. Email forex@terraseeds.com

First published on SharesInvestment website on Monday 10 May 2010. Articles contributed to ‘Trend Spotting’ will be published here 1-2 days later.

Ezra exhibits a bearish reversal pattern called a Double Top. For such a pattern to be valid, chartists look out for 2 conditions.

1. A double top must show a distinct ‘M’-shape that must be obvious to the chart reader instantly.
2. Price must move below the level established by placing a horizontal line at the valley of the M-shape.

Once the latter phenomenon appears, the double top is considered to be complete and valid. Prior to this condition, price movement may render the double top invalid if it changes path.

In layman terms, Ezra has a 52-week (also 2010) high of S$2.63 reached on 18 January 2010. This level becomes a psychological ceiling or resistance after market players take profit at S$2.57 without attempting to breach in early April.

After price corrects from profit taking, one would expect a floor or support to be found. A most likely level was around S$2.04 as this was a prominent resistance late 2009 and support early 2010. This situation did not arise. Price is now at a new low for 2010 and below the expected support level. What is the implication? The implication is that anxious market participants have to discover the new price support whilst bearish speculators see the new low as a justification to sell into strength.

M spells danger for Ezra

The EURUSD now has a support zone that had 2 precedents: late March and early April.

While the daily setup continues to be downtrend, bullish players may be hunting for reversal play on the lower timeframes.

Is that a bear trap for the Euro?

Drawing on a support zone from last week’s (week 13) mid-week low, the Euro-bulls might see some hope of a reversal.

Let’s consider the facts. Based on trendline studies on the daily chart, the EURUSD remains on a downtrend. We saw however a March month-end close above the February low and rejecting the March low as well.

All this happened last week when Euro closed with a higher support. We are now near to that level although the market has exceeded on the downside. Any decisive move now above 1.3380 might be seen as a bear trap. Bulls could see this as a signal to attempt the March high.

EURUSD: an excuse for a little rally?

The USDJPY made a small move into a higher trading zone. Foremost question in mind is whether it is likely to stay. On the other hand, a trendline on the weekly chart suggest that momentum of fall has indeed slowed. There might even be a sign of potential reversal.

1-year range for USDJPY

W-shape for USDJPY

Week 13 Review (Week ending 2 April)

GBPJPY was the big winner for the week – Notice it moved northwards for more than 600 pips for the entire week. Could we have anticipated it? Yes we can. We noticed that price broke above the downward sloping trendline, indicating an end to its downside losses and the start of further upside gains. The upside movement was only confirmed when price did a pull back to the horizontal level of 138.00, where resistance turned support. Thereafter, GBPJPY went on a bull run which saw it break above the high of 17th Feb.

GBPJPY at top of channel

Confluence of resistances for GBPJPY

GBPJPY 4-hour chart

Week 14 Outlook (Week starting 5 April)

Looking forward, the key question is whether or not GBPJPY sustain its bullish momentum. We look at price action in an attempt to anticipate future price movements. Based on price action, we anticipate a possible reversal play for GBPJPY. How can we know for sure? We look at two possible pieces of evidence. The first sign points to price being at the top of the equidistant channel both in the daily and four-hourly charts. The next signal reveals that price is closer to resistance than to support. The Feb high of 145.294 serves as a key resistance point for GBPJPY. Therefore, price will meet with strong resistance and the bears will be closely monitoring this key resistance zone.

As for a continuation of the bull run, GBPJPY has to break above the top of the equidistant channel provided in the daily chart. After breaking above the channel, it will need to perform a pullback to the top of the channel in order for resistance to turn support.

How will the reversal play out in this week? Only time can tell.

An inverted ‘Head and Shoulder’ has emerged. Confirmation is required now.

Breaking the neckline is now critical

It is possible for traders to take a week-by-week view and do fairly good job at trading. The 4-hour chart is a good place to this and in the case of AUDUSD, 2 pieces of information jump out.

First a ‘Head and Shoulder’ pattern should be easy to see. This one is obvious so no need to check with your neighbor. Since the neckline is also broken, only a bear trap now can reverse the fortune of the Aussie. Secondly, we can see a series of lower highs and low lows.

Therefore there is only one way to go: sell resistance and take profit at support.

Few questions to ask now.

1. Quick look at February levels – Feb high has been violated so no support there.
2. Price is extended so its hard to short now (where to put the stop?). Let’s wait for a pull back.

Since that’s the case, any early week pullback will create the precedent for a mid- or late week re-test of level may see big move when everyone is convinced.

I hope every thing will fit perfectly.

By the way, some students told me my short bias was 2 weeks too early. I am glad I wasn’t 2 months too early or 2 months too late.

First published on SharesInvestment website on Monday 15 March 2010. Articles contributed to ‘Trend Spotting’ will be published here 1-2 days later.

—

The daily and weekly charts of Genting show several weaknesses:

1. Price has fallen below all its key moving averages (20-, 50-, 100- and 200-day ema). There may be selling pressure when price approaches the 200-day exponential moving average line unless price can move above it decisively.
2. There is a classic reversal pattern in both the daily and weekly charts. Peaks and troughs define trend. An uptrend is defined by a series of successive higher highs and higher lows. When price makes a lower high, a warning sign of weakness is given. When price breaks a previous low to form a lower low, chartists read that as a reversal pattern. This is present in both the weekly and daily charts of Genting.

There is a last line of defense for bulls. So long as price can remain above the trendline (brown; shown in chart), the trend remains intact. How do we reconcile the two pictures? This sentence summarizes: Genting remains in bullish trend but weakness will stay until price can clear all the overhead resistances.

Reversal pattern in Genting daily chart

Bears have a case; Trendline must hold

—

It is getting hard to decide where the EURO is going these days. The charts offer few clues and it is up to nimble traders to find their space.

While the daily chart shows EURUSD firmly in a downtrend, we are after all approaching the resistance and enthusiastic bulls make see a case for an up-move. It is usually common sense not to defy the trend and indeed the reward to risk proposition seems to favour a short.  It is however possible that a reversal might occur if the charts are showing a higher base.

Careful bulls should only enter after retracement following a confirmed move. Bears watch for trigger.

EURUSD higher base in 2 weeks

The Sterling has made a worthy break and reversal. While momentum traders consider going long, last week’s resistance must be watch – any failure to support at this point may be considered a bull-trap for big trend bears.

4-hour trendlines for GBPUSD

The USDJPY is printing a potential wedge on the day chart as well as inverted head and shoulder in the 4-hour. It is critical to confirm with break of neckline or breakout of wedge.

Potential reversal patterns for USDJPY

Chart patterns are commonly found for almost any price charts. It is more visual when view using a line chart than candlesticks or price bar chart.

As each price bar forms, it may give the chartist a perspective in relation to the formations showed by the historical bars.

Today, we shall dissect a 4 Hourly chart of CHFJPY to understand how patterns can form and perhaps to take advantage of the formations for trading.

As shown above,  it is evident that CHFJPY has finished a Head and Shoulders Pattern which is a Bearish Reversal of the previous Up trend. The Up trend happens to be at the ‘armpit’ of the Left Shoulder and Price break down the trendline, indicating the Head is formed. With the falling price, buyers wanted for an entry and attempted to push the price higher, thus forming a pullback.

But it goes to show that more are keen to sell than buy, and after several attempts to break above the up trend line, there is a sharp plunge which is forming the Right Shoulder.

On the same chart with the Head and Shoulders pattern, the keener eye might find more patterns within the Head and Shoulders!

1. Left Shoulder was a Double Top formation and Price found a support line to bounce off and overcome the top of the Left Shoulder to form a Higher High (Head).
2. After the attempt to make the Higher High, a bearish engulfing candlestick pattern formed resulting a possible price fall as seen on the chart.
3. A support / resistance line provide another bounce back with price forming a rising wedge pattern, it also an attempt to test the up trendline and to break it to the bullish side. Along with the evening star candlestick formation, the bearish reversal was like a quick runaway to sell down CHFJPY.
4. After a break below the support line, it seem to consolidate and wanted to move up above the support line, yet, the failed attempt results another dive for CHFJPY.

It is easy when we analysis charts in hindsight, when the formations were already there. It is a challenge for us to make sense of the charts as the days goes by. But after knowing a possible formation is underway, you can be sure many chartists who see it will want to ride it.

What we see for CHFJPY is on a 4 Hourly chart, which the above patterns were forming as the weeks goes by. It also shows that when the bullish sentiments of the Big Boys faded, the bearish reversal can last for a long time before another big move comes.

It is difficult to figure where the Euro is going. An inspection of the daily and 4-hour charts reveal 2 possible scenarios.

Bearish flag

The daily charts  suggest that the Euro may continue its downward move because of this continuation pattern. The flag is characterized by the flagpole and which suggests a lot of momentum. A body of the flag completes the pattern. This body is usually perpendicular to pole. A body that converges into a triangle is called the pennant.

For the flag to be valid, price remains within the resistance and support of the flag. It is ultimately confirmed when it moves downward and breaks the support level (see dotted line motion).

Daily charts print a possible bearish flag

Reversal

The 4-hour charts paint a slightly different picture that can be visualized as a bullish reversal. The Euro was range bound the past 2 weeks (last week of 2009 and first week of 2010). This week price made an upside movethat was higher that last weeks high. Action till now seems to suggest that a support has been formed. If the bullish picture is true, price will find a base and penetrate Monday’s high level. Otherwise, the downside move below support will support the bearish flag scenario.

Weekly high

Based on a Weekly Chart, USDJPY is intact on a downward Channel as shown on the chart below. Even in the last year, the USDJPY has a smaller channel and is still on the downward trend. So, it is safer to trend following USDJPY by shorting it whenever it reaches the top of the channel.

As from the same chart, the probability of bearish reversal candlesticks is high, so we should keep a watch out for evening stars, spinning tops, dojis, bearish engulfing, etc. Just last week ending 8 Jan 2010,  a hanging man variant is formed, so if this downmove is valid, the possible reversal may be at 84.88.

This is based on the assumption that USDJPY will not exceed 95.23 for the coming weeks.

USDJPY Weekly Analysis

With that long term outlook in mind, let’s consider a possible swing movement which could be taking place in the near future.
The 4-hour line chart vividly showed a possible Head and Shoulders pattern which a Right Shoulder is in midst of formation. The validity of this pattern will persist if the tip of Right Shoulder is lower than the Head.