Weekly Trading Analysis (1 May 2016)
April 30, 2016
5 Min Read
The purpose of this blog post is to support your learning of the tools and concepts taught at The Duomo Initiative.
This post is not intended to substitute your own analysis, to be used as trading advice or to be considered as a signal providing service.
[Published on Sunday 1 May 2016 at 18:00 pm]*Note: Monday is a public holiday in many countries. If you're going to be trading, check your broker's opening hours*The talk of the weekend around the world has been Leicester City Football Club, who are just one win away from winning the English Premier League.This might not sound like much, for those of you who don't follow sports. But when you take a look at the odds given at the start of the football season - it paints a different picture.5000 to 1!The odds from bookmakers showed it was practically impossible for Leicester to win the league. To put it in perspective: the odds of Elvis Presley being found to still be alive and in good health are 2000-1.But with the season coming to an end, it looks like Leicester City really might do it.If it happens, this will be the most unlikely sporting achievement of all time.It just goes to show, you can never entirely rule out the unexpected......Which is my (genius) link to this week's market analysis! (I know, it was a very thinly veiled link!)
I know it's getting a bit repetitive focusing on EUR/USD, but the opportunities recently have been fantastic - simply because the price is remaining between specific key boundaries.However, just like Leicester City - no matter how much we expect something to happen and no matter how many times it has happened in the past... we can never rule out an upset of the odds.A lot of today's analysis will be based on the same charts as last week. Rather than showing them again, check back to the article here. The key levels will be the same this week, but in today's analysis I'll only be looking at ONE chart.Once again the price is testing a level which it's struggled with since January 2015 - over one year of testing the level and failing.What are the chances that this time it might break it?Could it be the Leicester City and upset the odds?As always, we will be looking for signs that it will be breaking out or reversing in this significant area and trading it.Before we can do that, we need to discover where the significant levels are that we're looking at.Here's the Daily chart:
In the chart above we can see the following elements:
- The orange baseline trend line is taken from the WEEKLY chart. This is the strongest level holding the market and is a firm stop loss for any long trades (and final TMP; trade move potential, for any short trades).
- The black trend line is a baseline for the Daily chart. We can see that the price on Friday closed as a type 2 on this level.
- The dotted orange horizontal line is a Daily chart swing high (anchor point not visible on the chart).
- The blue horizontal line in a strong Daily chart swing high (multiple anchor points - one of which is visible on the chart).
- The solid blue horizontal arrow is the first of the confirmed 'D' points for multiple Fibonacci setups on the Daily chart.
- The dotted blue horizontal arrow is the confirmed but weaker 'D' point for multiple Fibonacci setups on the Daily chart.
The interesting thing about the price action is the momentum of the last Daily candle. It is much longer than recent candles and did not lose too much momentum before the close.This may mean it has enough momentum to finally break through the significant levels, but could also mean it's an exhaustion candle and will run out of steam before a full reversal.So how can we tell which it is?The answer will be in the next candle.If it WAS an exhaustion candle, we're likely to see a bearish candle next, or the formation of an 'Empire State' setup. If this happens, there are enough horizontal significant levels near the close of the last candle, to give us a nice Type 1 or Type 2 setup for a reversal.Despite the last candle closing as a Type 2 on our baseline trend line, we wouldn't be entering the trade without additional signals. This is because of the price action of the candle.Most 'price action' traders see the activity in the price as a signal for an entry. In actual fact, most price action is a negative signal - it's just something as a last minute filter for avoiding entering trades that you shouldn't be. The only price action that gives a positive signal (a signal for a potential entry) is a Type 1 or Type 2 close.In this case, the momentum of the last candle is a negative signal. We don't enter - we wait for the last piece of the puzzle.If the next candles show a breakout rather than exhaustion, we will be looking for two potential setups (this is for the Daily chart only - don't forget, the smaller time frames may still give additional setups in their own right):
- The market may test the significant levels from the other side (remember significant levels have no directional bias. A breakout of the levels will lead to them becoming 'support' for the price).
- The market will likely move towards the blue dotted arrow, where a lot of resistance and potentially a reversal is expected.
The current price movements are signalling that this may be the end of our series of analyses on EUR/USD. However, we won't jump to any conclusions.Just because the price passes through the significant levels shown on the chart above (or just because it doesn't), it doesn't mean we will open a trade. We won't be setting 5000-1 odds on anything. We will wait for a proper confirmation that shows failure at our levels and trade our system properly.