Trading / Investing

Weekly Trading Analysis (10 April 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 10 April 2016 at 20:00 pm]In trading, it's so important to understand that context dictates everything.Let's read that again, just so we don't forget it... Context. Dictates. EVERYTHING.If I were you, I'd go right now and write that on a post-it... in block capitals. And stick it right at the top of my computer screen.You know what... stick it on your forehead if it helps you remember it!This week we'll be looking at EUR/USD again.

EUR/USD

Before you read today's analysis. Take a minute to read last week's analysis. It's VERY relevant.In that analysis, I said this:

"Also, we need to be very aware of the time period of our trades. The long-term outlook may be drastically different to the short-term.That means, if you're entering a short-term trade, you need to stick to your guns and get in and out quickly. Whereas a long-term trade may need more time to 'breathe' and accept the fluctuations of the market."

My analysis last week gave more of a bearish bias. I was suggesting there were some short-term bearish trades we could take -- if we get in and out quickly!So that's what we did.Here is the Daily chart from last week's analysis:

3 April daily chart

That significant level I identified did turn out to be extremely significant.Let's have a look at the current Daily chart to compare:

EURUSD daily 10 april 2016

As we can see, the market consolidated around that level. It didn't want to leave it.It was absolutely a significant level.Remember at a significant level, we can have consolidation, reversals and break-outs. In general we only want to be trading the latter two.However, on the hourly chart, we had some very nice short-term reversals that we were able to trade.It was clear that there was a bearish bias -- so we took our opportunity.Now, looking at the chart today, you may think that the situation is exactly the same. The price closed the week exactly where it opened. The significant level wasn't broken -- nothing looks particularly different.So surely the analysis stays the same?Wrong.Why?!Because context is everything.Last time there was a clear bearish bias. Now it seems we're looking at a potential bullish bias.Looking purely at the Daily chart, we can already see that the 14 EMA has 'normalised' and the price is now almost in line with the moving average. This means it's more likely to want to trade AWAY from it rather than TOWARDS it (remember, significant levels attract and repel the price).We can also see that the value chart is normalising back to the centre too. That means there is more space for the price to move in EITHER direction.Now we just need to determine which direction offers the path of least resistance.For this, let's take a look at the hourly chart.

EURUSD 1h 10 april 2016 pic A

Looking at this, we may see that the market is moving sideways. Classic consolidation patterns.The reversal zones are clear. Everything looks horizontal.But there are some key signals that oppose that assumption. If you look carefully, you can see that the right hand side of the chart (the most recent candles) are showing higher lows. And it's definitely clear that the last peak was a higher high.So let's map in some baseline trend lines, based on previous highs and lows in the market and take a look...

EURUSD 1h 10 april 2016

The market is in a slight uptrend.A SLIGHT uptrend.This indicates that there is now a bullish bias to the market. Not only is it in a slight uptrend, but it is also in the lower portion of the channel. A sign that we could be heading up.In addition to that, the Value Chart has been incredibly handy in identifying the reversals -- and we're beginning to head back towards the oversold territory.

Final Thoughts

Could we start the week with a big push upwards?This very nicely constructed trend channel suggests we could be facing more consolidation and slight upwards movements, like last week. However, a break-out of this channel in either direction could carry a lot of momentum.I'm staying very cautious of the significant level that we've been consolidating around, as identified in last week's analysis. But I have a bullish bias now.The chart looks similar to last week -- but the context has changed. And context is everything.Type 1 and Type 2 closes on the significant levels are going to dictate our entries. And price action will act as our negative signal (as discussed in my video last week).But the levels are clear. This could be an easy trading week.Good luck!