Trading / Investing

Weekly Trading Analysis (17 April 2016)

6 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 17 April 2016 at 23:00 pm]

EUR/USD

Last week, my perception of the market in my analysis was wrong.The levels I had mapped out on the EUR/USD chart were correct. My expectations of how the price would react at that level were incorrect.In my video last week, I discussed this analysis and explained how I was wrong:

Luckily, by always putting our stop loss at the 'tipping point' of the trade, we can escape with the minimal loss possible on our trades. Since we exit the market once our trade setup is no longer in play.As long as we stick to that principle, our losing trades will be kept small and will not be given the space to grow into a monster account-killler. Meanwhile, we just have to focus on making the most of our winning trades so the overall balance is in our favour.If you haven't already seen it, watch this video from last year about trade tipping points to understand where we need to put our stop loss.In actual fact, if you look at the chart below (which shows my 1 hour trend lines from last week's analysis) you'll see that there were no opportunities for an entry anyway.I always say we're looking for failure at the level - and there were actually no Type 1 or Type 2 closes on the lower trend line for a bullish trade.However, I want to be entirely transparent and point out that my perception of the direction the market would move in was wrong. Whether there were any trade opportunities or not. If that lower trend line was drawn slightly differently (i.e. incorporating different wicks or bodies) we could have been looking at a Type 2 close and a potential disaster trade.

17 April EURUSD 1 hour recap

This week, EUR/USD is still going to be my currency pair of focus. There are no 100% clear opportunities just yet, but the current landscape interests me more than other markets.Let's start by looking at the weekly chart for a high-level view:

17 April EURUSD weekly

As you can see, the analysis on the chart is very bare. There's no need to over-complicate the chart because we're still trading within a range that we've been in since the start of 2015.The price attempted to break out of the top of the range and failed, but it's quite safe to assume we're going to have another test of that top.To put it simply, on a micro-trend basis, we're in a move upwards still. We're still getting higher lows and higher highs and until that stops being the case, we still have upwards momentum.We now know that even in the short term, the top of that range is going to prove to be very, VERY tricky to get past. So we won't be taking any unnecessary risks in hope of a break-out above that level. We will trade towards it and then trade after a break out. But not trade in anticipation of breaking out. That's a suicide mission.Let's look at the Daily chart:

17 April EURUSD Daily

On the chart we can see the following elements:

  • Upwards short-term trend line that shows higher lows. This has been tested again with a Type 2 close and failed (led to a small bullish move, so far).
  • The yellow arrow is a definite important Fibonacci retracement point. The exact retracement depends on which micro range you want to rely upon, but it seems clear that it is a possible 'C' point of a potential ABCD pattern. This would mean we expect a move upwards and a test out of the AB range that creates the Fibonacci retracements.
  • The blue reversal zone is not only constructed of the wicks that reversed within that area, but also multiple 'D' levels of micro-range ABCD Fibonacci patterns. Usually when you find a correct ABCD pattern, the important levels will coincide with macro-ranges and micro ranges e.g. the 127.2 of one micro-range coinciding with 61.8 on a macro-range. This is based on the 'Duomo Fibonacci Grid' concept.
  • The blue horizontal level is the centre of a thin reversal zone that seems to be a key turning point historically and recently.

Based on this, we're potentially looking at some bullish moves. However, we don't have many solid, clear significant levels to trade from based on a Type 1 or Type 2 failure. We have approximations at the moment. Therefore, we need to look at a smaller time frame for precision.Here's the 1 hour chart:

17 April EURUSD hourly

In situations where you have a big break-out, it's important not to have knee-jerk reactions and jump into the market.The temptation is always there for us to think "wow, the market has moved a lot in a short amount of time, surely it can't sustain that" and to jump in hoping for a relief bounce.Instead, we have to be patient and start from scratch.It's almost like we need to construct a new building. We lay our foundations and then start to create the structure.Stage 1: Our foundation here is a nice 2-level reversal zone that the market consolidated and has started to reverse from.Stage 2: We started to see higher lows as the market crawled back up. We can now put in an upwards trend line to show the upwards movement. We'll keep an eye on retests of that significant level, while also constructing more micro trend lines. The current trend line may become a baseline for us.Stage 3: The top of the micro-range is complete as we start seeing longer wicks, meaning momentum is struggling on the upside. Here we can map the top of the range and complete the 'Duomo Variation Darvas Box' which will begin our construction of vertical levels to help us identify key trend movements and potential significant levels/turning points.Based on the above, we now have some levels we can use for some 'probe' short-term trades. We won't fully commit with a large position size until we have a stronger construction and can be sure of certain levels that have been resilient when tested (causing Type 1 and Type 2 reversals).

Final Thoughts

We'll keep an eye on the 1 hour chart as we construct our levels.However, the key significant level to monitor is the top of the range on the weekly chart. It has proven time and time again that it has power - if the price finally breaks out, we could be in for a very big and quick move.