Weekly Trading Analysis (24 April 2016)
April 23, 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 24 April 2016 at 20:30 pm]
A man needs a heart transplant.
The doctor says: “I can give you the heart of a five-year old boy.”
“Too young.” Replies the man.
“How about that of a forty-year old investment banker?”
“They don’t have a heart.” The man sighs.
“A seventy-five year old central banker?”
“I’ll take it!”
“It’s never been used!”
A little joke for you there to kick things off.Do you know who told it originally?Mario Draghi...!!He says it's his favourite joke. (I'm not kidding!)Like most good jokes - there's a sense of truth to it... Central bank decisions are led by their heads, not their hearts. They're going to make decisions based on their KPI's and extensive data analysis.And as you can see, there's a lesson for us in there. In fact, there's two...Lesson #1: make decisions with your head, not your heart. Base your decisions on KPI's and data analysis, not your gut feel or "because TotallyNotFake Signals just told me to buy USD/JPY in their text message service!"Lesson #2: Draghi does not... I repeat... does NOT give a shit that you've just opened a long position on EUR/GBP. Too bad. Try harder next time.But why am I saying all this?We've just had the ECB announcement last week, which caused further weakness in EUR. We are now due to have the Fed announcement this week. On top of that, we have on-going concerns in other countries such as Greece.All in all, we can expect big market movements as a result of central bank and political jibba jabba (as Mr. T used to say).
So basically guys... just be careful. The markets are very responsive to political and economic talks at the moment, so probe trades should be used in a lot of cases. As Warren Buffett says: “Never test the depths of the river with both of your feet.”OK... let's stop going off on a tangent and get on with the analysis instead.
Today's analysis will be short and sweet compared to previous weeks, because the significant levels are clear and there isn't so much detail to go into until the week gets started.We'll be focusing on the big picture today - but make sure you go into smaller time frames for accuracy with your actual trades.Here's the Daily chart:
I've now happily fully created the reversal zone at the top of the chart. It's clear those are the zone boundaries for the time being (and boy, did it hold up well over the past year?!)The price has just broken through a weak trend line. If we look at the last candle before the break-out, it shouldn't have come as any surprise that this was about to happen. If you're a member of The Duomo Method full online course, refer to the 'arrow' analogy in section 11 on the momentum of the candles within the triad of price action.The blue line on the chart shows a short term -61.8 reversal level. This also coincides with a previous reversal point (likely a Fibonacci reversal too).With Fibonacci levels, we can be sure of it being the correct level when the construction coincides with previous constructions of Fibonacci ranges - since the very nature of the Fibonacci sequence means they will be interrelated and 'stacked' on top of each other at times... (or as I said during one of my Skype calls with a member of The Duomo Method course last week: "the Fibonacci levels are quite incestuous!")The upwards trajectory of the market is still clear, despite us now seeing lower highs and lower lows over the short term.Remember, this is all big picture. Analyse your smaller time frames too and don't take any directional bias with significant levels (since they don't have directional bias either!)Let's look at the weekly chart now...
As we can see on the weekly chart, there are two KEY levels we're monitoring:
- The top horizontal level (swing high, plus reversal zone which is not drawn on the chart).
- The upward baseline trend line, which is confirmed, dependable and strong.
Keep an eye on these levels if we approach them.Now we'll zoom out and have a look at the monthly chart:
We can see that we've just bounced off that very strong baseline trend line a few months ago. March was the first month to gain real momentum since that reversal. As a result of this, we can expect some profit taking, which we have been seeing so far this month. However, that's a very strong momentum candle in March and it slightly broke above the previous month's wick, giving a higher high. That sort of momentum shouldn't be taken for granted, despite it struggling on the blue horizontal level.Although the overall monthly picture is in down trend. We shouldn't underestimate how deep into the lower half of the trend channel we currently sit. There's a lot more room to the upside, once profit taking after last month has cleared up (watch the 50% mark of March's candle).
Be 100% aware of what's going on with central banks. We don't necessarily need to analyse fundamentals for The Duomo Method. But we DO need to know what times we should avoid trading.With trading, you don't just get rich from the trades you take... but also from the trades you DON'T take. If you've been trading for a little while, you'll know what I mean.Have a safe week in the markets.