Daily Lesson # 1

Posted on 09. Dec, 2009 by Jakob in How To, Random Noise

First of all, click on the small picture below and take a look at the chart. The two vertical red lines is the daily range of EUR/USD of yesterday December 8th, from at 15 minute candle stick time frame. The trendline drawn starts from the low of December 7th and is connected with a higher low, later on same day. Yesterday, December 8th, the trendline is confirmed by a third test of the line. Later on same day, the pair follows nicely along the trendline until it finally breaks it and closes a 15 minute candlestick below the trendline. However, there is no real momentum after this break, hence it might not be the best place to short, due to the possibility of stop loss hunting. If there is no momentum, it might be a better idea to wait for a re-test of the trend line and then look for a possible short entry. This is exactly what happened later on, same day. On the chart we see a perfect retracement right back to the trendline, and right after the pair gets bearish and keeps on falling throughout the rest of the day. In addition to this, a short trade would be preferable due to the, better than expected, NFP number which came out last Friday. This number pushed the EUR/USD down hard, and this small increase in EUR/USD which we have seen yesterday was a needed retracement after such a spike down. Personally I would wait for the 1 hour candle stick to close, and re-test, rather than basing my trade on the 15 minute timeframe. But if you take a look on the 1 hour time frame, you will see exactly the same opportunity to short at the re-test. Before entering a trade, it is always a good idea to look for confirmation in several ways; check other timeframes, look for support and resistance on correlating currency pairs, stock indexes, gold, silver, crude, etc. In addition to this, you should be aware of news releases; when fundamental news are released, technical analysis matters less, specially if the market is surprised by large deviations. Also take note of the current time; when the stock market opens, things can get volatile, and retracements or reversals are rather common during this period.

Related posts:

1. Daily Lesson # 5
2. Daily Lesson # 2
3. Daily Lesson # 3
4. Daily Lesson # 4
5. EUR/USD and Non Farm Payroll

Tags: Forex Education, forex trading, technical analysis