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Coming week, Aussie expected to go stronger against dollarA day before NFP, on Thursday, the aussie continued to strengthen against the dollar. On the daily, it showed upside volatility and broke through the 0.6459 resistance. A bullish engulfing bar was noticed which indicated that prices would rise further. With the US unemployment rate now at 14.7% and negative GDP growth of 31.22% expected for the second quarter, the aussie would continue to strengthen against the dollar in the coming days. I am looking for long opportunities here.
Long
by Emekadavid
Price patterns in relation to intraday chartsIntraday data is based on time frames from the 4 hours and below. For these time frames, the short-term trend in the daily charts will be seen as the long-term trend in the intraday time frames. For those who are keen to trade intraday time frames, they need to know that patterns on these time frames or charts have three principal differences from their long-term counterparts. 1. Their effect is of much shorter duration. 2. Price trends in these time frames or charts are much more influenced by instant reaction to news events than is their longer-term counterparts. Therefore, decisions are not well thought-out when trading these extremely short-term charts but they develop as emotional, knee-jerk reactions. 3. Intraday price action can be easily manipulated. Therefore, their price data are much more erratic and generally less reliable than those that appear in longer-term time frames. These are the reasons why I have choose not to trade the intraday charts. When I first started out in trading, I tried out the intraday charts, especially the 5 minutes and 15 minutes time frames, but the emotional cost of reacting to every split-second movement of price data was high for me. That does not mean you cannot do it. You just need to understand the costs involved in trading intraday charts. The chart below, of EURUSD, is an illustrative 5 minutes chart of how volatility could suddenly change on the whim of emotions due to news. This is based on the 169th Non-Farm payroll (NFP) data which were released for the USA on 8th May, 2020.
Education
by Emekadavid
Interaction of trendsIt is interesting to study trends and how they interact because the price level of any security is influenced simultaneously by different trends. Hence, why we need to note some application of trend classifications as it applies to trend interactions. 1. When we see any specific price pattern, our first question should be: Which type of trend is being reversed? If it is a short-term trend that is being reversed, then we would not be expecting much price movement when compared to an intermediate or primary trend being reversed. 2. Since intermediate and primary trends dominate price action, traders who deal with short-term trends should pay attention to these trends. They can help them in making good trading decisions. 3. When a trade is positioned in a countercyclical position to the main trend, trading losses usually happen. I do not say that trading with countercyclical positions to the main trend do not succeed, but they have a higher probability of resulting in failures. I trade countercyclical positions sometimes, but I am careful. I usually want to see the patterns having high volatility or being well pronounced. Below is an EURGBP chart showing a two bar reversal that did not move much because it was countercyclical to the main trend which was a downtrend.
Education
by Emekadavid
Classification of trendsIn an earlier note, we defined a trend as a period in which price moves in an irregular but persistent direction. It could also be a time measurement of the direction in price levels. The three common classifications of trends are: primary, intermediate and short-term trends. Primary trends: This trend revolves around the business cycle which lasts for 3.6 years from one bottom to the next bottom or from one top to the next top. Bull and bear trends respectively last for 1 to 2 years, though the magnitude and duration may be significantly different at various times. Reversal price patterns in primary trends usually take longer than three months to complete. You can find primary trends on the higher time frames like the monthly time frame. This is a EURUSD chart on the monthly time frame of a bull trend illustrating how long a primary trend on the bull side or bear side can last. Intermediate trends: When primary uptrends and downtrends are interrupted by countercyclical corrections along the way, they give rise to intermediate trends. These last from 6 weeks to 9 months, and could last even longer, or could even be shorter than 6 weeks in some occasions. Reversal price patterns in intermediate trends could take from 3 to 6 weeks to form and its duration depends on the duration and magnitude of the intermediate trend preceding it. Intermediate trends are usually found on the weekly time frame. Short-term trends: These trends are countercyclical corrections in intermediate trends, and sometimes they align with the intermediate trend. They typically last 3 to 4 weeks and could sometimes be shorter or longer. They are usually influenced by random news events and could be difficult to identify. Price patterns in short-term trends can take 1 to 2 weeks to develop. These trends can be spotted on the weekly, daily, and 4 hours time frames. Below is a EURUSD chart showing countercyclical trends on the daily when compared to the intermediate trend, the weekly, which was in a downtrend. Next we will discuss how understanding trends and their categories has consequences on understanding how price patterns will probably turn out.
Education
by Emekadavid
Time frames in trading price patternsBecause human psychology is more or less constant, that means the principles of technical analysis can be applied to any time frame be it 5 minutes to daily or monthly time frames. The only difference between time frames is that the battle between buyers and sellers is much larger and pronounced on the higher time frames than on the intraday time frames. Therefore, in generalizing, trend reversal signals are more significant on the longer time frames. When trading price patterns, any time frame can be used. What matters most is the character of the pattern. This is a pin bar that was profitable on the 15 min time frame of AUDNZD. I prefer to take trades on the longer time frames like the daily, 12 hours, 8 hours, 6 hours, and 4 hours time frames. I noticed that they contain less noise from the market and suits my temperament. You can choose yours. Notice how smooth this inside bar is on the 4 hours time frame of GBPJPY chart. Compare the same signal on the 5 min chart. You can see that on the 5 min chart you have to deal with a whole lot more bars and you have to spend lots of time on the screen when you can get the same pips spending lesser time on the 4 hours timeframe. That doesn't mean lesser time frames are inferior. Each person has to choose what suits his personality and is convenient.
Education
by Emekadavid
The psychology of price patternsWe have said before that changing attitudes determine price and price moves in trends that tend to perpetuate. So, how can a trend be defined? Simply, it is the movement of price in an irregular but persistent direction. When you zoom out your chart and watch price movement, whatever is obvious is the trend. The USDZAR chart below illustrates some trends you will encounter. For those that are familiar with watching charts, then we can say price moves in either of 3 ways: upwards, downwards, or sideways. When it is moving upwards or downwards, people say either the buyers are greater than the sellers, or the sellers are greater than the buyers. But thinking this way has errors. They are saying that the market is not in equilibrium. The correct interpretation of such upwards or downwards movement is that the buyers are either more aggressive or enthusiastic than sellers for uptrends, or the sellers are more aggressive or enthusiastic than buyers for downtrends. For the third case, the sideways movement, we can say that this is a transitional period, a period where the aggression of buyers and sellers are evenly matched. It is at these periods that price patterns develop. This is a period of consolidation between both sides of the market and it is of two types: a. Consolidation or continuation patterns: this is where the preceding trend before the consolidation is seen continues after the consolidation. That is uptrend to consolidation to uptrend vice versa. The chart below shows an example. b. Reversal pattern: this is where the opposing trend to the preceding trend before the consolidation is achieved. This pattern separates an uptrend from a downtrend, and a downtrend from an uptrend. These patterns are the bread and butter of the setups we trade in price action. These patterns sometimes don’t work in line with the fundamental news such that they might appear unbelievable. That is what makes them powerful. I have seen so many traders who saw a reversal pattern in an asset but who read that the fundamental news says the trend will continue. Because they chose to follow the crowd, rather than listen to price, they placed a trade in line with the fundamental news only to lose money in the process. This is why in my trading I don’t follow the fundamental news or what the crowd is saying. I listen to the crowd but don’t follow them. I follow price and the patterns that price gives. This is because every news in the market is already factored in the price. Therefore, it is better to follow price.
Education
by Emekadavid
EURUSD short Update - Supply Demand - h4Hello Traders! The last analysis was great. EURUSD dropped a lot. You can see on the charts. I adapt it for you and we can see how exactly EURUSD respected all Supply Zones. It dropped, then it went back up to grab more liquidity and again drop. Very beautiful. Here you can really see how nice Supply and Demand works. Now we have some new levels on the chart and also a Swap Zone. Swap Zones are not considered as strong as a fresh Supply or Demand Zone but you should still keep an eye on them. This is why I marked two possible scenarios on the charts. What can we expect: A retracement on EURUSD and afterwards a great drop from one of the two zones. On the long run we could see it dropping more but we will see. It is not clear yet. But I also marked for you a daily Demand Zone. That was my Idea and I hope you liked it. Please leave a LIKE if you like the content. In the comment section you can share your view and ask questions. Thank you and we will see next time - Darius.
Short
by DariusFxTrading
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