It’s not only about what happened, what did not happen is insightful, too
When I look at the charts it is easy to only focus on what happened, but often there is invaluable insights in what did not happen.
Only focusing on what happened may limit my ability to really read what is happening. Here is a quick video that may assist in illustrating my point. Then below is some chart examples.
Here are some price examples from the chart of what happens when I can identify where price does not go.
Understanding the relationship between where price does go and does NOT go will help in placing stops and limits. Trading levels instead of individual bars and time periods will also make me a more patient trader allowing to filter out the noise.
If not one way, then the other
If not one way, then the other
If not up, then down!
Low risk high probability long trade set up trade.
Since the beginning of May AUDUSD has been dropping almost vertically about 800+ pips. On the most recent down leg, after seeing a pullback wave up to the .618 level I drew a few Fibonacci expansion points using a couple of different levels. This presented an excellent reversal entry zone to trade up, counter trend.
Intraday price moved below the strong support of .95821 however price stalled at a couple Fibonacci extensions levels. I drew a Fib inversion from C to B and back up to C plus an fib extension of A to B then back up to A. Using both extension and inversion created a confluence area of a possible rally up.
The were several entry areas. The aggressive low risk entry was the 1.618 inversion of the C-B points as priced rally sharply from there. The 1.618 was just above the A-B extension point of 1.414
On the Hourly chart there was a loose 3-drive step down to get to the 1.618 inversion.
Another possibly more safe entry could have been the open after the hourly bar closed which touched the 1.618 level.
Another entry would have been to wait for recent structure levels to be broken (closed above) then look for an ideal entry. This is safe but presented a bigger stop value as stops would need to go below the days lowest low, about 65 pips away.
Target would be a .618 retrace of the recent down leg.
I identified and drew the possible reversal zones around 5pm EST. Therefore, it took 9 one-hour bars before the lowest low was reached. Further, once price moved into the fib extension regions, below 1.272 level, it took 7 one-hour bars before the 1.618 level was touched.
This is important to know, when trading live as Forex trading is all about waiting and knowing what is going on. The key is patience, focus and discipline.
This is easy after the fact but, live, the .382 level look liked a good resistance level as it was aligned with a former support area, point B.
It is important to see that the structure level was taken out on the 4am EST bar, it closed above the previous 8 one-hour bar highs.
Today’s price action had an almost .618 retracement of the current 4 hour down leg.
Two 4-hour bars did close above the .382 retracement levels but the second one left a pin bar just short of the .618 level
The short lived rally up is now followed by a move back down qualifying for a possible AB=CD completion.
If the AB=CD does complete it will be between the 1.272 and 1.414 Fibonacci extensions but more importantly it will mean a break below the strong support from May 2012 of 0.95821
If it does break through a possible completion of the AB=CD pattern will be around price level .94439
Will the support level of 0.95821 hold on a 3rd attempt to break through? If it does hold and cannot break below then a the Fibonacci extension points of 1.618 aligns nicely with structure resistance for a possible short trade, around .97539
How to trade it from present price of about .96085? This evening there is light Aussie, and USD News tonight, and tomorrow with BOJ Gov Kuroda Speaking at around 8pm EST.
AUDUSD continues downtrend and moves down another leg creating a new potential resistance region.
Look for price to Not get back up to .98382 for at least several days.
Next support area is likely .9581 which is the May 26th 2012 low.
Even though in a strong down trend be careful with shorts, no shorts inside previous days bottom wicks until price closes below. Ideal shorting area, if price gets back to it would be a .618 of mot recent 4 hour down leg.
NO longs until a lower high has been set and taken out.