Reviewing EURUSD 4-hour July 7th

Reviewing price action lessons from the past few weeks:
June & July 2013

Update, Monday July 15th, 6pm EST.     Where  and when to enter EURUSD?

The original post below discussed the up trend followed by the symmetrically equal down trend for EURUSD, 4-hour chart.  Below, I wrote reminding myself not to look for or take LONG trades until a structure resistance level LH level has been broken.  Price was stair stepping it’s way down and would continue to move impulsively down until a bottom is found.  Confirming a bottom could not happen until a structure level is broken.  This has now happened!

A structure LH is now broken along with the 21 EMA, and it was done impulsively.  Now that an up impulse leg is in place, I need to look for Longing entries.

Note: based on my system of trading there were no signal, on the 4-hour chart, to go long until now.  The IB bar which broke the the 21 ema and then structure is the signal therefore, until this signal is given no long entry was present.  The following bar was a continuation bar up which too was impulsive in nature.  Only now is a retrace occurring possibly providing an opportunity to enter long.  Need to check daily chart for insights.

 

Original Post, Sunday July 7th, 2013

To establish and train my reticular activating system below is a review of price action for EURUSD on the 4-hour chart.  The principles guiding these patterns repeat themselves many many times on all time lines and all currency pairs.  Using fractal trading can help provide insights to determine trend pull back versus trend turn around and bring harmony between differing time lines.  The key is to see the rhythm with in price and exercise patience, focus, discipline, and confidence in my analysis.

The chart below shows Mirror Symmetry between the move up and the current move back down.  This fantastic symmetrical trending move provided high probability low risk trade set up but more importantly it prevents low probability high risk trades.

EURUSD 4-hour chart

Analyzing the 4-hour chart well can be done as it takes 4-hours before a bar is complete, however, because it takes 4-hours I can lose patience and focus putting myself at risk for low probability trades.  The key is to trade levels not the individual bars.  Either a level is his or not.

Trading using price structure, Impulse Bars, the 21 ema, trend lines with price waves measured by LL, HL, HH and LH, and common sense can help see high probability set ups with low risk.  Entry and trade management requires confidence of my analysis and to wait until each 4 hour bar is closed before adjustments, if necessary, are made.

These reliable price behaviour repeat over and over as they are governed by fundamental technical principles.  If price is rejected at a support or resistance level (structure) then it suggesting it’s heavily defended and price should move to the opposite level.  For example, if a resistance level holds then likely price may move to the opposite support level and vice versa.

If price moves sharply in one direction leaving an impulse bar it suggest price has strong momentum in that direction.  If an impulse bar breaks a structure level and or the 21 ema it further shows its strength and it makes no sense to trade against it.

I do not trade the news, but it is important to know when news is being released.  If the release of major news items moves price to key levels and then breaks it, I should not go against the move, but see they are in harmony and trade with it.

As price moves and establishes HH, HL or LL and HL it leaves points that can be connected.  These form trend lines.  A trend line may serve as moving support and resistance structure level and they are governed very similar to the horizontal lines.

A impulse bar which breaks “a line” can be reliable, but one that is preceded by the opposite colour candlestick becomes more powerful (See, both circle 1 and circle 2, IB in above chart).  Circle 1 shows two consecutive up bars that together can be called an Impulse move.  Notice how the bar preceding the two up bars was a down bar, I call this “misdirection before and impulse bar. “ Similarly, at the peak before the big down impulse bar the preceding bar was an up bar.  An IB and surety of a structure broken or held cannot be known until the bar closes.

Trending moves are in place until structure level(s) has been unquestioningly been taken out!  That is in the current down move unless the most recent LH and 21 ema are both broken the down leg will remain in play and how it is taken out matters.

NZDUSD Case Study

Price Action Case Study: NZDUSD

June 25th, 2013

The key to synthesizing all of the clues given by price action, from the various time interval charts, is not to focus on the live bar or the recent bars, but to look at what did and did not happen. When all of it is taken into consideration then the fractal harmony between time lines begins to present itself.

In hindsight, I can look at a chart and give a detailed explanation of why and where to take an entry, where to exit, and when not to do something.  With in the explanation, I can give understandable reason to take entries, set limits, where to place stops and how to adjust them accordingly.  The goal is to anticipate these explanations live and execute them as real-time trades.

The difficulty of hindsight analysis is translating the actual time into “real-time.”  When I look at a chart in hindsight and explain what happened, I can do it in a short time, but live is much longer.  Every 1-hour bar has four 15-minute bars, every 4-hour bars has four 1-hour bars and sixteen 15-minute bars.  This takes time to unfold.

It’s easy to say wait until the bar closes but that takes time and patience.  It further takes focus to see if the set up or pattern or trend direction is still valid at the close of the bar.

The purpose of this case study is to learn to read price action and become more aware of why price moves in the big picture.  I am hoping it will serve to help me see and understand the rhythm and purpose of price levels and who is effecting price more, buyers or sellers.

One of the goals is to help develop and train my reticular activating system (RAS).  If I can train my RAS, I can become more efficient at looking at the charts.  I need a systematic approach in defining what to look for and then determining what to do.  I need to learn to identify and see repeatable reliable price behaviour and when they presents themselves.  A well-trained RAS looking for high probability low risk opportunity will improve my understanding of when to trade and how to manage it.

Trading systematically is reading what has happened then being able to anticipate what may happen next.  Anticipating what happens next may be done through “if then, do this” statements.  Given that this has happened then price may go there and when it gets there expect a result.  The expected result is taking a trade in that direction.

Charts taken Wednesday June 26th:


Explaining the chart images:

Chart 1 is the plain 15-minute chart for NZDUSD.  Included is the 21 EMA and the grey shaded area is 1 full day of trading showing the previous days high and low.  Inside the grey shaded area the horizontal line shows the daily opening price level.

Chart 2 shows how I mark up the chart to read what has and has not happened and what it may mean.  Insightful clues can be gained from knowing what has happened and how it happened.  Reading single events in isolation is not enough to see what is happening.  Each event is a piece of a puzzle, forming a pattern, and they must all be read together for potential clarity in price direction.

I will review what has happened going from left to right:

  • At the extreme left, a channel is formed.  While the channel was live there were very little to suggest which way price would break.  In this case, price broke to the downside closing both below and the channel and the 21 ema.  This leg down also closed below structure indicated by the blue line (BSD, break structure down).
  • From the channel break, I could conclude the bears are in control and therefore look for short trade entries.
  • After trading and closing below the recent structure level it rallied back up to the 21 ema leaving a bearish pin bar right on the 21 ema line.
  • Bringing in all of this together presented a high probability low risk short trading opportunity.  That is, price broke down outside of the channel, close below structure low and all below the 21 ema.  This suggest that sellers are stronger than buyers and price needs to drop further down before buyers become interested in buying.  It’s low risk as stops would go above the channel high but early clues to exit and adjust would be if and when price broke above and closed above the identified pin bar on the 21 ema line.
  • Off this initial entry price drops sharply 30 pips before rallying back up to the 21 ema, again.
  • At the second rally to the 21 ema price touches the line 3 times without going to far above it or even closing above it before dropping 50 + pips.
  • The termination of this down moves ends at a perfect Fibonacci 1.618 extension drawn from bear pin bar down to the bottom of the 30 pip drop and back up to the pin bar high.  The termination point also leaves a bullish pin bar but this is not the defining signal that the down move is over as price is still below the 21 ema and in a down channel.
  • Insightful clues that the down leg is over starts to present itself when price bounces off the 21 ema but cannot produce a new LL.
  • After the higher low is put in price rallies quickly with a small size impulse bar (IB) and closes above the 21 ema.  It then drops down but failing to close below the small IB and produce a new HL.  Still there is not a clue to take a long entry.
  • The signal for a long entry does not come until after the big impulse bar that moves price all the way up above the earlier channel starting off these swings, the drawn in upper red horizontal line at 0.77826.
  • An aggressive entry could have been after seeing a close above the 21 ema or on the big IB bar as it starts to move up into an area it should not be if sellers were still in control.
  • A safe systematic entry could be seeing the big IB move, drawing in fib retracement and then waiting for price to show bullish tendencies at either the .382 or .618 levels.
  • In this case the bullish buy signal came at the .618 level.  It is a little tricky to see but this is where patience, focus, discipline, belief, and confidence is important.  At the .618 level price break below the 21 ema but cannot produce a new LL or get down below the IB bar.  When it break back above the 21 ema it suggest that the retrace is over and will continue back up.  Stops would go below the cluster at the .618 level or below the IB bar.  Target would be back up for a double top where the strong resistance boundary is.  Trade to boundaries!
  • The second half of the chart shows very similar pattern as the first, like a pattern repeating itself-fractal!
  • Quickly: from the resistance boundary price retrace and puts in a structure low moving up but failing to break the previous high leaving a LH.
    • From the LH price moves down and breaks the recent structure put in place and closing below the 21 ema.  Price then rallies back to the 21 ema which is aligned with structure.  It then drops 40 pips down putting in a HL failing to establish a new LL.
    • From the HL it moves up breaking and closing above the 21 ema then moving back up to the resistance boundary high.
    • This time price closes above the HH but on the 15 minute chart.  A fractal pattern may be presenting it self between the 15-minute and the 1-hour charts.  After setting this HH and breaking structure up price sharply drops down to the previous higher low (HL).
    • Again, do not trade at boundaries until they have been clearly been broken and in sync on a couple of time lines.

Chart 3.  Combing the 15-minute chart with the 1-hour chart begins to show fractal harmony and boundaries of moves.

  • Displays the same price action from the 15-minute chart but in 1-hour candlestick format.
  • The important key here is to see the down channel suggesting a down trend is in play and remains in play.
  • The second key is to see the range trading developing, possible trades at boundaries.  Long trades at the bottom of the box and short trades at the top.
  • No trend reversal, to the upside, until price breaks above and out of the box.

Trade Levels Not Individual Bars or Price

Interpret Price at Key Reference Levels Not at Tick-by-Tick Price.

Identifying key identified price levels in advance will help me understand the direction price wants to go.  When looking at a chart to see what is happening or not happening I must have a frame of reference.  The live bar is only useful in relation to established significant qualified levels, is price moving towards or away from a level.  Chances are if it’s not going towards one level then it’s going to the other.  Those levels can be support or resistance areas, higher highs, lower highs, lower lows, higher lows, and or Fibonacci retracements or extension areas.

Things to identify on a chart:

  • Current and recent impulse legs. Ideal impulse leg is from a LH to a LL and HL to HH with stong bars majority being of the same colour.
  • Fib retracement levels of impulse legs and adjusted as the leg lengthens.
  • Fib extension levels, drawn once a strong key fib retrace level has been hit, especially, .382 and .618, or  a full retracement has occurred.
  • Horizontal lines at support and resistance levels.

 

To test this idea, below I have placed the 4-hr chart for AUDUSD, USDCHF and GBPUSD with identified levels and marked areas for possible trades.  I will update each of these charts after the close on Friday or if levels achieved before then.

Identifying levels and key structure areas should help the worry and uncertainty of trading, but more importantly give me defined things to look for on a chart.

AUDUSD

AUDUSD 4 HOUR CHART
AUDUSD after rate decision, which sounded bearish, price has been dropping sharply after the pre rate announcement rally. Nearing ABCD completion at Fib Extension levels and approaching Key support from Oct 2011

USDCHF

usdchf 4 hr
USDCHF possible short trade at resistance region or long if it drops down to 1.618 which also align with structure support.

GBPUSD

GBPUSD
At .618 level which aligns with a structure Lower High. Look for reversal signal to short

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UPDATE

AUDUSD Update

Trade levels not bars
Was looking for buy signal at Fibonacci extension confluence.  Buy entry could have been on 1.414, 1.272 confluence but the safer entry would have been on the break above the down pin bar.  Targets could be .382, .618 and or the 21 EMA which is not shown on the chart.  It looks like price has more to rally up.  I don’t expect .618 to hold if retested.  Looking now for a double top to .97931 but must wait for up rally continuation signal on lower time line (1 hour chart).

USDCHF Update

Fib Extension confluence did not hold
USDCHF. In this case Fib extension confluence did not hold BUT price did not rally up to the identified Resistance level suggesting it had more down side to go.  It went down to a double bottom on the previous HL that produced the most recent HH for a full retrace.  This may still have more to go down but both Long and Shorts should be considered closely with patience until near term structure levels have been broken.

GBPUSD Update

GBPUSD 4 hr chart
GBPUSD has had a nice stair step rally up to a previous HH breaking and closing above it.  The entire move up has not had a structure level broken or tested to the down side.  This rally may have more to go.  Look for possible entries on the immediate leg .382 retrace but up signals must present on lower time lines.  If price does retrace further down a better entry might be at a .382 / .618 confluence lining up with a previous LH level.  Both the 21 EMA and Ichimoku is strong Bullishly aligned.