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.