You know that before taking a trade I like to do a complete analysis of both, the long term and the short term charts.
I do this to make sure that both, long and short term charts are pointing in the same direction, therefore the likelihood of my trade moving in the intended direction increases.
But there is another reason of why I like to do this…
I while back I was reading an article about Warren Buffet and how he thought about risk… He said something about risk that became part of the way I see the market right now:
“Risk comes from not knowing what you are doing”
You know something, he is dead right about it!
From that moment, I understood that it is very important to try to understand what the market is doing right now.
Once you understand what the market is doing right now, you also know what the market is likely to do, and having that information could be the difference between a profitable trader and a trader with negative results.
What do you think?
Anyways… here is why I think there is a possible 500 pip trade in the EURUSD.
Since last December the EURUSD has been falling like a rock, it follow through on January and the first days of February. But we might be on the way of a small retracement (at least to the next LT resistance level):
It broke the resistance of the short term range and it is likely to continue its way up until it reaches at least, the next LT resistance level.
Look for long opportunities if the EURUSD keeps trading above 1.3707. Next LT resistance level is at 1.3846
What do you think about EURUSD movements in the last two days? Interesting aren’t they (and better if you were short). I was thinking about how the EURUSD weekly chart would look like, and here are my conclusions:
– It started to range at the long term support level, first it broke the shorter term range for the upside, triggering a bullish market condition, but then it came back to the range.
– Then it (strongly) broke through the important LT support level and it will probably continue in this way until it hits the next LT support level.
Now, remember we are talking about the weekly charts, and it could take the EURUSD a few weeks to get there. What we are sure though is that it is in a very clear bearish market condition in the 1W charts.
Both the EURUSD and the USDCHF are trading in a 4H range; please take a look at the next charts:
Does it mean that these to currency pairs are not tradable today?
Nope, remember how we define the market condition, how the market reacts to important long term support and resistance levels, for instance, if the USDCHF gets rejected from the LT support level, we’ll be in a bullish market condition and if the EURUSD gets rejected from the resistance level, we´ll all be in a bearish market condition.
So today I’ll be looking for a trade in the direction of the market condition (if I get a good risk-reward ration on my trades).