MONTHLY RANGE PUTS EURO AUD AT MAJOR CROSSROADS - forex trading system simple

MONTHLY RANGE PUTS EURO AUD AT MAJOR CROSSROADS ~ forex trading system simple

After completing a Bear Crown setup that led to a strong downtrend of over 1,000 Pips, the EURO AUD is now at a crossroads that could either lead to more gains for the Aussie or a strong trend change altogether.

The Chart below shows how this downtrend began, the breaks of the Uptrend Lines and the current Pennant setup that the pair has now formed. 

DAILY CHART

Bull and Bear Crowns as well as the breaks of Trend Lines are typically what we see when major trend changes take place. Traders can either enter at the start and hold trades for long periods or can aggressively trade the waves of the trend. As this trend continued to create lower lows, the Monthly Range of the pair was also breached. Trends that reach this important price point will either pause for a period before resuming the trend or change direction. In the chart below, we can see that this pause took the form of a Pennant that was eventually broken, indicating that we could see a continuation of the downtrend. 

DAILY CHART

On the other hand, as we can also see from the chart above, the current Pennant that has been formed has moved the pair above the Inner Downtrend Line. This could indicate that the current downtrend may actually be coming to an end, given the slow and unconvincing breakout from the larger Pennant. Currency pairs can exceed their Monthly Ranges to give the impression that the trend will continue but the longer the trend takes to get going, the more likely that a trend change will take place. The chart below shows how these two scenarios could unfold.

DAILY CHART 

A simple bearish breakout from the Pennant could be the signal required to continue the existing trend. If the candle given to start this breakout is strong enough, entry can take place there with the appropriate target of between 100 and 200 Pips. However, this Pennant may also be the Centre Tip of a possible Bull Crown that starts a new trend above the Downtrend Lines. One would have to wait for a Right Tip that completes the Bull Crown or another formation before considering entry to go long. Strong trend changes require strong setups and the current Pennant is not large enough to support a trend change. 

Only time will tell what takes place with this currency pair. Regardless of the ultimate direction, we can take advantage by patiently waiting on the appropriate Daily and 4 Hour Chart signals for profitable trades.

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11 YEAR SUPPORT KEEPS AUD NZD IN CHECK - forex trading system signals

11 YEAR SUPPORT KEEPS AUD NZD IN CHECK ~ forex trading system signals

This pair has just completed another bearish wave within a large Pennant setup on the Daily Chart to now settle at the Support area of 1,0615. This Consolidation has been formed following a strong downtrend in favour of the Kiwi, stretching back to March of 2011. It also coincides with a major Support area of 1,0612 being tested for the first time since being formed by a set of Triple Bottoms between 2003 and 2008.  Now that the pair has reached this important juncture, we will either see a rally to return to the Resistance of the Pennant or a strong break of the Support to continue the downtrend for the rest of 2014.

The chart below shows us the current position of the pair within the Pennant. Following a short-lived breakout above the Resistance, it U-turned sharply to return inside of the Consolidation, forming a downtrend line in the process.

DAILY CHART

In the next chart, we can see the downtrend that preceded this Pennant which led to the 3-year decline of over 3,000 Pips.

DAILY CHART

We can further appreciate the significance of the current consolidation by looking at the set of Triple Bottoms that were formed over a five year period. When tested for the first time, major Support or Resistance areas such as these usually lead to strong pullbacks or large Consolidations being formed. They can then lead to either a complete reversal in the trend or a breakout that resumes the current direction of the market.

DAILY CHART

So given this overall setup for the pair, what are we likely to see take place in the next few days or weeks? Taking a closer look, we can see that a rally to Resistance would lead to a break of the downtrend line formed while a continuation of the overall downtrend will require a strong break of the Support boundary. 

DAILY CHART

In either case, we are likely to see a short period of Consolidation above this Support before a clear picture emerges. For the pair to provide an opportunity for trading, the signals given on the Daily and/or the 4 H Charts will also have to be strong and clear. 

One of the risks of trading within Consolidations, however, is that the movements can be very erratic. Sometimes the signals and the trends that follow can be strong and smooth in one direction and then be unexpectedly volatile and risky when going in the other  direction. This requires carefully choosing the best signals for entry. A trader should also ensure that there is at least 100 Pips of gains that can be comfortably attained as the smaller the distance between the boundaries the more volatile the trend becomes.

Breakouts from these boundaries also have to be careful analyzed to avoid unexpected reversals- the dreaded False Breakouts. Given the size of this Consolidation, a breakout should be preceded by the formation of a setup such as a smaller Consolidation or a Counter Trend Line. Both can be formed within the boundary or shortly after it is broken. This becomes increasingly necessary when the currency pair is close to or has reached its Weekly or Monthly Range as is the case here, since False Breakouts tend to appear at these areas if there arent any of these breakout setups- the main reason for the False Breakout at Resistance.

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Currency Analyst/Trader

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Twitter: @WorldWide876

Facebook: DRFXTRADING 

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