Price action: trading currency pairs from the little clues left behind
Traders can capture a wealth of information about each currency pair from its price action. Everything from support and resistance to market sentiment and ultimately trend.
Illustration using EURAUD
One. A rising trend displays a series of rising lows. Rising highs confirm the trend but is not essential since there may be sideways consolidation from time to time.
Two. Rising trends ultimately must produce rising highs in order to incentivise entrants into the long trade. Failure to capture new highs therefore become warning signals, that late entrants increasingly risk running into a bull trap at the same time as bears get rewarded for selling short, fading a false breakout.
Three. A falling trend displays a series of falling highs. And as a sign of reversal, the falling trend following a rising one is confirmed when past lows are breached significantly in a bearish expansion.
The outcome of a false breakout to the North is a bull trap
Four. In any trend, price may retrace and even test previous levels. In this example, a two week test to the validity of the previous month’s low as a new resistance. Like a sucker’s rally.
Five. For this down trend that started early September to continue, price must resume falling highs and ultimately produce falling lows.
And the over all picture shows the multiple time frame and fractal nature of the market. That in rising months, there may be falling weeks (as the small boxes show).
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Soh Tiong Hum is a forex trader, investor and co-founder of TerraSeeds Market Technician Pte Ltd. He is father of 2, business owner, webmaster, writer and speaker, seo amateur and webmaster.
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