Herding traders into a trap
USDSGD price action prior to and after last night’s FOMC followed the same plot as we saw with ECB Bid Rate and Press Conference 2 weeks ago.
Price setup prior to ECB event placed traders in a fix to choose a counter-trend breakout play versus a fade-trade that is with-the-trend continuation. As we can see from this chart, point 1 marks the spot where bulls are shown a breakout play but which turns out in the aftermath to be a sell signal. Perfect bull trap.
USDSGD chart from 06 June 2014 – day following ECB Bid Rate and Press Conference
Same drama happened with USDSGD this week
USDSGD bull trap closes after FOMC last night
Fact #1 – Red shows the month to month trend which is down. This is a very significant time frame.
Fact #2 – Purple shows that week to week trend is also aligned with lower low following ECB event. The right trade must follow the down trend.
Fact #3 – Price makes a breakout on Tuesday to reverse sharply following FOMC and revealing a false break and bull trap.
Pre- and post-FOMC looks just like ECB setup; same plot
We analysed 2 days ago here that two major time frames for USDSGD are aligned so that the right trade must be a continuation of the down trend. Then I made a prediction that:
In the name of FOMC meeting tomorrow, once again the market serves a high impact news that will force traders to choose between trading a breakout versus fading one.
This was the chart I used then
Following last night’s FOMC and observing today’s price action, the plot turned out to be the same.
From the 4-hourly time frame, this is how it looks.
This is how it looks today on 4-hourly; orange marks the bull trap
What this means to forex traders?
1. Support and resistance are pillars in the market.
2. Follow the flow; there are many flows because that’s the nature of multiple time frames but the flow in the higher time frame is strongest.
3. Do not play breakout; breakouts succeed once in a while but fading breakouts i.e. trading against a breakout is the higher probability trade setup (this is so important to understand I strongly recommend you see this ‘How market makes money from both buyers and sellers’ bonus chart
The following two tabs change content below.
Soh Tiong Hum is Director of TerraSeeds Market Technician Pte Ltd. TerraSeeds is a trading educator in Singapore since 2005.
Soh's Twitter account @sohtionghum
was ranked #23 out of The Top 70 Twitter Accounts To Follow In 2015
"I do not have a financial advisor's license. I am not qualified by any regulator to give financial advice. I do not know you the reader. Your investment means and motive may be different from me. My posts here are based on observations and meant for education. I am not responsible for for any consequence from your actions."