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
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Soh Tiong Hum is Director of TerraSeeds Market Technician Pte Ltd. TerraSeeds is a trading educator in Singapore since 2005.
Soh Tiong Hum is a member and regular speaker at Technical Analysts Society Singapore events and has a bi-monthly lunch time event at IG Singapore on forex and stock markets. He is an avid blogger on technical analysis topics; his Twitter account @sohtionghum
was ranked #23 out of The Top 70 Twitter Accounts To Follow In 2015
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