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EURAUD chart: 5 elements of price action trading

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.

price action

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.

false breakout

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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Director, TerraSeeds Market Technician Pte Ltd. Trader, investor. @sohtionghum was picked ‘Top 70 Forex Twitter in 2015’. Operates multiple strategies.

“Dear reader, I do not have a financial license to give advice. I do not know you the reader. Your financial objective and risk tolerance may be different from mine. I am not responsible for any consequence of your action.

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One thought on “EURAUD chart: 5 elements of price action trading”

  1. Daniel Ku Guet Liang says:

    May I ask a question on NZDUSD using the above principles you shared. I am bias toward short in general but both the bullish sentiment and the fact that price has break above the previous low confused me a little, especially when the recent high is lower than previous high. May I ask how do you read the trend in this case? Would you avoid trading pair that is in the flux of deciding up or down trend? Tlhank you in advance
    http://www.pinterest.com/pin/403987029045328110/

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