What is EURUSD trend? An imaginary conversation between Trader and I
‘Tell me EURUSD’s direction’ Trader asked walking through the door
‘I thought it was going down. The gurus on twitter said it looked like a double top and I agree most whole-heartedly with them. But the big move up yesterday stopped me out of my profitable short at a loss and now my confidence is shaken.’
‘I thought we had a good double top on our hands after that action on 27 December last year failed to give the pair a breakthrough.’
Trader’s brows were set in a frown and his thin moustache quivered.
Where did you sell at? I asked.
‘I got this brilliant entry on the 31 December. You know it was the first black candle after 27th. I know its New Year’s eve but I stayed up to put an entry as close to the end of the session. It completely spoiled my new year’s day but I was on cloud nine.’
Its your fault. We taught you EWUS way of trading. You shouldn’t be trading on New Year’ Eve. But coming back you should be profitable. Why did it become a loss?
A hot flush came to Trader’s face. ‘I tripled my position on the 08 January seeing that I was right about that double top. You know, the SAF trained us to charge forward. I was such a sucker. It turned out I got the lowest price.’
Ahem! I quickly turned my back pretending to hold back a cough when I was actually about to nod my head at the word ‘sucker’.
Without encouragement, Trader continued. ‘The past 2 weeks were absolutely horrible I tell you. I was on a roller-coaster as the price fluctuated. All those things I hated came back. I had heartburn everyday. My breath smelled. I was so conscious of it. Even my girlfriend asked if I was fine, that I looked distracted. By the way, I still think that EURUSD will reach 1.33.’
‘So tell me. What is EURUSD trend? What does your chart say?’
‘What? Don’t give me this crap!’
Hey come on be fair. You know so many things can happen between here and there. EURUSD could still be moving down but doing a retracement up. Until the double top is exceeded, there is still a chance that price will continue downwards. Inwardly I thought to myself that a deep enough retracement can knock one back pretty bad even though the ultimate movement might be right. Especially the way you triple your position size.
Hey Trader. Tell you what. Let’s go though my chart together.
EURUSD chart says
One. Month to month, EURUSD is up.
Two. When it got to 1.35, it was previous month low and could be considered a support. This is a place where shorts should consider taking some profit. In the meantime, this is also a level that EURUSD bulls consider a higher low and reasonable to enter long.
Three. Week to week, EURUSD is certainly down. Shorting on 31 December is a good entry based on an expected double top setup especially following the buying climax on 27th. Price action on 27th definitely looked like a bull trap. The pair subsequently made new weekly lows from the first week on 2014. These new lows or bearish expansions are certainly signs of a short term down trend.
Four. Trader I am sorry I can’t tell you whether EURUSD will go up or down. As far as I can see, both month to month and week to week trends are intact. The price is now in a 3-week sideways movement. The only thing I can say with certainty is that price is now at resistance. So. Plan your trade accordingly.
‘What?’ Trader turned and stormed out the door. Sheesh not a word of thanks. But I know he is coming back after he cools down because that thinking part knows I am right. He will be back as sure as EURUSD will show a clear direction soon.