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4 charts that could convince you of DXY direction or confound you

Straight forward analysis on daily chart appears to offer a clearly low-risk-high-reward proposition to short the DXY. Further analysis offers a different observation altogether. 4 charts that might confound you or paint you a DXY direction that will jump out convincingly.

 

Chart #1 – Risk-reward proposition in favour of short trade

Key features are:

  • 2-month horizontal channel from mid-January to present.
  • Price is parked at previous support-turn-resistance.
  • Dotted trend line offers a potential short with an attractive risk-reward proposition if price completes the range by moving to previous support.

Most traders do not make it past chart #1. Their analysis is straightforward and simple. With chart #1, trade decision is a loud and clear sell at resistance upon trend line break and aim for target price at previous support thereby completing the current price range.

DXY chart #1 and #2

DXY chart #1 (top) and #2 | Source: Tradingview.com

Chart #2 – Price action suggesting strengthening in last 4 weeks

Features:

  • This chart is exactly the same as chart #1 but offers different observations.
  • Despite little directional movement in last 4 weeks, all 4 weeks closed in the green.
  • Line chart shows higher lows that could be evidence of an ascending triangle (bullish) being formed.

Chart #2 proposes a totally different outcome from chart #1. Some individuals could be confounded by now but don’t be deterred because the more we inspect, the richer our analysis becomes.

 

Chart #3 – Zoom out and the reason DXY is stuck here at all becomes very clear

Features:

  • Resistance back in 2009 and 2010 could/has become a support which explains last two months’ action (see in conjunction with chart #4).

Higher time frame could offer clues if lower time frame analysis ends up in a stalemate. Levels spotted at higher time frames are more significant. Day traders and scalpers(which I believe is a different kind of game) might give higher time frame a miss but it is valuable to swing traders and investors.

 

Chart #4 – Zoom in again we realise chart #1’s risk-reward proposition might not be true

Feature:

  • The same 10-year resistance in chart #3 printed here accounts for January and February-lows almost precisely.
DXY chart #3 and #4

DXY chart #3 (top) and #4 | Source: Tradingview.com

 

Alternative title of this piece: I prefer to long DXY 3 chart tell you why

I believe that DXY is more of a long than a short. I don’t believe that DXY is going to do a bullish reversal yet. Big tops and bottoms take time to form. For example, EURUSD took nearly 3 years to form a bottom at 1.04 – 1.05. However charts #2-4 could mean that DXY is about to do it’s overdue retracement and the longer it is stuck here, the higher the retracement is likely to climb.

I believe a comprehensive analysis is never a bad thing even though a comprehensive observation can be wrong too. Some individuals will ask why not to keep it simple stupid. I agree.

My simplicity has always been about OHLC, time frame boxes and relative strength. I believe that smart money does leave trails. My simplicity tells me not to use indicators which could offer different readings at different time frames and which are very hard to gel together. However stopping at chart #1 only ‘to keep it simple’ is just pretending that the other side of the story is not there because one chooses not to see it.

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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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