EURUSD slows down/consolidates
The EURUSD has been consolidating over the last few hours as the adrenelin rush from the NFP report brings traders down. The steady trend move down over the last 3 trading days which took the price from a high of 1.3072 to the low today of 1.2696 (376 pip range) has also sapped some energy and balanced buyers and sellers. Todays leg to the downside has been less than the prior two days (see hourly chart below). Trader’s seem satisfied but willing to take a break.
Nevertheless, it is important to pay attention ot the levels. ON the topside intraday, I will be watching for sellers against the 38.2% area at the 1.2739 level. On the downside, a move below the 1.2708 (see chart below) could see some further selling.
The days trading range for the EURUSD is at 117 pips currently. The average for the last 20 daya has been 124. Admittedly, December was a quiet and narrow month (the average range for 2011 was 157 pips for the EURUSD). However, it may be the range has been set.
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Thanks Greg but I feel a need to learn more about the best usage of info such as Days Range & 20 Day Ave Range???
Good question and something I planned on addressing in an upcoming webinar.
If the range is particularly narrow for a day compared to what is average it often is a precursor to an expanded range in the future.
So for instance, assume the NY session opens at 7:00 AM with a narrow range of 60-70 pips (when normal is 125 pips). For some traders it means the market is dead, in a range, quiet. For me it means, look tor an extension of the range today.
From that point, I start to look more closely at the intraday charts (like the 5 minute), and see if there are any floors or ceilings and intemediate levels of importance over this non trendine period. What did the market try to do and fail. What is the bias now. Is there a double/triple bottom or top?
All these levels become entry levels and/or targets to get through. Typically, the 100 and 200 bar are right in the middle of the range. That would be my level where if the price is above it is bullish. If the price is below the bias is bearish.
Trendlines and floors and ceilings (or horizontal trendlines) become targets. What I want to see is some move by the market away from the 100 and 200 bar MA (as an example) and them move through the floor or ceiling/trendlines etc. IF they can get through, game on. The trend may be starting. In other words by knowing the range is narrow, I will anticipate a larger move – a move that could potentially take the price toward the average range for a day (or at least close to it). That extra confidence gives me the incentive to stay with the trade and not be lulled by the narrow range. I become aggressive not passive and more importantly more confident. I still have my stop in place (say above the 100 and/or 200 bar MA) but I am waiting for the momentum to take charge at this point.
I have a saying. “Non trending transitions into Trending”. If the market is in the midst of a narrow range, the market is non trending. So I start to anticipate a trend – up or down. I have to get the right direction so that is what the price against the tools do. They tell you bullish or bearish by being below the 100 MA or moving below the trendline or floor.
Anyway, by knowing non trading transitions into trending, if a trader can anticipate a trend-ish move – just like a baseball player might anticipate a certain pitch and hit a game winning home run, or Apple anticipates the damand for a bigger iPhone/smaller laptop they call the iPad – you have the potential to hit a home run by getttng on the trend and staying on the trend.
What I find is a lot of traders may get on the trend, but they exit too early – they don’t anticipate trend (or extension). When the market is non-trending, I will look to “invest in that position” – just like a business invests some profits in his business. I will do that by staying with the position if it continues to not take out my stop and be “greedy” looking for that extension toward the average range.
On the other hand, if the range for a day is well above the average that may suggest to someone who is on the day trend to be on the look out for a consolidation or correction. Now since trends are fast, directional and have ranges above normal, I ALWAYS am cautious about continuation of the trends. So I will be sure to define a floor using a technical tool that will tell me bullish above, bearish below (like a trendline).
For example, if the GBPUSD is trending down (like it was on Friday), I will connect lows to lows with a trendline, and/or create a channel from a topside trendline (often times they are). In fact, read the below blog post from FRIDAY. Pay attention to the 5 minute chart. How I targeted the support and why. The GBPUSD was in an above average range. Then go and reconstruct the chart on your MT. Put a Fibonacci from the high for the day on the same chart at 1.5523 to the low at 1.53745. The 38.2% comes in at 1.5431 and that is where there was a ceiling on Friday afternoon.
http://forex.fxdd.com/138229/forex-trading/gbpusd-moves-toward-trendline-support-at-1-5385
If short a pair like the GBPUSD and in profit, if the price has a range well above the average, I can look to take profit against the lower trendline. After all, traders are anxious to take the quick profits. This is a perfect borderline to lean against. If the level holds, the trader can look to reenter at a corrective level above. If wrong and the price moves below the bottom trendline GET OUT. The trend is accelerating outside the channel trend established. Don’t mess with accelerations of trends.
If the market holds the trendline (like it did at the 1.5375-80 level on Friday in the GBPUSD), I will then look to target corrective hurdles the buyers have to push the price up to. After all, it is the buyers burden to overtake the sellers and prove they can push the price higher. If the buyres cannot extend the correcton to say the 38.2% retracement, or to the top channel trendline, then they are not overtaking the sellers. The sellers are still in charge. Those buyers often become scared and sell there positions out, keeping the trend alive (or at least keeping the price in the narrow consolidation range). Eventually, other tools like the MAs catch up, then the market has a decision to make…1. Correct more or 2. Continue the trend.
So in a nut shell it comes down to trends transition to non trends. Non Trends transition into Trends. That piece of knowledge in conjuction with the use of what I call unambiguous tools like trendlines, moving averages and Fibonacci Retracements, provide traders with the ability to attack a currency trend and stay on a currency trend, until the extremes are hit.
I hope this helped but at the least you encouraged me to focus on this idea during my Traders Course webinar on Tuesday. SIgn up. If you cannot attend, you will get an email to listen to the rebroadcast. Here is the link to sign up…..
https://www1.gotomeeting.com/register/516982665