Tag Archives: tops

Daily Recap – Fibonacci Retracement levels

The EUR/USD is the most widely traded pair among all available currency pairs. It represents 50% of all currency trading volume worldwide. Traders focus on the EUR/USD even if they are trading other pairs because it influences the entire market. This pair is also known to follow technical set ups and traders can anticipate the market direction using technical analysis with a higher chance of getting it correct, as opposed to using technical analysis for trading illiquid currency pairs or pairs which are controlled by central banks for the protection of their own currency such as the Yen and the Swiss Franc, and we all saw what happened with the CHF last week when the Swiss National Bank intervened.

We discussed in a previous post how two tops formed on the EUR/USD daily chart and also looked at a descending triangle chart pattern which formed on the same chart about a week later. Both patterns showed bearish direction which took place and materialized on Friday September 9th, 2011.

Now traders are looking at the market and trying to anticipate the market direction for the EUR/USD and based on their anticipation, positions will be established. There will be traders who think that the EUR/USD has made a big move to the downside and expect it to rebound back up, and there will be other traders who will look more closely and consider the debt issue in Europe and think that it is far from over and therefore they will anticipate an even further decline for the pair.

I want to draw your attention to a widely used tool in trading forex, Fibonacci retracement levels. Usually when the market makes a big move in any direction, there is a retracement for this move. This retracement could be interpreted into different outcomes but the most popular explanation is that these levels represent profit taking levels as well as traders on the other side of the trade for whatever reason. As for the technical analysis for Fibonacci’s, simply there are different price levels which the market is expected to retrace to these levels influenced by different conditions. Traders will use the different levels to enter or exit the market based on their expectation. The most difficult part in calculating Fibonacci retracement levels is setting up the levels. Once that is done correctly, you have a much better chance of finding a profitable trade.

On the attached chart we see that the EUR/USD pair has dropped from 1.4550, which is the high of the swing high down to 1.3501. The market the retraced back up to the first Fibonacci price level of 1.3738.

To read more about Fibonacci levels, please follow the link below:

http://www.cmsfx.com/en/forex-education/technical-analysis-articles/volatility-indicators/fibonacci-levels/

To read the article for the tops and descending triangles on the EUR/USD, please follow the link below:

http://www.cmsfx.com/blog/author/mhanna/

The charts and examples found on this website are educational examples and are not intended to be representations of profits or losses that can be achieved through forex trading. When reviewing any such examples, please keep in mind that past results are not necessarily indicative of future results.

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Daily Recap – Triangle Chart Patterns

Trading the financial markets is a complicated process for traders. It’s rarely easy to anticipate market moves, otherwise we would all be rich by now. Traders constantly look for tools that assist them in making decisions and anticipating market direction for a specific currency pair or a financial instrument. Since financial markets have existed, there have been many dramatic changes which have affected the plight of the speculator, including the advent traceable instruments, as well as huge advancements in different types of analysis and reporting. One factor however has remained somewhat constant, and that is human nature and behavior. Traders now and traders 100 years ago share almost the same human nature and investors’ attitude towards certain market events haven’t changed over time. Due to this constant, certain observable formations on price charts can reflect investors’ attitudes towards a certain event, regardless of whether it occurred today or a 100 years ago.

Chart pattern recognition is one of the most favorable tools for traders because it’s considered a leading indicator, meaning it leads future price action and traders are able to plan based on the pattern they see on the chart, as opposed to react. By looking at a simple line chart, traders can identify a pattern during its formation or once its completed and apply trade details based on the pattern. Traders can choose a entry prices and specify stop and limit orders for profit taking and stop loss. We must always remember though, that two traders can be looking at the same chart and each of them can view a pattern differently. Many factors play into this such as experience.

There are many different types of chart patterns; some are not that common, but some of them are widely used and every trader must know about them. Widely relied upon patterns include head and shoulders, wedges, flags, triangles, tops, and bottoms.

Triangles reflect consolidation which presumably leads to trend continuation. As you may well know, there is more than one type of triangle that traders can see forming: symmetrical, ascending and descending triangles are the most common. Today we picked a descending triangle pattern as an example. We recognized a triangle pattern still in the formation process on the EUR/USD daily chart. A descending triangle is characterized by a relatively flat support line and decreasing downward sloping resistance line. This formation potentially reflects consolidation during a downward trend and is sometimes interpreted by chartists to be an indication of continuation. An ascending triangle potentially tells the opposite story.

We can see a formation of a descending triangle on the EUR/USD daily chart. There is a line of support around the 1.4000 level for the EUR/USD which represents the horizontal flat side of the triangle. Traders can plan their entry price, stop order and limit for profit taking using the pattern and its borders.

To view examples, images and read more about triangles, please follow this educational link from our web site:

http://www.cmsfx.com/en/forex-education/online-forex-course/chapter-3-technical-tools/technical-analysis/triangles-wedges/

The charts and examples found on this website are educational examples and are not intended to be representations of profits or losses that can be achieved through forex trading. When reviewing any such examples, please keep in mind that past results are not necessarily indicative of future results.

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