Gbp/usd
Good day everyone,
Quick recap.
GBP/USD:
The rise from 1.8833 (start) to 1.9846 (termination) spawned consolidative price action in the range of 1.9433 (low of consolidation range) to 1.9749/6 (high of consolidation range)
On the UPSIDE our initial aim was to break over the consolidation channels' high of 1.9749/6 in order to resume the rally from 1.8833
On the DOWNSIDE our aim was to break below the consolidation channels'low of 1.7433... and that we did, which developed a decline taking us all the way down to 1.9260
On the downside there were two major levels of S that should have been watched, those were 38.2% and 50.0% retracement of 1833 to 9846.
The initial prediction and history says that most rallies and declines with intentions of resuming their direction will normally only retrace to levels of 38.2, 50% and in some cases with weak retracements only to 23%
You should feel comfortable with price retracements to the 38.2 level, it is normal.
Retracements to 50% should raise the question as to whether this rally will come back, your bias however should still be in the initial direction of the trend, if you are a mid-term trend trader.
Retracements moving from 50% to 61.2% are in the danger zone, around here you should have pretty much lost all hope and terminated most of your positions, waiting for more signals to confirm a new trend direction with a break of 61.2%
As we know it, the fall from .9750 treminated around the 50% Fibonnacci zone as the mass expected. The oppinion in such a case was that the rally would naturally begin to resume for a break of consolidation channel low now S (9450-ish) and eventually the consonlidation channels high now R (9450)
The bounce of 9260 moved upwards supported by an ascending trend line and round the 9320 price on monday the 8th of January (yesterday to the alcoholics) the price broke out of that trend line downwards after which i sold expecting it to fall back down to test 9260 once more.
It was the most logical scenario at this point, however the logic of a good TA (Technical Analysts) is sometimes no match for the global emotional jungle that is the forex world, so what happened ?
Perfect break, followed by a +40 pips decline and then all of a sudden we have a massive bullish engulfing candle which takes us right back above the trend lines... well, obviously some big players ain't likin the poundin on the pound if you know what i mean, so they slip they fall and they accidentally hit the GBP/USD buy button for 100,000,000,000 lots and weee we're back up 40 pips and over the trend line.
We don't care why it happend, my broker says some soviet name bought in on it and that was the reason, i say i don't care because i had my stop set at .9344 so i was only out about 25 pips.
It is EXTREMELY reliable to place stops above trend lines when you are trading a trend line breakout. You almost always know that if the price pops back above the trendline decicively, that things aren't going your way. (BEARISH Scenario)
It is more likely for the price to break and pop back up to test the trend line before heading down (BEARISH Scenario).
Before we delve into the present now, please note several things.
ONE: The price is currently located around 32.8% Fib. Retracement of 9750 (High) to 9260 (Low)
TWO: This also happens to be around the 9450 area which is a major R/S
THREE: RSI on H4 is nearing 70
Around this level there are (now were, because things progressed as i was typing this) ....so there were a few possible scenarios.
1. The price broke over 9450 DECISIVELY... did it ? No... check M15, it broke and closed the candle in a perfect shooting star, followed by a bearish engulfing... which equals what ?... thats correct a perfect Evening Star pattern.
Once the evening star was formed it moved down with a break attempt of the trend line, but didn't succeed to well, obviously there is still a lot buying pressure.
It just so happens that these are very reliable reversal signals, we've got the one, two, three factors up there, plus these candle stick signals too.
I can't shake the notion that we have a top here and we might see a mass retest of 9260.
The thing about evening star patterns is that they sometimes take a while to actualy form a good top, but there are in most cases extreeeemely reliable.
My bias for now is on the downside and i am thinking a break of the up trend line from 9260 with a retest of 9260.
Now... because we are smart people we know the market moves both up and down and sideways, so... we need to prepare ourselves for a possible bullish scenario too.
In this case its pretty obvious: we need to break 9450 decisively then 9474 > 9530 > 9750 (i've bolded them because they are majour R/Ss)
Thats all dudes and dudettes, good luck!!
Regards,
E. Lang
PS: CHECK THE CHAARTSSS, they are in order of development!
Last edited by elang; 01-09-2007 at 05:14 AM.
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