The Daily chart shows a parabolic buy climax closing the week right at weekly resistance:
Same with the 4 Hour chart, showing details of a very tight bull channel:
Armed with this information, it’s time to sell, sell sell, right? After all it’s at “major resistance” and this big trend really can’t go much further, right? Besides all the FOREX guru’s and their mommies know that when you’re at a “major level” you reverse. Just look for that “bearish engulfing candle” and voila! Get ready to ride the trend back all the way down to a 1:10! Bedsides, that’s what all the other commentaries are telling us to do right now: sell, sell, sell!
Well, not so fast. Markets have inertia. They tend to want to do what they’ve been doing, regardless of how much profit taking there is. Also, this trend is strong. In order to reverse it, we’ll have to convince a lot of institutional traders that it’s a good idea.
What’s more likely to happen here is we settle into a trading range for at least as long as there is time for the daily moving average to catch up a bit. If price closes above this resistance area, it will be because the bulls remain strong and price has coiled enough to get a “running start” and break through. However, the same goes for the bears.
As shown on the 15 Min chart below, price has nestled into a 40-pip trading range:
I’m not trying to tell anyone not to go short. I’m just saying the conditions have to be right. Here I would wait at least until the breakout of the next couple of support levels. There is first the tight trading range. Then there are two more trend lines to break through. Then, if price holds and I have a good signal, then I would short.
Otherwise we might get stuck in a trading range that has a long breakout bias. And as a swing trader, that’s no fun!
