May 8, 2009 Forex Market Recap

Friday was a beautiful uptrending day for both euro and cable, another good example to apply forex strategies for the advance phase.

After the breakout of the ascending triangle, euro formed a shooting star followed by a hammer on hourly chart, a typical price action to shake out weak hands. Euro offered two great opportunities to long at the breakout of resistance level. The second had a higher probability since the uptrend is confirmed.




Cable formed a top range (1.5160-1.4980) on hourly chart. The strategies to trade a range-bound market is quite different from a trending market. Confirmation is needed for a legit breakout or breakdown. For a true breakout, the price should close above the resistance after the breakout, while a true breakdown, the price should remain below the support after the breakdown.




On daily point and figure charts, euro made a double top breakout at 1.35, which cable made a double top breakout at 1.50. Both euro and cable made a new high in twenties trading days (H20).

Yen met major resistance at 99.50 on both point and figure charts and candlesticks.

Forex Strategies for the Decline Phase 05/07/09

In the last post I used British pound as an example to discuss the forex strategies for the advance phase. Yesterday (05/07/2009), pound made another textbook example for the fourth phase in a full price cycle - the decline.

In the decline phase, the market is in a downtrend, usually a short selling day in The Taylor Trading Technique, in which the price action tends to make lower lows and lower highs.

On hourly chart, a bearish engulfing pattern indicated resistance at 1.5160, and the shooting star confirmed the resistance. A 40-pip top range was built from 1.5147 to 1.5106, which is a counterpart of base building phase. Likewise, there are multiple false breakout and breakdown signals to fool reckless bulls and bears.

Pound formed a double top pattern around 1.5160, while MACD made a lower low, the bearish divergence is marked on both 15-min and hourly charts, which confirmed the trend reversal. After the shooting star, there is a quick drop caused by the 7:00 event - Bank of England's Official Bank Rate. There is no way to trade the event, which is almost 100-pip drop in just 1 minute. There is no need to chase the event either. After the event settling down, pound offered multiple great short opportunities for shrewd trader. There are three opportunities to short rally top, and at least two to add position at breakdown horizontal support level.

To summarize the forex strategies for the decline phase,

1. only short position is considered during the decline phase

2. entry A: short at rally top

3. entry B: short at breakdown horizontal support level

Just for argument's sake, the definition of phases is only for forex day trading purpose, which might be only identified on hourly or 15-min charts.