EUR/USD Trading Strategies: What To Expect After Friday's Bull Day
EUR/USD Daily Chart
The daily chart of the EUR/USD Forex market rallied strongly from a 5 month expanding triangle bottom. It is now back in the middle of the triangle.
After 4 big bull days, the stop for the bulls is far below. Many traders will reduce risk by taking profits (long liquidation or long covering). This will probably result in several days of sideways to down trading. The overnight selloff is a sign that this has begun.
The bears want today’s reversal to form a double top bear flag with the March 16 high. They are hoping that the 5 day rally is just an unusually big pullback from a breakout to a new low in the 2 year bear trend. But they know that they will probably need at least a micro double top before they can get a new low. Consequently, traders will buy the 1st 1 – 5 day pullback.
Over the past 2 months, there have been 2 big moves down and 2 big moves up. The EUR/USD is now in the middle of all of those moves. What is more likely, the start of a strong breakout of the 5 month range or a continuation of the range?
Big reversals create big confusion. Confusion means there is no consensus about the direction. Traders expect at least a few more weeks of sideways trading before there might be evidence that a trend will begin.
OVERNIGHT EUR/USD FOREX TRADING
The 5 minute chart of the EUR/USD Forex market tested Friday’s high overnight and then sold off in a weak bear channel. While much of the time was sideways, there was as series of lower lows and highs. It has been easier to make money shorting. There is no sign of a bottom.
However, the body of today’s candlestick on the daily chart is about as big as Friday’s bull body. There is now symmetry, and markets often make symmetrical moves.
Also, Friday was a huge bull day in a strong rally. It is unlikely that today’s range will be much bigger than Friday’s.
Consequently, the selloff will probably convert into a trading range soon. But as long as it is in a tight bear channel, it will continue to be easier to make money by selling rallies than by buying reversals up.
Once there is a 30 – 40 pip rally, traders will conclude that the bear trend is evolving into a trading range. They then will be more willing to buy reversals up for 20 pip scalps. However, they will continue to sell rallies unless today reverses up strongly into a bull trend.