Consolidation Flags and Broadening Formations

There is a new article on Investopedia with instructions on trading 2 consolidation patterns for profit.

The first is the flag formation which is a common formation in the currency market and indicative of a continuation trend.

1.    Apply trendline to identify the flag formation
2.    Place stop 5 pips above the high or 5 pips below the low of the recently closed candle ONCE a close above or below the trendline has occurred.
3.    Place a corresponding stop two-thirds below previous session’s high or low.
4.    Use your specific rules regarding corresponding limits 

The second is the broadening formation which is commonly a consolidation before the reverse but could also be a continuation indicator

 
1.    Identify the broadening formation through diverging trendlines
2.    Apply entry 5 pips below the low or high of the session once a break has occurred
3.    Use appropriate money management
4.    Use your specific rules regarding corresponding limits

 

 

This article is elementary yet a good refresher.  http://www.investopedia.com/articles/forex/06/ConsolidationPatterns.asp

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DashboardFX: Forex Weekly Wrap-up

EUR/USD

A virile run mid-morning at the session close, as market participants drove the dollar down to near session lows of 1.1945.  When all was said and done a tight range of 1.1845/1.1955 was fashioned in the major European counterpart and the benchmark currency.

What is interesting to note regarding this week’s price action relative to the previous is that we have two ranges with one large move lower separating them.  That coupled with the cresting off the benchmark S (former R) in the 1.1860 area, which has stymied those bidding the dollar on many occasions in the life of the pair, implies perhaps a solid base pattern of an inverted H&S is in the process of developing with the head all but confirmed on today’s rally in the pair.  The moment of truth for the pattern comes in on the break back into last week’s range followed by a failure to trade through it – thus drafting the second shoulder.  We have cited the major R above as the top end of the shoulder range.

GBP/USD 

Sterling dealers and traders alike have noted vehemently the significance of the MPC minutes slated for next Wednesday.  A prominent reporter in the UK feels an admonishment of a 5-4 split in the minutes could strongly imply a 25bp hike is in the shoe.

As we noted yesterday, “…with such a wide swath these orders clearly have rather lofty targets or expect to average in with size on forays below 1.7340/50.  Irrespective, the activity has garnered attention…” regarding some purported dealer’s activity and it turns out that our summation was incredibly predicative given the proceeding 24-hours of pricing.

USD/CHF 

With no front page news regarding geopolitical unrest, it seems unlikely that the pair will style any type of meaning retracement of the overt trend.  However, we know better to presume the two cannot take place simultaneously, perhaps exacerbating a strengthening in the Swiss franc and weakness in the dollar. 

Some clear top patterns have emerged; but the pair continues to make new highs and the patterns are somewhat eschew.  As we noted recently, “…The drop from the major R we noted in yesterday’s report was rather precipitous and could be ominous indication of more selling pressure to come.  Yesterday daily low of 1.3040/45 will be the moment of truth for those attempting to break the overt trend…” and it seems this statement is rather accurate given the resulting price action.

USD/JPY

The pair continues to rally following our call on the significance of the 1700 figure.  Session highs were recorded at 118.87 following Thursday’s rollover.  It has come in a bit however, leaving a tall wick behind in the vicinity of macro R.  this could be a tell tale sign of some virile selling as specs unwind what have now become very large positions.

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