Bearish Flag Pattern or Not?
The question is: Was the chart pattern below a bearish flag pattern?
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Though I stated during the week that I thought it was getting a little long for a flag pattern, I was under the impression it was.
Well I was right about the "getting a little long" part and what I'm about to tell you explains a possible reason (1 of many) why the price didn't continue downward after the big move down in April.
According to Bulkowski, here is the modus operandi of the flag pattern.
- Price action is bounded by 2 parallel lines. The price will go against the prevailing trend. In the above chart, the trend was down and the flag pattern is in an upward direction. This is a flag pattern!
- Flag patterns form after a steep, quick price trend. In this case, the flag pattern did form after a steep downward price trend. This is a flag pattern!
- Three-week maximum. Bulkowski states that "flags are short, from a few days to 3 weeks." The above chart met the criteria until the beginning of June when the pattern continued after 3 weeks. It's actually pretty amazing how the price made it down to the bottom trend line at exactly 3 weeks but failed to penetrate essentially negating this chart formation as a flag pattern. This ISN'T a flag pattern anymore!
All along I thought this was a pretty nice bearish flag formation but it's a good thing that I now know differently.
Bulkowski has a very good reason for why the price broke through the upper trend line today. He states, "sometimes an excessively long formation suggests an impending failure or a weak price move after the breakout." The above chart shows an excessively long flag formation and also the impending failure to break down.
Chart Patterns and Murrey Math Trade
I caught another good move last night on the EUR/USD 1 hour chart. There was a clear triple top right above the 7/8 Murray Math Line so I shorted the pair:
My target is the 4/8th MM line at 1.2573 which has not been hit yet (13 pips away) but I've moved my stop up to the 5/8th line to retain profit.
A Rob Booker Exclusive Treat
EUR/USD March 10, 2006
Here is a great Head and Shoulders pattern. They are super reliable, and fairly easy to trade. Here is the chart. We want to sell below the neckline, and go long above the trendline connecting the head to the right shoulder.
; "rob booker head and shoulders")
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
Trading Forex Today
I have 2 open positions today that can be viewed at My Trade History.
The first was a short of GBP/USD 1.7310. With the 3 hour charts showing an uptrend, I was looking for a swing off of the 38.2% fibonacci at 1.7330. Currently it looks to be holding resistance there. If the bounce doesn’t occur, I’ll stop of the position at the 1.7348, a couple of pips above today’s high.
The second trade was a short of USD/JPY at 119.53. I was trading the bounce off the recent downtrend line. Mainly the 4 hour chart shows divergence in the high price peaks and momentum high peaks.
Both are stuck in neutral territory right now (albeit a bit down)
right triangle formation EUR/USD hourly
I’ve spotted a right triangle formation forming in the EUR/USD hourly charts as evidenced by this:
The purple lines are the high/low/close 34 EMA. The trend is mildly up but not enough to look for a swing trade. I’ll be looking for a momentum trade and for the USD to push the EURO down below 1.1750.
EUR/USD Support and Resistance
Support : 1.1700
Resistance : 38.2% fibonacci and downtrend line: 1.844
The Comments by the Fed yesterday lifted the EURO a bit in overnight trading but the downward trend has taken over once again.
Traders who usually exit their positions on Friday will probably do so today before the Thanksgiving holiday. Expect lighter than usual volume.
Next week will bring a plethera of economic reports…
EUR/GBP breakout or not
Could this retrace indicate that a breakout to the downside will occur? We will see. I have a short position currency open at .6730 so I’m down about 28 pips.
EUR/GBP trading signals
I entered a position in the EUR/GBP pair by going short yesterday at .6730. My trade was made based on the following criteria:
1. Right triangle formation with the .6740 level being tested multiple times before the breakout down.
2. Sustained downside momentum
3. Negative MACD below zero line.
What constitutes a breakout?
A couple of weeks ago I mentioned that there was a right triangle formation in the EUR/GBP pair and it was only a matter of time before a breakout down would occur. Looking at the daily charts indicates that a little break occurred but what constitutes a full break? I really don’t know how to confirm the break only than to wait to see if the pair continues the downward path. Here is the chart I’m talking about:
