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Saturday, June 9, 2012
Trend depends on the time frame
The daily chart for the eur clearly shows a downtrend that resumed from 2 May. Price didn't want to carry on higher for the 3 days preceding and 2 May was an engulfing negative close, RSI crossing lower through its MA and closing the day below the 50 level.
So from 3 May we would generally be sellers. We may potentially buy after a positive day (we never know when a positive close day will be the start of a trend up) but in the back of our minds is the likelihood a positive day is just a rally in a downtrend. Unless there has been fundamental news to change a market view most turns require 4-7 days or so to play out with a higher low/double bottom or lower high/double top and most likely divergence.
If in a downtrend you have a counter trend move up when will the trend resume? Always tricky but there should be evidence of price action clearly stalling over a period of time, yes again a double top/lower high. Stopping at a clear support level would help and lower time frame divergence indicating a return to trend might also help. The 1hr chart should be showing lower highs and lower lows in down trend. If you are seeing higher highs, higher lows on 1hr in a daily downtrend you may need to take care selling, waiting for the trend to resume.
I have attached numerous screenshots showing generally the 1hr lower highs and lower lows in the downtrend. There was a clear break of this trend on 18 May and a significant higher low on 21st. However on 22nd this move up clearly failed with a significant lower high and an engulfing negative close.
The counter trend move up on 6 and 7 June ended the same way with lower highs and engulfing negative closes.
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