Tag Archives: support

Daily hammer on the Euro

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Looking through some of the longer term charts today of the euro revealed that the euro is sitting on an old congestion area on the monthly chart. In 2004 and 2006 the upper level of the congestion area is right where price is now at the 1.2300 – 1.2400 area. This also coincides very nicely with support from mid 2008 – mid 2009.

EUR/USD Monthly at May 2010

It would not be unreasonable to expect price to react to this area right now and bounce higher. If we switch to the daily charts we can see that a nice hammer has formed into monthly support. This is telling me that the market is rejecting lower prices and I now expect in the short term (daily chart) for the euro to rise. Here’s the daily chart today as of 17th May 2010.

Hammer into Monthly support

An entry here above the high of the 17th May at around 1.2420 with a stop below the candle at 1.2220 looks like an attractive play to me right now. Look for targets around 1.2520 for half the position and 1.2800 for the other half. Let’s see how this observation plays out over the next few weeks…

UPDATE 1

I have just noticed a similar play set up on GBP/USD.

Hammer on daily GBPUSD

UPDATE 2

This trade didn’t work out and would have given a 200 pip loss. So, why didn’t this work? We are in a downtrend on the daily and weekly charts which makes this trade a counter-trend trade. A better trade would have been to take the shooting start short on 10th May 2010 however that trade would have required a 350 pip stop. Perhaps the solution for the shooting star is to drop to a lower time frame, say the 240 or 60 min chart and take a short entry there. Here’s the daily chart showing the failed hammer and the shooting star:

Shooting star and hammer entries

Looking at the 60 min chart, there is a nice shooting star formation there at 10:00 on my chart (GMT+2). A short entry at say 1.3025 (2 pips below the low) with a stop above the shooting star at 1.3095 (1 pip above) gives a nice tighter 70 pip stop for a large potential gain. As you can see from this chart the market moved to 1.2815 without a single bullish candle (open higher than close).

Shooting star on 10th May 2010

Thinking about this a little more – the entry on the 60 min chart would only have been taken if I was already trading the 60 min chart. The daily shooting star doesn’t form until the close of that day. So to be true to my original analysis a short trade on the 60 min could only be initiated after 10th May. Looking at the 60min chart after the 10th May does not show me any potential entries. Hmmmm…..

60 min chart with 11 May Highlighted

Any thoughts on this analysis? Let me know in the comments, thanks.

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Where is the Euro going?

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I had a couple of great trades on my demo account on the GBP/USD and EUR/USD this week and hit all my targets and increased the account by 4%. When I got out of my Euro short for +30, +60, +90 (scale out in thirds) it continued to drop as Eurozone debt fears deepen. I wondered to myself where is the Euro going to pause and consolidate before moving again. Here’s the four hour chart.

Where is the price of the euro going?

To answer this question it’s a good idea to look at higher time frame charts. Here’s the weekly chart:

Any ideas?

If we draw support and resistance pivots on the chart, perhaps that will shed some light on the question.

Support and resistance lines added

We can see that there is a good support line that has been touched three times before on the weekly chart around 1.2950-1.3000 area. This would be a good area to take profits on a short as price is likely to hang around here for a while before deciding where to go next.

UPDATE

By 17th May price had declined to a low of 1.2143

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Short set-ups on US Stock Index Futures

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I was looking through my daily charts on 26 April 2010 and noticed a shooting star on the e-mini S&P 500. These happen all the time but this particular one caught my interest.

S&P 500 daily

  1. It’s a shooting star in an uptrend.
  2. The shooting star hits a strong resistance pivot.
  3. Declining volume

To enter this trade  in my paper account I set a sell stop at 1207 with the stop loss above the high of the shooting star at 1217.

ES chart with sell stop

The risk level is 10 ES points which by most day traders’ standards is a very wide stop indeed. However this is not a day trade so as long as the risk is an acceptable percentage of the trading account it doesn’t matter how wide it is. After three days the chart looks like this:

Chart with entry, stop and target orders

T1 is the same size as the stop loss size and T2 is at a minor support level. Half the position scaled out at T1 and the other half at T2. It should be noted that this is not a trade I took, I’m merely observing the markets and wanted to document it for future reference. It should also be noted that this was a counter-trend trade. The S&P chart on the dailies had been in an up-trend since March 2009 – a period of 13 months. It is always advisable to trade with the trend. So for this reason in my real account I may just have observed this and passed on the trade. A much higher probability trade would have been the one on 5th Feb 2010 on the hammer candle.

Hammer candle after a minor downtrend within a major uptrend

Notice that I place my stops and targets as the market determines them. The stop goes below the entry candle and the targets are placed at minor support/resistance pivot levels. Here is the weekly chart to show the current trend:

Weekly ES trend Feb 2009 - Apr 2010

I’m sure there are other ways of trading this type of set-up and I’d be interested to hear your techniques. Please get in touch and let me know what you think.

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