Applying Structural Analysis to Currency Pairs and Finding 2 Setups

The EURNZD daily chart might look a bit confusing at first (see image below). I will first clarify what can be seen on the chart:

  • Magenta resistance trend lines from weekly wedge;
  • Top purple trend line indicating another resistance point on daily and weekly;
  • Bottom purple trend line indicating support point;
  • Orange Fibonacci indicating resistance;
  • Blue Fibonacci indicating targets from pervious 61.8 bounce.

I will use the TOFTEM model for analyzing this particular currency pair and time frame.

10- 12- 2014 eurnzd

Trend: no trend is present. The currency pair is in a weekly wedge and is ranging between support and resistance. Moving averages are not important in this pair, but trend lines and support and resistance are very useful. Momentum is bullish at the moment.

Opportunity: price is moving closer to the resistance zone of the above mentioned weekly wedge. The best and most realistic opportunity at the moment is when price arrives at the top of the wedge (resistance trend lines).

Filters: the market has been quite choppy at times so waiting for candle stick patterns as a confirmation of a bounce at resistance could be useful to avoid early entries when price is spiking up and hence needless losses.

Trigger: the main trigger is the confluence of a -61.8 Fibonacci target (blue Fib) and an 88.6 Fibonacci retracement level (orange Fib).

Entry method: although the entry could be at the before mentioned trigger level, it does not have to be a pending order. I could also opt for a market order when bearish price action is confirmed at the resistance via bearish candle stick patterns.

Let us repeat the TOFTEM exercise on one more currency pair: the GBPAUD.

10- 12- 2014 gbpaud

Trend: the trend is up. Price has not only recently been making higher highs and higher lows but also dating back to a few months ago. There was a strong retracement during August but price closed and reversed.

Opportunity: reversal traders want to look for turning spots against the trend (shorts), whereas with the trend traders are looking for opportunities to enter the trend (longs). An opportunity for reversal traders could be the Fibonacci targets (-27.2 and -61.8) and top (red), which could stop the trend.

Filters: the opportunities mentioned for reversal traders (top and Fibonacci targets) are actually caution signs for with the trend traders and potential filters. Traders want to trade long preferably not too near these resistance levels as price can stop on a dime there. For reversal traders the only caution sign is the bullish momentum, which is quite strong.

Trigger: with the trend traders are looking for a pullback because price has already steamed up quite a distance. Somewhere around half way (green circle) could be a good mark, but use other tools and analysis to see confluence. Reversal traders are looking for price to hit the -27.2 target (blue), top (red) or -61.8 (blue).

Entry method: the entry method is the same as mentioned with the EURNZD as both pending and market order entries after candle stick pattern confirmations make sense.

What tools would you add to make the analysis better? Let us know down below!

Happy Hunting!

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