Every once in a while, in Forex, price reacts in a somewhat predictable way. From time to time, there is a level you can actually count on to reject price and throw it in the other direction. When it occurs, it is crucial to take advantage of these levels because you can be sure that all good things come to an end–and often, in trading, they come to an end when we have our hard earned money on the line betting on them not to come to an end.
One such level is evident on the EUR/USD as we speak. Looking at a weekly or daily chart, the level becomes very clear. It is in the 1.3000 zone and it has held price several times and rejected it back upward. Over the past few months, each time it rejects price back up, it seems to have a little less “pop.” This is resulting in another level in the form of a downward trend line, which has also shown some pretty strong authority over price. We have a strong horizontal level, that is rejecting price upward + a downward trend line that is pushing price back downward, what does that equal? … A descending triangle!! Let’s take a look:
As you can see, price has struggled tremendously at the 1.3000 level. You can also see that there is a significant trend line forming. Remember that this is a daily trend line and support zone on the most traded pair in the world, so the levels I am mentioning are very powerful.
The all important question for us, as traders, is what do we do with this information. It doesn’t matter if there is clear technical indicators if we don’t know what to do about it. For me, this triangle means two things.
The first thing it means is that I should take advantage of these levels while I can. Often times what happens is that the level holds up just long enough for us to build our confidence in it and make an entry and then it breaks. With that said, I am of the opinion that these levels on the EUR/USD will hold until it tightens up more into the end of the triangle, so I will continue to trade of these levels until a daily bar closes above or below (depending on which level it is) the zone with some authority. It is not often that you get a level this strong, so I do intend to take advantage of it while I can.
The second thing it means for me is that a break out is coming. The EUR/USD is due for a nice long trending move. If it continues to tighten up into the end of the triangle, my feeling is that a massive break-out is coming. For me, that is what I am ultimately waiting on. I want to be on the right side of the next big EUR/USD trend, and I think the key may be waiting on this breakout. Expecting this is, of course, very speculative on my part, but I am just sharing my opinion with you all. I won’t make any trades until there is actual evidence of what I am suggesting actually unfolding in the market, but here is what I am guessing might happen:
And, yes, I know that I have some seriously impressive drawing skills on paint 😉
That is what I am watching on the EUR/USD, let me know what you think with a comment below!
Winner’s Edge Trading, as seen on: