Monday Evening 6 May 2013
We recommended a long position in the Australian dollar this morning, 1.0205. Markets have a certain logic to them, and there are times when one can find a developing story that leads to a position.
There has been a protracted trading range, [TR], about 2 1/2 years. What preceded it was an uptrend, and that gives direction for how to view the developing TR. From the 2008 low to the 2011 high, price rallied 50 cents. A half-way retracement of that range is the 85 area. The developing TR has held well above that guide, above 2/3rds of the range, making the ability to hold the higher level even stronger.
This is the developing context for the logic applied in making a final determination.
This is a closer look at the weekly chart. Most of the TR, captured by the two horizontal lines, has been toward the upper reached of the overall activity since July 2012. The clustering of closes and overlapping ranges reflects a balance in the battle between buyers and sellers. From balance come imbalance, once price leaves that area.
The lack of follow-through at 2, retesting the rally bar of 1, suggests support. Does the next lower time frame agree?
The lines connecting the swing highs and lows eliminates the “noise” in between. We see a higher swing high and a higher swing low, the simplest definition of an uptrend.
After what appeared to be a potential rout by sellers, viewing the wide range bar lower on the highest volume, point 1, there was no downside follow-through. What happened to the sellers? Their absence, logically, can only be accounted by the fact that buyers are more in control than meets the eye.
The bar at 3 is wide range and lower, retesting area 2. The decision to buy was predicated on the intra day chart that follows.
Bars 1, 2, and 3 caught our attention, more for the increasing volume as price declined, but when combined with each price bar, the logic behind how the intra day decline unfolded was not what it seemed, i.e., just a sell-off.
The dashed horizontal line from the strong rally bar on 2 May is potential support. Price declined exactly to that level, this morning, and volume was the most at the low. The high effort at the low produced no result. From bar 1, down to the low at 3, told us that sellers were not as strong as would appear, if one did not have this story in the context presented.
The recommended long was made after the low at 3. It is where risk would be least, and so far, price has held. There is no guarantee in any trade. When the selection is based upon logic that places the odds more favorably on one side more than the other, that is all one can expect. Over a series of trade selections with increased odds, the results are almost a certainty for profitable trading.
Long from 1.0205 with an initial stop at 1.0148.