After more than 18 months trading using indicators such lag, Double CCI, BB MACD and the stealth Buy & Sell, the end result was not that fantastic and the trading was a bit confusing. The entry was a bit breeze but the exit was a different story-sometimes I exited too early or sometimes too late.
For the next year, I resolved to trade using less indicators as not to confound my tactics and based my strategy on traditional support and resistance (S/R) level either horizontally or diagonally, and chart formations of classical technical analysis. This will simplify my trading plan. The indicators I used will be the BB Macd and lag to determine the overbought/oversold (O/S) market position.
To validate the S/R level or chart patterns in my trading plan I used moving average-9,20,60 and 200 period and pivot points(daily and hourly).
In trading EURJPY my preference for trading session is at the end of Asian session and early European/UK session (5:00 GMT to 9:00 GMT). My profit target for the day is still maintain at 50 pips per day. Further details of my trading plan will be explain as we go along in this blog.
Let us look to my trading on Monday (28th December) and Tuesday(29th December).
Monday.
The EURJPY uptrend on the last day of last week-Thursday 24th December was halted in early New York session. Prices moved downward within a channel that formed a flag pattern up to early Asian session. A flag is a continuation pattern and with a break of the top of the flag border indicated a reversal to the upside. Prices did moved up but it then went sideway forming a horizontal resistance line with a diagonal support line indicating a ascending triangle.
A ascending triangle indicate an upward break-away, but a false break of the diagonal support initiated a rectangle or horizontal channel with the top resistance border at 131.768 and the bottom support border at 131.523. As normally in a false break, the breakout is a minor aberration and price will move to its intended path, upward. Two hours after London open, EURJPY broke the upper resistance line as expected.
Tuesday:
The flag and the horizontal channel did not meet the target price as expected. A consolidating horizontal channel was formed instead, beginning from the mid New York session and end I n late Asian session.
This clearly indicated a low interest in market activity as this week is the last week of the year.
There was a false break of the lower support line of the channel toward lunch time in Tokyo.
The last week of the year is normally a dead market with low activity where traders normally on holiday mood or planning action for next year. A thin market is susceptible to market manipulation where a break of S/R level can be false move.
By the way a false break in the chart patterns is an indication of market choosing the opposite direction for the sizeable move.
In the case of horizontal channel;
1. 1. The majority of the first break of the S/R of the channel is always false.
2. 2. After the break, price move into the same direction for a few candles before it came back into the channel.
3. 3. After price returned to the channel, it penetrate the opposite border.
4. 4. The second break will be follow by a significant move that usually exceed the channel width.
In the triangle formation, after two highs and two lows it is possible to draw lines that will become the border of the triangle. This early triangle identification will create a possibility of making 1 or 2 trades inside the triangle formation by opening position from the top/bottom side in the direction of an opposite side, which will be the target price.
Usually, a real break occur after price has touched each sides three times.
