A very common mistake is to buy into such an adverse move too early and take unnecessary pain or worse get stopped out. In this video I explain the inflection points that are favorable in terms of probability and what needs to happen in order for us to be able to justify a new long swing trade idea.
The first support area is around 1.2480. This qualifies because it has demonstrated previously that traders reacted there (old resistance area, now new support). There was even a hint of buying within the previous day’s candle (Friday) as it closed with small wick. This is not enough to buy into because while the trend is bullish, the momentum is still bearish and can lead price much lower. To avoid a premature entry our strategy requires evidence that others are buying as well and this comes in the form of a pin bar or inside bar. IF one of these setups does not appear, we simply continue to wait.
The second inflection point is the 1.2280 area. This is the key support relative to the bullish structure measured off of the recent swing low established in March. This is the level that allows us to define the trend as bullish, and to assign more weight to buy signals. Again, IF price reaches this area, it will prompt us to WAIT for a setup like I explained earlier. IF prices closes below this area, then we stand aside a reevaluate until the market can provide more clarity.
Keep in mind, we are ONLY interested in short term momentum. This has NOTHING to do with the economic situation or fundamental story behind this pair. Forex is notorious for emphasizing complexity and often makes it seem like you need a PHD in economics in order to participate effectively. This is a common misconception since ALL markets are typically driven by the irrational behaviors of greed and fear. By the time we recieve any “fundamental” information, it is obsolete in terms of acting on it. Technical analysis compensates for this by offering ways to measure the most up to date information there is and that comes in the from of price action.
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This article was written by Marc Principato CMT, Executive Director at Greenbridgeinvesting.com.