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Markets are made up of people, who are either buyers or sellers of a particular stock, currency or commodity. From time to time, this buying and selling will form patterns in the market, which we as technical analysts can identify.
Support and Resistance lines, Double Tops and Double Bottoms, and Triangles are some examples of patterns we see in the market. In isolation, trading each of these patterns is fairly straight forward. It can be a little bit tricky to trade these patterns when more than one is present, however often this can be to our advantage, as it adds confirmation to the trade and gives us additional entry signals to use.
Chart 1 below shows the current market action on the Euro Futures contract (EC-Spotv in ProfitSource).
Chart 1
click to enlarge
There is a triangle pattern (also known as a “wedge”) forming on the larger picture and also a smaller picture Double Top. Chart 2 below shows these patterns, with the triangle formation represented by the two blue lines, and the Double Tops circled in purple. The second top in the Double Top formation came up and touched the top line of the triangle this week, forming an Outside Reversal Day on Tuesday and closing low.
Chart 2
click to enlarge
This market action is still looking very similar to the market action coming out of the All Time Low on the Euro in October, 2000 and I would encourage keen currency traders to go back and study that market action carefully.
If these current Double Tops hold and the Euro falls, I don’t believe it will be for long – the overall weakness of the US Dollar will see to that.
But we could be heading to 1.29 in the next couple of months, possibly by late September.
Chart 3
click to enlarge
It will be an interesting ride if it does get down there, but until it does, this remains nothing but speculation. The most important thing is that you have a trading plan and stick to it.
Being right is nice, but being profitable is far more fun!
Be Prepared!
Mathew Barnes
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