|
A doctor would be excused for declaring the Euro futures contract (EC-Spotv in ProfitSource) legally dead over the past two weeks. Chart 1 below shows that the Euro has traded in a “sideways but gently rising” pattern since late May, with Tuesday night’s breakout still to be proven as a true break by the market.
Chart 1
click to enlarge
The last two weeks were particularly flat, with seemingly no energy whatsoever in this market, and no desire from either the bulls or the bears to commit to a longer term direction.
Trading sideways markets is not a part of my trading plan, so after a couple of attempts at this market, I’m happy to sit back and let it declare itself before taking any further part. A quick look at a longer term history of the Euro will show that this is not the first sideways pattern that has occurred on this market, nor will it be the last.
Chart 2 below shows other sideways patterns in recent times, often lasting several months or more.
Chart 2
click to enlarge
You will notice that many of those sideways patterns were similar in shape and duration. WD Gann said that to know what to expect from a market in the future, we can use the past as a guide, and I have certainly found this technique useful.
Let’s take a closer look at the current pattern in Chart 3 below, because it is clearly recognisable.
Chart 3
click to enlarge
Now let’s compare this with Chart 4 below, which is a very similar setup from the Australian Dollar Futures Contract (AD-Spotv in ProfitSource) a couple of years ago.
Chart 4
click to enlarge
If the Euro can’t consolidate above its current levels, then my outlook remains the same as it has been for several months. I am long term bullish on the Euro – the further we go out in time, the more bullish I become!
However, I won’t be a buyer at these current levels until the market has had either a decent correction, or several more months of sideways consolidation.
At the end of the day, that’s what trading comes down to. We look at a chart, we apply some analysis to that chart, and we form an opinion. We then apply money management rules, look for high probability trades and take our chances. If we are wrong, we either miss a trade or get stopped out, and we look for our next setup.
Pretty simple when you look at it that way! A little bit of patience goes a long way in trading... I learned that from Uncle Tom!
Be Prepared!
Mathew Barnes
|