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In my last article for the Trading Tutors Newsletter on February 11, 2011, I spoke about the US Dollar “Hanging in There”, despite a lot of negative talk regarding this currency. I also spoke about the wedge formation that the US Dollar/Yen (FXUSJY in ProfitSource) was trading in at the time.
That was two weeks ago, and we are now starting to see some signs of movement – the US Dollar (at time of writing, Wednesday February 23, 2011) has broken out of the wedge formation and is currently sitting just on top of the upper line of the old wedge formation – a bullish indication. This is shown in Chart 1 below. Chart 1
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If this market can stay above the upper line of the old wedge formation, we could have a case of old resistance becoming new support.
If we zoom in a little bit closer to the market action, we can see that the weekly swing chart has currently made a 50% retracement of the previous range. WD Gann wrote that you could make a fortune by trading off the 50% rule alone. This is shown in Chart 2 below. Chart 2
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In Chart 3 below, I am using the Split Screen mode in ProfitSource to display the trend of the US Dollar/Yen on the one day, two day, three day and weekly swing charts. Chart 3
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You can see that even though the one day swing chart shows an uncertain trend, the other, more major swing charts are all showing a clear uptrend on the bigger picture.
To me, this weight of evidence suggests that if and when the US Dollar does break out of this consolidation pattern, it is looking likely to be to the upside – for now.
Those following the Australian Dollar against the US Dollar (FXADUS in ProfitSource) might also note that the Australian Dollar has been tracking in a sideways range since November last year. Should the US Dollar break out to the upside against the Japanese Yen, I would expect it to gain strength against the Australian Dollar as well, which points towards a breakout to the downside on the FXADUS chart.
Determining the Trend from a Multi-Day swing chart and dealing with the bigger picture or seasonal ranges is work covered in David Bowden’s Number One Trading Plan manual and also taught at Safety in the Market’s 3-Day Interactive Trading Workshop.
These techniques can assist you in removing a lot of the noise from the chart and also in determining the trend of the market.
Be Prepared!
Mathew Barnes
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