Strategic trade
Trade view / 04 October 2016 at 9:48 GMT

Analysing EURUSD moves

Analyst / PIA First
United Kingdom
Background

There are more automated Black Box trading systems in the market place than ever before, which will be quicker to react to any signal that we ‘see’. There are also, I am told, A.I. (Artificial Intelligence) programs that learn from their mistakes. Scary stuff! With this in mind, it is essential that we stick with our ‘edge’ drawn from years of experience and qualifications even in times of draw-downs. 

So the question that I ask today is, what is more important, Predictive Analysis (Fibonacci levels, trend channels, Gartley patterns, Elliott Wave etc.) or Reactive Analysis (Price action, reversal formations, continuation patterns, exhaustion points)? The answer for me is a combination of both.  

Predictive

We have developed a ‘grey box’ system that highlights support and resistance. The reason it is not a Black Box is that it is not automated but relies on the ‘analysts’ interpretation to produce predictive analytical ‘calls’ or trade ideas. History, or our profit and loss performance, shows it works more often than not. Is there a way we can improve the performance? I think so. 

Reactive

Combining price action with our highlighted support and resistance should benefit the long-term outcome. What we are looking for is normally a combination of DeMark correction or exhaustion counts, reversal pattern (Outside Candles, Engulfing Candles, Doji Stars, High Volume (or tic) Bars) and a mild confirmation of a change of trend. This could be a slow stochastics cross, a break of EMA (Exponential moving average) or a 3 bar flip. The downside to reactive signals is exactly that, we have to wait for the market to ‘react’ first! 

Long-term picture

We should always focus on our long-term analytical formations. We also highlight, virtually every day, the ‘bias’ for the US dollar. If we can get this correct, we know we have a good chance of hitting some of the USD majors.

I am going to use EURUSD as an example and break down the time frames: 

Monthly – (Predictive) We have consolidated for nineteen months. These periods are notoriously difficult to trade as most of us ‘follow trend’. We have a Fibonacci confluence area close to parity (1.0000) and are in bearish channel. This is our prediction. 

(Reactive) – We have posted a bearish outside month in May (reactive). The combination offers a downward bias in this time frame.

EURUSD M

Source: Saxo Bank. Create your own charts with Saxo Trader click here to learn more



Weekly - (Predictive) This period of consolidation has resulted in a symmetrical triangle formation that has an eventual bias to break lower. The 161.8% extension level is at 1.0474, just below rend line support. An AB=CD formation is at 1.0661, just below the Fibonacci confluence area. 

(Reactive) – No strong signals, candle formations

EURUSD W
Source: Saxo Bank
 
Daily - (Predictive) Consolidated for thirty-three days. We are posting lower highs and building a descending triangle formation. A break of 1.1123 needed to confirm.  

(Reactive) Mixed volatile trading in this time-frame. No strong signals. 

EURUSD D
Source: Saxo Bank
 
Intraday ((Predictive) – While inside the descending triangle formation we have to be looking at selling into rallies. The obvious call is to sell into the trend line at 1.1260. This offer good risk/reward with a move down to 1.1123 expected. 

(Reactive) – However, the markets stalled and failed to break our bespoke resistance level at 1.1239. We got had a Demark correction count on 15 minutes at 1.1251 (we will always find one of these if you look to enough time frames!), four-hour chart posted a bearish outside bar using 1.1239 as the high. This is combined with a 3 candle flip formation. There was also no notable Ichimoku cloud support

EURUSD 2
Source: Saxo Bank 

Conclusion – Using purely predictive analysis this sell signal would not have been produced. A combination of ‘bias’ and price action helps in giving an overall directional trade. 

Sticking to the Rules 

As long as we stick to the rules, make note of the main trend (and when we are trading against it), don’t ignore reactive signals when they are produced (much easier said than done.... me this morning) and use sound money management (minimum of 2 units per trade), then our percentage of winners should outweigh our losses.
Good luck 

— Edited by Clemens Bomsdorf

Non-independent investment research disclaimer applies. Read more
04 October
velj velj
Ian - many thanks for that useful run through of your approach at PIA. I have been following you on here for some time as all of my passion and learning neatly fits your general methodolgy. I totally agree that a combination of predictive and reactive measures presents the greatest edge, especially when combined with multi-time frame analysis. I might be wrong, but you are the only ones out there combining PA, Fibs, Measured moves etc, EW and Ichimoku. ForexAnalytix also combine a lot of the above but yours is presented in such an easy to view and understand way that it gets my vote.
04 October
velj velj
Just out of interest, do you publish any performance figures ?
04 October
Ian Coleman - First 4 Trading Ian Coleman - First 4 Trading
Thank you Velj. I really appreciate the feedback. Our performance report can be viewed here (October to be updated - approx 450 pips in FX). http://pia-first.co.uk/performance-report . Struggled a far amount in these markets. Hopefully we will get some sustained trends now
04 October
velj velj
Thanks - I think we have all struggled. A lack of any real direction across the board about sums it up. At least we'll be ready for those trends when they do arrive. What I have noticed this last year has been a real lack of any central bank divergence that used to make our lives a lot easier as well. That's led to a lot of these meaningless moves.
04 October
Ian Coleman - First 4 Trading Ian Coleman - First 4 Trading
True. I also think that the Brexit fears are overdone. Figures have been substantial since the decision (I understand it can take a while to filter through). PMI was very solid today.

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