David, (and who-ever else who'd like to comment)

I've spotted the wedge and it's happening right now at a market-maker near you!



The context:
EUR/USD - 29/07/2008
Top red line - resistance line of downward trend.
Bottom blue line - support line of downward trend.
Middle green line - resistance line of "Falling Wedge" ???

The questions:
1) Is it just a downward trend, or is there a falling wedge in there too?
2) Should the resistance line be from the very first high in the downward trend, or could we introduce another halfway down, like I did?
3) To qualify for a downward trend, does the resistance line have to be from the start, or could it appear later?

Have I spotted this, or am I just desperate to spot something?
(Don't worry, I'm not trading real cash yet, so I'm entitled to speculate... )

If it is a FW, would it be safe to get into a SELL now, or is it too late already?

Regards,
Euan.

hi euan,

thanks for sharing that chart. regarding resistance, i maintain a firm "three touch" rule -- meaning the same line has to be tested and held three times. From my perspective, you have two resistance lines there, and so I wouldn't personally feel comfortable with it as neither line gets tested three times -- only twice.

another thing to consider is time frames. i see that you are using a 20 minute chart. you may find it useful to look at some other time frames, particularly longer time frames (like hourly), to see what the trend looks like there. generally speaking, the shorter the time frame, the less reliable the trendlines tend to be.

Simon,

The chart is on 60 minutes. I used to look at 5 minutes and 1 minute until you advised me to look at the bigger picture in a previous post, hence the hourly chart.

The support line is about to be tested the third time in the chart and at the time of writing this post, it actually has touched it again and bounced off, so that makes 3 for support on a downward trend.

So I gather you'd not be comfortable with this trade, due to the resistance line(s) have only being tested twice. Would the fact of the lower high, not then point to a "Falling Wedge" and in time a reversal of trend?

Thanks for your input though.

Euan.

hi euan,

the support line definitely seems to be solid, and the fact that we have decreasing relative tops (meaning the highs are getting lower) is a good sign of a downward trend, in my opinion. i'm personally a bit uncomfortable with shorter time frames and would like to see more indicators confirming a trade opportunity. though i think if it can break that support line it might be a nice opportunity to ride the trend and short EURUSD.

i trade more longer term, and i am still bullish on EURUSD -- waiting for it to break past 6000 again. of course there are many opportunities i am missing out on by being so conservative. this might be one of them!

Simon,

Cool, so I've got something here... that's great!

I get what you're saying about when it breaks the support line, I should SELL, but how about waiting for it to test one of the resistance lines again, bouncing off it and head back down.

I was thinking of SELLing then too, closing next time it bounces off the resistance, or if it breaks through, I'll just keep on going like mentioned above.

So there's no wedges here? Or is it too soon to tell?

Euan.

Hi Euan,

Thanks for posting your analysis here it is always interesting to see what others are looking at.

As for the wedge, while I can see where you are coming from I probably wouldn't focus on that particular pattern, even though technically I think you could say that is a wedge. My reasoning here is that it is not well defined enough yet.

One thing that I think you will find about technical analysis is that different people are going to have different opinions about the same chart, which is one of the good things about posting your charts here so you can here multiple people's opinions.

If I can give you a general piece of educational advice, the first step I think most successful traders take, before even thinking about a potential trade in an instrument, is to get a big picture overview of the market. They do this so they have an understanding of where the major levels are in the market that others are watching, so they can anticipate what the market is likely to do around those levels. As an example, lets say I was daytrading the EUR/USD and thinking about a short position off of a pattern that I see on the 5 minute chart. Although it may not show up on the 5 minute chart, there is a major trendline support level which is on the daily chart just below where the market is right now. So even though I am day trading and not picking trades off of a daily chart, it is still important to know what is going on in the longer term timeframes and what the major levels are that people are watching.

Once a trader understands this, then he or she can make trading decision with the full picture, instead of just one piece. There is a video below on this, which I encourage you to check out if you have not done so already.

Day Trading Lesson 6: Multi Time Frame Analysis

Lastly, there is a thread below where we focus on the EUR/USD specifically, so if you would like to post any analysis or questions relating to the EUR/USD there in the future feel free to do so.

David's EUR/USD Chart's of The Day Discussion Thread

Best Regards,
Dave

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Disclaimer: Trading is risky and can result in substantial financial loss. As always my posts are simply one traders opinion and should not be taken as trading advice. I am not a financial adviser so everyone please do their own analysis and take responsibility for their own trades.

It looks like you might have a double bottom corresponding to where you drew support.

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Shaun Overton
OneStepRemoved.com
Strategy and Automated Trading Development