Al Brooks | Jul 14, 2016 09:18AM ET
The EUR/USD 60-minute chart broke strongly up 2 hours ago, but the pullback has been big as well. This is a Big Up, Big Down pattern. It disappoints the bulls and creates confusion. Confusion is a hallmark of a trading range, and that is what will likely develop over the next couple of hours.
The EUR/USD daily Forex chart is still in its 4-week trading range. The bulls see yesterday’s rally as the move up from a higher low major trend reversal. The bears see it as part of a bull leg in a month-long bear flag. When both the bulls and bears have reasonable arguments, traders conclude that they are equally strong and that the market is in a trading range.
While there might be one more leg down to below the June 24 sell climax low, bulls will probably buy the bear breakout. This is because the daily chart is at the bottom of a 4-month trading range and 80% of trading range breakouts fail. The bears need a strong break below the March low and even the December low before traders will believe that the bear trend has resumed.
h3 Forex scalping while waiting for the breakout/h3Until then, most days will have a lot of trading range price action and Forex day traders will continue to mostly scalp. See yesterday's post for examples of the kinds of entries day traders are taking for their scalps.
h3 European session/h3The EUR/USD rallied 60 pips about an hour ago. This is a buy vacuum test of the top of the month-long trading range. It has pulled back about 50% over the past 30 minutes. The bulls want a 2nd leg up and the bears want a reversal down.
This is a Big Up, Big Down candlestick pattern. It is a sign of confusion. As a result, it usually leads to a trading range and a Breakout Mode setup. The bulls want a bull flag and 2nd leg up. The bears want this to be a climactic top and the start of a swing down. The location is good for the bears and the momentum is good for the bulls. Each has a 50% probability. The trading range usually lasts at least an hour or two, but it might last all day. Traders will be ready to swing trade, but will probably scalp over the next hour or two. As a result of most days over the last month being trading range days, the odds are that today will end up as mostly a trading range day.
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