EUR/USD Trading Strategies: More Trading Range Price Action Expected
Al Brooks | Apr 01, 2020 09:39AM ET
The daily chart of the EUR/USD Forex market rallied for 6 days to the middle of its expanding triangle. The rally was a buy climax and a test of the EMA and the March 16 lower high. Because it was extreme, it was a buy climax. The bulls are taking some profits and the bears are selling. Both are betting on a 2 – 5 day pullback.
Traders expect at least a small 2nd leg up to test last week’s high. Since the EUR/USD is in the middle of a trading range, traders are looking for reversals every few days.
March was almost a perfect doji on the monthly chart (not shown). It was a huge doji, but the month closed in the middle of an 8 month trading range. There is no evidence that the EUR/USD is likely to successfully break out of the top or bottom this month. Traders are expecting more trading range price action.
h3 Overnight EUR/USD Forex trading/h3The 5 minute chart of the EUR/USD Forex market sold off strongly for a couple hours at the start of the European session, but then went sideways once it broke sightly below yesterday’s low. It has been in a tight trading range for 3 hours. The range has been so tight that it has been difficult for scalpers to make even 10 pips.
Because the trading range is after a bear trend, trend resumption down is slightly more likely than a trend reversal up. But it is important to recognize that a market cannot be in a tight trading range unless the bulls and bears are equally strong. While the bears have a slightly higher probability of a successful breakout, the odds are still close to 50 – 50.
Furthermore, a tight range late in a bear trend is typically the Final Bear Flag. Consequently, even if the bears get their breakout, it probably will not get far. There will usually soon be a reversal back into the range. That reversal often continues far above the range.
Traders assume the market will not fall much further today. There is a slightly increased chance of a rally whether or not there is a bear breakout first. Currently, day traders are scalping, but most should wait for a breakout up or down.
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