DXY (US DOLLAR) ON TRIAL - PART 2 -"PRESENTING THE EVIDENCE"
It is my belief based upon watching all the chatter on the Forex public forum that traders pick a time frame to trade and look for a place to enter the market. The choice to enter any market should not be the traders' first choice but the last option. Before deciding to enter any market, the trader should first build up a high-quality case before placing a trade; It's like putting the market on trial.
The trial process should go like this:
First, present the opening statement by reading the market structure.
Second, present the evidence by looking at the shorter-term time frame
Third, present closing arguments by identifying support and resistance
Fourth, enter to the verdict by taking a trade position
In this tutorial, I want to present the evidence of what price action is doing by moving down in the time frame from the monthly time frame to the daily time frame.
The first thing I do in analyzing a currency pair is to go to the monthly time frame. From the monthly time frame, I can determine the major support and resistance areas. These support and resistance areas represent the boundaries for which price action moves. Until long term trading psychology changes price will bounce off support and move to resistance and will bounce off resistance and move to support. Knowing the long term trading psychology, I now know how long to expect a trend to last.
The next thing I do is move down to the daily time frame to determine price action over the short term. This first thing I notice when looking at price action on the daily time frame is the price has bounced off major resistance and started to move lower. I also see there is a short term area of support. This support area is a horizontal line drawn from swing point #1 and swing point #2. Recall it takes two swing points to draw a line, whether it is flat or sloping up or down. I then noticed price moved down to this short term support line and bounced off it (see swing point #3). This swing point confirms the support line. I then notice the price tried to move higher but quickly reversed back down due to a lack of buying interest. Price action then moved back down to support and formed swing point #4. The swing point is an indication there is not sufficient selling interest to move price below this price level. At this point, buyers seeing the lack of selling interest now jump back into the market and pushes prices higher. However, buyers ran out of buying power at swing point #5 and formed a double top at swing point #6. At this time, sellers jumped back into the market and drove prices down to swing point #7. Buyers now seeing prices below the short term support area believe DXY now oversold and jump back into the market and drove prices back up to swing point #8. The tug-of-war type price action continued with swing points #9 and #10 knowing that swing point #10 is not yet complete.
The evidence I have discovered by reviewing price action on the daily time frame is the price has moved up to major resistance, has bounced off major resistance, and started to move lower. However, price action is trying to maintain a price level near major resistance as an area of real value at the short term horizontal support line.
Once buyers and sellers have settled with the short term horizontal line representing the real value of DXY and that there is not sufficient buying power to move price higher, the market will start to take profits, and that will cause DXY to start moving lower.
What I want to be here is a seller. However, I also want to wait for the price to move below the short term horizontal support line, retest short term support as new short term resistance, and then bounce off new resistance. Once price action bounces off new short term resistance, I would be in a position to consider placing a short position in DXY.
The trial process should go like this:
First, present the opening statement by reading the market structure.
Second, present the evidence by looking at the shorter-term time frame
Third, present closing arguments by identifying support and resistance
Fourth, enter to the verdict by taking a trade position
In this tutorial, I want to present the evidence of what price action is doing by moving down in the time frame from the monthly time frame to the daily time frame.
The first thing I do in analyzing a currency pair is to go to the monthly time frame. From the monthly time frame, I can determine the major support and resistance areas. These support and resistance areas represent the boundaries for which price action moves. Until long term trading psychology changes price will bounce off support and move to resistance and will bounce off resistance and move to support. Knowing the long term trading psychology, I now know how long to expect a trend to last.
The next thing I do is move down to the daily time frame to determine price action over the short term. This first thing I notice when looking at price action on the daily time frame is the price has bounced off major resistance and started to move lower. I also see there is a short term area of support. This support area is a horizontal line drawn from swing point #1 and swing point #2. Recall it takes two swing points to draw a line, whether it is flat or sloping up or down. I then noticed price moved down to this short term support line and bounced off it (see swing point #3). This swing point confirms the support line. I then notice the price tried to move higher but quickly reversed back down due to a lack of buying interest. Price action then moved back down to support and formed swing point #4. The swing point is an indication there is not sufficient selling interest to move price below this price level. At this point, buyers seeing the lack of selling interest now jump back into the market and pushes prices higher. However, buyers ran out of buying power at swing point #5 and formed a double top at swing point #6. At this time, sellers jumped back into the market and drove prices down to swing point #7. Buyers now seeing prices below the short term support area believe DXY now oversold and jump back into the market and drove prices back up to swing point #8. The tug-of-war type price action continued with swing points #9 and #10 knowing that swing point #10 is not yet complete.
The evidence I have discovered by reviewing price action on the daily time frame is the price has moved up to major resistance, has bounced off major resistance, and started to move lower. However, price action is trying to maintain a price level near major resistance as an area of real value at the short term horizontal support line.
Once buyers and sellers have settled with the short term horizontal line representing the real value of DXY and that there is not sufficient buying power to move price higher, the market will start to take profits, and that will cause DXY to start moving lower.
What I want to be here is a seller. However, I also want to wait for the price to move below the short term horizontal support line, retest short term support as new short term resistance, and then bounce off new resistance. Once price action bounces off new short term resistance, I would be in a position to consider placing a short position in DXY.
Comment:
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