On the monthly chart, you can see that EURUSD had a very clear head and shoulders top reversal pattern that has been confirmed on the retest.
Reasons to short:
1. Price Action: We see the price hit the neckline of the head and shoulders pattern and continued downward. This confirms the head and shoulders AND 61.8% fib resistance. This is ugly.
2. Fib: Rejected by 61.8% fib resistance, which gives us a target at 123% - 138% fib (roughly .70 and lower)
3. Pattern: Confirmed head and shoulders. From this pattern alone, we take the top of the head to the neckline to get a target of 25% lower than the neckline. You can use this target as the first take profit zone and the 2nd target from the 61.8% fib.
4. Volume: High sell volume at the confirmation of the head and shoulders retest. After that, you can see that buying volume increased UNTIL we hit the 30 month moving average, and then rejected again.
5. Risk Reward Ratio: A great entry would be on the upper trendline that has suppressed the price 4 times in the past. As with all down trends, expect rallies BUT expect every rally to fail which is why you want an entry at the top of that rally. I am not sure when or if it will hit the top of that trendline, but when it does, that entry location will determine the risk reward (see down arrow with question market). To trade this properly imo, you could enter now but the stop would need to be above the upper trendline which really affects the risk reward ratio. For a more aggressive trader, you could enter now and set your stop above the 30 month moving average. Personally, I'd wait until it hits that top trendline to sell.
6. Indicators: OsMA and Stoch are bearish. OsMA is showing a possible unconfirmed crossover which I think could give us a small rally that we could use to get a nice entry.
7. Moving Average: Last month shows that EURUSD clearly got rejected from the 30 day moving average.
Reasons to short:
1. Price Action: We see the price hit the neckline of the head and shoulders pattern and continued downward. This confirms the head and shoulders AND 61.8% fib resistance. This is ugly.
2. Fib: Rejected by 61.8% fib resistance, which gives us a target at 123% - 138% fib (roughly .70 and lower)
3. Pattern: Confirmed head and shoulders. From this pattern alone, we take the top of the head to the neckline to get a target of 25% lower than the neckline. You can use this target as the first take profit zone and the 2nd target from the 61.8% fib.
4. Volume: High sell volume at the confirmation of the head and shoulders retest. After that, you can see that buying volume increased UNTIL we hit the 30 month moving average, and then rejected again.
5. Risk Reward Ratio: A great entry would be on the upper trendline that has suppressed the price 4 times in the past. As with all down trends, expect rallies BUT expect every rally to fail which is why you want an entry at the top of that rally. I am not sure when or if it will hit the top of that trendline, but when it does, that entry location will determine the risk reward (see down arrow with question market). To trade this properly imo, you could enter now but the stop would need to be above the upper trendline which really affects the risk reward ratio. For a more aggressive trader, you could enter now and set your stop above the 30 month moving average. Personally, I'd wait until it hits that top trendline to sell.
6. Indicators: OsMA and Stoch are bearish. OsMA is showing a possible unconfirmed crossover which I think could give us a small rally that we could use to get a nice entry.
7. Moving Average: Last month shows that EURUSD clearly got rejected from the 30 day moving average.
My goal is to find the best risk:reward setups. For instance, if you risk $1,000 at a chance to make $5,000, you can afford to be wrong 4 out of 5 times and still not lose money. I hit my targets over 50% of the time.