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Thomas Long, Course Instructor

We just experienced such a situation in the EUR/USD. All it takes is one event, and perhaps not even that big of an event, to push the first domino which results in all of the dominos falling over.

That event may have been the EU meeting on Thursday which resulted in an announcement of some sort, on how Greece should handle their debt issue. No matter how vague that solution appears to be, it resulted in the first set of traders closing their short EUR/USD positions. Those buys seemed to move the market up enough where the second group closed their buys which again pushed the market up enough to where soon just about everybody seemed to be hitting the exits at the same time. This actually happens quite often in the markets, but becomes personal when you were one of those who were in a sell position and got knocked off of your feet before you could figure out what was happening. As a trader, you just have to get back up, clear any potential emotional response from your mind, take a step back and take another look at the market.

Here is a daily chart of the EUR/USD. We identify a downtrend as a series of lower lows and lower highs. We are clearly in a downtrend as long as the market stays below the March 17th sell side high of 1.38172.  I also have a 4-hour EUR/USD posted below the daily chart. The 4-hour chart is also showing lower highs and lower lows. The next level of resistance would appear to be the 1.35682 sell side high of March 22nd. So that would seem to be our first line in the sand. As long as the market remains below that level, looking for sells are still the play.

eurusd 032910

But it also makes sense to make sure that you are seeing lower highs and lower lows on the time frame chart you choose before aggressively selling. That would serve as confirmation that the downtrend is still intact and that confirmation can increase your chance of success on a trade.

Keep in mind that many traders got knocked off of their feet Friday and Sunday and they all don't bounce back right away. So patience is key here. Wait for the sellers to show themselves before jumping in again. Being right is more important than being first.




DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.