The EUR/USD continues to have a volatile 2011 trading year. May 4th brought our current yearly high, residing at 1.4938. Since this point on our chart, the EUR/USD has steadily moved to lower lows indicative of a downtrend. Today’s price action has taken the pair below the previous low of 1.3144 created on October 4th. A break of this point creates fresh lows, symbolizing a continuation of the trend. Traders are looking to move on this break, and look for entrys as the market gathers momentum with a downward bias.
Zooming in on the EUR/USD 4H Chart, we can see the development of a price channel. A price channel is considered a continuation patter defined by parallel support and resistance lines. Resistance has been formed by connecting our November 8th, 14th and subsequent December highs. Support can be found by connecting the November 1st, 10th, 25 lows.
As our price channel is descending, traders should look for opportunities to sell with the direction of the trend. Traders may choose to utilize entry orders near resistance or the confirmation of an oscillator when trading channels. Either way, the trader may continue to trade the pattern as long as price remains between our pre-defined levels of support and resistance.
My preference is to sell the EUR/USD at resistance of our price channel on a CCI crossover. Entrys should be near the 1.3300 level. Stops should be placed over 1.3375. Limits should look for a minimum 150 pips profit for a clear 1:2 Risk Reward ratio.
Alternative scenarios include a possible break of our channel lines.
Additional Resources
---Written by Walker England, Trading Instructor
To contact Walker, email instructor@dailyfx.com. Follow me on Twitter at @WEnglandFX.
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