News & Analysis at your fingertips.

We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site.

0

Notifications

Notifications below are based on filters which can be adjusted via Economic and Webinar Calendar pages.

Live Webinar

Live Webinar Events

0

Economic Calendar

Economic Calendar Events

0
Free Trading Guides
Subscribe
Please try again
EUR/USD
Mixed
Oil - US Crude
Mixed
Wall Street
Mixed
Gold
Bullish
GBP/USD
Mixed
USD/JPY
Bearish
More View more
Real Time News
  • US Dollar Head and Shoulders Pattern, Focus on USD/CAD, NZD/USD https://www.dailyfx.com/forex/analyst_picks/todays_picks/james_stanley/2021/01/25/US-Dollar-USD-Head-and-Shoulders-Pattern-Focus-on-USDCAD-USD-CAD-NZDUSD-NZD-USD.html https://t.co/FzJjpcePv3
  • Indices Update: As of 19:00, these are your best and worst performers based on the London trading schedule: FTSE 100: 0.30% Germany 30: 0.29% France 40: 0.27% US 500: 0.17% Wall Street: -0.24% View the performance of all markets via https://www.dailyfx.com/forex-rates#indices https://t.co/iV9dAbK0YI
  • $AUDJPY fell to an intraday low around 79.77, hitting its lowest level since early last week. The pair has since rebounded to trade back above 80.00. $AUD $JPY https://t.co/hkWWiqvQGd
  • US Indices have pared some of their losses, with the S&P and Nasdaq trading back in the green. DOW -0.19% NDX +0.39% SPX +0.17% RUT -0.76% $DOW $QQQ $SPY $IWM
  • USD/MXN is in the midst of a bullish breakout from a short-term falling wedge pattern, but this plots in the midst of a much longer-term falling wedge pattern. Get your $USDMX market update from @JStanleyFX here: https://t.co/ETuevzf4vr https://t.co/ESqNfBnWzm
  • Italian PM Conte convenes cabinet for Tuesday to inform ministers he is resigning - Cabinet office $EUR Confirming earlier reports
  • Gains on $WTI Crude have stalled out this month below $54.00. The commodity is currently trading around $52.30 after falling to a two-week low late last week. $OIL $USO https://t.co/8Rq7RCrXZB
  • No notable reaction in BTPs given that resignation from Conte has been touted earlier in order to put together a new government. Also, a resignation does not necessarily mean that a snap election will be the next step as of yet.
  • The retail speculative crowd is throwing around serious weight with GameStop today, but its appetites have been showing through with the likes of Tesla and FAANG before that. The Broader $NDX to $SPX ratio seems to similarly exhibit the charge: https://t.co/43fWH81O8S
  • IG Client Sentiment Update: Our data shows the vast majority of traders in Ripple are long at 100.00%, while traders in GBP/JPY are at opposite extremes with 66.51%. See the summary chart below and full details and charts on DailyFX: https://www.dailyfx.com/sentiment https://t.co/oMldfyQvSy
3 Tip-Offs That a Sideways Market Is About To Breakout into a Trend

3 Tip-Offs That a Sideways Market Is About To Breakout into a Trend

Tyler Yell, CMT, Currency Strategist

Article Summary:There are many ways to see when price is getting ready to breakout. While no method or analysis can guarantee what will happen tomorrow, here are three ways to enlighten you as to when a big move can be developing.

Change is not merely necessary to life – it is life.

-Alvin Toffler

Traders who have witnessed a big breakout that turns into a trend want to know how they can get in on the ground floor. While we’ll never be able to know for sure exactly what will happen tomorrow, we can build an edge by noticing common traits of the market preparing for a breakout. Once you’ve understood these tells of a market about to breakout, you’ll be ready for the moves and only have to focus on where you want to exit whether the trade goes in your favor or against you.

The Three Tells Of a Soon-To-Be Breakout

This is not an inclusive list but it is rather effective. When you’re looking at a chart that looks like it’s going nowhere fast you can look for one of these three things and can either wait for the breakout or set an entry order so that you’ll get in on the action when the market is moving. Here are the three things you can look to as a prelude to a breakout:

1-Temporary Price Consolidation Patterns after a Big Move

2- Sentiment Loading Up On One Side against the Prior Move

3 – Oscillator Consolidation

Price Consolidation after a Big Move

Learn Forex: A Common Price Consolidation Pattern Before a Breakout

3 Tip-Offs That a Sideways Market Is About To Breakout into a Trend

There are a handful of consolidation patterns. Sometimes, you’ll notice price moving into a wedge with lower lows and lower highs at price looks like a compressed coil. This is a particularly exciting set-up because as price begins to make its way to the apex of the wedge, you can begin to set up your orders on either side to take advantage of the impending breakout. If you don’t like the idea of having two orders on, then it is recommended that you set up an entry order in the direction of the prior trend.

Sentiment Loading Up On One Side against the Prior Move

Sentiment has become a favorite form of analysis here at DailyFX. What we’ve found is that traders are often statistically inaccurate at buying bottoms and selling stops. This means that when a trend is in place and sentiment begins to fight the prevailing trend, a strong impulse of the direction of the prior trend is often not far behind.

Learn Forex: Sentiment has Consistently Offered Sell Signals on the AUDUSD Pair

3 Tip-Offs That a Sideways Market Is About To Breakout into a Trend

One of the easiest ways to combine sentiment analysis into your trading is with the DailyFX Speculative Sentiment Index (SSI). The SSI illustrates the positioning so that you know if many traders are loaded onto one side of the trade. The SSI is read in integers so that if the reading is ‘+4.5’, then 4.5 traders are long for every one that is short. What you want to be looking for is an overloading on one side which is counter to the overall trend. Therefore, if the trend is decidedly to the downside and you notice more traders buying than selling, you can take that as a signal that the next move of the downtrend may be a violent move as all of the traders that were long will now have to unload their position regardless of the price which further develops the trend.

Oscillator Consolidation

Many traders like to use oscillators to help clearly evaluate market direction and strength. A very popular oscillator is the MACD because it can help you see when price and momentum are either in agreement or are showing divergence which can precede a big move. When the oscillator begins to show a coiling affect along with a triangle or consolidation like we saw as the #1 reason, we can get ready for a rather big move.

Learn Forex: USDJPY has MACD Consolidation That Confirms Breakout

3 Tip-Offs That a Sideways Market Is About To Breakout into a Trend

Just like most traders use oscillators or indicators, you can use the oscillator for a confirmation of the breakout. When the breakout occurs, you can take the trade in the direction of the breakout and place your stop above the most extreme move against the unfolding trending during the consolidation patterns.

Closing Thoughts

These three patterns are meant to give you a road map. However, there are no certainties in trading so once a set-up like the ones mentioned above appear, it is important that you pre-define your risk. Once the risk is defined, you can see if the trade is worth taking to help you reach your trading goals by trading in the direction of the predominant trend.

Happy Trading!

--Written by Tyler Yell, Trading Instructor

To be added to Tyler’s e-mail distribution list, please click here.

Become a Smarter Trader Today

Lean to trade the RSI Oscillator well by taking this FREE 20 minute “Trading With

RSI” course presented by DailyFX Education. In the course, you will learn about the basics of trading with RSI by determining set-ups, exits and appropriate market environments to get the most of this trading tool.

You can instantly register for free here to start your FOREX learning now!

Here’s another great resource if you’re new to FX? Watch this video

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

DISCLOSURES