AUDUSD – Testing Old Support

15 Jan - AUDUSD Weekly Forex Chart

(Click on image for larger view)

Hi Traders,

Hope the new year has been treating your well. If not, let’s start by starting afresh today now.

The chart above is the AUDUSD weekly chart. As shown above, the market has been on a slow but gradual fall since July 2011. The gradual fall was not obvious until mid 2013 and I have been taking short trades since April 2014 (see article).

Testing Old Support

One of the many things that I like about Price Action is that price seems to have strong past memories.

On this occasion, it is important for traders to first understand the basic idea of Support & Resistance (S&R). Just to be clear, I’m not saying that S&R works like magic. However, I’m saying that when the probability stacks up, magic can happen.

As I read the chart above, I can see that price is testing an old support that was last confirmed around May 2010. It was also shown that in June 2009, price did test that same support (old Resistance) but it broke above that level. In other words, that support level (~0.808) has been tested and it’s valid.

Smaller Patterns

Now that the bigger picture seems clearer. Let’s zoom into the a smaller timeframe.

 

15 Jan - AUDUSD 4 Hr Forex Chart(Click on image for larger view)

The above is a 4 hour chart. Looking at the chart above now, I can see a nice double bottom that moved slightly below the support level. On top of that, there’s also a potential inverse head & shoulder pattern. I used the word “potential” because the pattern is not complete yet (So don’t get unnecessarily excited for now).

Nonetheless, once we have a new higher high (blue arrow), that’s when we can the confirmation of a complete pattern. Until then, price is merely moving sideways.

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If you’ve read my book “The Secrets of Trading The First Pullback“, then you would also know that trading is about stacking the probabilities.

On this occasion, the probability has just increased. What else do you need to take the trade?

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