The 30-minute EUR/USD has alerted a Channel Down pattern on the PRS. Before I jump into any pattern there are a few criteria that have to be met. First of all, remember that the PRS is not a system therefore each alert (Emerging or Complete) must be checked for the following:
1. Is it developing within the correct market cycle?
2. Is the market cycle also in agreement with the current 34EMA Wave angle for that time frame?
Once that is determined, the pattern can then be considered for a potential trade entry. The entry strategy is going to be determined by not only the pattern but also the market cycle it is developing within. So the market cycle must then be confirmed by the Initial Trend reading and then we’ll use the market cycle to determine the best entry.
Considering that let’s take a look at the PRS alert window for the EUR/USD’s Channel Down.
Channels are trending patterns and this Channel Down does have lower highs confirming downtrend resistance. This is the “backbone” of the move lower more so than lower lows would be because what we want to focus in on is where the selling pressure comes in where the downtrend corrects to when it bounces.
*Results are not guaranteed, individual experiences may vary. Past performance is not indicative of future results
The backbone on the 30-minute chart (R) is currently at the 1.3392 level. This resistance is not only the top line of the pattern but also situated just below the “big figure” or psychological level at 1.3400. The “00” area is not necessarily exactly where selling pressure will come in but likely where is will start to build. It could extend higher or begin lower than the actual “00”. In this case the recent high at 1.3409 (H) shows where the bounce exhausted. This high as well as the 1.3358 low (L) are going to be very important levels moving forward and this is because of the current Initial Trend reading and what it indicates the market cycle is doing.
Notice that the Initial Trend reading is five bars. Now I want to add that this is a current alert and I have no idea what is going to happen next so the great part is that we can see how this unfolds together. (Perhaps even discuss it tomorrow night at the weekly IBFX live webinar!) The downtrend that was once strong on the 30-minute chart has transitioned and while there is still weakness there is also some transition to a more sideways angle that can be seen. This is for two reasons. First there is strong support around 1.3370 (despite the move the 1.3358) and it’s currently the mid-day doldrums. Take a look at the drop-off in pip range during the hours between 12 EST and 6.
*Results are not guaranteed, individual experiences may vary. Past performance is not indicative of future results
These hours are among the lowest in term of pip movement due to the New York lunch, and more importantly, the fact that Frankfurt and London have left for the day.
Time and the transition to a more sideways, volatile range - as confirmed by the Initial Trend and 34EMA Wave (see below) - are the culprits. Therefore I believe the entry strategy is to fade (short sell) exhaustion at the top of the range between the Channel Down’s resistance and the 1.3409 near term high.
*Results are not guaranteed, individual experiences may vary. Past performance is not indicative of future results
I’ve magnified the area where you can see there is a move to a more sideways 34EMA Wave angle as opposed to the more “four to six o’clock” angle earlier. It’s a subtle shift but when the five bar Initial Trend points to a transition that can be the signal to check on the current angle of the market. Remember that just at the near term high could trigger exhaustion on a move higher, so could the near term low at 1.3358 and the support around 1.3370 trigger exhaustion on a move lower. The key to the continuation set up on the Channel Down will then be how strong the pattern’s backbone and near term high at 1.3409 will be in keep pressure on the pair.
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