PROJECTED PENNANT FORMED ON EURO USD DAILY CHART - STRONG BREAKOUT AHEAD?




This pair has now formed the predicted Pennant Setup on the Daily Chart and has now resumed the bearish breakout from the larger Pennant Consolidation. There had been an initial Counter Trend Line (CTL) Setup that was broken in an attempt to resume this downtrend, but because of the weak nature of the candles and the subsequent Bullish Candle, a Pennant was forecast to be formed. This tends to happen when CTL breaks are weak and knowledge of this dynamic of the market can be used to avoid pullbacks that can take out trades.


GENERAL MARKET PATTERN

As can be seen in the chart below, a break out has started from the large Pennant formed in the aftermath of the Financial Crisis and safe-have flows of 2008.


DAILY CHART - PENNANT CONSOLIDATION


Given the size of this Consolidation and the general theory behind Consolidation Breakouts, the gains for the USD are likely to continue for the rest of the year as we head towards the next major Support of 0.8230.


DAILY CHART - FORECAST BREAKOUT TARGET


The chart below shows the break of a CTL setup that appeared set to lead to another bearish move as part of this major breakout.


DAILY CHART - COUNTER TREND LINE BREAKOUT


The initial breakout candle was bearish but was too weak to justify entry. This was followed by an opposing Bullish Candle that took out that Bearish Candle. Reversals like this tend to take place when initial breakout signals from Counter Trend Lines and Consolidations are too weak. These weak signals are normally followed by reversals that take them out which can lead to;

1. A Stronger Signal
2. The Formation of another setup
3. A Trend Reversal

Given the strength of the overall downtrend, the formation of another setup in the shape of a Pennant was predicted - the norm with weak breaks of Counter Trend Lines.


DAILY CHART - PROJECTED PENNANT & BREAKOUT


After pulling back higher and then U-Turning bearish, the formation of the Pennant was completed a few days ago. This was then followed by a break of the Support that could now lead to the resumption of the downtrend.


DAILY CHART - PENNANT FORMED



MARKET FORECAST

Having formed this Pennant and now broken the Support, there are two possibilities that lie ahead. Given the weak nature of the breakout candles, we could have yet another reversal that leads to another, stronger Consolidation Setup.


DAILY CHART - LARGER PENNANT TO BE FORMED?


On the other hand, this downtrend has been characterized by weak candles which have still led to profitable moves since it began in May of 2014. As such, it is very possible that the current small candles lead to another round of 400 Pip gains for the USD towards the end of April (the average Weekly Range for this pair).


DAILY CHART - BREAKOUT PROJECTION


SWING TRADERS GUIDE


Although a profitable move may come with these weak candles, the guidelines for the Swing Trading Methodology remain the same - only trade strong breakout Setups with Normal Candles. Since there will always be other Currency Pairs and stronger setups from which to choose, there will never be a need to change one’s strategy.  This market will always provide opportunities that are in sync with the Methodology and these always “compensate” for the sacrifice of letting some trades pass us by.








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    The problem is, as you may have already experienced, too many false breakouts. You see trend lines everywhere, however not all trend lines should be considered. You have to distinguish between STRONG and WEAK trend lines.

    One good guideline is that a strong trend line should have AT LEAST THREE touching points. Trend lines with more than four touching points are MONSTER trend lines and you should be always prepared for the massive breakout!

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