Breakout candle

Trading the Breakout

Unconfirmed Breakout candle

In the Asian Forex trading session

the Euro traded up to 1.2525 but then market started to move down sharply due to the market news about Spanish bond yields (see 5 min chart).

Daily Double Top pattern

5 min Market News Trading

hourly Timing Setup

From the chart technical perspective the Euro formed a bear flag at about 8 a.m. GMT on the 5 min chart before resuming its down trend.

The Euro breached the weekly S1 and the monthly low of March 2009 initially after the 8 a.m. hourly candle closed at this level (red circle) and the new hourly candle started (Breakout Timing for Trading; 9 a.m. market news).

The strong bearish 5 min "news" breakout candle at 9 a.m. triggered the market order stops below the recent lows, particularly the low of the 8th of June at 1.2435 (pink line) and the stops below the March 2009 support level at 1.2456, which held the market this week.

However, the breakout candle at 9 a.m did not get confirmed on the 5 min chart (no close of the succeeding candles below the range of the breakout candle).

 The Euro found support at the daily S2 and the 61.80 % Fibonacci Extension (A-B at C) on the daily chart (stop clearing below the recent lows accomplished- first test).

The 5 min candle at 9:15 a.m.breached the daily S2 but closed above it and also in the range of the prior breakout candle and the Euro started to consolidate around the 1.2435 level (pink line-June 8th).

On the 5 min chart we see that the Euro found resistance at the pink line before breaching it to the upside.

The Euro closed above the daily S1 at 12.15 but found resistance at the weekly S1 so that market fell back into the consolidation around the pink line.

Neckline of the Head and Shoulders

Hourly Pin Bar

Test of the Neckline

Pin bar as Reversal pattern

The Euro found support at 1.2445 and formed a pin bar on the hourly chart. The bullish pin bar is a reversal pattern and it shows a strong demand at its level of creation. Hence, market was supported at this level and the strong rally back indicated a bullish rejection of the penetrated price level. The pin bar (bullish sign) led to some follow through and the Euro moved up to the 1.2500 zone

However, on the hourly and 5 min chart we see a kind of Head and Shoulders pattern. The brown neckline of the Head and Shoulders and the supporting upward sloping green trend line got broken at 1:15 p.m. GMT (confirmed on the 5 min chart).

1 hour Pin bar

5 min Head and Shoulders neckline test

As often, market retested the recent support which now became resistance (neckline, green line) at 1:35 p.m. (small red circle). However, the neckline/ green trend line held the market, which also coincided with the 5 min 20 SMA and 61.80 % Fibonacci (fib) retracement of the recent swing down.

The Euro initially moved down after the retest but market did a second retest of the brown neckline (green circle) after market got rejected at the 61.80 % fib extension and weekly S1 at 2:15 p.m. (pink circle).

If market strongly bounce back from the 61.80 % fib extension (no initial penetration or consolidation at this level then a temporary rejection of the current trend on this time frame is likely (either a reversal or a larger consolidation).

However, the Euro could not move above the neckline (green circle) and market resumed its downtrend and finally the Euro reached the Head and Shoulders target (100 % fib extension from the largest swing of the Head and Shoulders moved to the breach of the neckline) (blue cirlce).

Head and Shoulders target also coincided with the March 2009 support level and the 100 % Fibonacci  (fib) extension from the recent swing down. The Euro moved up from there but market penetrated this support level with the beginning of the new 4-hour candle at 4 p.m. after the prior hourly and 4-hour candle already touched (respected) the monthly low of March 2009. However, market only temporary breached this level (brown circle) and the Euro found support at the fib confluence level at about 1.2447 and the daily S1.

The Euro hold at the two 100 % fib extension and the 61.80 % fib extension (rejection) and market closed again above/ at the March 2009 support level (rejection). The Euro resumed its uptrend after the formation of two bull flags (first one at the 5 min 20-SMA resistance).

The price zone of the consolidation at 1 a.m. and at 6 a.m. (on the left of the 5 min chart) gave some support/resistance to the market as the Euro reached this price zone again.