Breakout Confirmation

Un-/ Confirmed Breakout Candle

Fib Retracement and Fib Extension

Failed Breakout candle

On the hourly chart we see that we consolidated (ABC) again "overnight", however, this time we broke the consolidation to the upside, which lifted the market up to the daily R1 at 1.26 (D) before market turned around and breached yesterdays low (orange line-E). Market found some support at the weekly S2, daily S1 and the 100 % fib extension (Z-A at D) in the American session.


The red line on the hourly chart shows the important low (23 May) after the recent impulsive move down. Yesterday's two breakout candles (at 8 a.m. and 6 p.m.) did not get confirmed by a lower close of the succeeding candles below the range of the breakout candles on the hourly chart. The purple line shows the low of the second  breakout candle which did not get confirmed by a close below this line/candle during the consolidation. This non confirmation might be a reason for the upside breakout of the consolidation.

1 hour Explaining Technical Chart Analysis

The following upside swing on the hourly chart above (7 a.m.) respected the 61.80 % fib retracement from the prior down swing (Z-A) with the close of the 8 a.m. hourly candle (F) at this level (1.2582) before the succeeding hourly candle made a false breakout (closed inside of the body of the preceding hourly candle and no Breakout Confirmation on the 5 min chart).

Today's high was the end of the larger three wave consolidation pattern (triangle ZCD green lines)) which started after yesterdays false breakout at 9 a.m, where price turned around in a V shape pattern at the support level + 61.80 fib extension.

5 min Understanding Technical Chart Analysis in Forex

On the 5 min chart we see that the breakout candle at 9:10 a.m. (1) (after the prior hourly candle closed at the 61.80 % fib retracement) did not get confirmed. Market consolidated between 10 and 11:15 a.m. and price broke down and moved to the 100 % fib extension (ab=cd)  at (2). The prior consolidation gave resistance to the following upside swing (3) and market reversed and went down with strong momentum. We see that market tried to defend the red line (low from two days ago) (4), however, market dropped down strongly at 1:25 p.m..

The Euro breached yesterday's low (orange line) but the two breakout candles did not get confirmed and market created a kind of wedge pattern. The 1 p.m. hourly candle respected (closed at) the weekly S2.

During the new trading hour (2 p.m.) market got pushed down by the decreasing 10 SMA and breached only temporarily the weekly S2 to bounce back at the daily S1 to trigger the wedge pattern breakout to the upside (5). The up move found resistance in the price zone of the small consolidation, the 200 SMA and particularly the red line (6).

False/ True Breakout

True or False Breakout Trendline Break

Breakout Candle Confirmation

Weekly Support/ Resistance Forex Trading

Trendline Analysis

On the weekly chart we see that we breached the weekly low at 1.2588 in 2010 and the January low 2012. The recent trendline (green) could not hold the market after the trendline got respected last week. 

In general a trendline is stronger when the test of  it is not so early after the trendine got created. In this case the trend line came into existence due to the January low 2012 combined with the low in 2010 and the trendline got already tested in May 2012 (much to early to give strong support). EUR/USD is now clearing the stops below these lows.

Daily Head and Shoulder target

On the daily chart we see that market reached the classical Head and Shoulders target (see also EUR/USD Market Analysis (15.05.12))  at about 1.2554. Furthermore this price zone is likely to provide some support due to the 161% fib extension from C-D at E, the 61.80 % fib extension from E-F at G. The clearing of the stops under the recent lows is a typical target of price movement and can give some support - manipulative stop clearing accomplished.

1 hour Trendline Break Signal

Breakout Trading 

The Difference between true and false breakouts

We had a similar consolidation (blue circle) like yesterday (EUR/USD Market Recap 22.05.12)(green circle). Both 3 wave consolidations had a lower point B and higher point C, which often precedes a strong trend continuation. Point B slightly breached the recent lows (blue and pink line) and the weekly S1, monthly S3 but the hourly candle closed at the monthly S3.

So the first breakout lower failed (5 min chart) and market moved up to point C slightly above point A. This false breakout caught many breakout traders to early who had there limit orders below the low of yesterdays strong daily downward candle.

However, market did not confirm the first breakout and turned around at the recent lows + the weekly S1, monthly S3 after the slight breach at 9 a.m. GMT and closed above the recent high (point A) to trigger some of their stops (point C). At point C market finished the 3 wave consolidation at the resistance of the 20 SMA (purple line) and went down for the second true breakout.

In the Asian session at 1 a.m. GMT the monthly S3 got already touched (weaken), which increased the chance of at least a breach of this level.

The 2 p.m. hourly candle respected (closed at) the monthly S3 just before the true breakout occurred (Breakout Timing). The  decreasing 10 and 20 SMA (red and purple line) also provided resistance and pushed price down.
 

5 min True/ False Breakout Confirmation

On the 5 min chart we see that the breakout candle 1 at 9.10 a.m. occurred just after the prior 5 min candle touched the low from 18th of May (blue line). However, this breakout (blue line) did not get confirmed and market also did not accomplish to close below January's low (pink line) so that market reversed and triggered some stops of the breakout traders by creating the new high.

However, the false breakout weaken  the the confluence support level of the monthly S3, weekly S1, daily S1 and the lows of the 18th of May and January due to the breaching so that the second breakout had a high chance to break this support level.