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exceptionally clear currency setup
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exceptionally clear currency setup

by ScottApril 15, 2012

Long time no post.

I have no idea about the $spx market direction, and the only thing to add beyond what Mole has already covered with previous posts is that it is also a retest variation buy as well as an inside day, triggered on break of the daily high.

There is, however an exceptionally clear setup on AUDUSD, which as we all know, is really $spx without the sneaky games.

So my operating theory is that since AUD opens first, Sunday night for you Norteamericanos, we should get a little clue before the shit goes down.

As you can see we have a very clear channel, with a very clear break to the upside. Note that the candle making the break had an open at the lows, close at the highs, with an expanded range. What this indicates is that the bulls were firmly in control all day, and finished the day in control.

At this point the highest probability is for increased upside, after a retest of the channel line to shake out the weak hands, which is *exactly* what we have.

We have a retest variation buy setup, triggered on break of the high. In this instance I think it would be permissible to scale into a long position at the open with a super tight stop a few ticks away, 1 tick below the daily low. I would personally increase that position on break of the daily high.

So conceptually what is happening here? We have a binary outcome. The highest probability is for an extended move to the upside, which you DEFINITELY want to be on. Why is it the highest probability? The bears have been in control for a whole month, and have driven price down, but in a choppy inconclusive fashion. If the bulls wrest control back you can expect a move lasting longer than a few days.

The other option, the LOW PROBABILITY OUTCOME, is that the break to the upside was a false break. If that was the case then buying pressure could be exhausted and the bears can have an opportunity to catch the break buyers wrong way, and force them to sell into weakness, driving price down in a feedback loop.

Remember that low probability outcomes catch participants wrong way, and cause expLosive moves.

What are the odds? Who cares! Just trade the setups as they appear.

Scott


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