Following on from Mike’s EUR:USD post, there look to be a couple of potential set ups associated with the trend channel in Euro Aussie as well
I’ve started with the daily chart to get a big picture perspective. This shows a gently upward sloping channel following a major down trend. Channels sloping against the trend leading into them, are usually treated as potential continuation patterns.
Taking a zoomed in look at the channel in the hourly time frame, the latest rally is starting to look like a partial pull back. This is a situation where you bounce off the channel support and pull back into the body of the channel but the rally fails well short of the channel resistance. Partial pull backs are often a useful warning sign of a break through the channel support line.
We are also in the early stages of what looks as like a small continuation pattern in the move down from the latest peak. I’ve drawn a pink support line across the bottom of this. All we need to do now is to make a second trend peak to form a small triangle pattern or perhaps a rectangle if the peak is a little higher than where we are now.
This leads to a couple of trading possibilities
- If we form the minor triangle. Selling on a break of the triangle support. This could be looked at as an early entry for a break below the larger channel support. One approach would be to put the initial stop on the high side of the triangle/rectangle. The first objective would be a test of the channel support. If price rejects the support, then change the stop to a close trailing stop e.g one candle trail. If price breaks the support then treat the whole thing as a continuation of the major trend. I’ll post some further ideas on profit objectives if we get that far
- If there is no minor triangle/rectangle set up in the near future, the channel continuation trade would still be in play if the channel remains intact and then the support is broken