While the following may not be the plainest setups you will ever see they are powerful in any case. The big advantage with them is the help they will give you an understnding of key support and resistance levels that may otherwise be impossible to spot with the naked eye. To kick this off you need to take a look at the daily chart first because it’s most applicable to the widest range of traders. Read on:
This is a really interesting chart. You can see that the 200 day MA has formed a support line for the rate which has now been tested and respected twice. You can see while this has been happening the MA has been running horizontal which means that you would expect price to revert to the mean. What you can also see is the falling highs which have allowed me to form a descending triangle. You may look at this pattern and feel that it could be bearish. I don’t think it will be. Firstly, the 50 day MA is now sloping higher nicely which suggests that the trend is starting to build. For the best evidence though I look to the weekly chart.
Using the same strategy as on the daily chart (except in reverse) you can see that the 200 week moving average is tracking horizontally too. The difference here is that the price is below the 200 instead of above it as was the case on the daily chart. So again here we expect there to be mean reversion in effect. The question is – how can price revert to the mean in an upward and downward direction at the same time? They cant of course but the higher timeframe is the more powerful and so that’s the one that we follow.
The final chart that I want to look at for this setup is the 4 hour. You can go as short-term as you wish but I will leave the remainder until after the market opens in the morning. As it stands the hourly looks very interesting too so will be worth looking at. What you can see here is the 200 period moving average trending strongly. Corresponding with the daily chart you can see that price has respected this level and has moved higher. Naturally the 4 hour and daily look very similar but it’s the 200 MA that I’m most interested in – and it gives us a positive outlook.