The forex market on the daily chart is turning up from a higher low. Six days ago, I said that the rally would correct down to around the Jan. 1 low and then have a 2nd leg sideways to up. This is that leg.
What traders will find out over the next week, is whether this rally will reach the Jan. 6 high at the top of the 3-month trading range, or reverse down to the Feb. 5 low at the bottom. Trading ranges are neutral. They are bullish for a few days, and then bearish for a few days, but most breakout attempts fail.
They always eventually break out, but betting that any one leg will grow into a successful breakout is a low probability wager. Traders continue to buy low, sell high, and take quick profits until there are consecutive closes above or below the range. They then switch to trend trading.
Overnight EUR/USD forex trading
The 5-minute chart of the EUR/USD Forex market has been rallying overnight. It broke above yesterday’s high, which triggered a High 1 bull flag buy signal on the daily chart.
Because the rally has been strong, day traders have only been buying. However, it has been sideways for several hours, which means that bulls are starting to take profits on tests of the most recent high.
The trading range is less than 20 pips tall. That makes it difficult for day traders to make money selling. However, with the many reversals down over the past few hours, some day traders are beginning to sell. It is usually better not to sell until after there has been at least a 20- to 30-pip pullback. That is because a day trader typically needs that much of a selloff to make a minimum scalp, which is 10 pips.
This is Friday, and the EUR/USD is back at the open of the week. This week is therefore a perfect doji bar on the weekly chart, and the chart has been sideways for 3 weeks. With the overnight rally stalling at the open of the week, there is an increased chance that the day will stay sideways, and the week will close near the open.
Can the rally resume and break above the Feb. 16 lower high? Yes, but it probably will not.
Can today reverse down and close near the low of the day, creating a triangle on the daily chart? A reversal down is less likely when a rally is as strong as the overnight rally has been.