The forex market on the daily chart rallied strongly in November, but it has stalled for a couple weeks. Traders are deciding when it should begin a 2- to 3-week pullback from the strong rally. The bulls want at least one more leg up. However, a strong reversal down this week will be from a double top. The bears would look for a test of the bottom of the most recent leg up, which is the Dec. 1 low.
A trading range is a Breakout Mode pattern. There is no strong sell signal bar, and the trading range is in a bull trend. Both of these actors make a bull breakout more likely. But until there is a breakout, there is no breakout. The chart could not be going sideways if the bulls had a big advantage. That is why this is a Breakout Mode pattern. The probability is close to 50-50, and only slightly better for the bulls.
Traders are waiting for a breakout in either direction. If the trading range starts to form 3 or more bull bars closing near their highs, the odds of a bull breakout will go up. If instead there are several consecutive strong bear bars, traders will begin to short, expecting a bear breakout.
In the meantime, they are buying intraday selloffs and selling intraday rallies and taking quick profits. The result is a continuation of the trading range.
Overnight EUR/USD Forex trading
The 5-minute chart of the EUR/USD Forex market has had several reversals overnight. Day traders are scalping up and down.
A breakout up or down on the daily chart can come at any time. However, day traders know that reversals are more likely, and they therefore will continue to bet against intraday breakouts.
If there is a series of strong trend bars on the 5-minute in either direction, they will hold of a small swing. But until there is a clear breakout of the 2-week trading range, day traders will be hesitant to hold onto a trade all day.
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