aug 18 - 22, 2014

8/9/2019 AUG 18 - 22, 2014

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WEEKLY TECHNICAL NOTE

AUGUST 18 - 22, 2014

CONSOLIDATIONS ON THE DAILY CHARTS

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Consolidations have been the most common patterns seen across the Currency Market

in recent months this year. This has reflected the low liquidity and volatility that has

been largely attributed to the low interest policies of the major Central Banks. What

this means is that trading opportunities based on nice, clear and long trends have been

few and far between. It is therefore important that we keep an eye out for these

Consolidations, spot them early, analyze them accurately and then trade them based

on our trading rules.

This Technical Note will assist you in trading them by focusing on 4 aspects of

Consolidations;

I. WHERE CONSOLIDATIONS ARE FORMED

II. IDENTIFYING THE START OF CONSOLIDATIONS

III. THE MAJOR CANDLESTICK ENTRY SIGNALS

IV. DETERMINING WHETHER THE DAILY OR 4H CHART IS

CONTROLS THE CONSOLIDATION

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I. WHERE CONSOLIDATIONS ARE FORMED

NORMAL CONSOLIDATIONS

Normal Consolidations are those that are fairly small and are usually formed during a

trend when the market has paused before continuing the trend. They can also be

formed within a Medium or Large Consolidation at the Support or Resistance

boundary before returning to the other side or breaking out. Trading within these

smaller patterns can be difficult because of the small size and volatility. The best

thing to do is to wait until the Daily Candle has given a strong breakout signal and

trade accordingly.

Continuing Trend

DAILY CHART- AUD USD

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DAILY CHART- EURO JPY

DAILY CHART - GBP USD

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Within Medium Consolidation

DAILY CHART- AUD NZD

Within Large Consolidation


As you will notice, there are usually only 2 points of Resistance and Support in these

small patterns.

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MEDIUM & LARGE CONSOLIDATIONS

These patterns generally tend to be seen at the end of the Monthly Range, long and

exhausted trends or after sharp breakouts from a previous, large Consolidation

pattern. They can also be seen when the market reaches the major Resistance or

Support barrier of a much larger Consolidation.

At Resistance of Large Pennant

NZD USD - DAILY CHART RANGE

0,8400

0,8500

0,8600

0,8700

0,8800

0,8900

14/03/2014 18/04 07/05 26/05 12/06 01/07 18/07 06/08 23/08

Apr May Jun Jul Aug

FXCM Marketscope © 2014

0,84782

DAILY CHART

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This same Pennant can also be seen on the Weekly Chart.

WEEKLY CHART

This is why it is very important to narrow the candles of the Daily Chart and look at

the Monthly and Weekly Charts so that one can see the larger picture. As you can see,

the overall picture of the NZD USD has been waves of uptrends and downtrends that

led to this Pennant being formed.

At The End of Long Trends

AUD NZD - DAILY CHART

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At The End of Consolidation Breakouts

AUD CHF - DAILY CHART

II. IDENTIFYING THE START OF CONSOLIDATION

The start of Consolidation can take many forms. These include:

After a Trend Change where this new trend has Slow, Steady and Small

Candles.

DAILY CHART- GBP CAD

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After 2 Consecutive, Opposing Waves with Normal or Sharp, Fast

Moving Candles

DAILY CHART- EURO AUD

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EURO USD - DAILY CHART

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In most of these situations, the length of each wave is close to the Weekly Range of

the Currency Pair. You will also notice on some of these waves, the movement to the

other side is smooth, with consecutive candles while others are more volatile with

spikes. Usually the ones that have smooth, normal candles have the best setups and

signals.

V. THE MAJOR CANDLESTICK ENTRY SIGNALS

After identifying these Consolidations, we will then have to be able to spot the strong

signals that allow us to trade within these patterns from profit. The main signals that

you will see on both the Daily and 4 Hour Charts are;

DOUBLE BOTTOMS & DOUBLE TOPS

SHARP & STRONG U-TURNS

BREAKS OF TREND LINES

SMALL CONSOLIDATIONS

DOUBLE BOTTOMS & DOUBLE TOPS

DAILY CHART - GBP CAD

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SHARP & STRONG U-TURNS

DAILY CHART - EURO AUD

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BREAKS OF TREND LINES

DAILY CHART - NZD USD

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DAILY CHART - CAD JPY

BREAKS OF CONSOLIDATION

DAILY CHART - AUD NZD

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DAILY CHART- EURO CAD

These are the ones you are most likely to find that lead to the trends we see in these

setups. Invariable, once strong, they will go to the other end of the Consolidation with

minimal volatility.

VI. DETERMINING WHETHER THE DAILY OR 4H CHART IS

CONTROLS THE CONSOLIDATION

Generally, if the signals that you see on the Daily Chart at Resistance/Support are

strong and clear, then that is the time frame controlling the movements. If however,

the same U-turns are weak, but they still lead to a trend to go to the other side,

chances are the 4 h chart is the one giving the main signals. - Another strange thing

about the market.

DAILY CONTROLLING

The arrows show the Strong Signals that started the trends inside the Range.

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DAILY CHART- NZD USD


Usually, the larger the Consolidation- 300- 400 Pips, the more likely it is being

controlled by the Daily Signals. In these cases, it is very dangerous to trade it with

only the 4H Chart Signals.

4 HOUR CONTROLLING

In these examples, you can see the market clearly moving from one side to the other

but with few or no strong Daily signals. However, looking closer on the 4H Charts,

you will see stronger setups and signals. These setups and signals can either be at the

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start or mid-way the Range/Pennant. Usually it is sufficient for the Daily Chart to

have started a U-turn without necessarily giving a strong signal.

DAILY CHART- EURO NZD

1,5500

1,5750

1,6000

1,6250

1,6500

15/01/2014 05/02 21/02 11/03 27/03 14/04 30/04 16/05 03/06

Feb Mar Apr May Jun


1,57778

4 HOUR CHART

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NZD CHF - DAILY CHART

0,7500

0,7600

0,7700

0,7800

05/02/2014 04/03 19/03 03/04 18/04 05/05 20/05 04/06

Mar Apr May Jun


0,76684

4 HOUR CHART

SUMMARY

Constant review of past setups and signals is needed to fully familiarize oneself with

these concepts. This will increase the confidence to trade these setups once seen andto avoid those that are too volatile and risky. With the Forex market expected to

remain subdued with limited trends, Consolidations will be the order of the day and

should be understood in order to maximize on what the market now provides.

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aug 18 - 22, 2014

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