The Forex market daily chart of the EURUSD cross has been in a trading range for months and had a sharp selloff down to an area where buyers came in during February and April. Traders watching this Forex price action found a day trading opportunity today on the 5 minute chart. The 5 minute Euro FX chart had a huge volume reversal after a failed breakout below a bear flag. Traders could buy the futures contract or the EURUSD Forex cross.
This developed at a support area on the daily chart and provided great day trading. Although volume does not help price action trading in the Emini, it can be helpful when trading stocks and commodities. It was not needed to take the above trade, but it increased the probability that the long above the ii that followed the bar 5 reversal would be profitable.
If you want to learn how to trade stocks, price action is usually all that you need, but a huge volume reversal at a support area increases the probability that a buy will be profitable.
So what Forex price action created the reversal? The bottom was both a Final Flag Reversal and a Lower Low Major Trend Reversal. Whenever a market enters a trading range late in a trend, as it did in the 5 minute EURUSD, traders are looking for a breakout. Will the trend resume down or reverse up? Also, will the breakout succeed or fail? That trading range was a Head And Shoulders Bottom, with bar 1 being the left shoulder. The pattern failed once the market fell below the right shoulder (bar 3). However, the market quickly reversed up at bar 5 (source top10forex.net).
Because the EURUSD was at a support level on the daily chart, the odds favored a reversal up. Traders were waiting to buy either a strong bull breakout above the head and shoulders bottom, or a reversal up from a bear breakout, which they got today.
The initial stop was below the 5 low, but once the EURUSD rallied to bar 6, many traders would tighten their stops to 1 tick below the ii pattern that followed bar 5. There was a sharp test down at bar 7 that reversed up, leading to a swing up for the rest of the session. Bulls could have made 20 – 30 pips on the trade
