Sep 09 2008
Guaging the prospects for a range break
A reader of my trading education blog posted the following question via a comment to the Is there a way to guage when a market will break out and which way?Â post. It’s a bit too specific for me to answer in that educational venue, so I’ll tackle it here.
John – Hereâ€™s one Iâ€™d be interested in your take on – AUDNZD has been in a tight sideways channel for over a week now. It appears to have a slight bias downward. Is there any way in this case to get a â€œtellâ€ on which way its going to break out of the channel, other than waiting until it does so?
Now I realize I’m writing with hindsight here because AUD/NZD has already made the break lower, but I’ll carry on anyway.
The things I would have used to say that a breakdown was more likely than a breakout to the upside is the number of failed rally attempts. Look on the chart how many times the cross made attempted rallies (as note by the arrows), but wasn’t able to hold onto those rallies – seeing them very quickly reversed either the next day, or more frequently intra day. That is a real clear indication of weakness in the market.
Another way to look at this situation is to view the hourly chart (not included) to see how the action is playing out there. In the case of AUD/NZD there were a number of very sharp sell-offs as opposed to somewhat slower rallies. That means the market is having a harder time making progress higher, and relative ease falling. That’s another sign of underlying weakness.
Here are some other posts which might interest you:
- AUD/USD: Look for Some Action Soon
- Todayâ€™s Trading Look-Back – April 18, 2008
- Todayâ€™s Trading Look-Back – March 19, 2008
- Gold Looks A Couple Weeks Away From A Big Move
- Whither the S&P Head-And-Shoulders?