GroundStone Holdings Morning Newsletter

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EUR/USD:
From an open of 1.1736 to a close of 1.1640, the single currency concluded Thursday’s sessions down -0.8%. USD bulls were firmly on the offensive in recent trade thanks to robust US data and a recovery in yields. According to the latest GDP report, the US economy expanded at its fastest pace in nearly 4 years, confirmed at an annual rate of 4.2%. US Durable goods also doubled expectations, though the increase was largely due to Boeing orders.

H4 movement, as can be seen from the chart, ended the day closing within striking distance of demand plotted at 1.1609-1.1632, after a number of key tech supports were engulfed. Positioned just north of the 1.16 handle and September’s opening level at 1.1595, this demand area is likely to enter the fray today. It may also be worth noting the RSI indicator is displaying a firm oversold/divergence reading at the moment.

On a wider perspective, weekly sellers spun off into a phase of selling from its resistance area drawn from 1.1717-1.1862. Further downside is possible according to this timeframe, as the next obvious support target does not enter the fight until demand penciled in at 1.1312-1.1445. Daily support at 1.1723 (now acting resistance) was obliterated in the shape of a near-full-bodied bearish candle yesterday, leaving price action free to drop down towards the 1.1509-1.1600 support area.

Areas of consideration:

On account of the above, weekly price suggests we may be heading for further selling, while daily movement indicates potential support may be seen off of 1.1509-1.1600. Note the top edge of this area represents the 1.16 handle on the H4 scale. If we zoom to H4 chart we can see hidden MACD divergence another signal that EUR/USD losing upside moment and we can expect the further*downtrend to the support 1.15394

Today’s data points: Spanish Flash CPI y/y; EUR CPI Flash Estimate y/y; US Core PCE Price Index m/m; Chicago PMI; US Revised UoM Consumer Sentiment.




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Education post 1/100 – How to trade pin bars?

The Pin Bar Setup
I bet you have seen many pin bars on your Forex charts. Maybe you haven’t been aware that you are looking at a pin bar formation, but you most likely have come across this candle on the chart

Bullish Pin Bar
A valid, tradeable bullish pin bar is located at the end of a bearish trend and its lower candle wick goes below the overall price action. If you spot a bullish pin bar setup on the chart, this will setup a nice opportunity for a long position.

Bearish Pin Bar
The same is true for bearish pin bars but in the opposite direction. The bearish pin bar is located at the end of a bullish trend and its longer candle wick is the upper area. In this manner, the longer wick is sticking out above the price action. The bearish pin bar is usually a good sign of an upcoming price reversal in the bearish direction.

 

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Education post 2/100 – How to trade triangle pattern?

Symmetrical Triangle

A symmetrical triangle is a chart formation where the slope of the price’s highs and the slope of the price’s lows converge together to a point where it looks like a triangle.

What’s happening during this formation is that the market is making lower highs and higher lows.
This means that neither the buyers nor the sellers are pushing the price far enough to make a clear trend.

If this were a battle between the buyers and sellers, then this would be a draw.

This is also a type of consolidation.
In the chart above, we can see that neither the buyers nor the sellers could push the price in their direction. When this happens we get lower highs and higher lows.

As these two slopes get closer to each other, it means that a breakout is getting near.
We don’t know what direction the breakout will be, but we do know that the market will most likely break out. Eventually, one side of the market will give in.

So how can we take advantage of this?

Simple.

We can place entry orders above the slope of the lower highs and below the slope of the higher lows. Since we already know that the price is going to break out, we can just hitch a ride in whatever direction the market moves.
In this example, if we placed an entry order above the slope of the lower highs, we would’ve been taken along for a nice ride up.

If you had placed another entry order below the slope of the higher lows, then you would cancel it as soon as the first order was hit.

 

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Morning newsletter

EUR/USD:
Let’s check Eur/Usd the most tradable forex pair.

Weekly perspective:
Last week pair moves from the high 1.1815 to the low 1.1570 so in the range of 240 pips. At the and of the week we have formed BEOB candle as strong signals for more bearish trend for this week.

Daily perspective:
As we already said that we have BEOB on weekly chart we also have, BEOB on four days ago on the daily chart, so we have a really strong downside trend. For the next target, we can have a support at 1.1530 (60 pips).

Areas of consideration:
We can look for a short position on the first two resistance mentioned below:
Resistance 1: 1.1620
Resistance 2: 1.1650
For the targets we can use the first two supports mentioned below:
Support 1: 1.1570
Support 2: 1.1530

Today’s data points: German retail sales m/m; FOMC member Bostic speaks; US ISM manufacturing PMI.

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Morning Technical Newsletter

EUR/USD:

Weekly Gain/Loss: -1.23%

Weekly Close: 1.1602

Weekly perspective:

Last week candle formed as BEOB – engulfing bar at resistance as it means that on 1.1800 a lot of sellers jump in the short positions. On Monday this week price just ranging from the H4 resistance at 1.1622 to the H4 support at 1.1570.

Daily perspective:

If we zoom to the daily chart we can see that we have daily BEOB engulfing bar at resistance too, so the trend is really strong and we can expect that price will continue to the downside, as the first target we can have support at 1.1540. If we break below this strong support 1.1540 we can expect fast price fall to the next support level 1.1430.

Areas of consideration:

For intraday position, we can wait for the triple top retest of H4 resistance 1.1622 and jump in short position with the very small amount of pips to risk.

We can look for a short position on the first two resistance mentioned below:
Resistance 1: 1.1620
Resistance 2: 1.1700

For the targets we can use the first two supports mentioned below:
Support 1: 1.1540
Support 2: 1.1430

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Morning Technical Newsletter

EUR/USD:
We are still looking for potential intraday target at 1.1430 ( 110 pips target ).

Areas of consideration:

A fakeout of the current H4 supply zone to bring in sellers from September’s opening level at 1.1595/round number 1.16 is a possibility today (yellow zone represents a fakeout area).

A short from 1.1600s would place one against possible daily buying out of 1.1479-1.1583, though in-line with weekly flow. Given this conflicting view, waiting for a H4 bearish candlestick formation to emerge off 1.16 is recommended before pulling the trigger. For those who prefer to trade without candlestick confirmation, a safe stop-loss position, according to technical structure, is likely beyond the October 1st high at 1.1624.

In the event a trade from 1.16 comes to fruition, the ultimate downside target falls in around 1.1445: the top edge of the weekly demand. Interim downside targets, nevertheless, can be seen at the top edge of H4 supply: 1.1580, followed by the minor H4 Quasimodo support at 1.1505/1.15.

Today’s data points: German banks closed in observance of German Unity Day; US ADP non-farm employment change; US ISM non-manufacturing PMI; FOMC members Barkin, Brainard and Mester, along with Fed Chair Powell also take to the stage.

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Morning Technical Newsletter

EUR/USD:
In last 24 hours price drop down and break strong daily support at 1.1510. At the moment price moving in the range of 10 pips for the last 15 hours. We expecting that today price will hit next support at 1.1432 so around 40 pips lower from now. We will looking for the sell opportunity if the price hit again resistance at 1.1510 today.

Today’s data points: FOMC member Quarles speaks.

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Morning Technical Newsletter

EUR/USD:
Yesterday EUR/USD tested H4 resistance at 1.1540 with a spike so at the end of H4 we get a bearish pinbar trade, this mean that we have still a lot of sellers here. We are looking for potential short opportunity from 1.1515 with a potential target at 1.1432 with stop loss around 1.1600. Today are very important news on the board so trade careful and don’t over trade.

Today’s data points: NFP at 14:30 GMT+1.

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Education post 3/100 – How to trade inside bar?

If you are a fan of pure price action Forex trading using candlestick patterns, then this lesson will be of particular interest to you. Today we will discuss a powerful candlestick formation which can often precede a sharp price move.

This formation that I am referring to is the Inside Bar pattern. We will discuss the structure of the inside bar setup and the psychology behind it. And finally we will go through a few of inside bar variations that you should become familiar with.

What is an Inside Bar ?
The inside bar is a two bar candlestick pattern, which indicates price consolidation. In order to confirm this pattern you need to see a candle on the chart, which is fully contained within the previous bar. In this manner, the inside bar candle should have a higher low and a lower high than the previous candle on the chart.

The Inside Bar is fairly easy to spot on the chart, but using an Inside Bar indicator can assist the trader in quickly finding these patterns on their price chart as well.

Psychology behind the Inside Bar
Since the inside candle has a lower high and a higher low than the previous candlestick on the chart, this indicates that the currency pair is consolidating.

Why is it consolidating? It is consolidating because the bulls cannot manage to create a higher high and at the same time the bears fail to create a lower low. As such, there is not sufficient buying or selling pressure to break the previous bar’s high or low.

Entering an Inside Bar Trade
When the price action completes an inside candle on the chart, you should mark the low and high of the Inside Bar consolidation range. These two levels are used to trigger of a potential trade. Remember, the inside candle clues us in to the eventual breakout and likelihood of a continuation outside the range in the direction the break, however, it doesn’t give us information about the direction of the breakout through the range, prior to the actual move.

In simple terms, if the price action interrupts the range upwards, then you should go long. If the price action breaks the range downwards, then you should trade the short side.

Stop Loss when Trading Inside Bars
The usage of a stop loss order is recommended for any Forex trading strategy. The inside bar trading system is no different. You should always put a stop loss when trading inside candles. But where?

The proper location of your stop loss is slightly beyond the inside candle’s top, or bottom, depending on the direction of the break. In other words, if the inside range gets broken upwards, you can buy the Forex pair and place a stop loss order right below the lower candlewick of the inside candle.

The same is in force for bearish breakout of the inside range, but in the opposite direction. In this case you could sell the Forex pair and you put a stop loss right above the upper candlewick of the inside bar.

Take Profit on Inside Bar Setup
Projecting the potential move with Inside Bar Breakouts can be challenging. Often Inside Bar trades can lead to a prolonged impulse move after the breakout, so employing a trailing stop after price has moved in your favor is a smart trade management strategy.

Along with this, I typically like to use a fixed Take Profit target at 1.5:1 or 2:1 reward to risk ratio to scale out of inside bars trades. In this manner, if the stop loss is 80 pips from the entry, then the minimum target would be located at 120 pips distance.

Let’s take a closer look at the inside bar pattern on the Forex chart below:

 

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Education post 4/100 – How to trade BUOB?

What is a ‘Bullish Outside Bar’
A bullish engulfing pattern is a candlestick chart pattern that forms when a small black candlestick, showing a bearish trend, is followed the next day by a large white candlestick, showing a bullish trend, the body of which completely overlaps or engulfs the body of the previous day’s candlestick.

Breaking Down ‘Bullish Engulfing Pattern’
A bullish engulfing pattern is not simply a white candlestick, representing upward price movement, following a black candlestick, representing downward price movement. For a bullish engulfing pattern to form, the stock must open at a lower price on Day 2 than it closed at on Day 1. If the price did not gap down, the body of the white candlestick would not have a chance to engulf the body of the previous day’s black candlestick.

Because the stock both opens lower than it closed on Day 1 and closes higher than it opened on Day 1, the white candlestick in a bullish engulfing pattern represents a day in which bears controlled the price of the stock in the morning only to have bulls decisively take over by the end of the day.

The white candlestick of a bullish engulfing pattern typically has a small upper wick, if any. That means the stock closed at or near its highest price, suggesting that the day ended while the price was still surging upward. This lack of an upper wick makes it more likely that the next day will produce another white candlestick that will close higher than the bullish engulfing pattern closed, though it’s also possible that the next day will produce a black candlestick after gapping up at the opening. Because bullish engulfing patterns tend to signify trend reversals, analysts pay particular attention to them.

Bullish Engulfing Candle Reversals
Investors should look not only to the two candlesticks which form the bullish engulfing pattern but also to the preceding candlesticks. This larger context will give a clearer picture of whether the bullish engulfing pattern marks a true trend reversal.

Bullish engulfing patterns are more likely to signal reversals when they are preceded by four or more black candlesticks. The more preceding black candlesticks the bullish engulfing candle engulfs, the greater the chance a trend reversal is forming, confirmed by a second white candlestick closing higher than the bullish engulfing candle.

Acting on a Bullish Engulfing Pattern
Ultimately, traders want to know whether a bullish engulfing pattern represents a change of sentiment, which means it may be a good time to buy. If volume increases along with price, aggressive traders may choose to buy near the end of the day of the bullish engulfing candle, anticipating continuing upward movement the following day. More conservative traders may wait until the following day, trading potential gains for greater certainty that a trend reversal as begun.

 

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Morning Technical Newsletter

EUR/USD:
Daily perspective:

The support area at 1.1479-1.1583 is still in play. Thursday’s movement chalked up a reasonably strong bullish rotation candle, though Friday’s action formed a concerning indecision formation off local resistance circling the 1.1530 area.

H4 perspective:

Friday’s non-farm payrolls rose 134k in September, below the expected 185k. Average hourly earnings came in line at 0.3%, while the unemployment rate fell slightly and came in at 3.7%, a tad below the 3.8% consensus. The aftermath of the US job’s numbers witnessed an immediate decline to lows of 1.1483. However, the move was a short-lived one as price swiftly recovered to highs of 1.1549: the session high for the day.

Areas of consideration:

Intraday, however, has the H4 candles eyeing its resistance zone mentioned above at 1.1580-1.1563. In view of its surrounding confluence on the H4, and the fact weekly price is likely to probe as low as 1.1445 this week, a short from 1.1580-1.1563, with stops tucked above its range at 1.1582, could be an option today/early week.

Today’s data points: Limited data; US banks closed in observance of Columbus Day.

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Morning Technical Newsletter

EUR/USD:

The price has continued to look bearish since then, being held down by another bearish trend line shown in the price chart below which has had three touches. There are many resistance levels piling down on top of the price, and the short-term price action also looks bearish, in line with the long-term trend. For all these reasons, I have a bearish bias today, but as the U.S. is on holiday there may not be a great deal of price movement. Another interesting point is the divergence we are seeing between the Euro and the USD, which is looking quite strong.

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Morning Technical Newsletter

EUR/USD:

Yesterday price fall to our support area at 1.1433. Let’s check fundamental view of USD.

The official level of unemployment for September in the USA has fallen to 3.7%, a level not seen for 49 years, since the time of the Hippies in 1969. The official unemployed figure, it must be recalled, relates to the number of people registered as unemployed and actively seeking work. Many economists regard an unemployment level of 5% as the functional level for full employment (but their definition of unemployed would be without a job and wanting one, which is different).

The Organisation for Economic Cooperation and Development (OECD) has warned about what it refers to as people “at the fringes” of the employment market – a significant population in the US economy, according to OECD. A proportion of these uncounted unemployed (or not regularly employed) people are suggested to be victims of the “opioid crisis”, those addicted to or abusing prescription drugs.

The news is not completely positive since the job creation rate for September came in below expectations at 134000 and hourly earnings increased at 2.8% in September, down marginally on the August figure of 2.9%. Usually, if the employment market is strong, wages would expect to rise as employers try to attract workers. However, revision of the July and August job creation figures were revised upwards by 87000 jobs.

Jobs were created particularly in the professional and business service sector; in healthcare and construction. However, September saw a negative impact due to the hurricane/tropical storm Florence which was blamed for the loss of 18000 jobs in the leisure and hospitality sectors. Obviously, jobs will have been created in the construction and infrastructure/repair sectors as damaged communities struggle to rebuild after the storm. As yet, US job creation data has not shown any clear effects from the protectionist measures implemented by the Trump administration on exports from nations that the US regards as taking unfair advantage of sectors of the US economy.

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Morning Technical Newsletter

EUR/USD:

EUR/USD bulls went on the offensive on Wednesday, dethroning its 1.15 handle on the H4 timeframe and challenging nearby Quasimodo resistance at 1.1543. According to our technical studies on the weekly timeframe, further buying could be in store. Demand at 1.1312-1.1445, as you can see, is firmly in play at this point, with room for the unit to press as far north as a resistance area plugged in at 1.1717-1.1862.

Despite the bullish picture painted by our weekly candles, the short-term outlook (H4) does not really bode well for those looking to buy the pair. Beyond the current Quasimodo resistance barrier, a nearby resistance area rests at 1.1580-1.1563, followed closely by the 1.16 mark, which happens to be surrounded by October and September’s opening levels at 1.1604 and 1.1595, respectively. Another factor to remain cognizant of is the local daily resistance level plotted at 1.1530.

Our prediction is price will hit 1.1620.

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Morning Technical Newsletter

EUR/USD:

Broad-based USD selling, lower-than-expected US CPI figures along with US President Trump, once again, expressing disapproval over the Fed’s action, witnessed the EUR/USD rise to highs of 1.1599 on Thursday.

We expect that today price will hit again 1.1540.

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Education post 5/100 – How to trade Head and Shoulders Pattern?

A head and shoulders pattern is also a trend reversal formation.

It is formed by a peak (shoulder), followed by a higher peak (head), and then another lower peak (shoulder).

A “neckline” is drawn by connecting the lowest points of the two troughs.

The slope of this line can either be up or down. Typically, when the slope is down, it produces a more reliable signal.

In this example, we can easily see the head and shoulders pattern.

The head is the second peak and is the highest point in the pattern. The two shoulders also form peaks but do not exceed the height of the head.

With this formation, we put an entry order below the neckline.

We can also calculate a target by measuring the high point of the head to the neckline.

This distance is approximately how far the price will move after it breaks the neckline.

You can see that once the price goes below the neckline it makes a move that is at least the size of the distance between the head and the neckline.

We know you’re thinking to yourself, “the price kept moving even after it reached the target.”

And our response is, “DON’T BE GREEDY!”

 

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Education post 6/100 – How to trade supply and demand zones?

Supply and demand is a trading and price action concept that analyses how financial markets move and how buyers and sellers drive the price.

On every price chart, there are certain price points where you can observe a sudden shift between the buyers and the sellers. Those areas are usually characterized by strong and immediate turning points, or an explosive breakout. We as traders call those areas supply and demand zones.

It can pay off to know how to spot such areas because just like the concept or support and resistance, supply and demand areas can add an other layer of confluence to our trading and help us find better trades.

Order absorption – why common trading knowledge is wrong
The scenario below is something we all have seen hundreds of times. It shows the classic price behavior around a support level. Common trading wisdom tells you that with each touch of a price level, the support area becomes stronger. This couldn’t be further from the truth.

What makes the price go down is an imbalance between buyers and sellers and there is more selling activity than buying going on. Each time the price reaches the support level, buyers enter the market and cause a bounce by outnumbering the sellers. Then, the price rises until sellers become interested again, outnumber the buyers and drive the price down. Although this is a very simplistic view, it explains how markets move.

But each time the price makes it to the support level, there will be fewer buyers waiting because, at one point, all buyers who were interested in buying have executed their trades. This is called order absorption. The screenshot shows that price bounced less high with each “touch” and eventually it broke the support level once there were no more buyers left and only the absorbing sellers remained.

When everyone has bought and when there are no buyers left, the support level will break and price falls until it reaches a price level where buyers will get interested again.

Think of order absorption around a price level like a ball that bounces off the floor. Each time the ball hits the ground, some of the energy is absorbed by the floor. Thus, each consecutive bounce will be lower than the previous one until all energy is gone and the ball comes to a standstill.

Identifying high probability supply and demand zones
Now let’s take a look at some charts and see how we can apply our knowledge to find trading opportunities.

The highest probability price levels are the ones with the greatest imbalance between buyers and sellers. What does that mean? Whenever you see a rally and then suddenly, without any prior warning, it reverses on the spot and drops like a stone – those are the areas of major imbalances.

The highest probability price levels are the ones with the greatest imbalance between buyers and sellers.

 

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Morning Technical Newsletter

EUR/USD:

Weekly Gain/Loss: +0.33%

Weekly Close: 1.1557

Demand zone at 1.1530-1.1550 hold the price today and push the price back to 1.1570 (daily high). Today we are looking for a long opportunity with price test of resistance at 1.1620.

Today’s data points: US retail sales m/m; US Treasury currency report.

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Morning Technical Newsletter

EUR/USD:

The EUR/USD daily Forex chart has been in a trading range for 6 months. There have been many strong legs up and down, and every one of them reversed. Traders will continue to bet on reversals instead of a breakout of the 6 month range.

The current 5 day rally looks like a parabolic wedge. Therefore, the are probably sellers above the October 12 high, creating the final 3rd small leg up. If so, the bears will create a couple small legs sideways to down over the next week or two.

Less likely, this rally will continue above the September 24 high without a test down. Or, it will form a head and shoulders top where the September 24 high is the top. Then, the bears will get a break below the August low.

Overnight EUR/USD Forex trading

The EUR/USD 5 minute Forex chart rallied 60 pips overnight. It is now testing Friday’s high. But, the 5 day bull channel is tight. In addition, this is now the 3rd leg up (the 1st was October 3). Therefore, this is a parabolic wedge rally. That usually leads to a couple legs sideways to down. Consequently, despite the overnight rally, the odds favor sellers above Friday’s high and then a couple small legs down on the daily chart.

Day traders will buy pullbacks today and tomorrow. This is because a small 3rd leg up is likely early this week. But, they will begin to sell once the rally goes above Friday’s high. There will then probably be a test back down to 1.15 and the October 9 high.

Since October 9 was only a doji, it was not a strong buy signal bar. The high of a weak buy signal bar usually gets tested.

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Morning Technical Newsletter

EUR/USD:
Despite an earnest effort to overthrow 1.16 (and surrounding monthly opening levels from October and September at 1.1604 and 1.1595, respectively) on Tuesday, the shared currency failed to sustain gains beyond 1.1621, consequently concluding the day more or less unchanged.

In light of yesterday’s push to fresh highs (red arrows), another retest of H4 support at 1.1543 (unites with a 38.2% Fib support at 1.1550) might be on the cards today for a possible long (small green H4 zone). Also worth acknowledging on this scale is the RSI displaying mild divergence just south of its overbought value.

Higher-timeframe technicals bring light to a weekly demand at 1.1312-1.1445, which, as you can see, is holding ground after a two-week bearish stint out of a neighbouring resistance area at 1.1717-1.1862. This is now considered a ranging market on this scale.

The daily support area at 1.1479-1.1583, although suffering a sizable breach to its lower edge in the early stages of last week in the shape of a bullish-pin-bar formation, remains in the fold. Bringing with it a notable history dating back as far as October 2017, the next upside target on this scale can be seen at resistance drawn from 1.1723 (sited within the walls of the noted weekly resistance area, as well as representing a nearby Quasimodo resistance based on the high marked with a red arrow at 1.1733). Traders may also want to note on this timeframe a bearish pin-bar formation took shape as a result of yesterday’s movement.

Today’s target: 1.1540

Today’s data points: EU economic summit; German Buba President Weidmann speaks; US housing figures; FOMC member Brainard speaks; FOMC meeting minutes; Treasury currency report.

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