Trading Countertrend with Multitimeframeanalysis
Updated
Hi guys,
today I want to show you how I trade countertrend, piecing multiple timeframes together. Keep in mind though, that generally speaking the sentence 'the trend is your friend' is always true.
However when it comes to specific timeframes one can make use of particular price movements. Such as in this case.
As you can see the EURUSD recently had a strong bullish run after forming a tripple bottom at support. The bullish run occured with little to no pullbacks on the monthly, this is the first sign for me that this pair is overextended and in need of a pullback. As most of you will know, price 'breathes' meaning it goes up and down in a waveform. Furthermore price has begun decelerating at resistance. Last month closed as a doji, showing uncertainty in the market, and this month might be closing as a hightest. Keep in mind that this is the monthly timeframe, price action patterns and signals take way longer to form, thus have mostly way more significance, than lets say the hour chart.
Going further on the weekly chart one can see how significant the resistance/support zone at which price is sitting has been in the past. 5 Rejections have occured, most of them pretty violent. Furthermore we can see that price has really moved with little to no pullbacks and is now chopping at the resistance zone. What does this mean for us as traders?
Mostly choppiness is just uncertainty in a market. To make money in this profession, we have to act as smart traders. Smart traders dont just trade when they see something closing in on a potential reversal zone, they build a portfolio for each trade and act upon their trading plan. So far what do we have?
- A overextended bullish run
- Price is sitting at resistance
- Price has formed a doji and might be forming a hightest on the monthly
- Price is also sitting in the 0.5 fib monthly level (treat fib levels like a zone)
- Choppiness on the weekly
For me personally this isn't enough to justify a trade, so lets zoom in on the daily chart.
I used the same levels and what do we see? Massive bearish MACD divergence and a h&s pattern that formed, with a slanting neckline. Now this doesnt mean that this pair will drop with 100% uncertainty, however it gives us more confluence to put into our tradingportfolio. So adding to the confluence mentioned above, we now have:
- A h&s pattern on the daily
- Daily bearish MACD divergence
To pinpoint wether price action is going to change, i also like to look at the 4h chart:
The 4hour chart confirms what we've seen on the daily. A h&s pattern with massive macd divergence. However it also tells us that the neckline of the h&s pattern still holds strong. The first indication of a potential trendchange would be a lower high at the 4h 50 EMA. However I wouldn't enter the trade until the neckline is broken and retested.
This is how I like to put together my trades. Ofcourse the are short trading opportunities which are not showing on the monthly or weekly, however it is always good to build a portfolio for each trade, look at it from different timeframes and justify your actions with confluence.
I will keep you updated and should price move in the right direction I will ofcourse also show my PT and stop placement.
Until then have a good one!
today I want to show you how I trade countertrend, piecing multiple timeframes together. Keep in mind though, that generally speaking the sentence 'the trend is your friend' is always true.
However when it comes to specific timeframes one can make use of particular price movements. Such as in this case.
As you can see the EURUSD recently had a strong bullish run after forming a tripple bottom at support. The bullish run occured with little to no pullbacks on the monthly, this is the first sign for me that this pair is overextended and in need of a pullback. As most of you will know, price 'breathes' meaning it goes up and down in a waveform. Furthermore price has begun decelerating at resistance. Last month closed as a doji, showing uncertainty in the market, and this month might be closing as a hightest. Keep in mind that this is the monthly timeframe, price action patterns and signals take way longer to form, thus have mostly way more significance, than lets say the hour chart.
Going further on the weekly chart one can see how significant the resistance/support zone at which price is sitting has been in the past. 5 Rejections have occured, most of them pretty violent. Furthermore we can see that price has really moved with little to no pullbacks and is now chopping at the resistance zone. What does this mean for us as traders?
Mostly choppiness is just uncertainty in a market. To make money in this profession, we have to act as smart traders. Smart traders dont just trade when they see something closing in on a potential reversal zone, they build a portfolio for each trade and act upon their trading plan. So far what do we have?
- A overextended bullish run
- Price is sitting at resistance
- Price has formed a doji and might be forming a hightest on the monthly
- Price is also sitting in the 0.5 fib monthly level (treat fib levels like a zone)
- Choppiness on the weekly
For me personally this isn't enough to justify a trade, so lets zoom in on the daily chart.
I used the same levels and what do we see? Massive bearish MACD divergence and a h&s pattern that formed, with a slanting neckline. Now this doesnt mean that this pair will drop with 100% uncertainty, however it gives us more confluence to put into our tradingportfolio. So adding to the confluence mentioned above, we now have:
- A h&s pattern on the daily
- Daily bearish MACD divergence
To pinpoint wether price action is going to change, i also like to look at the 4h chart:
The 4hour chart confirms what we've seen on the daily. A h&s pattern with massive macd divergence. However it also tells us that the neckline of the h&s pattern still holds strong. The first indication of a potential trendchange would be a lower high at the 4h 50 EMA. However I wouldn't enter the trade until the neckline is broken and retested.
This is how I like to put together my trades. Ofcourse the are short trading opportunities which are not showing on the monthly or weekly, however it is always good to build a portfolio for each trade, look at it from different timeframes and justify your actions with confluence.
I will keep you updated and should price move in the right direction I will ofcourse also show my PT and stop placement.
Until then have a good one!
Note
With the weekly analysis lets have a look on correlated pairs to the EURUSD. First the DXY, which is inversely correlated to the EURUSD.As we can see it paints the same picture as the EUR/USD, just inverse. A strong selloff which is now sitting at support. While the overall bearish picture remains, a pullback back to value could provide for a good countertrend bullish opportunity.
Looking at the weekly chart of the USDOLLAR price is also sitting at support. With a possible retracement back to value, a right shoulder of a head & shoulder formation could be forming, which would coincide with the overall bearish sentiment.
The plan stays the same, I still need to see a close below support on the EURUSD, with a retracement and retest to take this pair to the short side. However there could also be good opportunities in the other USD pairs in the upcoming week.
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