Forex reversal models on EURUSD (part 3).

Continue to analyze the reversal patterns of the forex market on the EURUSD pair. Let’s consider the figures from 32 to 41, which you see on the chart H4 and at the end of the article we will summarize the intermediate results of the analysis.

Reversal models EURUSD H4-3

This article continues the cycle of materials on the reversal figures on the EURUSD pair. The first article is “Reversal models in the forex market”.

After the price out of 32 models on the chart below, the price formed another reversal model. It is marked with an exclamation mark. I did not select it as a separate figure, because after it the price went to test the resistance of 32 figures and only after that we see a growing trend to 33 figures. The retest of figure 32 is the best entry point to the new trend and confirmation of the price reversal.

Reversal models EURUSD H1-7

The way out of the 33 figure is a news candle, but still the price comes back to test the resistance broken before. And only after that we see confident movement down to 35 figures.

Reversal models EURUSD H1-8

Figures 35 and 36 are price consolidations. The exit from consolidation is also accompanied by retests of punched levels. Look, these figures are located in close proximity to long-term levels (yellow zones) near quotes 1.0820 and 1.1100. A high spike at the end of the 36th figure is the reaction of the markets to the results of the election of the US President.

The pair began to decline actively after the first words of the speech of the US president, Donald Trump, on the voting day. Half an hour before the speech, Hillary Clinton called him and congratulated her on winning, acknowledging her defeat. As you remember, all foreign exchange analysts forecast a significant depreciation of the dollar in the case of the victory of Donald Trump. Then financial publications explained to the whole world that traders and investors revised their positions on the basis of the promises of the new president to increase GDP and reduce taxes.

Reversal models EURUSD H1-9

Turning figures 37-41 is the time of the euro’s turn after reaching the minimum value of 1.03400 in the 37th figure. Markets and analysts were completely confident of achieving a pair of parity in the near future. The number of short speculative positions was at the maximum levels, but everything happened as usual. A turnaround and a long growing trend with a way out of the multi-year range on expectations of ECB monetary tightening. And again we see that the main fluctuations occur in the range between two long-term levels at the values ​​of 1.0500 and 1.0800. 39 the figure on the hourly chart looks like a series of reversals, which I have designated with the letters – a, b, c, d, e. Dealing with the move is not easy even on history. I identified the 39th figure with a blue rectangle and ran the top face along the mirror level of the corrective rollback from the 38th figure (in the chart above, a blue circle with red and green dots inside is indicated). And still without additional means of technical analysis, the situation remains confusing. Let’s expand our analysis and apply an extremely simple technical tool – trend lines.

Reversal models EURUSD H1-10

With the help of trend lines, everything falls into place. We clearly identify reversal figures. Thus, the simplest methods of technical analysis significantly improve the quality of the analysis, but this is a topic for a separate discussion.

In our analysis, we saw 41 reversal models for 2 years on the EURUSD currency pair. What conclusions can we draw on the basis of this analysis.

The price moves from a turn to a turn. This simple conclusion will help you in case you are confused in the analysis of the situation and do not understand what priority direction is present in the market. This often happens during periods of price consolidation. Find the last reversal on chart and you will all understand in what direction to expect the future movement.

We did not see a single classic reversal figure in the real market. In my opinion, the most typical reversal models roughly resemble the “M” and “W” models. Almost every turn in the picture below is approximately the same model.

Typical reversal models EURUSD H1

The price makes one High, forming support and resistance levels, after which the second High can be either higher or lower than the first. Then the price goes in the opposite direction, punching support and then returns with retest. To turn up everything is the opposite. But there is not a single model similar to each other.

On average, each movement from a turn to a turn lasted 0.5 months or about 2 weeks. But here we must take into account that this period was a long flat period on the EURUSD pair. Now we are seeing a way out of this trading range and, accordingly, increasing volatility and increasing the duration of trend movements.

The difference between the definition of key levels between the timeframes H4 and H1 is not significant, but it is. Therefore, it is better to rely on H4 levels for more reliable signals, but also to track them from the hourly timeframe for more accurate inputs. Sometimes the timeframe gives significantly earlier inputs (models within models), which significantly increases the potential profit. Therefore, it is better to combine these timeframes in the analysis of reversal models.

The retest. In my opinion this is the key point from the whole analysis. Out of 41 models, only 3 of them (№21,29,32) do not have a clear retest, but this is due to the release of unexpected economic data on highly volatile news. What does this give us. We can not rush to the entrances. If we missed the breakout level, than to enter at the worst price, it is better to have patience and wait for retest.

Especially considering that retests can go deep into the reversal zone, the exit from it is an additional strong signal. At the same time, if we went into the market for a breakout level or a weak pullback and the price moves in our direction, we should always wait for a retest. If we do not want additional risks, we should at least move the stop in a break-even, and it is better to fix profit at the first signs of a price turn towards retest. This will allow us to use the same reversal twice and earn twice.

Stops. If you have defined levels of support and resistance and your analysis indicates that this is a reversal zone, the stops should be placed behind the nearest support or resistance level, depending on which direction the turn occurred. Removal of stops will unequivocally say that this zone is not correctly defined as a reversal and the price will go further on the trend, it is quite possible very far. Entering the continuation of the trend will help at least compensate us for the losses from the worked stops, but as a maximum and will allow us to earn extra money.

At the same time, we understand that the best inputs are as close as possible to the punched levels, or on retests. In these situations it is necessary to be maximally collected. It is advisable to use simple technical indicators of price-level approach to levels as an indicator of level alerts so as not to miss a good entry into the market.

In addition to Price action, it makes sense to use reliable and technical indicators, which simplify the confirmation of the reversal model. Such well-known indicators as moving averages, trend lines or trend channels can greatly help in analyzing the situation in the forex market.

Leave your comments, tell us what you think about the reversal models. Was this analysis helpful to you?

How do you determine the price turns in the forex market, what indicators and methods of technical analysis do you use?

Analysis of one more reversal model on the EURUSD pair see in the article – The Euro is testing the boundary of the reversal zone.

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