- 4H: The 4/26/2010 USD/CHF report showed a positive reversal signal and suggested a target of 1.0950. The pair is trading 1.0942 as I write this update and has behaved almost exactly as anticipated. Except, there was ANOTHER positive reversal that appeared on the chart to start this week and gave us a similar projection.
- So what is a positive or negative reversal?
- Not to be confused with a divergence. In a positive reversal as is the case in the chart, the USD/CHF makes a rally on the left side of the chart pushing up the RSI. On April 22nd, there was a correction. This correction brought the RSI lower than a previous correction (Apr 19), but the corresponding price lows actually became higher.
- The swing projection method is shown in the chart. You see that it is a buy signal with a 100% swing projection, but we missed it last week!
- You can also use this as a warning to liquidate short positions.
- This decline breaks a rising trendline. However, we know trendlines connecting lows and highs do NOT necessarily provide the necessary signal for reversal. But if you did go short, you would have gotten a warning as this week started.
- This week started with a rally from 1.0730 to 1.0940. Notice that the RSI bottomed near 40. The ability to stay above 40 is a bullish sign as well, but another positive reversal appears. Now we have 2 continuous target projections.
- If we use projection from swing 1 it goes to 1.0970, while taking projection from swign 2, goes to 1.0950, so the essentially the same target may shifted up 20 pips.
- You notice that I also plotted the Stochastic, which is showing a similar reversal. Oscillators dealing with similar periods should give you similar signals, but not always. In fact, I don’t like the signals from the stochastic because at least here, there is no defined bullish range like there is in the RSI. The stochastic reading goes to the oversold level for the positive reversal, which makes me concerned. It is just a matter of personal preference, but I did explain that the RSI gave an extra confirmation because it bounced up from 40, maintaining a bullish range.
Fan Yang
Currency Analyst
Commodity Trading Advisor
Information and opinions contained in this report are for educational purposes only and do not constitute an investment advice. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness. CMS will not accept liability for any loss of profit or damage which may arise directly, indirectly or consequently from use of or reliance on the trading set-ups or any accompanying chart analyses.
Foreign currency trading is not conducted on an exchange. CMS is acting as a counterparty to its clients’ transactions and as a result, CMS’ interests may be in conflict with its clients. Since CMS acts as the buyer or seller in the transaction one should carefully evaluate any trade recommendation provided by CMS or any of its solicitors. Foreign currency trading involves a substantial risk of loss and may not be suitable for all investors.
All screenshots are made from VT Trader 2.0 and are of actual market data at the time of the screenshot.
