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FLAGS AND PENNANTS
Euro At Half-Mast11/03/04 11:12:30 AM
by Chris Manuell
The euro recently escaped from a confined trading range with a sharp move higher, confirming the breakout, and is now pausing for breath.
|The euro managed to break the shackles of resistance in the 124.50 region and enjoyed a sharp thrust higher, culminating in a close outside the Bollinger Band on October 25. Bollinger Bands are two bands that are located above and below a moving average at a distance of two standard deviations. This enables the bands to capture 95% of the price data and allows them to be used as support and resistance levels. A close outside the bands indicates that the market has become overexuberant and is vulnerable to a correction. The euro has since corrected from the move outside the band, and traders looking for a resumption of the uptrend would be looking in the vicinity of the middle band or 20-day moving average (MA) to provide support where they can add to long positions.|
|The euro has also developed a flag the common continuation pattern. The flag represents a pause in an existing dynamic price move, which is preceded by a sharp thrust higher. Flags tend to "fly half-mast from a flag pole" as they emerge at the halfway mark of a move and enable a price projection to be calculated. Measuring the distance from the breakout point in the euro at approximately 124.60 to the start of the flag at 128.15 gives a difference of 3.55. Prices should move at least this amount from the completion of the formation, which would set up a challenge of the highs of the euro.|
|Figure 1: Euro index daily chart|
|Graphic provided by: StockCharts.com.|
|The moving average convergence/divergence (MACD) histogram can also help identify points where the market will find support; the histogram often finds support at the zero line as the moving averages converge. A move to the zero line in uptrends often presents traders with a good buying opportunity.|
Chris Manuell spent 7 years as a futures sales/trader for a large investment bank and more recently as a technical analyst for an independent research company. He has a bachelor of economics and graduate diploma in applied finance & investment. Currently enrolled in the CMT program with the MTA.
|E-mail address: ||firstname.lastname@example.org |
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Date: 11/04/04Rank: 3Comment:
Date: 11/09/04Rank: 5Comment: