By Greg Holden – Given the thin trading conditions currently in the market, the Danish Krone appears to be offering a good opportunity to learn a good lesson about reading technical analysis. The chart displayed below is the 4-hour chart of the USD/DKK currency pair (courtesy of ForexYard).
– To start, I’d like to first draw your attention to the recent “inverted head-and-shoulders” formation on the chart (the lines marked 1, 2, 4, and 5 are outlining this formation).
– Typically following this type of formation you can usually delineate precise support and resistance levels much more clearly than in normal market conditions.
– Point 1: This line represents the “neckline” of the head-and-shoulders formation and is the most important resistance line of this chart. The price’s ability to breach, or not breach, this level will signify which levels to pay attention to next.
– Point 2: If the price fails to breach past Point 1, this point represents the first price target for a Sell position.
– Point 3: If the price breaches the resistance level at Point 1, this is your target price for a Buy position.
– Point 4: If the price fails to breach past Point 1, and drops to the support level at Point 2, there is a good chance it will breach past that level as well and continue to drop to this point for additional profits on a Sell position.
– Point 5: The final support level below Point 4, which the price will fall towards if Points 2 and 4 are breached, is represented at this point.
– All of these levels represent excellent Stop/Limit price levels for more successful trading, and clear signals of when to buy and sell.
– Point 6: The Stochastic (slow) is showing that a bearish cross is impending. It has not yet formed which means there is still upward momentum, but once this cross has taken place, strong downward pressure should be experienced. This simply gives us a higher probability of a downward price move as opposed to an upward price move (not much of a difference, but say a 60% – 40% probability, roughly).
USD/DKK 4-Hour Chart
Forex Market Analysis provided by Forex Yard.
© 2006 by FxYard Ltd
Disclaimer: Trading Foreign Exchange carries a high level of risk and may not be suitable for all investors. There is a possibility that you could sustain a loss of all of your investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with Foreign Exchange trading.
