The Last Support Before EUR/USD Hits Its 3 Year Low

All eyes are now on EUR/USD!

Why? Because EUR/USD is by far the most traded currency pair and it is pretty near its 3-year low!

Let me now show you what I think about this development.

The BIG picture

The first important thing to notice is the big picture.

If you draw Volume Profile over the whole previous year 2019, then you can easily tell it is D-shaped.

A D-shaped profile tells us, that buyers and sellers are in a temporary balance.

So, 2019 was in balance and now the price gets very close to the low of previous year (heading outwards of the D profile).

In a case like that, it is more likely that the price will turn upwards and go back into the range of the D-shaped profile (back into the balance).

Why? Because around 70% of all the time, markets are balanced! I talk about this more in detail in my new Video Course.

EUR/USD, Daily chart:

Now, I am looking for some supports to go long from because I think EUR/USD is more likely to turn upwards again,

Best thing to do is to draw the Volume Profile over the price action area, where the price is heading now.

This means that in this case, I will draw the Volume Profile over the strong rejection of lower prices that occurred in November 2019. Because this is where the price is heading now.

I am looking for some significant Volume Cluster standing in the way (this would mean there is a volume-based support)

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The last volume-based support is breached

In this case, there is no Volume Cluster standing in the way!

The last one was around 1.0980. Price reacted to it several times, but then it got breached.

This means that now, no heavy volumes stay in the way!

This is important!

EUR/USD, Daily chart:

Does this mean that EUR/USD will drop?

Well, not necessarily.

AB = CD setup

There is one particular Price Action setup which I like to use and which often works like a charm. Especially on Daily time frame.

It is the AB = CD setup.

BTW I talk more about this setup more in this post from 4th February 2020:

AB = CD trading setup EXPLAINED

So, if you look on the Daily chart of EUR/USD, then you can notice a nice wave-like movement it did in the last +-30 days.

This wave-like movement created a very nice AB = CD formation.

EUR/USD, Daily chart:

This formation shows the point D which is exactly where the price is RIGHT NOW (1.0913).

The point is that if the EUR/USD is to turn upwards, then according to my analysis it needs to happen NOW!

If not, then I expect to see another sell-off of hundreds of pips.

Happy trading!

-Dale

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A Setup as Simple as ABCD

Today, I would like to show you one of my favorite Price Action trading setups called AB=CD Setup.

You can use this setup both for intraday and for swing trading.

In this post, I will show you the AB=CD setup on a Daily chart, which I use for my swing trade analysis.

How does the strategy work?

The AB=CD setup is based on the market psychology and on the fact that the price does not usually move without corrections (pullbacks).

I think I best explain this with a picture.

*Example is on AUD/CAD; Daily chart:

How to use it? Exact steps:

First you need to find significant swing points. I will call them A and B. Then you need to see a correction which goes at least to 50% of distance from A to B.

In this example, the distance from A to B is 319 pips. So, C must be a swing point, at least 160 above B.

You can use standard Fibonacci tool to measure the distances.

After identifying C, you need to look for D.

D is the same distance from C as A is from B. In this case 319 pips.

So, what you do is that you simply move the Fibonacci tool you already have in your chart so it begins in the point C.

Important thing is that you just move the fibo. DON’T CHANGE THE DISTANCE it measures (the 319 pip distance).

This will point you to the point D, which will mark your resistance.

Below is the same chart, with Fibonacci shifted so it shows C and D.

The reason this setup is called AB=CD is because the distance from A to B are the same as distance from C to D.

D marks the support you can go long from.

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Current situation on AUD/CAD

What you saw in the previous example was a scenario that already happened the last year.

Lets now have a look at a current price development on the same trading instrument (AUD/CAD; Daily chart).

Currently, there is again the wave-like movement and thus we can use the AB=CD method.

This time I draw everything into one chart. Again, distance from AB=CD.

The point D marks a support (at 0.8804). When the price reaches it, there will be a high probability, that the price will turn there and go at least temporarily upwards.

Trading AB=CD as a standalone strategy

You can trade this setup as a standalone strategy but I personally prefer to have some more confluences with other strategies which would confirm the support/resistance levels this AB=CD method shows.

It would be best if there was some significant volume area created around the point D in the past.

In this case there is nothing like this because AUD/CAD is at it’s 10 year lows.

Still, the AB=CD setup on a Daily chart is a strong signal and I think we can expect a reaction there.

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Want to learn more about AB=CD setup?

You can learn more about this setup in the new Video Course which is included in the Learning Pack. You can get it here:

Dale’s Volume Profile Education

Happy trading!

-Dale