The EUR/USD daily Forex chart has been in a weak rally for 3 weeks. It will likely reverse soon and the trading range will continue.
The EUR/USD daily Forex chart in is a 5-month trading range that is nested within a 3-year trading range. The 3-week rally has several reversals and bars with prominent tails. It therefore looks like another leg in the 2-month range. It will therefore probably reverse within a week. It would then form either a small double top with either the December 14 or November 27 high. A reversal down from the November 27 high would also be a wedge top.
All trading ranges eventually break out into trends. Yet, my 80% rule says that 80% of breakout attempts, no matter how strong, will fail. Trading ranges have inertia, which means they resist change.
The week between Christmas and New Years is usually the quietest of the year. This means that most days are in tight trading ranges that can last for hours at a time. In addition, breakouts are usually brief. However, Early January always has an increased chance of the start of a swing on the monthly chart. Consequently, traders should watch for a series of strong trend bars up or down beginning in the next few weeks. While this is still unlikely, the odds of it are higher in January.
Overnight EURUSD Forex Trading
The 5-minute EUR/USD Forex chart has been in a 30-pip range overnight. It is in the middle of a 4-day trading range. Traders are deciding if the 3 rally ended with last week’s high, or if there will be more more leg up to a wedge top. The odds slightly favor one more leg up because of the 3 big bull bodies in last week’s rally.
Day traders expect to scalp all week. Even if there is a 50-pip breakout up or down this week, traders know that it is unlikely to go much beyond that. Therefore, unless there is a very fast 50-pip rally with follow-through, traders will expect reversals instead of a trend.
The week will probably spend most of the time within tight trading ranges. If a range is less than 30 pips tall, most day traders should wait for the range to get taller before trading.