Eur/Usd: Divergence Setup

Written by on May 30, 2010 11 Comments

The Daily Eur/Usd is showing a divergence on the 14 period RSI which indicates a possible reversal. I only trade price action based on candlestick patterns and I don’t use any other indicators. However this is just another confirmation that shows a possible buy setup. When trading it is best to find as many confirmations to ensure a higher quality setup. The more items stack in your favor the higher probability you will have a successful trade. There is no such thing a perfect trade so you must continue to use sound judgment and proper money management no matter how many confirmations you have.

Daily Chart Eur/Usd May 30

Daily Chart May 30 Eur/Usd

Daily Chart May 30 Eur/Usd

You can see on the daily chart that we have a double bottom that has formed at the price of 1.2137. If this bottom holds we could see a price of 1.2550 which is where the price will run into the downward sloping trend line. If the price breaks through the upward trendline we could see some more upward price movement to possibly 1.3900 area because of the 200 period MA at that level. That is an unlikely scenario at this time but if that trendline gets broken to the upside we could have a large retracement.

I am going to be looking for a long position if we get a bounce off of the support level at 1.1237 or if the daily candle closes above the close of the previous candle at 1.2350 If the price closes above the 1.2350 level there will be 3 confirmations:

1. Candlestick signal long above 1.2350
2 Bounce off of support and double bottom chart pattern
3. Daily chart RSI divergence

With those 3 signals look for a high probability trade.

I realize that I might get a lot of negative feedback by saying to go long the Euro because of the terrible slide the Euro has been in. In addition the Euro has been having bad news after bad news hitting it. This is a short term trade bounce I will still be looking to short the Euro when I see signals arrive. Read this article to get some good information about where the Euro Could be headed.

When trading always use a stop loss and calculate the proper risk management for your account. This analysis is provided to assist the forex trading community here at Winners Edge Trading to make informed trading decisions. If you would like to get more help then you can try our our premium trading service.

One other point always make sure you are keeping up with the news of the day and that is why I am always reading other blogs.

Other Blogs I read:

Forex Crunch: Forex Weekly Outlook – May 31 – June 4
The GeekKnows-Eur/Usd daily commentary

One other free trading tool I recommend is Currensee because they allow other traders to see each others live trades so you can learn from real traders.

Categories: Casey Stubbs Tags:

  • http://forexytodos.blogspot.com/ francisco gallego

    I agree with you, I think the market is not going the way fundamentals say it will go resently. I think I have an explanaination for this, although I am not very satisfy, I think that because of the crisis, everybody is running scared away from the Euro, and that is why It has gone up and will still go up even after speculators had stopped, this will happen because the world will finally realize that Grece is very small and has no industry, Spain's problems are not small but not critical and they have been resposible with their economy and are on the path of a recovery (very slowly but very firm), the same goes for Portugal.

    Europe is in a better position than the USA, Germany is doing good, France and Italy are not doing bad. Have you given any thoughts to this extremely big load of money that Europe is ready to use as a Bail out?. Well, I have, and therefore I think that they reserve this money to convince people and make them confortable with the Euro… They are not thinking on using it, just because they don't really need it.

  • http://www.winnersedgetrading.com caseystubbs

    Andy,

    What I have found in the past that in my attempts to help traders with my analysis that I am able to get a profitable trade but then many times I will get comments saying that it didn't work.

    That is why trading consists of many different things including analysis and strategy, discipline and experience. What works for you might not work for me. And Vice versa.

    By the way last week I did quite well on a couple of Aud/Usd Longs.

    Thanks for the comment and please come back again.

  • http://www.winnersedgetrading.com caseystubbs

    I think that you have some good insight by stating that it is weak. I do think that when I combine this with other confirmations it will be turn out to be a profitable trade. But again I am going to wait until I get a signal before I enter.

    Thanks for the comment and please come back again.

  • http://www.winnersedgetrading.com caseystubbs

    John,

    It just so happened that I opened a chart on the MT4 which I don't use and they already had it plugged in.

    I don't use it for my trading but when I saw it I thought it might be useful to point out to people.

    Thanks for the comment and please come back and see how the trade works out.

  • http://www.winnersedgetrading.com caseystubbs

    I do have very deep pockets Iwill ride it all the way down to parity :)

    Just kidding you may be right that is why I won't enter the trade until I get a clear signal.

    Thanks for the comment please come back again.

  • http://www.winnersedgetrading.com caseystubbs

    Jaro we will see for sure, Thanks

  • Andy

    You may get negative feedback but if the trade works out for you then that's all that matters ;-) . My analysis tells me that a further correction is likely but I personally would look at a slightly less bearish pair like AUDUSD or another JPY cross but that's just my preference.

  • AMuharram

    That divergence has been there since 1.3600, it is a weak one, because it is counter trend. I would not buy on this.

  • John

    Hi Casey, one more comment, at the start of this article you say that you use Candle stick patterns only and NO OTHER INDICATORS. Why have you got a RSI indicator on your chart then?

  • John.

    No way Hose' , that divergance is just to small to mean anything at all, hope you have deep pockets.

  • Jaroslav Spilar

    dear casey, thank you for that interesting input. actually I am already long on eurusd, with small position – and I am intending to build position, if the reversal will be confirmed.
    regards
    jaro