Thursday, April 10, 2008

Simple Breakout System with 100 SMA

I've seen these price actions before. These chat patterns (as shown in the figures below) keep repeating from time to time. I need to log them properly this time round.

1. Trend following (failed breakout at 100 SMA scenario)
The price momentum was on the down side (heavy sell-off from overnight Asian Session to pre-London opening). Price briefly retraced up to 100 SMA (simple moving average) after London open, but failed to close above 100 SMA (see, Figure 1, horizontal line, 2) . It quickly resumed its underlying downward trend with another 100-pip sell off. Similar to "Nirvana" trade setup.

2. Slow breakout (successful breakout at 100 SMA scenario 1)
Price finally closed above 100 SMA after US market open (with new participants), but not enough forward momentum yet and did range bounding. Price closed above the 100 SMA for the second time. Breaching previous high (see Figure 1, horizontal line, 4) and now with strong upward move - another 100-pip move !

Fig. 1 USD/JPY 5-min chart; 100 SMA - red line

3. Fast breakout (successful breakout at 100 SMA scenario 2)
Price suddenly reversed course after US market open and breached the 100 SMA easily. Price retraced back to 100 SMA. But price continued to drag lower and there was further breakout (see Figure 2, horizontal line, 4) with another 100-pip sell off.

Fig. 2 EUR/USD 5-min chart; 100 SMA - red line

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