Siavash Yafteh, analyst contest
It may sound a lot of work but it will give you a perspective of which pair is going to be more profitable to trade and also have more confirmation on your side and you can see if your analysis is not correct or even you cannot find a signal to trade with your trading plan in particular pair but it may generate in other pairs. Another important thing to consider when you analyzing pairs is that if you cannot see clear way to predict the possible direction of the market, skip that pair go to another one and see if you can find the direction in other pairs. The conclusion must be clear that most pairs agree on the direction of the movement.
On the monthly chart of GBP/AUD, you can find a downward channel which began from 2001. Price movements shows that channel is valid. Also there is no signal of MACD that warns us about any disagreement between tops and bottom of the movement. It doesn’t means that price is going to be straight down today, tomorrow or even weeks from now. It simply suggest that in the big picture direction of GBP/AUD most likely is going to be down then you can find the opportunities to short this pair.
In the monthly chart of this pair you can see the trend is down and also there is a rebound against the down trend. The interesting thing about this pair is that you can find many channels within it but still you cannot be sure about the direction. We go with the data we have right now. I drew the three channels to help me to tune my analysis of the direction of movement and the place which I can find my analysis to be wrong.
In the first channel you can see there is a clear breakout and close above the line for months but price came back and test that line again and continued its movement within the channel. I consider that channel to have less credibility now that has been broken but the lines of the first channel still has value to be considered.
From the top of the breakout movement you can draw a new channel to work with. This second channel is what I will be focusing on. Any breakout from the upper line of this channel will be the important signal for me to not short this pair.
The third channel is what I use for entry. Any breakout of this channel will alert me to look for the opportunities to short this pair.
So if I want to decide on direction of this pair it would be down. Not just because of the channels I also can’t find any divergence within the MACD. If you look at the first channel breakout you can find the divergence which forced the price back to the channel. So unless that MACD showing a divergence I am going to consider this pair as a downward movement.
You can add more pairs to your analysis. From what I understand GBP is going to be on a down trend. Now that we looked at the USD and GBP pairs we are ready to analyze the GBP/USD.