Absolutely! A successful trading approach utilises both the fundamentals and the technicals.
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We have a quick question here from Liam who asks, "When we trade in line with the fundamentals, "when we see a currency pair has moved a bit, "over extended on a particular direction, "does that play into our decision making process to take a trade or not?"
The short answer is most definitely. I think keeping a close eye on extended moves, especially as they head into significant price levels, are a very useful tool for traders indeed.
Remember that even though we use the fundamentals to give us a tradable direction on a currency pair and tell us whether sentiment expects you know, a further move or not. It comes down to the technicals to tell us where to enter and where to exit, right? So of course where to place our stops and profit targets as well.
So I think looking at the Euro, US Dollar is a great example. Given the recent developments with the ECB as well as the E Recovery Fund, we obviously saw a massive rally in the Euro for the last couple of days and weeks. When we have, when we moved into the FOMC on Wednesday, we were right on top of a very significant higher time frame trend line as well as a significant resistance at that 114.
If we just quickly go to the daily, these were levels that we marked out as very important from the start of the week. And of course we had the recent high's where the market kept on rejecting from those levels as well. So we had a very, very strong, very significant resistance area going into that FOMC meeting. So even though the initial reaction from the FOMC, if we just got to the M30, even though that initial reaction saw that push to the upside, it gave us reason to be a little bit more cautious to the upside and we can see that the pair really struggled to get above that level. We did break above that 114 of course.
So one way that you could've played that scenario was maybe to jump in at market when the announcement came out or maybe waited for something like a five minute close to shake off some of the early volatility and then trade this to the next significant level and bank some pips.
You know, after taking out that major trendline, of course the next port of call for the move was at that 114 psychological level. So that gave you a very nice and clear target to aim for. And above that, it was really a stretch in terms of the positioning, how the market has moved. I mean if we go back to the H4. It was just a monster rally to the upside without any substantial pull backs.
So now of course you know, we did break above that 114 momentarily, if we go to the M15 for example, we did break above that 114 to the upside and that probably caught some traders off guard, trading a pullback into that 114, you know, taking a buy trade from that 114.
But there was reason to be cautious as in this environment wasn't only the Euro, US Dollar, that was at an extreme level, right? We had the Pound, US Dollar at an extreme level. The Aussie at an extreme level, the Kiwi, the US to CAD and other markets, right? Like the S&P 500 the Dow, the DAX, I mean if we have a look at some of these examples.
Going to the Aussie, we highlighted that very important daily level coming in at that 7020. Very significant resistance. The market rejected it exactly from that level. If we open up something like the equity markets, let's just quickly have a look. We highlighted a couple of those major resistance areas. I think the most noticeable one for me was on the DAX.
So if we, on the H4 we marked out that very important 12, 18 level as an area where we can expect some profit taking at least after that monster rally to the upside. So we had cross markets basically showing us, "listen", over extended moves reaching very significant resistance levels, so there was real reason to be more cautious, expecting further upside on the back of that event.
So to your question. Yes, the over extended moves and key support and resistance levels are always going to form a very important part of the overall trading methodology. And even though the fundamentals and the sentiment, you know, they give us the direction, we still need to be aware of the technic als on the charts as they do tell us whether our trade might be getting close to areas where we can expect market participants to react from, like we saw in this trading week.
So I hope that helps with the question Liam. Any other questions, please don't hesitate to let us know.
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