The Forex Chronicles

2 Inside Bar Price Breakouts on Brent Crude in May and June

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Recent Price Action

As an investor in a few oil stocks, I tend to watch the oil price very closely, and it is fair to say that the price of this commodity has been very volatile so far in 2019.

The price of Brent crude fell sharply in the last few months of 2018, but it has since rallied from a low of just over $50 to around $75 at the end of April.

After that, it then fell back towards $60 as we entered the summer, but it has once again bounced back as a result of renewed tensions in the middle east.

Inside Bar Breakouts

Ordinarily it would be very difficult to predict these large price swings, but one way you can potentially profit from these price movements is to wait for inside bar breakouts.

These occur when you have a large candle on the daily chart, followed by three or more candles / bars (the more the better) that all trade within the range of the initial candle, and then a breakout candle where the price closes outside the range of this candle.

These breakouts are generally very reliable and will often have a lot of momentum behind them, and there have been two of these in the last month alone.

Brent Crude Inside Bar Breakouts - May and June 2019

As you can see from the chart above, the first one occurred at the end of last month. On 23 May the price dropped below the 200-day moving average, which is significant in itself, but then the price traded within the range of this strong downward candle on five subsequent days (if you include the Sunday trading session).

So this was a good period of consolidation, and when the price of Brent crude subsequently closed below the range of the initial candle one week later, this would have been a great opportunity to open a short position.

In this particular instance the price went from around $64.62 to a low of around $59.27. Therefore it would have been a very profitable trade.

The second inside bar breakout has occurred more recently, and is still in progress as I write this article. After dropping back to the $60 level, there was a strong bullish candle on 13 June followed by three inside bars.

On this occasion it took a while for the price to close outside the range of the initial candle, but there was eventually a strong bullish candle that confirmed the recovery, and the price did move over 100 points in profit (and is still in progress) after closing at around $64 on the breakout.

Closing Comments

Once again this proves the overall effectiveness of inside bar breakouts, and as I have demonstrated in several posts previously, these breakouts are worth looking out for on the daily charts of many different markets, whether it’s currencies, commodities or cryptocurrencies, for example.

Generally speaking, the longer the price trades within the range of the initial set-up bar, the stronger the breakout. You just need to be patient enough to wait for them to occur because they don’t happen that often.

MACD Divergence on the EUR/CHF Pair in 2019

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Introduction to MACD Divergence

The MACD indicator has always been one of the most widely used technical indicators because it tends to follow the trend and the general price movement of a particular market very well, and can be very effective at indicating a change of trend when the two lines cross.

Furthermore, when you combine the MACD indicator with the MACD histogram, you can get some very powerful signals on occasions.

One of the most powerful signals is when the price of a particular market is making new highs, or is making two or more peaks at the end of an upward trend, for example, but both the MACD and the MACD histogram are failing to make new highs.

This will often indicate that the trend is running out of momentum, and it might be worth opening a short position on any big downward price move or any real sign of a reversal.

Real Life Example on the EUR/CHF Pair

If you take a look at the daily price chart of the EUR/CHF pair below, you will see that we had a classic MACD divergence pattern on this particular pair in April and May:

EURCHF MACD Divergence in April and May

The three arrows on the chart indicate the peaks at the top of the upward price trend, and you can see that on each peak both the MACD and the MACD histogram failed to make new highs.

Therefore when the price failed to make another new high and actually moved strongly below the 200-day exponential moving average (indicated by the red line), this would have been a good opportunity to open a short position.

As I always say, you always want to be trading when the odds are firmly in your favour, and when you get a strong MACD divergence pattern like this one, this is a good example of a high probability trade.

If you had entered a short position on the closing breakout candle at around 1.1290, you could have made up to 170 points before there was a reversal.

A Word of Caution

I want to finish by saying that you sometimes need to be careful when looking for divergence patterns, and should only look for the very best set-ups.

Staying with the EUR/CHF pair, the price continued moving downwards, and you can see that there was divergence on the MACD histogram once again, indicating that the new downward trend may have been running out of momentum, but the MACD indicator continued to make new lows, so this would have been a more risky trade.

Indeed you would actually have lost money if you had gone long on the MACD histogram divergence alone, which is why it is better to wait for divergence on both the MACD indicator and MACD histogram when trading forex pairs or any other markets.

Bitcoin Surges Above $8000 After Inside Bar Breakout

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Previous Price Action

For a long while, it looked like the price of Bitcoin was just going to continue to trade in a sideways trading range between $3500 and $4000.

However there was a large breakout candle on 2 April, and in the following days there was enough momentum to push the price above the key $5000 level.

The price then stabilized between $5000 and $5600 for the next three weeks or so and it looked like this was going to be the new trading range in the following days and weeks.

Inside Bar

On 25 April, however, there was quite a large bearish candle on the daily chart, which propelled the price back towards $5000, and it looked like it could be heading a lot lower if it could close below this level.

As it turned out, the downward breakout failed to materialise and this actually became an inside bar because the trading range of the next seven days all fell within the high and low of this initial inside bar.

This is always a good thing to see on the daily chart because it is often the pre-cursor to a large breakout either upwards or downwards, and that’s exactly what happened here.

Upward Price Breakout

As you can see in the chart below, the price eventually broke out of this trading range (and closed above the high of the inside bar) on 3 May at $5689, and this would have been a great time to enter a long position because the price has since surged to more than $8000 thanks to the upwards momentum of this breakout.

Bitcoin Inside Bar Breakout - April May 2019

This would have represented a gain of nearly 50% for those people who held on to this position until now, but $6000 was breached fairly easily and a gain of 10-20% was still easily achievable once the momentum started building.

Final Thoughts

The point I want to get across is that as I have highlighted many times before on this site, these inside bar breakouts are always worth looking out for on the daily price charts because they can be extremely profitable.

You will generally find that the longer the price trades within the range of the initial set-up bar, also referred to as an inside bar, the more likely it is that there will be a strong breakout when the price closes outside of this range, and that was exactly the case here.

In this instance the price of Bitcoin traded within the range of the initial set-up bar for seven consecutive days, and so it was almost inevitable that the price would continue to rise strongly once the price closed outside of this range.

The problem is that these inside bars don’t necessarily occur that often, but if you monitor lots of different currency pairs, and a range of cryptocurrencies, indices and commodities, you should find a few really good set-ups every month.

Gold Chart Highlights Significance of Historical Trendlines

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Gold Price Action

If you look at the long-term daily chart of gold, you will see that the price has been steadily rising upwards since the end of 2018.

As you can see from the chart below, the trendline marking the two lowest points at the start of this move has been a good guide because the price stayed above this trendline for many weeks and months and never really threatened to go below this line.

Gold Price Chart - 2 April 2019

Indeed the price crossed above the 200-day exponential moving average, as did the 20, 50 and 100-day moving averages, highlighting a very strong upward move.

The price actually reached a high of around $1346, but it has since fallen below this trendline, but the interesting thing is that this trendline is now acting as resistance.

Trendline Resistance

This occurs quite often in the financial markets. A trendline that previously acted as support is now acting as resistance, and the reason why is because traders and financial institutions are always looking for strong areas of support or resistance to place their trades, and this is one such example.

In this case, after breaking below the initial trendline, the price has bounced back on several occasions, but has struggled to move above this extended trendline. In fact on every occasion gold has been sold off whenever it has come close to this line.

Subsequently the upward momentum finally subsided and the price is now back below the critical $1300 level at $1287.

Future Price Direction

It is quite hard to predict where the price is going to go from here, but you would have to say that it is more likely to continue falling further below $1300, particularly if the general stock markets remain strong.

The trendline is likely to continue acting as resistance if the price does bounce back, and at the current time, it is hard to see what kind of economic factors are going to drive the price above this level.

Furthermore, the 200-day moving average is starting to become significant once again because the price is only just above this key indicator.

If it were to fall below this moving average and was backed by strong volumes, then there could be a much more sustained downwards move, with price targets of $1260, $1240 and $1220 being easily achievable in the short-medium term.

Anyway the key point I wanted to make is that historical trendlines can be very significant when you are looking for areas of support and resistance, and this is a classic example of one such instance.

The AUD/NZD Pair is Still Looking Weak in March 2019

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Aussie Dollar Weakness

The Australian dollar has really struggled against the New Zealand dollar in recent months. Back in January I posted about the long-term weakness of this particular pair, and pointed out that it was in a strong downward trend on pretty much every single time frame, including the monthly, weekly, daily and 4-hour time frame.

Well nothing much has changed because if you look at exactly the same time frames on a single screen, it is clear that this pair is still in a very strong downward trend.

The price is actually lower now than it was in my previous post, which indicates that the long-term downward trend is still in place, and if you look at the price in comparison to the 20, 50, 100 and 200-day moving averages, you can see that it is still below all of these indicators on the monthly, weekly, daily and 4-hour chart:

AUDNZD Price Charts - March 2019

Future Price Direction

The AUD/NZD is still not really showing any signs of strength or recovery, and has actually just started to turn downwards once again on the lower time frames, ie the daily and 4-hour chart, which is why I thought it was worth mentioning it in a new blog post.

At the time of writing, the price has moved back towards the EMA (20) on the daily chart, but has fallen back today, and has just crossed below the EMA (20) on the 4-hour chart.

Therefore the likelihood of a recovery in the short-term is looking less and less likely, and it is looking more likely that the price will continue falling.

It recently fell below 1.03 last week, and I think it could easily test this level once again, and possibly go a little lower before we see any potential recovery.

Long-Term Prediction

You would have to think that the long-term weakness in the AUD/NZD cannot continue forever. At some point the Aussie dollar should start to strengthen against the New Zealand dollar.

Looking at the monthly and weekly charts, it wouldn’t be at all surprising to see the price move back towards the 100 and 200-period moving averages at around 1.07-1.08 in the medium-term, and up to 1.11 looking further ahead.

However as I always say, these are just my own thoughts and opinions, and this is no way should be seen as professional trading or financial advice. You should always do your own research and make your own decisions when trading the forex markets.