First my condolence to the people in Japan for the tsunami that hit the country, I wish them the best and hope everything will get better soon, God bless you.
It really reminds me of 2004 tsunami that hit Aceh, a friend of mine lost his relatives and friends there, his father dragged by sea water but managed to survive. It was really nightmare, a horror beyond your imagination.
Okay, back to forex, I really have no idea how the tsunami will impact the market, but I'll share my view anyhow.
This time I'll go through the very basic analysis concept, the very basic that one should learn before moving to a more complex concept. I must warn you though that altough this is a very basic concept but it's a very powerful one, it's more than enough to help you read the move and make constant profit.
This analysis concept is based on average, standard deviation and time concept, using Bollinger Bands (BB) as primary tools.
I don't really use this setup today but this setup works and valid nevertheless.
Allright let's start with EUR/USD, all Bollinger Bands (BB) is set to standard deviation (SD) 1.
First we'll see the bigger picture, the monthly (480 period) move
As we can see price is in the SD 1 zone, so we can say that monthly is in normal phase, in this phase price will move within range between SD 1, middle and SD -1 bands. We can see that price is bounced off the middle and moved up and now it's at SD 1 band.
This is critical level to watch, if this level is broken then monthly will enter uptrend phase otherwise price will be still in normal phase and probably will retest the middle band.
Now we'll see weekly (120 period) move
Here it's also in normal phase, the price is coming from below and hit the middle band. So based on weekly we have this middle band as critical point. If it's broken then the next logical target might be the SD 1 band, otherwise it might retest the SD -1 band.
So far based on the two time basis we have two critical points to watch, the monthly SD 1 band and the weekly middle band, next we'll see how the daily (24 period)is.
Here the price is in abnormal up or uptrend phase, we can see the price is outside SD 1 zone, and middle band (the MA) is pointing up. Now the question is, how far will the price go?
As we already have on monthly and weekly phase, we have the monthly SD 1 and weekly middle band to watch, and beyond those we have weekly SD 1. So if the uptrend continues these points will be our focus. Otherwise we will have two additional points to watch, the daily SD 1 and middle bands.
And how do we know if the price is still moving up or about to reverse? The answer is use something that helps us to identify direction. In this case, I'm using LSMA set to daily (24 period).
Why daily? Actually depends on your focus and style you can use any period you like. I use daily since I'm focusing only on intraday trade. If you trade on longer term you might to focus on weekly or monthly and use 120 or 480 period LSMA for direction, it's your choice. You can even use longer period, like six monthly or yearly for instance for longer term trade.
Here's the picture
As we can see LSMA is pointing up and price is above it, it's an uptrend really.
How do we tell the current uptrend is weakening?
Watch the price action. If price starts to move below the LSMA, it's a sign that the uptrend is weakening. Next we should wait and see if the LSMA is flattening or turning down and price is moving down too, then it's a sign of reversal. How far will it go? Again, watch the bands, see how the price reacts at those bands and how the LSMA is.
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