Chart of the Day: Bear Flag in EURUSD

The bear flag is a pattern that plays out in all markets, though it tends to resolve less clearly (i.e., with more fakeouts and false breakouts) in currencies. Why? I’m not sure, but it could be that the underlying dynamics of buying and selling pressure, while still there and still driving patterns, express themselves a bit differently in currencies and rates than they do in outright traded instruments. Even so, the pattern is still reliable and useful.

Look for a downside breakout of this pattern, supported by last week’s consolidation near the low of the pattern. This type of smaller consolidation within a larger flag often leads to sharp moves out of the flag, but another factor to consider is that it is probably naïve to expect good market movement in the late summer/early September season. Many traders are on vacation and markets tend to go into a bit of a sleepy phase, so temper your expectations. Reasonable stops for shorts entered here are probably in the high 1.26 – mid 1.27 range.

AdamHGrimes

Adam Grimes has over two decades of experience in the industry as a trader, analyst and system developer. The author of a best-selling trading book, he has traded for his own account, for a top prop firm, and spent several years at the New York Mercantile Exchange. He focuses on the intersection of quantitative analysis and discretionary trading, and has a talent for teaching and helping traders find their own way in the market.