NMC/USD Technical Analysis – 25th March 2014

Analysis provided by Ashton Fraser, learn more about his trading strategies with the forex reversal indicator. This morning we saw

Analysis provided by Ashton Fraser, learn more about his trading strategies with the forex reversal indicator.

This morning we saw a classic double top price pattern form on Namecoin.

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Let’s take a closer look at the NMC/USD H1 chart below (click to expand):

nmcusdh1_25_03_2014

The first thing to look out for is the double top pattern here, marked with two red circles. Concerning the far left circle, we can see how the candle a) closed outside the upper Bollinger band, b) closing as a bear candle, and c) had a long upper wick, around half of the entire candlestick. These three points combined gives this a potent reversal potential. In fact, even the very next candle closed as a bear candle whilst being excluded from the Bollinger bands! This very RARELY happens, and makes it even more potent. Plus, with the Accelerator Oscillator turning red on that candle as well, AND the fact this is a Fib level from our analysis yesterday, then really, a southern movement was virtually inevitable.

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Moving on, looking at the second candle marked in red on the right side of the chart, we can see how it also had a long upper wick, which protruded completely above the upper Bollinger band. At the same time, we also had the Stochastics in overbought territory, whilst the AC closed as red on the next candle. Now, whilst this price action on its own (along with the indicators), isn’t nearly as powerful as the initial pattern we discussed in the paragraph above, the fact that it’s happened at exactly the same location as the initial reversal, in other words a “double top”, provides us with corroboration.

For this chart, I’ve performed the Fibonacci study from the last swing low at 2.69 until the high at 2.87. So, following that second encircled red candle, price subsequently dropped until the 61.8% Fibonacci retracement level (marked in blue), before rising back to the 23.6% level at 2.82, where it’s currently residing.

I would say, besides Fibonacci, there is probably no other chart pattern that occurs more often in trading than the double bottom or double top pattern. If you’ve been following my technical analysis over the past few weeks, you’ll realise I’m a huge advocate of trading Fibonacci, purely because of its consistent power. In addition, the double top/bottom is also very powerful, although they can be harder to spot, yet the fact that it happens time after time, in virtually every trading instrument, whether it be currencies or commodities or shares, is proof of the validity of price action and its associated technical analysis.

For the immediate future, price may hover around the 23.6% level for the next half a dozen or so candles as the market loses its momentum.

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