Is TA working? A 2k pips drop case study

1 сент. 2022 г.

There is a great debate about whether technical analysis works or not, and my personal opinion is that most of the time, YES.

In this educational post, I will use EurUsd as an example and we will see how, using basic technical analysis knowledge, we could have been on the good side of the market for more than 2k pips.

So let's get started...



We can see from the image above that after a nice rise started in the first part of 2020, EurUsd reached a strong level of resistance at the beginning of 2021(remember, support and resistance are more likely zones than fixed price points) and dropped to the next zone of support.



A new leg up followed this drop from the beginning of April 2021 and we have EurUsd again at resistance at the end of May 2021.
From this level of resistance EurUsd dropped again and in mid-August is again at support.



As it was normal, we have a rebound from this level of support, but the pair was unable to reach the previous resistance and stopped its rise in the previous level of resistance, just above 1.19.

Important note: Although the zone above 1.22 acted twice as resistance we can't yet call for a double top!!! We need the break under the neckline for the pattern to be complete.



Finally, on September 2021, we have the break under the neckline and the double top pattern is now complete.
As we've learned, we need to have confirmation for the break and this comes at the end of October.
Now we can take into consideration the measured target for the pattern of 500 pips and this is reached in just a month after the test, at the end of November.



Let's go further and we can see that after the target of the double top was reached, EurUsd entered a range trading period between and old support which is now resistance, and the target of the pattern which is now support.
Also, we have 2 great selling opportunities for EurUsd this year using the level of resistance in January and February.



Again, going further, in March we have a break of the support of this consolidation, and considering a 300 pips range, we can use it as a target which is reached IN JUST 4 TRADING DAYS!!! Also, if you go back in 2020 you will see that 1.08 acted as support from February till May.



Again we have a reversal and the rise stopped in the old support, now resistance at 1.12 zone. Another great selling point



To fast forward and get to "our days" we can see that after the retest of 1.12 we have a sequence of two similar outcomes with resistance at 1.08 and 1.03.

That being said, in my opinion, there are 3 things that you should take from this post:
1. Trust the process
2. Trade higher TFs and look at the overall picture
3. Trade in the direction of the trend


Best of luck!

Mihai Iacob