Search ForexCrunch
  • Bulls are stepping in for a restest of the prior daily support. 
  • The daily M-formation offers an opportunity to target the upside prior to the downside extension. 

The price has rallied from the structure in what could be an extended correction of at least  50% mean reversion of the recent bearish daily impulse. 

The following is a top-down analysis that illustrates where the next opportunity could arise in targeting the prior support of the M-formation on the daily chart.

Daily chart

The daily chart offers a bearish engulfing candlestick pattern as part of an overextended M-formation. 

While the bearish engulfing is a topping pattern, the M-formation would be expected to be completed once the price has retested the prior support, aka, new resistance. 

This offers an opportunity to target the nose of the M-formation from a lower time frame, such as the hourly chart as follows:

Hourly chart

Bulls have rallied to test the first key resistance.

Providing this level holds, an opportunity would arise for bulls to buy into the prospects of a correction of the bearish impulse on the daily time frame at a discount. 

If the price corrects to restest the new support structure, a buy limit would activate a long entry with a target towards a 50% mean reversion of the bearish impulse, protected with a stop loss below the recent lows. 

This would offer in the region of a 1:2 risk-reward opportunity.  

Thereafter, bears would seek to reengage and target a longer-term downside target below the recently made lows, extending the bearish impulse from the top of the bull rally.