Another great tramline test for the euro

John C Burford looks at another trade in the euro which demonstrates the power the tramline trading system gives traders.

Today is Labor Day in the USA and markets there are closed, except for the Globex markets. Normally on US public holidays, trading is very muted, but we shall see.

On Friday, I showed my tramlinetrio that I believed was operating on the hourly chart. At that time, the market was testing my centre tramline. And with Friday's explosive action later in the day, it rallied to test my upper tramline.

Subscribe to MoneyWeek

Become a smarter, better informed investor with MoneyWeek.

This was another gift for those wishing to short the euro, as I will show.

So let's see how this tramline fared as resistance.

Advertisement
Advertisement - Article continues below

Here is this morning's chart:

12-09-03-MWT-01

(Click on the chart for a larger version)

The upper line is my uppermost tramline. The horizontal line is the Fibonacci 38% retrace of the big wave down from the February 1.35 major high, down to the July low that I showed on Friday.

As I noted then, the market rallied to my highest tramline (red arrow), then fell back, and was testing the centre tramline as I wrote.

But in the afternoon, we had a certain Mr Bernanke make another vague pronouncement from on high and the floodgates opened, especially in the stock market and gold (which I hope to cover this week).

But note exactly how far the rally carried. Yes to an exact turn at my tramline (blue arrow).

Advertisement
Advertisement - Article continues below

How is that for precision? And a gift for short-sellers.

For newcomers, just take a moment to consider the power the tramline system gives a trader. Last week, I drew in these tramlines. Extending these lines into the future gives precise areas where I should expect support and resistance and probable turning points.

Turning points are the best places to enter trades

Making a short trade near the upper tramline gives you a low-risk short entry point. Why low risk? Simply because if the market breaks above the tramline, it shows the lines are no longer working (resistance has been overcome) and I want out! Placing a close stop just above the line gives you that litmus test.

Trading in between tramlines is a higher-risk proposition as stop placement is more problematical. It can be done, but you need to be aware of the higher risk.

I like to focus most of my trading around tramlines, and I would advise any trader starting out to do likewise.

Advertisement
Advertisement - Article continues below

A long trade was indicated last Friday, as the market was lying on the centre tramline (support).

So, in one day, there was a possible winning long trade, and then a short trade.

Before I go, the market is testing the underside of the Fibonacci 38% line, having broken below it late on Friday.

It will be interesting to see if this line now resistance holds.

If you're a new reader, or need a reminder about some of the methods I refer to in my trades, then do have a look at my introductory videos:

The essentials of tramline trading Advanced tramline trading An introduction to Elliott wave theory Advanced trading with Elliott waves Trading with Fibonacci levels Trading with 'momentum' Putting it all together

Advertisement
Advertisement - Article continues below

Don't miss my next trading insight. To receive all my spread betting blog posts by email, as soon as I've written them, just sign up here . If you have any queries regarding MoneyWeek Trader, please contact us here.

Advertisement

Recommended

Visit/trading/spread-betting/600782/boeings-share-price-plummets-heres-how-to-play-it
Spread betting

Boeing's share price plummets: here's how to play it

Boeing shares have fallen by a third this year. But there could be worse to come. Matthew Partridge explains how traders should play it
10 Feb 2020
Visit/519524/how-my-2019-spreadbetting-tips-fared
Share tips

How my 2019 spreadbetting tips fared

Matthew Partridge reviews performance of his 2019 spreadbetting tips. This year’s winners include Bellway, JD Sports and Taylor Wimpey.
17 Dec 2019
Visit/519285/bettingon-politics-some-safe-labour-bets
Spread betting

Betting on politics: some safe Labour bets

Matthew Partridge outlines a few flutters on what should be safe Labour seats in the general election.
10 Dec 2019
Visit/518916/ds-smith-will-deliver
Spread betting

DS Smith will deliver: here's how to play the share price

Packaging group DS Smith is profiting from the online retail boom. Matthew Partridge explains how traders can play the share price.
3 Dec 2019

Most Popular

Visit/economy/uk-economy/600824/how-the-bbc-can-survive-the-end-of-the-tv-licence
UK Economy

How the BBC can survive the end of the TV licence

The TV licence that funds the BBC is looking way past its sell-by date, says Matthew Lynn. Here's how it could survive without it
16 Feb 2020
Visit/economy/uk-economy/600837/rishi-sunak-new-chancellor-spending-splurge
UK Economy

Britain has a new chancellor – get ready for a major spending splurge

The departure of Sajid Javid as chancellor and the appointment of Rishi Sunak marks a change in the style of our politics. John Stepek explains what's…
14 Feb 2020
Visit/investments/property/600826/living-on-a-houseboat-the-pros-and-cons-of-a-floating-home
Property

Living on a houseboat: the pros and cons of a floating home

Living on a houseboat sounds romantic and peaceful. But it’s not as straightforward as it looks, says Nicole Garcia Merida
14 Feb 2020
Visit/investments/commodities/600729/the-rare-earth-metal-that-wont-be-a-secret-for-long
Sponsored

The rare earth metal that won't be a secret for long

SPONSORED CONTENT – You can’t keep a good thing hidden forever; now is the time to consider Pensana Rare Earths and the rare earth metals NdPr.
31 Jan 2020