This last week on the GBPCAD, a bullish move played out that is a good case study for looking at price action from a daily perspective and how the following days trading range is often affected by the range of the previous day or even the last few days. Please see the attached chart.
Carefully looking at each day of the week and how that days’ move fits within the rest of the week helps give a larger perspective. In this article I want to take a look at daily highs and daily lows, along with Fibonacci analysis. I find it very interesting how each trading day is affected by the previous day’s price action.
This last Monday, a double bottom formed on the GBPCAD. The initial low of this double bottom was formed on Sunday and later in the day on Monday, Sunday’s low was re-tested. Price didn’t push lower and so price slowly climbed. On Tuesday price tested the high of the day printed on Monday and pulled back to test Tuesdays low of the day. This low held and so price climbed and broke out to form a new high on Tuesday.
You can draw a Fibonacci Analysis from Monday’s low to Tuesday’s high and this study helps to setup the rest of the trading week.
On Wednesday the market pulled back to test the 78.6 fib retracement of our fib study, which corresponded with Tuesday’s low. This support level for Wednesday held and so price pushed higher. The next day Thursday, price tested Tuesday’s high and then eventually broke the high to test the 121.1 Fibonacci Extension. On Friday price pulled back to test Thursday’s low, which held and price then rallied up to the 161.8 Fibonacci Extension.
The previous day’s low was very important in establishing support three times in the week, which are all highlighted in green.
Monday’s test of Sunday’s low, Wednesday’s test of Tuesday’s low and Friday’s Test of Thursday’s low were all very important in establishing support and propelling this trend. These levels provided good opportunities to buy into the trend.
Considering the Fibonacci analysis it is also important to note that Tuesday’s High and Monday’s low were the levels that created the Fibonacci analysis that helped determine Wednesday’s low at the 78.6 retracement, Thursday’s high at the 1.214 Extension and Friday’s high at the 1.618 Extension.
Sometimes I will get stuck in trading what I see happening on that day in a pair and this analysis helps me to open my eyes to the relevance of price action from the rest of the week to help me create my trade plan for the current trading day.
I hope this helps you have a larger perspective as well.