When trading the Foreign Exchange (ForEx) market it is very important to keep an eye on the dollar. I use the Dollar Index Futures to track the movement of the dollar. The diagram above shows the Monthly, Weekly and Daily charts of the Dollar Index Futures.
Another very important element in finding high probability scenarios to trade in any market is an in depth understanding of Multiple Timeframe Analysis.
We can never know what the market is going to do but as traders we think in terms of probabilities. For example our thinking would go something like this – if the market does X and Y then there is a high probability that Z will happen.
With this in mind let’s analyze the dollar using a top down approach starting from the Monthly chart.
Monthly chart
We are in the 6th month up and are currently sitting in a weak supply zone. The current price direction is still up. The odds here are that the dollar may continue moving higher as the direction is up and the supply is weak. Of course the dollar could fall here as we are after a move up in price into supply. This is what makes this scenario tricky.
Weekly Chart
We are in an uptrend with price direction up into a weak supply zone. The odds here are that the dollar may continue up with what the chart is showing us so far. Of course, if the charts change we will have to reassess.
Daily Chart
A couple of days ago the price direction changed to down and yesterday we had a move down to demand (pullback). Today the dollar has moved up from the demand zone which was expected due to the current long bias we have on the Weekly and Monthly charts. The price direction is currently still down. The question for now is this – will the daily price direction change to up? If the price direction changes to up at the end of the day then it is highly probable that the dollar may continue higher as we now have the Monthly, Weekly and Daily charts in alignment. If not, the dollar may continue down to the next demand level below current price or may even go sideways.
