Retracement Strategy for Short-Term Correction in Bearish Market

22 paź

EURUSD

Analysis of the Chart:
Overall Trend: There’s a clear downtrend after a peak around the 1.1250 level. The pair has broken below key supports, indicating a bearish movement, with some signs of consolidation at the current level.

Fibonacci Retracement: A Fibonacci retracement is applied from a previous high to the current low of the bearish move, highlighting potential levels where the price might correct:

38.2% retracement at 1.0963
50% retracement at 1.1015
61.8% retracement at 1.1057
These levels could act as resistance points where the price might reverse after a short-term rally, allowing the market to "breathe" or correct before continuing downward.

RSI (Relative Strength Index): The RSI is around 31, indicating that the market is oversold. This is a typical sign that a short-term bullish correction may occur before the price resumes its bearish trend.

Proposed Strategy:
Market Correction & Retracement: Since the RSI is signaling oversold conditions, the market is likely to correct upward. The Fibonacci levels (particularly the 38.2% or 50%) are good areas to target for a potential retracement. The 38.2% level at 1.0963 seems like a reasonable target for the price to rally before finding resistance.

Bearish Continuation: Once the retracement reaches one of these Fibonacci levels, you could look for a reversal signal (e.g., candlestick patterns or trendline resistance) to re-enter a short position. The overall structure points to a continuation of the bearish trend, especially with the double top formation visible, suggesting further downside potential.

RSI as Confirmation: Use the RSI to confirm the retracement. If it climbs but stays below 50, this would reinforce that the move is a correction and not a trend reversal. A break below previous lows after the retracement could be a strong signal to go short.

Conclusion:
Expect a short-term rally toward the Fibonacci retracement levels (1.0963 or 1.1015), given the oversold RSI.
After this retracement, look for a bearish reversal and enter short positions as the downtrend resumes.
Monitor the RSI to confirm that the correction is limited and not a full reversal.
This strategy aims to take advantage of the market's temporary "breathing" period before the downtrend continues.