Forex war zone

7th October 2010, Thursday, one of the typical day that most of the traders get confused on the break through of the highest calculated resistance line for the day for Aussie vs USD.  Some friends rang me up on query whether the price will goes up to another high?  Or will it reverse base on the highest resistance level?  It seems like a break-out in price as it keep forcing up with no limits that we can anticipate!  Base on the chart below, any trader should be in short position once the price reach the resistance point, but price still shoot up further especially when the US announce their initial claims data when it was less than expected in numbers.  I recalled where similar case occurred before.  And this is what my husband called it the Forex war-zone.

He told me that as long as the highest level had been conquered, and everything else have an indication of overbought situation from chart of different time frame, chances are it will not be able to sustain for long even though some data may come out to be positive. At these point, some traders will enter a trade for long believing that the price will be pushed up further and on the other side, some traders will go for short position relying on their technical analysis.  With the crash of the two forces, price become uncertain especially when it comes to electronic trading when we have all sort of traders with different knowledge base as well as different categories that they belong to.  
There's one thing that my husband keep reminding me about is that there will always be a force of gravity.  No matter how high the price goes up, it will still subject to retracement or reversal!  WHAT GOES UP MUST COME DOWN!  At this particular scenario, where we could not see any price ceiling it is heading, even if there is, it is much too high for the Aussie to attain as the market cannot sustain too much of the overbought situation.  Couple of new traders got caught on early entry for hours without evaluating it carefully.  Therefore, the possible solution will be to avoid this WAR ZONE if you are not too sure or you have no confidence about.  Another point to take note of will be to liquidate your position after your profits or calculated losses before the announcement of any important data.  Experience traders know it best to take advantage of these situation, a strategy that I had wrote on my previous blog post.  If you have queries on technical analysis, you may visit http://forexoceanview.blogspot.com/ for more information.  Cheers!