In the previous article in this “Trade the News” series, we examined post news up trends that reverse. In this article, we will examine post news up trends that form continuation patterns.
Post news up trends and the MACD indicator
As discussed in the previous article in this series, in order to better understand MACD and its significance, I plotted a sixty minute, fifteen minute, and five minute chart side by side of a currency pair and I observed these charts over a 24 hour period after the release of a major news announcement. The first uptrend I observed consolidated and reversed to the downside. Within days, I had the opportunity to observe an uptrend that consolidated and then continued to the upside.
For both post news up trends that reverse and up trends that continue, the MACD indicator moves through definite phases as the uptrend progresses. After the news announcement, assuming price has rapidly increased and the five minute, fifteen minute, and sixty minute MACD indicators are all crossed up, above the zero line, and showing good angle and separation, I observed the MACD indicators then typically change in this manner:
The five minute MACD first crosses down.
The fifteen minute MACD next crosses down.
The sixty minute MACD crosses down as the fifteen minute MACD neutralizes to the zero line.
If the uptrend will continue, the MACD indicators will once again cross up and remain above the zero line.
From my observations, I came to the following conclusions regarding post news up trends that continue to the upside.
The Up Consolidate Continuation Pattern
When the five minute MACD crosses down there is still upside potential left in the trend.
When the fifteen minute MACD crosses down it signals the beginning of the consolidation phase.
When the sixty minute MACD crosses down the fifteen minute MACD has usually neutralized to the zero line.
If the uptrend will continue after the consolidation, there is a strong tendency for the fifteen minute MACD to stay above the zero line after neutralizing down to it. When the 15 minute MACD and the five minute MACD both cross up and are both above the zero line, the uptrend will usually continue and the sixty minute MACD will soon cross back up as well.
The above MACD crossings are noted on the sixty minute, fifteen minute, and five minute charts in Illustration 1. The numbered lines in the charts are cross hairs that line up in each of the three time frame charts. For example, the line numbered “1” indicates the place in the five minute chart where the five minute MACD first crosses down. This same moment in time is also shown and numbered “1” on the sixty minute and fifteen minute charts as well. The charts are plotted with the default MACD setting (12, 26, 9).
Illustration 1
Trading the Up Consolidate Continuation Pattern
From the above observations, I created these trading plays for post news up trends that continue to the upside.
When the five minute MACD crosses down there is still upside potential left in the trend Assuming the sixty minute, fifteen minute, and five minute MACD indicators are all crossed up, above the zero line, and showing good angle and separation, monitor the five minute MACD for the first crossing of the MACD line below the signal line. This will occur during a brief “micro” consolidation in the uptrend usually about one hour after the news announcement. Odds favor the uptrend continuing and a favorable long entry after the five minute MACD crosses back above its signal line and holding long until the fifteen minute MACD crossing occurs, or negative divergence is seen in the five minute chart, or Stochastic is overbought in the fifteen minute chart.
When the fifteen minute MACD crosses down it signals the beginning of the consolidation phase Once the fifteen minute MACD crosses down the consolidation begins. Look for Buy opportunities when price is at the bottom of the fifteen minute Bollinger Bands and the fifteen minute Stochastic is oversold. Look for Sell opportunities when price is at the top of fifteen minute Bollinger Bands and the fifteen minute Stochastic is overbought.
After the 60 minute MACD crosses down if the 15 minute MACD and 5 minute MACD cross back up and remain above the zero line it signals an uptrend continuation Once the sixty minute MACD crosses down, monitor the five and fifteen minute MACD indicators. If the five and fifteen minute MACD indicators drop below the zero line the uptrend will most likely reverse. If the uptrend will continue to the upside rather than reverse, the fifteen minute MACD will tend to stay above the zero line. Eventually the five minute MACD and the fifteen minute MACD will both cross above the signal line and cross above the zero line. As price breaks out of the consolidation to the upside, the sixty minute MACD will cross above the signal line as well.
This video illustrates these plays.
(click the button ABOVE to start playing, Video Only)
How the Up Consolidate Continue Pattern Resembles the Up Consolidate Reverse Pattern and Some Clues as to the Direction They Will Break
The first two phases of the “Up Consolidate Continue” pattern which we have discussed in this article often present the same chart patterns and technical indicators as the “Up Consolidate Reverse” pattern which was discussed in the previous article of this series. As seen in Illustration 2 the charts are often identical during the up and consolidate phases.
Illustration 2
Sometimes you just have to wait for the break out of the consolidation to catch the continuation or the reversal. Often, however, there are clues during the consolidation phase indicating the eventual direction of the break.
1. The slope and relative position of two short term moving averages
In the above example the blue line is a simple 10 period moving average. In the chart that continued to the upside, it maintains good angle and separation with the red line which is the middle Bollinger Band. The middle Bollinger Band is calculated as a 20 period simple moving average. In the chart that reverses to the downside the 10 period simple moving average crosses under the middle Bollinger Band and the middle Bollinger Band flattens prior to the break out of the consolidation to the downside.
2. The Stochastic indicator Frequently in up trends that continue there will be more instances of the stochastic indicator showing oversold in the sixty minute and fifteen minute charts presenting opportunities to go long. And conversely, in up trends that reverse, more instances of the stochastic indicator showing overbought presenting opportunities to go short. These “overbought/oversold” points make for good scalping trades and also present opportunities to catch an early entry into the eventual break.
3. Support or resistance on higher level charts such as the four hour, daily or weekly The emphasis on the sixty, fifteen, and five minute charts in this series is not meant to ignore the higher level charts. Though standing alone the sixty, fifteen, and five minute charts offer good trade setups, the points of support and resistance on the higher level charts steer price action on the lower level charts. Good top down analysis makes us aware of the overall longer term trends. And as price moves between these longer term support and resistance points, the lower level charts present the near perfect entry points.
This article completes the series on trading post news up trends. ForexMentor members can access all the trade setups that have been discussed with charts and detailed notes for the “Up-Consolidate-Reverse” pattern, the “Up-Consolidate-Continue” pattern, and a variation called the “Up-Reverse” pattern using these links:
Illustration 1 
button ABOVE to start playing, Video Only)
and Some Clues as to the Direction They Will Break 
