Our Risk Tolerance Threshold Ratio, which is based on a tenet in Dow Theory for differentiating between an impulsive move and a reactive move, provides a straightforward framework for choosing which market to trade and which direction to trade it from. Not so much right now though - depending on which time frame you trade - Figure 1.

The tool is used by taking any 3 successive patterns in the ratio and trading in the collective direction of those three patterns, where collective equals majority.

Figure 2. RTT Ratio for Euro for 11/6/2013

Currently the ratio is bullish on the intermediate to long-term patterns in Euro, and bearish for the short-term patterns. Interpretation: long-term traders are buying dips while short-term traders are selling rallies. Whenever given such a choice, I lean toward both. It was also hard to look past the buy signal given last night on the 4-hour chart - see Figure 2. A double bottom on a longer-term 50% retracement level is a reliable pattern as is a long-term 3 point trendline - particularly after having just put in that 3rd point.

(click to enlarge)
Figure 1. 4-hour Euro chart for 11/6/13

If you are a swing trader or position trader you would already have been eyeing this dip as a buying opportunity. If you're a day trader and tried selling rallies these last two days you're probably happy to have broken even. As is always the case in markets, professionals will migrate to whichever side of the market is most profitable.

The more I look at support just below current levels in EURUSD the more I have to respect it.

To see Jay Norris highlight trade set-ups and signals in live markets for free go to: Live Market Analysis. Jay is the author of "The Secret to Trading: Risk Tolerance Threshold Theory".

Trading involves risk of loss and is not suitable for all investors.

Disclosure: I am long UUP.

Themes: Risk Tolerance Threshold Theory, Dow Theory, Daily Forex Market report for 11-7-13 Stocks: FXE, UUP