Reversals after Mature Trend

What do I mean mature trend? It's a trend that already has some history, this trend will attract a lot of weak holders - uninformed players, who are willing to get in the position and to take a risk, but they have relatively close stops that will be located in the same location.

Big market players use this liquidity (orders from these weak holders) to build their positions. So, engulfing patter occurs in conditions prepared for falling.

Supply and Demand What is overbought and oversold Market conditions

Has rally in aud/cad is outcome of Overbought Market

Situation of overbought market condition occurs when public accumulates extremely long inventory (even if smart money players are not too short). The same situation occurs when they hold extremely short inventory – we say that market is «oversold» in this case

Liquidation is the result of Overbought Market Conditions

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Hi traders!

We hear it very often that market is «overbought» or «oversold». But is it really possible to understand this looking at the single price chart without knowing real open interest (we don’t have this information for Forex currency pairs)? Some traders try to use RSI or other oscillators (divergences as usual) to spot «overbought» or «oversold» market.

First, let’s define what overbought (oversold) market is.

We all know that for every buyer there has to be a seller to have transaction executed, otherwise there’s no trade. So, how in the world can we have something «overbought» or «oversold» - do we really assume that there can be more buyers than sellers?

Let’s distinguish market participants of 2 parts: Smart money (institutional players) and public. Smart money often have information about large orders, they have access not only to interbank liquidity, they also execute orders of big clients, so they know what big guys are going to do – they work on the behalf of those big guys. On the other hand, we have «public» - uninformed market participants that usually just react and don’t have access to real liquidity.

Does really «public» exist on Forex? After all, it’s interbank market with minimum position size of 1 million. By «public» I understand not really retail traders that operate with 100 USD accounts, not at all. By public I mean orders brought to the marketplace by large ECN networks like EBS, Currenex e t.c. Such marketplaces collect smaller positions from retail traders all over the world and hedge them in the interbank market

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When small traders are very optimistic about possible growth, they bring a lot of fragile positions to the marketplace. Not surprisingly, market can liquidate (go down) very quickly if something happens.

And market has liquidated after news release on Aud/cad– rapid movement to the downside was result of massive liquidation:

Intrady day strategies for trading forex on all the majors pairs

Breakouts and preparation for Breakouts

Hi traders, Its been a week since I have updated the blog and In the meantime volatility has picked up and that is the reason I was busy in setups and I always look for my setups rather than forcefully look to sell and buy with the market behavior.

Example of Breakouts Or preparing for breakout

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Example in the chart shows that when you trade momentum and prepare yourself for breakout And force yourself to trade suc such spikes in price looking to breakout rather than look for volatility spikes which requires huge stops to cover your positions

Interestingly, When you have such tendency in moving market behavior then look for such low risk probability trades and that is the best way that let you ride most of the earlier part of trend. But in some cases even though it offers a pullback and You have to cover quickly but still Intra-day profits would have already booked before such action take place

Idea, thought behind such price action or breakouts is that You need to trade logic in the trend and when price is In "Balance" State of behavior which often tells you the strength, and No strong sell-off has been shown and If there is any sell-off is to be part of neutral day "Liquidation Trap".

Forex Trading Strategies l Beginners Price Action Based On Supply and De...

Momentum trading

I take some time to update the text, But in the meantime we have some more clues that market activity was balanced inside the bracket and market was ready to squeeze outside the bracket but soon afterwards we saw some selling and Again today after the test we see some aggressive traders participate again and mark the price higher even strongly than earlier.

Another classic example of Momentum trading

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Role of Candlesticks and Trading Mistakes

Volatility bias.

Many traders become to trade move actively after volatility breaks, in other words they tend to be more active after «trending» days – days with extended trading range. But if you analyze market statistics for at least last 5 years, you will see that more often market tend to consolidate within a body of the elongated candlestick (of course, I’m talking now about daily charts) for 2-3 days.

Role of candlesticks In Strong volitality breakouts

There is a very simple explanation for such market mechanics. Big market participants rarely come to the market and drive it to a new prices, instead they prefer to act as a market makers – to provide liquidity. In other words – they don’t chase running market, they try to accumulate position in consolidation before (most frequently) or after (more rarely) the breakout to make sure that their average fill will not be the worst.

On Forex market, days with extended volatility often don’t mean anything, it can be simply a «shakeout» or a single player stepping in the market without intention to continue pushing it to whatever side.

Solution: Don’t chase the market, find accurate trade location after market settles or when breakout is ready to occur, not after that.

I have posted an example of both charts in two different ways of looking at both of them as It will clear the thoughts

Intraday updates Scalping techniques

Scalping in forex

It is important that we chose Smart logic when we decide to trade Intraday for scalping and "Scalping techniques" does not means that we have to trade daily and make 10-20 trades for 50-60 pips which is totally asking too much or target more than your potential.

For me its Scalping been 5-6 setups a week should be good enough for whatever comes my way and Never try to overtrade and always try strong trend currency pairs to offer me pullbacks whether long or short and That is what happen on Last Friday with usd/chf setups I target for Intraday scalping.

Excellent example OF Scalping

In the above mention chart price was in strong trend and then we see extended range which is a strong sign of Imbalance and then we have strong spike and immediate selling was seen the following day but I eyed that as an opportunity because price ended the day on lows and value was shifted immediately to that lows and also that was the confluence of the prior spike and that is what we need to target while it is also low of Blue Rectangle I mark on the charts.

That sort of state is called balance and when market sentiment is balance and Nobody dominate, then there is strong that prior trend will continue and that is what happened after consolidation for a session price finally breakout and gives us good 60-70 pips profit on the day.

How to choose swing trading or scalping

What is swing trading? How «swing trading» differs from «momentum trading»? Actually, there are many approaches to swing trading, but I will express my point of view on the subject.

Swing trading is trading on intervals more than 1-3 days, some traders may call it «long term» or «medium term», but in fact, good swing trade can last no more than 4-5 days. Swing trades are usually level-based trades. For example, if you trade momentum, you can capture short-term overbought or oversold condition of the market (imbalance) and trade-off scenario of inventory correction.

If you trade momentum, your trade will look like that:

You see, that typically you will buy high to sell higher. But in this case you act like a sniper, wait for perfect timing for your entry, then aggressively go with the market, capture profit and exit. Things are different with swing trading. For momentum trader it’s natural to exit pretty quickly (duration 3-4 hours for intraday trade) because his price is not relatively very good – momentum trader is unable to survive pullbacks, rotations and other activity of the market, before it reaches the target. That’s why momentum trader will tend to quickly reduce his risks, minimize stop losses or set them to breakeven. Swing trader expects to get good price while his timing may not be ideal. If you expect to get good price, market can revisit your entry several times, rotate above your entry (if you go long), go sideways, and only after 2-3 days of sideways action price can break out from a range in the direction of your position (or may not break out)

Typical swing trade looks like that:

I basically trade 2 types of swing trades – «rejection trades» and «hot spot trades»

How do they look like?

In this post I will talk about "rejection trades".

Briefly, rejection is a reversal. It’s that simple. But there’s one small nuance. Rejection level is not a «support» or «resistance» level. Actually, there are no support and resistance levels – there are only areas of support and resistance. And they are usually located where majority of traders don’t seek them.

Important principle:

Before ever considering fading correctional move, you should see signs of support/resistance before. Sun Tzu had said: «Every battle is won before it’s ever fought»

The same is in trading. Every reversal is made before it’s occurred. Weird, huh?

Reversal is just a paradigm shift in heads of market participants. Before reversal, market must have strong imbalance between demand and supply, otherwise no power can drive the market against existing trend (even correctional)

So, to decide whether to join a trend or not, you should see signs of big money buyer (seller). As you know, institutional buyer will tend to accumulate, to slowly build his position. More often than not those guys are not speculators in conventional way – they accumulate position by given price, then use purchased asset in business outside the market.

So, if you see that market tends to show you very well traded levels in the center of the day and poorly traded levels on the extremes of the day, it can be a sign of accumulation if this process goes long enough.

Look at the chart of AUDUSD – you have seen signs of big buyer accumulating long here – look how price is leaning to the area 0.9440. How do you think – why market shows strange consensus around this level?

Also, you expect to see «neutral» or «normal» days as the process of accumulation goes on. Neutral day is day with very low tempo and aggressiveness – it closes near its open. Normal day is more aggressive day, yet it also closes near its open. These days also help you find accumulation areas on the chart

And there are other clues that I can’t describe here, because in this case post would become very massive. I call areas described above «real support areas». Why «real support»? Because those who join the market from any lines can’t really support the market – they are short term players and gamblers by their nature. Will gambler support any market? He is careless and he will exit first if something goes wrong.

Guess what I’m trying to tell you?

If you want to get good price and capture a reversal of correctional trend, you should seen signs of real support. Real support creates conditions for a reversal if market goes against big buyer (remember –to reverse the market, there should be supply/demand imbalance). Reversal itself occurs after paradigm shift, when it becomes clear for most short sellers that they were biased and go in the wrong direction.

Compare two situations. I specially applied market profile for those charts to show you the concept. On the first chart there are not enough real support clues - market goes back and forth in continuous search for information, on the second chart things are different – this chart is much more «managed» and probably driven by strong money buyer.

So, not surprisingly, price reverses below offering several good opportunities for a swing trader:

Forex Trading Strategies l Beginners Price Action Based On Supply and De...

How to trade momentum and Find best trade locations

While We prepare ourselves to chose what type of trader we are, We should prepare for Momentum trading Even for scalping or Swing trading. And when We decided We should use some strong points which cover the strong segments of "Momentum Trading".

Even though Imbalance is not present in the market, It still can continue its previous day activity, And we should be in search for this type of trade locations where Price has retraced of the prior move and Look for momentum to come again and continue moving in the prior trend before correction.

Example of Momentum trading

For next few days, As I have always done to cover the points which we need to be aware while we trade Momentum trading and above chart is the first example, But still if you trade Neutral days after breakout. You can still trade Momentum for continuation or reversals.

Forex Trading Strategies l Beginners Price Action Based On Supply and De...

How to spot Imbalance in strong trends

As I have continuously mentioned in my previous posts that "Imbalance is what creates trends and balance create ranges", And When We have seen such strong trends like the one we have seen after the end of correctional trend in usd/jpy, We have to filter our entries.

In this chart I have clearly stated that "Neutral day" activity where we have seen such strong behavior after false breakout on neutral day and there was minor development area, which was left behind after momentum finally take place and we have to look for tight stops in such cases as price usually don't come back if We manage to find out continuation of the trend.

Example of the chart usd/jpy

Clearly I have identified the opportunity and spotted out trade location in such cases which is the important point that we have seen some ranges and then finally we have seen some momentum picking up and we have finally manage to collect some pips although my entry came earlier at 106.38, Because I use to spot out such activity earlier and specially when I only target strong trends and some policy moves which makes a good combination, although it is not easy but stops was not very far away from my entry and will cover quickly if risk again hit the market as it is the case driving riskier assets like aussie, kiwi and usd/jpy counters.

Forex Trading Strategies l Overbought and oversold market conditions Bas...

Australian dollar Update.

First Of all I would like you to take a look at My earlier Post Here

As We can see from the background that we have given so much clues what price does when it reach new extreme and With strong swing it get the attention of "Price Action" traders that we should Buy On "dips", which often is not the case. Market makers don't react the same as we "Retail Traders" expected, they look to eye strong releases and sentiment to trigger the entry.

Although I was Not expecting the price to go that Higher as it would take out stops but after price open up on Monday and that is with Gap and that was good enough to short at another failure at new extreme after strong "bullish engulfing trap"

Take a look at Updated Chart of Australian Dollar

In this chart, I have mentioned few crucial points at where price was expected to reverse and that is the most expected area at "New Extreme" and that is what exactly has happened. And when such activity has happened You just expect large liquidation move without correction and even if it offers correction It would have been offering better entries.

Forex Trading Strategies l Beginners Price Action Based On Supply and De...

Value shifts Supply accumulated and Trend continues

First Of all I would like you to see my earlier Post

Updated chart of Aud/Cad

I mention last week about the chart aud/cad and its momentum after testing the low of 1.0120 and then It continues to shift the momentum higher, Price often reacts strongly when it goes against the strong buyers or strong money.

In this chart we have seen, Possible accumulation and then breakout and Imbalance which carries the momentum through out a day which was neutral day and after than we have seen only momentum candles and Price holding the higher prices. And Now if we again see the shift in Value and Momentum we have some strong protection area with strong background and that is what we should always be eye when market goes against the strong holders.

Usd/chf bids As per background suggests

As I have already stated in my previous posts that the most important thing to read current "Price Action" and which should be a part of "Trading strategy" is the recent price activity or behavior whenever a breakout happens,As when You accept to trade momentum and Fade out moves against the current trend then there are more chances that You develop such "Breakout system" that help you taking crucial decisions at crucial stages.

While I was preparing My this week updates then somebody told me that 1.3115 is extreme support for Eur/usd and It is suggested by leading banks to buy euro for a corrective move towards 1.3270 or 1.3310 probably, But I never take any such action that rely on Support and resistance and price did not give any clue whatsoever to reverse and this type of suggestions never influence my decisions. In reply I recommend to sell euro and If there is any time to sell Euro, then it is now and then next day Euro tumbles 250 Pips. (Suggestion was made on the basis with usd/chf strong Momentum)

Key points that we need to cover In this chart

I miss the great entry in Usd/chf and the reason I set Buy limit because I was looking for test of the value again which never comes and It tells you the upcoming strength of the pair and that exactly what happens. And there is no point in entering in between such strong move because You would ask to cover quickly or set huge stops which is never in trading style.But first spike was small and Entry was offered but Usually such rangebound conditions might have forced me to cover again and added with the momentum again.

While I prepare a checklist of that chart, Then I consider following points

Primary Breakout

Momentum After Breakout

How strong the rejection was (Passive Sellers)

Was there any supply Or Minor development area after neutral days

Most Important Point in this chart is Shift in value and that was the reason why price took so much time in range

when we see primary breakout and almost range bound trading after rejection and then price again hold higher prices or make a new high, Then It is important to line up that pair and see if value shifts again to the downside and behavior of price after breakout of value, and strength of pair should be strong enough to give you excellent continuation setup and that usually happens in strong trends.

Is Australian dollar giving us clues of Creating Overbought Conditions

I will try to keep you updated ahead of ECB and BOE Policy decisions, But I am not looking for Euro or Sterling, But I would try to opt to trade what I see and What others are doing as well, As If there is any Risk created by any unexpected events take place then we will see riskier assets like Australian dollar and gold sell-off.

It is not necessary that it will react as expected but violation and the first strong attempt will clear the way for me to enter, But this time we need to take excess risk but that is part and parcel of trading.

Keep an eye of Australian Dollar

This could be another situation of Supply overcomes demand and Every attempt has succeeded and liquidation follows but we need to keep and eye on the pair at this particular time Because of risk could totally reverse the pair and fade the recent momentum breakout.

We need to prepare ourselves and If you really believe in fading extremes or fading the particular price action attempt then you can fade out the candlesticks attempt and look out for much more deeper in-depth analysis (rather only candles),as it will really help you built a successful trading career.

When your thinking is unique and gives you edge, then Price action is in itself would seem not as complicated, but we make it simpler by our attempts and control of risk like such activities where you risk is very little and reward is totally 4-5 times of the risk and possibly a complete reversal.

Update of the post cad/jpy How to use Trailing stops

First I would like to mention to my followers about the chart I posted Few days ago, Where I mention How to Use trail stops. Take a look at the chart here

Hi traders! IF you watch my blog regularly then You might have notice that I am consitently looking for something that has logic and I have clear all the doubts in almost every post. This is an updated post of the chart I posted on Wednesday last week, where I cover technique of "How to use Trail Stops" in trading and Today ahead of BOJ rate statement and Big impact day tomorrow, I am looking to wind up all the positions, and will look to enter again If an entry will be offered, and High volatility is expected in next two days, as traders are expecting too much from Banks but getting almost nothing.

Updated chart of Cad/jpy

Pair is still in strong demand and background has not seen any strong sell-off and whatever selling we have seen was against the "strong Holders" and immediate buying is strong sign of demand coming up again on daily lows, and one strong sign is when ever pair face sell-off it went to make a new high and it happen almost on every sell-off.

When you see such behavior you should be looking to remain in the trade for long time than expected but big news can create risk in the market and We should respect this situations and sit aside and see what happens and then we should trade our levels and ignore everything else

Breakout Trading succes : How to trade breakouts with supply and demand ...

Price Action basics Primary braekout and price behavior

First I would like to mention to my followers about the chart I posted two days ago i.e Aud/cad. Take a look at the chart here

I post this update ahead of BOC rate statement But what background is telling should be the primary need of a trader, to see whether the "Imbalance" is still presence in the market and when we see Primary breakouts out of ranges and look to spot "Reversals", the we need to spot that Imbalance first which shows that strong holders are still present in the market and They will buy if there is strong sellers going against them, and then we see spikes and that is what is necessary for a trader to enter with Low risk and usually cover position if that fades out quickly

Updated chart of Aud/cad

If we see another attempt to buy and see possible accumulation, after that activity and market end the day on lows which shows that Market might have again gone against the strong holders and With Background earlier shows a sign of strong seller, Then need to spot out logic and aggressive trading is name of such activities and We just need to spot out momentum , If it offered after breakout and market usually don't hold for too long that area and rally strongly afterwards in panic and Strong holders will buy with even much force