Concept of Final Auction

Take a look at the updated chart of gbp/usd

I mention in my Friday posts that strong bias is building up in the cross, and stops are placed at 1.7003 area, price went to test the stops but spike two pips away from the protection area, and finally breaks the equilibrium barrier, and reached 1.7150 in no time.

Here is the updated chart of Sterling

gbp/usd New money flows.

Here We have seen the strong violation of rotation center, where price spend a neutral days and tells us that that breakout from 1.6972 to high of 1.7040 was the activity of strong buyers and give us hint, that they took the stops both way before marking the price up and usually not every level of price is important for market, But the levels which are important for market, they will protect those areas and strong reason to accept when price broke the psychological barrier of 1.7050 with ease.

Now, that price rallied to new multi year high, exposing another opportunity to see if new fund inflows to get it through 1.7200 barrier.

Value Shifts Immediately higher for Final Auction

Let’s first think about this: every trader has his idea of value, some traders recognize it, some don’t, but we all have idea of value, if we haven’t had it, we would not be able to make a trade. If you go short, you should think that current prices are unfair and market will return to lower prices, if you go long, you also should be aware that value will be built somewhere higher than current price levels. If you sit on your hands, you should think that value is located somewhere near current prices – in other words, opportunity hasn’t appeared yet.

Conventional and straightforward way for capturing value is to build moving average and derivative of moving average – Bollinger-Bands indicator. Moving average is considered to represent value, borders of Bollinger Bands are considered to represent 1 standard deviation from average:

if we take moving average as a substitute for value, we are risking to get many misleading signals.

Why?

It occurs because of what I call «Inequality principle»

It claims: «Different price levels are not equally important for the market».

Do you feel what I’m talking about? Moving average can’t distinguish what price levels are more important for the market – it’s responsibility of a trader. Missing piece is market logic.

But period in the red circle was a final auction, overall trend was rising and market was no longer able to stay inside of a trading range. When market lacks selling liquidity, when nobody is going to sell, it start advertising higher searching for sellers.

We often see that price is leaning to higher extremes and holds on higher prices.

Concepts of Protection Area

I have mentioned the concept of "Protection Area", As there are so many traders wonders that whether a particular breakout will succeed or will faded away, In this extended post I would like to mention the concept of "Imbalance" and "protection area", in one example. Price built up momentum early and when there are market run away from those prices, then market reject the prices from level below and that is why there are strong chances, that those areas are protected by Intra-day traders.

As, In any cases it become difficult to look for entry specially when price went back and forth on a neutral day after breakouts, so I always look for rejection point rather than momentum candles, Because momentum candles do carry wider stops, but rejection candles really don't have to risk too much and reward is always "hotspot area" or upper boundary of price action.

Gbp/usd technical update with low risk reward entry

gbp/usd protection area Intraday update

IN this chart, I have cleared most of the doubts that happens to be in mind of an intra-day trader,with above mentioned example as there price was protecting levels and then we saw strong momentum coming off from that area and we had to use wider stops but then we have rejection candles off that 1.7003 (Low was 1.7005) as the entry came in at 1.7019 and the risk was 16 pips and that risk was covered with the reward at the end of the day which was 19-20 pips.

As a technical trader, we should look to wind up the positions at the weekend and look to enter at the start of the week again if price offers such entry levels again.

Elongated Candles Rotations center

I have discussed a lot about "elongated candles" which forms a "rotation center" as and protect any rally against these candles and forms a rotation area, Price squeeze to test the high or low again and sometime go beyond the extremes. I would put more light to that topic soon and cover some trades as there is lot of strong trend which has been pause for quite a while and market preparing for next moves possibly reversals. But it is quite optimistic to predict it too early but recent candles in Pound chart, hinting it could test the strong support.

Will post a chart soon If I found something lethal in the days to come and cover this topic with strong examples.

As Promised, here is gold chart updated with possible outcomes

This chart is a prime example of "Elongated candles often works as vaccum in the market, and As we have seen some good strong bullish candles at support which 61.8% of Fibonacci ratio, which wave traders used for wave ii or wave iv correction, was a clear trap and price fall rapidly.

But in such case when price end the month on lows and after such behavior If you see any consolidation (As in case of Euro Recently) you should wait for price to rise to sell rallies rather than just selling with the breakouts as such breakouts often offers good low price buying and test of high of consolidation area or high of the swing, so we would wait for any confirmation in such case to sell the rally specially when we see patterns that don't followed by follow throughs to sell the rallies, Will update the blog if found some substantial.

Australian dollar updates Rally Across the Board

For those , who did not check my earlier chart, Check my previous post here !

As I mentioned in the previous posts, rally of Australian dollar across the board is most expected, and little correction and another shift in momentum is seen, And this time it is with even more force.

If you see the current rally from the lows, then it has bounced from 0.9320 areas which was mentioned as extreme support and now again after ending the week on lows, price accumulates enough, and today there is rotation center violation which is good enough for us to reenter

After price open up with the gap to the downside and then a little upside rally after opening, which was not very strong but you can see "Shift in value" on hourly chart and then spike after the release of Chinese manufacturing PMI which tells us that there was a strong improvement as PMI has crossed the level of 50.0 and above 50 there is strong improvement after months below the 50.0 Mark.

So, there is always a mixture of fundamentals and technicals, which make us flexible trader, because alone technicals are not helpful fundamentals has to be supportive in every course, to support the rallies, and Price if breaks the highs with force, then there is strong test of 0.9510 area could be seen, and after that 0.9570 and 0.9630 aera.

I would always support risky asset class as Crisis situations as war in Iraq is picking up and this force Institutions to buy Gold and Riskier asset class like austrlaian, canadian and newzealand dollar, which always works as safe heaven in risky events

As we have earlier seen, buying of canadian dollar last Friday, So, it could be turn of Austrlaian dollar as well.