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".