Intraday update of Eur/jpy

Classic Example of development area

This is a clear example of what smart traders are eyeing and their "existence" in the market and they are driving the price high and buying at low levels as I "explained" in my yesterday chart.

Take a look at this "Imbalnace" and this chart tells you that there was strong activity to move the price high and price spend most of the time near the highs Of An Intraday .

Strong rallies to the downside could be a part of "liquidation trap" and strong momentum force to cover short term traders and enter long and pick nice profits.

Take a look at the chart below and it explained the activity

This type of intraday activity is quite normal and we should only look for logics rather than mere observations, Because trading is all about logics and consciousness and where we can use small stops rather than looking for predetermined direction assumptions.

Technical analysis of Euro Dollar

Regular Update of the Intraday update of Euro!!

Overall picture of the Euro-dollar is quite confusing and Direction is still neutral. We have not yet seen strong rally to the downside, But every rally is being sold so technical analysis would tell us to sell the rally again. But trading Gap at the opening of last week can force the price to test the 1.3890 area.

Price has spend quite a lot of time in the rotation area around 1.3890 and 1.3790. A break above 1.3810 will still be a good hint for bulls but a break above 1.3825 will open the way towards 1.3890.

Take a look at the Simple Candlesticks chart of Euro dollar below

Technical analysis of the usd/jpy for Intraday Opportunity.

I have been forced to cover my usd/jpy longs as I have seen some failed breakouts at the top . "Analysis" should be based on Market Reaction. Any predetermined moves with stops at predetermined places can seriously forces you to give away all the profit you had earlier.

I post yesterday that I went long around 102.05 area and breakeven stops were placed at 102.27, But situation and scenario has been changed as there is no development area after two neutral days activity,Strategies should be based on recent price action behavior rather than past activities,and the supply in the market force us to cover and traders are being forced to think of their long positions.

After range breakout strong bar has ended up with a Faded out.

If the overall trend remain bullish then surely today we could get another development and If I found out I would update my chart immediately, You just need to remain conscious and check the blog later

If that is a reversal then price has to break the floor which will give us clue that Institutional efforts are here and they will keep selling all the rallies!!

Trading is easy but consciousness is very difficult !

Trading psychology and survival depends on skills and how you spot the trading activity of the strong holders out there. But when you have spend enough time looking for opportunities and when There does exist one and You timing is not right, and your consciousness is not upto the mark, then there is always chances that you feel discourage, but efforts always keep you upto the mark and keep you ahead of the market.

The recent Institutional activity has been spotted

What you need to do when you see a chart

Breakout

Whenever you first look at the chart first thing you do is to look at the overall trend , whether it is reversing, what price does after "Breakout", whether it is holding "higher Price".

And second thing you need to know is was there any "liquidation"? Price is making higher highs in the chart. after breakout and you see liquidation involved here as well and after that value shifts higher.

And Now new high is made and price reacting very slowly to the downside and it will probably rotate in the area for longer time.

Whether price holding prices at top after breakout

Immediate Reaction means Momentum Comes to again push the price high

Second thing to do to see how Price behave after breakout whether it falls immediately or holding the higher prices,and then what is the next move and if price liquidate immediately and rise again, then possible you will see immediate reaction, and by immediate reaction I mean rapid moves.

Now It could be culmination or start of a new trend, Chart will give you Hints and you should always need to book some profits, when you witness such activity to ride the best part of a trend.

First clue of institutional activity is acummulation on moving market

Reading price action, it's important for us to estimate - is this action a result of institutional activity or result of any other activity?

First of all, let's break some popular myths.

Myth

Rapid move is a sign of big money buyer or seller.

Of course, in some cases, after news announcements or forced by circumstances, institutional buyers or sellers can enter the market this way,

But it would be a messy trade and their clients would not appreciate it. Yes, sometimes they are forced, sometimes they have no choice, but more often than not, they don't do it.

They need to build a position before.

So, if we see a rapid move, what is it?

It is emotional reaction of the market - it is a sign of crowd. Traders are acting in sync with each other and create a crowd.

More often, rapid move is a result either a short-coverage (move up) or long liquidation (move down).

WILL price action continue after rapid movement?

Actually, nobody knows that. It will depend on various factors and I would not bet money on it. Traders in whole are driven by linear logics. For example: "we see something volatile, it's a sign of big guys going to one direction". It doesnt' work that way. Big guys try to be ahead of the crowd.

But IF there is a continuation of a rapid move AND series of new highs/lows, than probably it can be a sign of a single big player.

Why? Because market continues building in the favor of previous breakout, it often happens when sellers are too weak and can't create enough pressure to drive prices back to previous range.

So, you know already that big guys rarely come to the market and buy all they want. They need to build their positions, sometimes in sideways market, sometimes on moving market. It's called accumulation. The opposite process (when they cover their positions) is called distribution. That's how market mechanics works.

For example, if big buyer participates the market

Big player accumulates positions, market is temporarily oversold on weak side, it breaks out from the range of accumulation, then rapidly pulls back, levels below are protected, market is bought out and highs are retested.

If later on we see market "leaning" on higher prices, it's a sign of possible imbalance - buyer is in control and if seller will not step in, market will continue renewing highs.

Then you may see pullback again and if market "drills" lower prices, imbalance is possibly disappeared - your opportunity no longer exists.

Take a look at this chart where there was Imbalance which disappears when market break the floor.

Trading Price Action basics buying at lower level.

Strong holders vs weak holders

Ok, now if we have distinguished weak holders from strong holders.

And what we really have to do - we want to know, at least to assume what professional players are doing. By professional players I mean dealers or institutions that have to consistently deal with big volumes and give their clients at least average good fills.

Institutional activity or strong Holders

When we are talking about institutional activity, we are talking about strong holders. That guys have almost unlimited buying power at their disposal, but it doesn't mean that they want take money from you, they usually have large order from their clients. It not always means that they want to purchase from weak holders, squeeze them and hunt for their stops.

They just want to accumulate position not squeeezing price against themselves.

Example of Trading Activities

First of all, if you look at this chart, how do think, where (on what prices) institutional player was buying (if he was buying at all here)?

Expected answer is that they were buying at lower level.

But think about their volumes. They are big enough, and they simply would not have enough liquidity to build a position there. They usually have to accumulate - to buy several times, to absorb somebody's sell orders. Otherwise, they will not have enough liquidity and make prices grow immediately up.

Prediction price action with indicators

Most of you know me as a chart trader, operating almost without any indicators. But to synchronize our languages, I’ve decently webinar called «Price action and indicators». There I was talking about possible use of indicators – what indicators can be useful in trading?

First, of all, remember one simple thing:

Indicators do not identify any trend, they don’t tell you «what», they tell you «how». The hypothesis about possible trend is your responsibility. I’ve said "hypothesis" because there’s nothing to be sure about, and best traders know that they don’t know. They might think they know, but in reality they don’t know.

It’s very complicated question – how to identify a trend (trend that will tend to continue), I suggest that you read my posts called «Price action basics» in this section.

But once you’ve identified a trend, you can use indicators to fine-tune your entry, to pick better trade location, to calculate a stop or profit taking level. But they don’t do the job of identifying a trend for you.

Basics of Price Action applies only on forex or currency market.

Trading the market, you want to see something beyond candlestick charts, and you want to see - guess what? You want to see people, traders with their interests, fears and desires. Like one wise man said, "discover what makes people tick, and you will know what makes market tick"

Where are you trading?

First of all, there is a significant difference between stock market and markets that trade with leverage. Forex is one on those markets (but not the only one - there are futures, options, OTC derivatives and so on).

Nature of retail Forex market is that real currency rarely trades here. We trade obligations (for example, we take responsibility to buy some currency after the trade, and deposite some money fot that. If we are mistaken, we give some money to the market, if we are right - we take some money from the market).

Numerous obligations (traders from retail traders) meet together and form a huge whole position, that liquidity provider must cover using other liquidity provider. That's how it works.

! The process of exchanging obligations is somewhat different from exchanging real goods.

Things are different in stock Market

Imagine you're trading a stock. Quantity of stocks is limited, and to go short you must borrow some stocks from its' owner. If you want to close your long position, you expect somebody to sell it (real stock). And that's why we have "short interest" on the stock market, it usually doesn't exceed 5% of the whole volume.

Things are different on Forex and futures.

You can sell almost unlimited number of contracts, so you don't need to borrow something from somebody. That circumstance makes analysis of supply and demand on Forex pretty different than on stock market.

We can see big supply, but suddenly market reverses and all those short sellers start covering. Why? Because they need to do it - they have small pockets and should exit quickly otherwise they can blow up their accounts.

The same is with long positions - there are lots of weak holders, that have very close "pain point" - they go long, place very close stop and if they have no defense from "strong holders", market will probaly go after their stops, because there is always strong counterparty that can hold the level and prevent price from further rising (remember - they can place as many "sell limit" orders as they want.

Trading on Forex market is really the Art of analysing underlying inventory.

To start successfully find good trades, we should answer these questions from small check-list:

1. Who is responsible for price action? Strong holders or weak holders? (price will go in the favor of strong holder)

2. Is market oversold or overbought on the way up? (in the first case we have weak short sellers, in the second - weak long bueyrs)

3. Is market oversold or overbought on the way down? (in the first case we have weak short sellers, in the second - weak long buyers)

As a trader, you should know how to read inventory and to play on the strong side.

Remember, there are not only situations when we have "win-lose" situation and "strong-weak" market configuration, we can also have "strong-strong" market configuration, when market is careless about retail traders and their positions (this is when we have elongated trends).

As a trader, you should know how to read inventory and to play on the strong side.