Thursday, May 15, 2014

Make or Break time for Newzealand dollar at multi-year Highs


Earlier, In My Blog posts I have discussed a lot about Possible "Trade-locations", which could be a Hot-spot area in a bracket, Multi-year highs, Intermediate false breakout, or a neutral activity after a strong breakout. First of all, the biggest example is eur/usd breakdown at multi-year high and the chart was posted and now I am looking for the same to happen in Nzd/usd.

Idea is to look for high probability trades, by this I don't mean to hedge the position if price price breakout that trade-location to the upside again.

When Trade location Inside a bracket

Price is in bracket still after false breakout of multi year high, which is a strong break above 0.8700 area, after that we have seen continuous decline on h4 and h1 chart which tells us about possible market has broken the floor and after the rejection candle we get today, which is strong bearish engulfing starting way high from yesterday's close and stops should be around 0.8680.

You can wait for possible more evidence or strong selling and the break of confluence and lows but as I have already spoken earlier, that always try to sell after upside breakout (beside "Context" tells you to do so)and buy after strong breakout to the downside specially when it is a responsive-activity.(By responsive activity I mean strong trend after breakout and then price goes sideways on neutral activity and break below the range of the day ) I have discussed all the "Breakouts" earlier on this blog.

Continuous efforts to rise and multiple rejections, then we saw narrow trading range which always give us strong hints, how price could behave and If our assumption is right, then probably it will be a start of larger move up or down. But as price is giving us hint that it could be a mature trend, as we have seen some strong momentum from the lows ( after breakout), certain rapid moves after intermediate false breakout and break above the multi-year high and rejection from there was strong, so short entry is advised with tight stops.

SO, Its always better to wait for price action to unfold in favor

It's always better to wait for much stronger assumptions, rather than waiting for price to offer a pullback entry to join the trend(If there is any and it has already offered few of them ), because it is not a sign of versatile trader, and when price is offering a reversal or counter-trend trade like this and we have seen an that happen as an example (Eur-usd) earlier, then we should take a less "risky" trade which offer good reward .

Wednesday, May 14, 2014

Candlesticks patterns and Context IN predicting overall price-action


It is very important to know that what is important in predicting overall trend , Is it pattern (candlesticks or chart ) or it is the logic behind the continuation or reversals.

For me, the candlesticks or any other chart pattern or any indicator combination tells you only the 10% of the whole trend, and that statement is very disappointing because even good pattern fails and you seems to look out for reversals too early untill it happens, and you avoid those timing because of earlier stops-outs.

Context can tell you what to look out for in patterns

Context can be anything and it could be correction bottom, yearly or daily extremes and weekly extremes breakout and consolidation area at the top after breakout and you need to be extra pro-active to see what price is doing after breaking out from a level. IF price has risen from a range and reverse immediate then it is said to be neutral behavior , and it could be the case of market expecting something from fundamentals, and you can never get any entry from these type of breakouts or look for confluence areas when such activity happens.

Below is eur/jpy daily chart in which I have emphasis on context

In this chart, the most important thing, is price making higher highs and holding on to those highs as well, and the conclusion one should not look for any short trade or reversals till market consolidates on large scale at top (lot of consolidation at the top area is also a strong point For reversal)

Previous high was yearly extreme, and market consolidates and give one breakout of a range pattern, which was strong one ans was faded out, but there we never get any strong liquidation which means that price can rise of from the low and this could be a swift move, and that exactly happen with a large breakout and test of that breakout.

Now we have seen the new price extreme and multi-year high and that high has been holding further development of price and price is in range after strong down movement and After going sideways price has managed to give strong breakouts of the range at top which faded out earlier, but support is holding . After strong tests price has manage to fall swiftly of that trap of strong above the high reversal pattern, and that type of patterns reverse the price most of the time and even this time price has faltered again and fall more than 300 pips.

Check the chart below !

So, the idea to post the above chart is not to derail anybody or discourage anybody from whatever he or she might be adopting, to predict the price action, but to tell you the most important point that is missing in your trading, i.e logic and when you know the logic behind the trading you can have few losses and that would be small one but your profit factor would be huge and you will how to ride the most part of the trend.

Friday, May 09, 2014

Most important thing to know as an Intra-day trader


The most important things to be kept in mind while you trade an Intra-day chart, which is "context" and Below is the example of eur/cad which In which strong conviction was to break to the upside, But one thing was with the bears was the background which was very weak after strong trend, we had immense selling and price totally was in range.

In a trend there are always two type of "participants" First of all, there are innovators and then motivators :) Numbers will not help you (it's not about probability at all :) ), they reflect patterns in human psychology. If you take the whole number of market participants (speculators) involved in a trend, you will probably see significant growth as trend emerges. Those numbers show approximate percentage of participation.

Update on how they use to trap and we should wait for complete close.

So, idea behind this chart is that we should wait and see the behavior, why they are offering low price to enter again, and allowing a pullback entry at cheaper prices and the reason I have mentioned Innovators start selling the price from top, and motivators try to trap you to join the trend once again,

But the result is often different as in this case and I am still looking for much powerful decline in the pair.

Thursday, May 08, 2014

Top-down analysis Yearly,Weekly and Daily Extremes


Here ! I’d like to share my ideas on top-down analysis with community. «Top-down» analysis is type of analysis that you do when you watch price action from big picture perspective.

Top-down analysis. Understanding different timeframes

«Top-down analysis» is not a «3-screen» system. Though it may be reasonable to analyze price chart on H1, D1 and W1 simultaneously but that’s not what I do. I use only M30 and D1. By «time-frames» I basically understand not charts but market participants with different perspective. First let’s make brief description on each timframe.

Notice – I’m not talking about retail traders with 100 dollars account, they can not move the market even on a distance of 1 pip, even if they will bring 10000 positions simultaneously in one direction.

I will be rather talking about interbank dealers, some of them will also act like day-traders – most of day time-frame traders will have no position until market close.

Domination

Core concept is that inside one period of time market is driven by certain market forces – either day-traders, short-term traders or institutional demand/supply. If market is dominated by day-traders, opportunity will be pretty limited. However, if market will be driven by institutional players, trend will be able to continue (market is supported by higher time-frame) Now let’s try to make classification of major market participants.

Day-traders

Professional day time-frame trader are usually market makers – in other words they tend to work near levels that accumulate enough volumes and avoid trading outside the range of the day. Reference points for them: previous day’s high and previous day’s low.

If you see that market goes exactly to previous day’s low and high, probably market is dominated by this group. It means that price action will have limited ability to go further in this case. Unless there are any clues for other time-frame trader (OTF), opportunity will remain to be limited.

Other-time-frame-traders !

Auction market theory has excellent word describing market participant that has perspective at least more than 1 day – «other timeframe trader». We don’t care whether market is driven by short-term swing trader or position trader from hedge fund – we assume that they have enough capital to move price and have some different perspective – what seems expensive for daytrader, maybe cheap for them. They even may not have charts – they make decision using other principles and criterias.

Stop running

Stop running process can be indication of OTF presence. Forex market has huge turnover and liquidity but positions of market participants are also huge – that’s why they often don’t have enough liquidity near certain price level to accumulate position. Remember – they don’t have brokers and buy/sell button. They have to deal with real interbank liquidity and accumulate position piece-by-piece.

If you see stop running in whatever direction, it may be indication of large OTF accumulating long/short.

Reference points

If you see that price is breaking out consistently weekly or monthly extremes (as well as 2-day or 3-day extremes), it can be indication that this instrument is «in play». We don’t know final destination though – it can be either short or long accumulation, we should remain flexible about destination.

That’s example of build up on Gbp/usd.

1. Price is breaking out previous days’ high (and possible executes stops of short sellers)

2. Price is breaking out high from (2 weeks high)

3. Price is breaking out previous week’ high.

This instrument is «in play». But what to expect? We can expect rapid movement in whatever direction. I personally was trading to the long side on violation of rotational center. But I failed to reverse this position though I had to – final destination was not defined. Nice move to the downside followed.

some trades updates ahead of ECB update


Price does reflect everything but when why every level is not important, Specially in strong trends while price bounces off support and resistance consistently, and provide you hints that price is about to reverse.

But when price start reacting with slow tempo, after the strong rallies, then still it would some more reasons for the reversals

Intra day Price action Reversals

The chart below of usd/chf is pointing towards test of high atleast but we have to cross that strong "new supply" for the price to gain momentum and react as expected and It has tried once but not succeed.

If we manage to stay below and manage to create a new low, then I would assume that downtrend is confirmed, but if we strong cover that area with ease, and price start gaining momentum, then short term reversal would confirmed.

Whenever we see opportunities, then we need to see the logic, means there has to advertising mechanism, when supply and demand exchange hands, and when that happens price use to trap retail traders, and when you plan to short rallies, ahead of big release then short covering give you heavy losses.

Now when stops have been taken both sides i.e longs and shorts price action has become neutral to breakout level. Below is my view about that opportunity.

Tuesday, May 06, 2014

Does price reflects everything and if every area is equally important for market.


does price reflects everything ?

Hi traders! Everbody knows one of basic principles of technical analysis – price reflects everything. Let’s think about it for a while. Many traders are caught in the price action and ask – «what in the world does it (price) reflect?».

If fact, market needs some time to reflect demand and supply in the price action.

This is a weekly chart and you see that price action here really reflects activity of all major players who are interested in this market. This is big timeframe and takes 1 week to complete this figure. Strong side of the market (smart money, market movers) is automatically visible after bar (candlestick) is closed. If buyers were dominating the market, we see rising bar (candlestick), if sellers were dominating – we see declining bar (candlestick) e t.c. In this particular situation, we see that buyers were in control.

We immediately register much more ambiguity, volatility and uncertainty. Price goes back and forth. No one would say with confidence who is in control here.

So, we come to conclusion that, yes, price reflects everything but it needs some time to do that. On small timeframes price becomes advertising mechanism that fluctuates from high to low prices to attract buyers and sellers for whatever reasons. What does it mean that price is an “advertising mechanism»? It simply means that goal of the marketplace – to bring together buyers and sellers, to facilitate trading.

Market works as an auctioneer. Imagine some auctioneer that tries to sell something to the public. What will he do? He will claim starting price and if no one is interested, he will claim lower price until any buyer is interested. That’s how market operates, nothing new about this.

If you want to purchase something, will you blindly buy something just for the reason that it is advertised? No, you will not do that. You want to know fair price, in other words, you want to know not only price but also value. You don’t want to buy something overpriced. That’s a main difficulty of technical analysis. It’s been said that price reflects everything, but we see it only in retrospective. In real time we see semi-stochastic process of price action going back and forth.

Find where the value is To avoid being trapped by the price, traders needs to know where the value is. In a nutshell, value is a area of acceptance, area where all timeframes are comfortably trading with each other. To find value, you should pay some attention to parameter of time. The more time price spends near certain price level, the more accepted this level is. For example, on a sample below we see that market was holding certain high prices within some period of time, and when price tries to get away from this level, market rejects is:

However, time also is a double-edged sword. Too much time time spent near price level means that market is preparing for big move (thus, is not going to stay near this level):

Sometimes it’s hard to identify value. It’s not easy process and sometimes market will rotate waiting for more information.

Market profile

The most convenient tool that allows us to see how value migrates, is market profile. It is a tool that organizes data using distribution as a core principle. It shows – how much time price was touching every level within a trading day and builds «value area». Value area is an area that combines 70% of data within one blue rectangle. This is an area of acceptance. When price emerges from this area, it will most likely revisit this area again. But there are times when market builds new value higher of lower without revisiting former value areas. We call it a trend

Saturday, May 03, 2014

price action basic and swing trading


«Thing that hasn’t happened is sometimes more important in the market than thing that has happened»

I want to start this thread with this strange sentence. We will talk about trading logic. How do you make decisions? Do you look for signs of buyer and seller and act accordingly?

Price action basics.

Think about simple thing –price action itself (trend, movement) will not allow you to benefit from that. Some movements are continued, some are reversed.

It depends on current market conditions, but probability of success will be close to 50/50 if you simply follow price action (substract spreads and rapid volatility spikes and you will get perfect strategy for failure).

So, what works?

If you dig deeper than simply following price action, you will understand that supply and demand will drive the market. But supply can be short-term, then transform into demand and vice versa. So, you have to rely on professional supply and professional demand and be able to distinguish it between other fluctuations.

all that we learn here is designed for that. Professional demand (or supply) in most cases is ongoing demand. But are we naive enough to think, that professional buyer will uncover his actions for you in easy identifiable and straightforward way? No, they don’t do that!

There are numerous attempts to capture signs of professional activity using volumes. Some traders think that if they have volumes, they have real information. Poor guys!

Volumes are also misleading. So, one can not be successful in trying to capture big buyer from the market… if he thinks in conventional way.

Market tells you a story and you should understand this story, combining nuances and clues (even number of volumes if you like) in the whole picture.

< 1. Market breaks out from a level and keeps level above. You see strange passive behavior of sellers –market shows you levels with very low volatility and holds there twice! If sellers were interested in this market, they would probably responded immediately. But you see no participation –something wrong with the supply is going on here. Therefore you can anticipate that big guys are buyers! They’ve collected all supply below and no one wants to go against them at least for a while.

Not surprisingly price breaks out to the upside again.

2. There’s neutral day after the breakout. If there were short-term traders who have made this breakout, they would liquidate pretty soon. But nothing happens –nothing at all! All day price goes back and forth with very low tempo. It means that probably those buyers were big (institutional) buyers.

Every time you analyze the market, you make narrative. Be sure that your narrative is reasonable and relies on solid market logic.

There are some important principles:

1. Institutional buyers will sell on the upside breakout (not downside)

2. Low volatility after high volatility (directional breakout) shows lack of participation. The less liquidity (participation) we have near current levels, the more odds that market will auction higher.

Is it complex?

Yes, it is. But this is mindset that requires from you some disbelief, some critical view, some commitment to dig deeper and see what is hidden. That what trading is about.

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