Your Trading Coach

Monday 19th March 2012

I've had a request (actually a few over the last couple of months) for some longer timeframe forex. So here we are. I'll focus on higher timeframes this week; and then on occasion in future.

After all, price action concepts apply on all timeframes and all markets, provided sufficient liquidity to ensure smooth price flow.

Let's start with today's EUR/USD 1-hour chart.

The immediate concept that jumps out at us is something I've discussed a few times on the blog. Two attempts at something quite obvious to the general trading crowd (such as an attempt to break support) can often be a sign of potential strength in the opposite direction. In this chart we see a second break of support stalling with a doji candle (equal open and close). Shorts will stop out on a break above the bar, so that's where we want to enter long (if we weren't already long from the first failed break).

Beyond this concept there is something else quite important. The doji candle is also the opening bar of the US session. It's quite unusual for a US session open to remain so tightly rangebound. In this case it was an NR7 bar (narrowest range of the last seven bars) which is also considered a great volatility expansion setup.

Thursday 15th March 2012

Today's Crude Oil chart offers an example of (a) adjustment of the plan as we see price action not quite conforming to expectations; and (b) entry short via bracketing price with a stop entry below a stall pattern and a limit order above.

Related articles (for a more detailed explanation of bracketing): http://www.yourtradingcoach.com/Articles-Psychology/Pulling-the-Trigger-This-Entry-Strategy-May-Help.html

Monday 13th March 2012

Let's take a quick break from price action blog posts, as I think today's Euro chart offers a good lesson in profit and loss expectations.

Newer traders have difficulty accepting losing sessions. It takes a long time for most of us to get comfortable with having to close down our computer at the end of the day in drawdown.

A big part of coming to terms with losing sessions, is learning to see them as a normal occurrence; and in seeing how containing losses in these sessions allows profits in the "better" sessions to overcome drawdown and take us to new equity highs.

Typically it's just a process of repeated exposure. We need to experience this lesson over and over and over again. Many, many times! Until finally it will sink in and losses will lose their power.

Anyway, the intent of the following is to hopefully take the place of one of your many required exposures to this concept, helping you to partially overcome your fear of losing sessions.

Today offered a great example of the different potential available in different sessions.

Compare the opportunity available on Thursday and Friday, with today (Monday).

Do not make the mistake of comparing one session's results with another. Rather, grade your session results against the potential that was available in that session.

Sometimes a breakeven session is a great result.

Sometimes containment of loss within normal loss limits is also a great result.

It's just part of the game.

Expect tough days. And learn to just manage and contain the risk on these days. Because better days are coming. And containing risk will ensure a mindset more likely to outperform on these better days.




* Note 1: Monday is actually 46 pips so far... the chart image was taken an hour and a half before the end of session!  Given Murphy's Law, it'll probably trend massively from here! :)


** Note 2: We are assuming here that greater range equates to greater profit potential. Generally that is the case, but not always! Some trending markets can be quite hard to get in as well!

Thursday 8th March 2012

The following chart shows an entry long fading a break below the session open lows.







A rough recollection of the decision making process...

• A shows strength towards the support area giving me an expectation for a break lower. I'll be seeking an entry short on pullback, aiming to enter before the break if at all possible.
• B offers a weak pullback (very happy to see this). Unfortunately it didn't pull back far enough for my limit order (short entry).
• C breaks again. I expect this to move lower but it stalls approx 40 seconds before trading back above the session low at D. This is why I don't trade straight breakout plays!
• Price grinds lower at E indicating a battle between bullish and bearish pressure here. There is unexpected buying (I hadn't expected that till much lower).
• A second break to new lows stalls again at F. Two failed attempts to do what is "obvious" indicates a good chance of the opposite occurring. The weakness below the session low allows an expectation for a breakout failure, if a stop entry order just above the recent stall is triggered. The order is placed; entry is triggered offering a nice pop up to channel highs.
• Later... a weak retest down to the area of session lows again (G) stalled and triggered another stop entry long back up to the channel highs.

Looks easy in hindsight. It never is though. Uncertainty prevails at the right hand side of the chart.

Always remember... control is an illusion. We cannot know it all.

Our job is to identify the bias, take a wholesale entry in the direction of that bias, and then manage whatever happens.

Wednesday 7th March 2012

Always take note of bars which show a sudden change in behaviour from previous price action.

Often driven by news which may be planned (as in this case) or unplanned, these bars indicate a potential change in sentiment within the market. And that indicates potential trade opportunity.

In today's example we see bar A which is clearly the largest range bar of the session, also occurring on the highest volume (B).

Followed by a weaker pullback (C) and a stall (D), the market offers an almost text-book perfect pullback entry into a strong trending move (E).

Monday 5th March 2012

You should be familiar with the standard chart patterns such as the double top or bottom, 123 top or bottom, or head & shoulders.

What many people do not realise though is that they aren't just applicable on our trading timeframes for identification of market bias and trade opportunity.

They also can be used at the micro-level as effective methods of triggering entry to a trade.

Let's look at an example from today's Euro chart.

Wednesday 29th February 2012

Yesterday's post showed a pre-news breakout which failed upon release of the news event several minutes later.

Today we see exactly the same occurrence on a slightly higher timeframe, this time the 5-minute chart, where price broke higher and stalled 11 minutes prior to the Fed Chairman Ben Bernanke's testimony before the House Financial Services Committee.

If you trade EUR/USD or 6E then I hope you took note of the previous post!  :-)

What was the cause of the breakout? Perhaps an early release of the testimony? Perhaps some impact from the Chicago PMI which occurred a further 7 minutes earlier prior to breakout (unlikely given the lack of movement for those 7 minutes)? Perhaps it was simply a stop driven surge as price tested just above the congestion?

The cause is irrelevant. What matters is that the breakout stalled, potentially trapping traders in a losing position IF Bernanke's testimony were to prove bearish.

Breakouts before a news release... watch them carefully. There is potential opportunity awaiting the more astute trader!