Friday, July 29, 2011
Thursday, July 28, 2011
Wednesday 27th July 2011
Candlestick traders often make an assumption that because the common patterns are called Candlestick "Reversal" Patterns, then they must be used for counter-trend entries, in order to try to catch a trend "reversal". Not so! A reversal pattern at the end of a trend pullback, is actually a with-trend setup.
And in a trending environment, with-trend setups will almost always offer a higher probability than the counter-trend setups, along with greater profit potential.
Monday, July 25, 2011
Monday 25th July 2011
In the recent "What is Price Action Analysis" article I introduced two types of analysis - pattern vs behavioural. The second is the technique I much prefer; observation of the price bars and price swings in order to identify signs of bullish or bearish price behaviour, or signs of strength and weakness.
Let's look at an example from today's GBP/USD charts in which a pattern failure was easily foreseen through strength / weakness analysis.
The intent is not so much to bash pattern analysis or to proclaim strength / weakness analysis as superior (ok, maybe a little). Rather, the intent is to demonstrate how the two can be used together... using strength / weakness analysis on a lower timeframe to examine the internal behaviour of patterns. If you're a pattern trader, this approach may assist you in avoiding some of the lower probability pattern based setups.
As stated in many of my blogs, the timeframes and markets displayed here are irrelevant. The concept is applicable across any market and any timeframe, provided sufficient liquidity to ensure smooth price flow.
Saturday, July 23, 2011
Friday, 22nd July 2011
Trading is all about understanding how orderflow drives price; placing current trading timeframe price action into context (such as with higher timeframe structure); learning to see areas of orderflow within this multiple timeframe structure; understanding the likely impact if this area of orderflow is triggered, and positioning yourself to profit.
Your setups must be based around this concept.
If they're not... then you may as well be tossing a coin.
Friday, July 22, 2011
Thursday 21st July 2011
Today's EUR/USD and 6E (EUR currency futures) charts offered some fascinating price movement following the 08:30ET news (22:30 chart time).
The initial post-news surge of orderflow continued a previous uptrend, but it then stalled, before continuing higher in a stair-step fashion.
The interesting feature? The price surges occurred at exactly 15 min intervals - 22:45 and 23:00 - with both a price and volume surge occurring on the open of the new 15-min price bar.
I'm not sure exactly what this means. Yes, the 15, 30, 45 and 60 min opens should always have a slight increase in potential orderflow, as some of these higher timeframe traders make their trading decisions, but it's rare to see the effect this pronounced.
For some reason (human or program), the 15 min timeframe was having a significant influence on trading decisions and orderflow during this session.
Wednesday, July 20, 2011
Wednesday 20th July 2011
It's almost an impossibility for me to trade the European or UK open these days, due to timezone differences (it conflicts badly with family time here on the Aussie east-coast).
However for those of you who do, you absolutely MUST consider the opening range as a significant market structure feature, and potential S/R if/when price ever returns there.
The last two days in EUR/USD, for example, have provided the session low during that opening range candle.
Tuesday 19th July 2011
Upon seeing a particularly nice micro trigger pattern last night, I had the thought that perhaps I should add trigger patterns to the blog from time to time.
So, for those who like to use a price action trigger for entry, rather than a discretionary entry within an area, the following is the 123 bottom, or micro cup & handle pattern:
Please note: the timeframe is irrelevant. 20-tick is one of my favourite lower timeframes, but this applies on whatever timeframe you use.
Tuesday, July 19, 2011
Monday 18th July 2011
The best opportunity on a slow sideways session is through either (a) standing aside until the next news release, (b) exploring options on lower timeframes, or (c) ONLY trading at the absolute best setups.
Let's consider option (c). For me, these absolute best setups are when price breaks significant swing highs or lows, or the edges of any established trading range, and then fails.
The challenge though is recognizing this environment early enough.
Thursday, July 14, 2011
Wednesday, 13th July 2011
Here's a bit of repetition for those who have been reading my newsletter or blog for quite a while.
But today's market offered such a good example it was hard to pass up.
Short and simple... but a powerful visual message:
Wednesday, July 13, 2011
Tuesday, 12th July 2011
Let's have a look at a EUR/USD chart rather than 6E, for a change. I've had a few requests for spot forex charts. Please note though, the price action will typically be the same, varying at any one time by only a pip or two. So either can be used quite successfully for our discussions.
Pattern based traders will say that reversal occurred on the candle marked below, as price broke the prior swing low. They will then seek trade opportunity in the short direction, such as the subsequent pullback.
However, there are usually always earlier signs of potential reversal. A good exercise is to analyse reversals in order to identify some of the earlier clues that the market provided. In time, you'll see them live as they occur and be forewarned about potential trend reversal.
In the following chart, we see the prior rally which initiated with the release of the US Trade Balance figures. A, C and E are swing highs. B and D are swing lows. F and G are significant points for our discussion, although not technically meeting the swing high/low definition.
For the sake of our discussion, we'll call the extension up to swing high A, "swing A", and the pullback down to swing low B, "swing B", and so on.
So where are the clues.
(1) Reducing projection in swing C and E, compared with swing A.
(2) Reducing bullish momentum on swing E, compared with swing A and C.
(3) Increasing bearish momentum on each pullback, when comparing swing B with swing D, and then again with the move down to F.
(4) Significant bearish strength shown on the large red candle within the swing down to F; producing the largest bearish range and the highest bearish volume for quite a while.
(5) Failure of the weak, low volume pullback up to G.
Hindsight analysis is just so simple! But with reviews such as this you will improve your ability to read these clues in the live market.
Saturday, July 9, 2011
Friday, 8th July 2011
I thought I'd use today's post to demonstrate one valid use of an indicator for traders who use a discretionary approach to entry placement. This has come about from working with a trader who is having trouble pulling the trigger. Maybe you might find it useful too.
I'll demonstrate using the YTC Scalper chart timeframes and templates, but it's applicable to any timeframe and strategy, whenever the trader is using discretion for entry price, rather than an objective pattern based trigger.
I know indicator-based traders are doing this all the time. But those of us who have moved beyond indicator-based strategies to operate based on price action and discretion, can often be caught in a stubborn refusal to use indicators at all. They do have their place from time to time, as a useful tool in assisting us to make our discretionary trading decisions.
This is one valid use... as a "confidence trigger" for entry.
If you are consistently failing to pull the trigger due to doubt or second-guessing your decisions, make your entry more objective.
PLEASE NOTE: This is not a completely mechanical indicator based system. You'll note in the above chart there are other oversold stochastic signals that are not bought, such as at 23:36.
A precondition for entry is that price MUST be in an area you have identified for a setup, and you must be happy to enter. But when finding yourself stuck trying to work out whether to use a 1/4-line entry, 1/2-line entry, or a PA-based entry level, rather than hesitating and missing out entirely you might want to use an indicator-based objective signal as an entry of last resort. If no decision is made by the time you receive the signal, you must place an entry order on receipt of the trigger.
Friday, July 8, 2011
Thursday, 7th July 2011
The chart below shows the price reaction following release of the ADP Non-Farm Employment Change.
We note that after the initial rally price pulled back to test the 850.0 level. Let's examine this level and ask why it would act as support now, given that it appears to have offered absolutely no resistance on the rally. Or did it? Let's look inside the 1 min bars, via a 1-range chart.
Sometimes a lower timeframe chart can reveal detail that is hidden from those operating on one trading timeframe.
Thursday, July 7, 2011
Wednesday, 6th July 2011
Apologies for the lack of posts for the last week. I've been away from the office for a whole week as my daughter's represented Townsville in a 5-day soccer carnival. I had intended to continue posting through this time, but that intention was a bit too optimistic. There was barely enough time available to get through emails (actually not even enough time for that... and if you've emailed recently and not got a reply, I'll hopefully have those caught up today).
On to today's post:
The chart below shows the Euro (6E fx futures contract; equivalent to EUR/USD spot forex) 5 min chart. The market had been in a strong and continuous downtrend for almost two hours.
Let's examine point D (excusing the fact that you can see what follows).
Point D is the first time that price has broken our downtrend definition. From here, our job is to assess whether the market is achieving price acceptance in this area, in which case we may reassess our bias as LONG, or whether the market is likely to achieve price rejection and continue lower, providing us with a complex pullback continuation entry SHORT as price resumes the downtrend.
Let's look at the lower timeframe chart: (reminder: the timeframes I use are irrelevant; this concept applies to whichever timeframes you wish to trade)
There are a number of ways the price could be analysed here; let's look at it from the perspective of individual candles (as explained in the 5-part article series commencing here:
http://www.yourtradingcoach.com/Articles-Technical-Analysis/Better-than-Candlestick-Patterns-Part-One.html). Read that article series if you're not familiar with the candle terms used below.
From the point of breakout, we have the following candles:
A: mid close range candle
B: mid close range candle
C: low close range candle
D: mid close range candle
E: low close range candle
F: low close bear candle
There is absolutely nothing to indicate bullishness at the point of breakout. Any breakout entry orderflow (or short covering) was matched by sufficient selling pressure to hold price at the breakout point for three minutes. Probes higher in D and E were both rejected by increased selling pressure. The failure comes through candle F, offering us a great entry short as the breakout is rejected and the market resumes its downtrend (CPB, using an upthrust trigger entry).