WARNING: This text is a word-for-word transcription of Mac’s daily forex trading video. That means the writing will reflect the way he speaks, if anything seems out of place, please refer to the forex video on the page.
Wow. You’d think I was still on pain medication. OK. I actually had to restart the video. I had my charts completely mixed up there. First of all, I want to apologize yesterday for ‑‑ for yesterday, and not having a video out or I think even an email. What happened was, you probably saw this if you follow me on Twitter, but I had gone into the dentist for an absolutely routine dental appointment, wound up finding out I had a cracked tooth. Part of the root was pulling away from the gum. I mean, it was pretty bad.
So the dentist was like, “Hey, if you don’t get this fixed, eventually the tooth is going to die and we’re going to wind up pulling it anyway.” Believe me, for a split second I thought about, “Well, you know, $300 to get a tooth pulled or $2,000 for a root canal.” Anyway, so he went in there, wound up doing the root canal.
By the time I got back, the Novocain was still on full effect so I had this absolutely ridiculous lisp going on. I was not in any shape to get on the microphone, just because I’d be cracking up at myself as I was talking.
Then of course after a little while just the pain of getting an inch long needle jabbed into my jaw repeatedly was setting in. In any case, my apologies for not coming up with a video yesterday. If you want to go on Twitter, Gary, one of our support staff made this absolutely hilarious image of me.
Because I, of course, had to send out a picture of me sitting in the dentist chair with this torture device stuck in my mouth. So if you haven’t seen that, it’s at least entertaining. Now onto bigger and better things.
This morning on Twitter, if you were following that, I was initially looking at the resistance right here. I was keying in on this four hour bar, multiple resistance levels up here. You see the price broke above and was coming back down today retesting this prior area. Now this illustrates a point that I’m frequently making, and that is the market works in zones. The way we have to approach the market is using these zones to clue us in that there is a likely change in direction. OK?
In other words, the first question we have to come up with is “How do we decide when to get in the market?” Right? So if the market’s moving down off of say a $1.60 here for the pound. Well why not buy it 60/20? Or 60/10? Or 60/12? You know, what’s wrong with all those prices? Well the reason why we don’t look to buy anywhere up here is because of what happened in the past.
The market, number one, has a memory. And people are creatures of habit. This is why technical analysis even works. The individuals who were trading in the market and bought in the market back in here were working their way into profit. OK. So they were profitable and making money once the market broke up.
Well if price comes back down here, it could be a couple of things. Number one, it could be professional traders trying to fish out sellers. OK. You have to follow the line of reasoning here. If a seller is in the market and they see price moving up, that’s attractive to them.
In fact, the sneak attack pattern relies on the market. The professional traders actually pushing price up in order to suck buyers in so that they can sell even more. OK? So the sellers who were over here, if they wanted to try and attract as many buyers as possible, they would push price up and try and suck all those guys in. That’s possibility number one.
If that’s the case then you’ll typically see the market react downward very, very quickly. Another possibility is that you have people that are buying in here. OK. The market moves up, the sellers come in and they push it down. The buyers support the market, the market pops up, the sellers come in and push the market down, the buyers come in and prop the market up. So we get this up move.
Well, at that point if you have professionals that are buying in this area, what they want to do next is let the market break to the upside and then they may actually turn around and sell on their own position in order to try and drive price down. Why? Because the sellers, whether they were sellers back here or back here, will now see ‑‑ it’s kind of the first scenario in reverse. The sellers will see that the market is moving down and they will then come into the market.
The professional wants to test for all of that. And by testing, that’s the Little Dipper, the market will typically settle back down into this old range. If the majority of traders are bullish. In other words, if the majority of traders are looking back and seeing this and saying “Hey, the market’s backed down in support, it was up here, now it’s down there. Holy crap, this is a great deal. We need to get in there and buy.”
They’re going to do all of that when price gets back into this area. That’s the whole concept and the psychology behind the Little Dipper. It’s quite frankly just the way the market works. So we use all of that analysis and all of that talky, talky stuff as I tell my seven year old. You know, too much talky, talky. Seven year olds, if you didn’t know, get very bored if they have to watch a movie with a lot of dialogue in it.
That’s not in reference to him talking, it’s in reference to movies. Anyway. All of that analysis and all of that talky‑talky is summed up in the Little Dipper, OK? Boom! So we’re looking for price to make a fast move up, and then a fast move down where this down move is in conjunction or tied into this prior area of support. Once we work our way back in there, this is now where we go to our 15‑minute. We can start looking for things like the 3‑Bar‑Reversal‑Patterns or even in some cases, sneak attacks where you have this. In fact, this is a very good example where right here near the open, you see that the market has moved down, price is off of the old high.
You get a move up in the first hour of early trading in Europe, and then all of the sudden, wham! The market pushes down. Now, all of this is going on inside of these two bars or that bar there. OK, so we’re right now at the top end of our support area.
This is where we need to start thinking about the marketplace, because in the end, what we want to figure out is who is going to be the loser here? Is it going to be the buyers or the sellers? If it’s the buyer, then you’ll see this sneak attack pushed back to the upside, which we did.
If the sellers were in control, what you’d have here typically, is the market moving down and then coming back up to test now this old area, and then moving down. Hopefully you can see how this stuff overlaps when we look for one pattern to flow into the next.
Now, the reason why I’m going on and on about this, is if our goal is to be a consistent and profitable trader, we need to understand the marketplace. It’s not enough to just ‑‑ sorry, I realized I didn’t have my timer on there. OK, eight minutes.
It’s not enough to just have some kind of robot or some kind of software package, because I’m telling you folks, the bottom line is this. If all you needed was a software package and that always worked and it never failed, then bankers would not employ thousands and thousands of traders. That’s just the bottom line.
Yes, software can help. Yes, software is effective, but it’s not the end‑all, be‑all answer. That’s why I’m going through all of this. The ultimate goal here is to be a consistently profitable trader; to understand the marketplace we’re trading in. You’ve got to understand that it’s not as easy as just slapping some software on your computer and then cashing the checks at the end of the day.
All of that aside for a moment, what I wanted to focus on as well was how to decide when to trade. This came up in our last one‑on‑one support session based on the questions. If you go into the quick start, you’ll see the thought process, the reasoning that goes into trading. Why we look at the daily, why we look at the 4‑hour, how we combine support zones with logical points like we have here and here, to create our trading plan.
Now, in the kit, I focused mainly on the techniques without all of the theory and the commentary behind it. That’s what these daily videos are for and that’s what the one‑on‑one support sessions are for. Check out the quick start, that’s where you’re going to find the process of reasoning.
If you haven’t seen that already, I highly recommend that you do. I do have to admit on one of the videos I didn’t edit out a choice four letter word. I was really frustrated at the computer and I thought I had cut it out. Anyway, so that’s in there so will you please excuse me? We will be doing an edit on that shortly. But check out the quick start video, it will help you to understand how to think about the market.
What’s in store for tomorrow? Well, we have here this very sloppy, sloppy pennant pattern. I say sloppy because we’ve got this push up late in the New York session. That came in right near the end of the day right around the options expiration.
Nevertheless, we’re still looking at this compression pattern here. This could be a viable breakout for tomorrow, but I think we’ve got to move our key prices down, 5879 on the short side. That’s going to break down below our support levels here.
For the time being, because our overall bias is to the upside, I’m taking out this push up here and keying in on these highs and also these closes. If the market breaks above this 5967 level, again, near the open of the European market, that’s going to provide an ideal time to trade.
If we’re looking for autopilot trades, especially if you’re a conservative trader, we’ve got to wait for the market to break above these points here, simply because we’ve got resistance there. This wasn’t just a small ‑‑ well, it was about a half an hour that the market went up and came back down, so there wasn’t a ton of trading up there, but we do need to take it into account.
If you do go long above this high, then you’ve got to realize we’ve got several hours of resistance for the market up there, which is going to be a barrier. So, not a lot to talk about in terms of autopilot trades. Remember folks, it’s because we are in this bottoming process.
Remember, I’ve been talking about this for six‑months, going all the way back into December where the British pound is establishing this bottoming process. That is this whole area here. We may be out of it, we may not.
Here’s what we’re looking for. We’ve got our resistance levels here. We have broken above it. Now what we’re anticipating is that the market will come down with a Little Dipper retest, and then start to move back up.
However, remember the market’s job is to take your money. It’s not to make things easy for you, so we just might wind up breaking below here, continuing on, and mucking around for a little while longer. Remember, nothing is set in stone. No one on earth can predict the future. We simply have to wait for our patterns and adjust accordingly.
So there you go for our setup tomorrow. All right plus…
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