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.
All right, everyone. Well, I’ve got to tell you, today has been an exhausting day. We had a lot of fireworks in the markets today. The S&P 500 gapped up on the open. I was trading that like a madman. The currencies had a ton of volatility, a ton of opportunity, so I want to talk about that a little bit. If you were following me on Twitter, I commented about how we had a narrow range, and what I was talking about was this right here. What happened was the market started pushing up coming into the European session, came down, pushed back up, came down again.
So what we have to begin to learn as traders, and this is stuff that goes into the Forex Deal Butler software, is this type of trading environment. Now let’s understand what’s going on here.
On the daily bars up here ‑ we were just looking at the hourly bars ‑ on the daily bars we had a fast move up. You can see that these bars here are much bigger than these bars, and so this is an increase in volatility. We have an equally sized move in volatility back down, and now we’re pushing back up.
Now if you remember from the kit, we talk about support and resistance zones. We talk about the little dipper. The whole time that we’re trading, what we need to start thinking about is what would the professional traders do? I’ve got to admit to you, sometimes I wind up on both sides of the fence.
Let me give you an example. When the market moves up, down, and back up, I’m thinking, OK, what are the professionals doing? Are they trying to push the market up in order to sell, which means that the pound is going to go down? Or did they drive the price up to get people to come into the market only so that they could drive it back down so that they could buy even more?
So then at the end of the day, we have two scenarios. One is that the professionals are looking to drive the market up. The other is that they’re looking to drive the market down. Really, you could say this about any bar. So on this bar you could say, well, it’s 50/50.
No, that’s not the case, because we have to take into consideration where the market came from. It came from this little consolidation area. It’s also just come from this really fast up‑and‑down motion. In other words, we want to pick our points.
Also, if we go back here, you can see where we come from. We’ve just broken out from over here. We’re trading into this prior region here, which is a resistance zone. So it’s not that we’re just picking any old point; it’s that we’re looking for very specific areas in price.
Let me continue on. So then what are the tools for? Last week in the one‑on‑one sessions, we talked about Fibonacci. Earlier this week, I think we talked about Fibonacci as well. Somebody asked me what Fibonacci level would cause you to look for something.
Here’s the way I use Fibonacci. So we have a Fibonacci retracement of this move down here. Basically, what I’m saying then is where do I think the market is going to turn and go back down?
When the market gets here to the first line, which is 38%, if the market does get to this line, this price level, and start moving down, then what I immediately start thinking is, oh, wow. The sellers are really strong because they’re not willing to let price get high. They’re so committed to selling, they jump on the market.
Then you have the next level, which is 50%. Now this is so‑called normal, and basically what it means is that the sellers are not being aggressive. They’re willing to wait.
Then we have the final line, which means about the same thing, 61%. The sellers aren’t being too aggressive. It could be that they’re taking advantage of the buyers. If there are a lot of, if you’ll forgive me, stupid bulls out there, then they’ll let the bulls push price up here because they know they can suck a bunch of people in the market.
At any rate, the case in point is this. We take the concept of these Fibonacci price levels and put it together with this kind of price action. As price is coming into each one of these levels, and I’m going to back the hourly chart out now so we can see this.
Here’s on the daily chart, 38%. Now let’s go down to the hourly bar. Here’s 38%. What am I looking for? I look for sideways action. Well, what happens if I do get sideways action? Then I trade for the downside.
But what happens if the market breaks above the sideways action? I go to the next level here, 50% ‑ let me try and get this closer; there we go ‑ which is right here. Do I see any sideways action? No way. This stuff broke out right here, and it’s just like a freight train.
OK, no problem. What about the next level? I look for sideways action there, too. Let me get it closer. Do I see sideways action? Yes, I see sideways action here. I see the markets start to break out and then go into sideways action again.
My point here is we’ve got to give the market time to develop, because it’s only by looking at how the market develops over time, and I’m just talking a few hours. This is something that as a trader I’m constantly focusing on is constantly focusing myself on the fact that if the market has set up, it’s set up.
What we can do is get to the point where we’re always looking for one more hour or one more bar. When what we need to be able to do is get to the point where if we see this develop, we have a high… Let me zoom in.
This is a direct reflection off of what happened in my trading in the market today. So we have the market making a high. It pulls back and then just goes sideways. Now granted, this is at night.
What does this tell us? It tells us that the Asian markets were quiet. No one was really moving the pound around. So the market breaks above that level coming into the European open, pushes up, comes down, pushes up, starts to come down again.
At this point, we don’t need any more analysis to form our opinion. Why? Because we have the market up here at resistance. We have the market trading up, back down, back up again, back into resistance, and we have several hours where the market is unable to follow through.
So where can we take trades? We can take trades off of a break here on the high. We can take trades on a break here of the high. Both of those are equally valid setups, not because we’re trying to predict where the market is going to go, but because the elements are in place telling us that professional traders are likely to be in the market.
What that means is we’re likely to get a move that’s going to be big enough that we can profit on, not this little blah‑blah‑blah, whipsaw, back‑and‑forth kind of stuff.
So when I made the comment on Twitter today, I was talking about this sideways action here, how the market had failed to follow through. Over here on the 15‑minute chart you can see the initial push down.
It broke, but it only broke by about 13 pips. It didn’t come anywhere near hitting the stop, and depending on how you’re going to trade it, could have very well gotten you out on a stop here.
Based on that, I think it was only about 18 pips or so, but I want to verify it. Yes, 24 pips on the high, so there are 24 pips worth of risk. But that doesn’t mean that the trade is over in my mind. This is still just as valid of an entry as it was before. So what am I looking for? Boom. When the price breaks down, I want to get in again.
Did the trade continue on? Did it turn in some huge winner to the downside? No, it didn’t. But that’s why, when we take profits, we move our stop to break even so we can lock in some profits here, and then if the market does come up and take us out, we don’t have any risk on the trade.
So there you go, some lessons from today’s active market. Speaking of all that, there’s a survey in the email. If live analysis like this is something that you’d like to check out, let me know. It’s a very simple, one‑question survey. You should have seen it in the email already.
Coming out of the session here we have this kind of channel beginning here with the British pound on the hourly, so I’m beginning to think that we’re going to start working our way down.
Definitely we need to watch out for the market breaking above our highs here, and definitely we’ve got a good, short setup over here coming into tomorrow’s session. So selling at about 6237, and looking to buy on a break of 6363. You’ve got to watch out on the trade to the upside though, because we’ve got this resistance area brooding just above price.
Comments on this entry are closed.