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, everybody. Well, we are looking at the British Pound, and this is an hourly bar here. OK, so here is the ninth. This is fairly late in the afternoon here. This is about one o’clock in the afternoon. We got a bounce coming into the Asian session. So this is about eight o’clock Eastern time.
Let me go ahead and zoom in. And then what I’ve got here are some trading lanes. Now, I made these trading lanes late in the day. This was actually back here when I made this line and this line. And what I did was I took this point here and this point and just cloned this line so that I could move it around. So what we see here is right at the open of the European session, we’ve got a drastic move down.
Remember your warning signs: Whenever you see a big bar, you’ve got to be alert and awake for a possible reversal. What might have given us some clues for the reversal ‑ remember, we were talking over the last couple of days about the little dipper ‑ is this price level ‑ if we go up to the daily chart you can see ‑ is right there. So what happened was the price, it shot up and then came down for the little dipper test. And so we’re looking back down here at the hourly bar. You can see that the market came down and then basically chopped its way back and forth to 6730, roughly a 100‑point move off of that initial move down, So let’s talk a little bit about what it might have looked like to get in on that level. And so I’ll put the market here. And so this would be the bottom of the little dipper. Now remember, over the last couple of videos I’ve talked about planning and how to get in and how to think about this stuff. And so as price is way up here, what you have to be thinking and planning for is your next move. Where are you going to get in?
Well, if you’re looking for the little dipper, it’s in this area. And remember, in The Insider Code kit I talk about zones, not just a single price, because if you’re just looking for a single price, your price may be way up here. So then you get in thinking somehow you’ve found a magic price, only to get stopped out.
So what we want to do is locate the zone ‑ which in this case is about a 70‑pip area that looks something like that, it was a fairly big area ‑ and once price gets inside of that zone, that is when we can start to use our techniques like three‑bar reversals, looking for pennants, flags, and things of that nature.
So in this case if our line, our zone, is roughly speaking here, 6618 ‑ remember, I’m not trying to get in at that exact price, that just serves to wake me up ‑ then what I do is I go over here to my 15‑minute and I start to look for a three‑bar reversal, which in this case could have given me an entry here. It could have given me an entry here. Actually, let me be more specific. An entry here once the market broke to the upside, or an entry here once the market broke to the upside.
Also, in this case, if I was ultraconservative, I could have waited for the market to push down into this area and then give me a little dipper, which means I’ve got to wait for the market to come up and then back down. Either way, what we’ve got to do first is find the zone and then look for the pattern. Once we’ve done that, all that we have to do is find the pattern, so you don’t have to be so concerned about where or when to trade.
And then, of course, if you were an aggressive kind of trader, there were some very good countertrend moves, really, once we got to about eight AM New York, where we had one, two, three, four ‑ we had a pretty good channel going. And so there were a couple of other trades there as the market sorted itself out. But again, that’s for aggressive traders only, and you’ve got to be willing to sit in front of the marketplace to watch and get those sort of things.
So, what’s up for tomorrow? Well, we’ve got a bit of a flag pattern working here. And the reason why I say a bit is we’ve got a pretty big retracement in here. And so normally I don’t like my flag poles to have a big retracement in it, but the bottom line is we have compression at our little dipper point, at our little dipper area. So on the daily basis I am looking for the market to break to the upside.
But here’s the challenge: the top end of this area is right in the middle of all this resistance, and so you have to be prepared, if you do manage to get in on a break above 6750, that the market is going to have some choppiness, possibly a lot of choppiness, until it breaks above 6780. If you want to be really conservative, you’re taking a trade above 6845 up there before you’re going long.
I think the short trade is quite a bit easier. If the market does manage to push itself down and get below the 6605 lows here, we’ve got to take a short trade, because what it’s showing us is that all of the people who bought in here are not right. Remember, this low says everyone in the known universe agreed that the British Pound was worth more than that price. If price breaks below that, it means that that has changed. And so the trade at that point is going to be the downside.
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