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.
Oh, boy. All right, everyone. We are looking at the GBP/JPY, the Pound/Yen. That’s because in today’s live trading, we had a signal. It came in right about here.
Now the Pound/Yen wound up going into this very small range that at this point was about 30 pips. Then it went down to 18 PIPs, which, if you trade the Pound/Yen that 18 PIPs, and even 30 PIPs, is a very, very narrow range, so not a whole lot to do. In fact, the trade here James was talking about was very, very aggressive.
What I want to do now is switch over to the Pound/Dollar. We’re going to go over Pound/Yen again tomorrow, so I’d encourage you if you’re interested in trading that pair to come into the room. James is going to be looking at Pound/Yen as well as the Pound/Dollar and the Euro.
But what I want to talk about here is something that I spoke about during today’s session, and that is support and resistance. Remember, the last three months I’ve been talking about how lows in the marketplace represent the lowest price anyone was willing to sell pounds, and highs represent the highest price anyone was willing to buy pounds.
Well, we’ve got these dynamic R/S lines. You can see this. There’s a red line there, a yellow line, and a blue line. What these lines represent, and particularly the top and the bottom, the mid‑line isn’t as important. It does come into play in our strategy, but really we focus on the bottom and the top.
So what are we looking at? Well, sorry for pausing right there. Let’s take a look at what the market’s doing right here. Notice that price is trading above this red line, and also notice that the red line represents this high price here.
Now why have we not adjusted the red line? Hasn’t resistance moved up, and isn’t this now a support? Follow me here. Remember, the market is not an exact science. In fact, exact science is not an exact science, right?
So if this is resistance, even though price has gone above it, that doesn’t mean that we need to move our objective, our support up. What we now have, though, is a reference point.
We can look at this red line and see that price has traded above it, and we can immediately know at this point we’re looking for what? A little dipper. We’re looking for the market to come down this support and possibly move back up.
Now if price breaks back down, then what are we looking for? We’re looking for a little dipper back in the other direction: back up for the price to move back down.
But more importantly, by using the dynamic lines in this way, it helps us to keep track of the marketplace and what I call the story of the marketplace. Follow me here. As the market is snaking around and moving up and down, we have to realize that these prices are important to the marketplace.
So professional traders are looking at this high, and they’re saying, hey, they’ve managed to take them above this prior high. What are we going to do about that? If price gets down here, they’re going to say, hey, price has managed to break below that low. What are we going to do about it?
It may be nothing; it may be something. But often times, what happens is we don’t know when to move our support from the low up to the next low. The dynamic R/S lines are designed to take that guesswork out of it.
You can see once the switchover came ‑ actually, not that bar. It came on this bar here. It’s simply when what the computer did is it watched the market move up, it watched it come back down and then back up. You see, the important part is this, that the market went up, down, and then back up.
Now the computer says support has moved over here. Why? Because of follow through. This is the whole concept. The market was unable to follow through to the downside here. That’s why price moved to the upside.
More specifically, the reason why the market eventually adjusted right here is because the market moved above the yellow line, below the yellow line, and then above the yellow line again. That pattern is what tells us that the market is not following through and that we now need to move our support up here, rather than keep it over here.
What does that mean? Now that means we anchor our Fibonacci lines here, we start to look for retracements in perspective or in relationship to that low, and it lets us do it with a lot of confidence. So if you’ve ever been stuck on how to move Fibonaccis around, that’s a very clean way to do it. It’s a very reliable way to do it, as well.
Now, let me zoom out here, and you can see that the Pound is still trading inside of this consolidation range. In fact, let me go up to the daily bars here. This consolidation range has been going on ‑ this is since early May. Remember, the market traded up to the top end of it, came back down, and I was saying that this could be the little dipper here, and now it looks like price is trying to make its way back up.
So let’s go up to a four hour bar, or down to a four hour bar, so we have a little bit more perspective. You can see, here it is again. There’s the top end of the consolidation range. You can see, these are all the points where the market had honored that particular point. Now we’re at the top end of this pennant pattern or trading lane, whatever you want to call it. It’s just very sloppy trading coming in through here.
But we’re at the top end of this range on the Pound. We need to do a couple of things here. Number one, we need to watch out for a counter trend trade to the downside, and we also need to watch out for the market to make the breakout. So, how do we gauge our strategy? Well, first of all the dynamic RS lines are showing us that resistance is way up here. And that price ‑ let me see if I can get it. All right, let me do it this way ‑ that price is 6742.
Until we get past that level, we’ve probably not going to see a very extended trend run to the upside. I could be wrong, but it’s not likely. So if we do break above our highs over here, which is 6647 ‑ that, by the way, is the point at which I’m looking to go long ‑ 6647, if we break above that, that ‑ the first stop, one of the first resistance I’m looking at, is 6745. You’re going to want to keep your eye on this dynamic RS line to see when resistance is going to make that adjustment.
Now, let’s go ahead and zoom in a little bit. That’s your cue, computer. There we go. Then the computer says, “Hey, follow the directions.” There we go, all right. So if we do break above the highs right here, you can look back and see that there is a zone created, if you will ‑ whoops, I remember that. Let’s go white. There was a zone created by these four‑hour bars which is just above the breakout at 6673.
So we might get about 30 PIPs before we run into this last resistance area right there. If we can manage to break above that, there is another resistance point just below that. I’m telling you, it’s just very, very choppy trade, folks. There is no sense in fretting about it, it’s just what we can expect.
So, what does this mean? Let’s be clear about this. If the market is moving up, we need to gauge our expectations. I talked about this in today’s session. If we take a long trade above here, what do we expect? We expect the market is just going to run up in this huge bar. We cherry‑pick. We look back and say, “Hey, look at all these big bars.”
The market is going to do that again, and it’s going to break out very quickly. If that doesn’t happen, we freak out. So we need to gauge our expectations. If the market breaks above 6648, expect resistance. You might get 30 PIPs before the market slows down. And even then, if it does break through there, you’ve got another batch of resistance very close on its heels.
On the other hand, if the market does manage to get into a counter trend from here, I would expect that it would drop fairly quickly to 6448 and possibly as low as 6380, which is what it has been doing all along. So it has been dropping, churning its way up, dropping, churning its way up. And so if it does drop, I’m expecting it to drop again. We’re trading the pattern at that point.
Let’s go down here to the ‑ all right. So let me hopefully bring this all home here. We don’t have a good pattern over here. We can see that there was a very nice move to the upside. Ideally, though, we would see some kind of pennant or some kind of flag pattern form coming back down to retest the resistance that has been broken. Again, we don’t have a very good pattern indicating any sort of likely direction to the marketplace.
At this point, the best we have for tomorrow’s session is going to be a break back below our resistance point and then giving us a little dipper coming back into the 6580. If we do manage to get the little dipper ‑ and that’s what I want to see, I want to see the market break down, give me the little dipper, and then follow through to the downside, I’m expecting it to come right back down here, which is, at the top end, 6432, and at the bottom end ‑ let’s see, 42, 6432. Let me do it this way. There we go. And at the bottom end, 6390. So a fairly narrow range, about 30 pips.
So that’s the short side. Again, to the long side you can see the highs that we were just talking about is this one point there. You can see the resistance I was discussing right over there. All right, so anyway, hopefully I haven’t confused you by this analysis. If you are at any point confused, come into the live trading room tomorrow morning, 8:00 AM Eastern Time. We’re going to get going with another round, ask some questions, reference this video if you want. We’ll be there to answer any questions you have.
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