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, Christmas may be behind us, but we are still in the throes of our holiday season, particularly here in the U.S. I know overseas it tends to be a little bit different. But at any rate I hope you’ve had a wonderful Christmas, great time with the family, looking forward to a wonderful and prosperous 2010.
We’re looking at the British Pound here, and we’re going to focus a bit on the daily, and then we’re going to go up to the weekly as well. In fact, let’s go up to the weekly first. All right, now if you remember, we were talking quite a few times over the last three, four weeks about this consolidation range here and then the support zone here. And this is now a weekly bar, by the way.
The point here is that the resistance on the British Pound, this resistance zone, has held over the last seven months and the support zone has only been lightly tested, I’ll put it that way. In other words, out of seven, eight months, we’ve had one, two, three weeks that have spent quite a bit of time down here. So what do we make of this, and where do we go from here?
Well, first of all we have to realize that this is a critical zone for the British Pound, meaning these prices used to be a good deal for the marketplace. So we want to see that the buyers are starting to come in and push the market up. Now, we can look at this in a couple of ways. What I’m going to do is go back in time and we’re going to look at what happened back here. We’re going to look at what happened back here, and we’re going to see how the market might form up in the future.
But here’s the thing: you’ve got to realize when it comes to the markets, it’s never going to happen exactly the same way twice. I mean, think about it this way: you’ve probably put pants on your entire life. Do you put them on exactly, precisely to the millimeter, the same way every day? The answer is no.
You probably drive the same way to the store, the same way to work. The places that you frequent, you probably go there the same way, but do you do it exactly the same, to the millimeter? No, not at all. We need to remember this about ourselves and also remember this about the market. I apologize for the noise in the background. I had some papers on my desk that were driving me nuts.
All right. So let’s do this. We are going to mark off a couple of areas here. One is the support zone. That’s going to be on the weekly. The other we’ll do on the daily. Then I’ll go right to there. Now, what I did here is I focused on the closes. So the close of this week here and then the low of this week here. Then I focused on the close here and then the high over here.
Now, one other thing that you may have picked up here is what I like to do when it comes to support, for the top end of it I like to look at a closing date. For the bottom end of it, I like to look at a low or an extreme, and then the opposite for the high. Over here, I like to look at a close for the bottom and an extreme for the high. Is there any right way to do this? No. Quite frankly there is not. And I’m not looking, again, for a precision way to do it.
All right. So let’s go back and first look at the first low. What do we see? Well, what we see is that the market spent one, two, three, four, five ‑ five days, really ‑ hovering around the top end of what is now a support zone, which is coming in right about 5940. You can see that right along that line. I’m not counting this day because the Pound pretty much launched off of that.
Here you can see there was one dip back down into 5940 on this day and then we had a bigger penetration over here on the next day. But all told, what happened was the sellers came in, pushing the market down. They got overwhelmed here, and then the buyers came in again.
So, what does that mean? Well, on a net basis, the market isn’t going anywhere. You’ve got enough buying to hold the market up, which indicates that there is value associated with that price. So let’s go back over here.
Now we can see after some times has passed we’re now coming down from the top. So what we’re looking at is the sellers pushing the market down. What happens? The price penetrates deep into the zone here, but let’s look at the pattern. What do we get here? Multiple tests. Up and down, up and down.
This goes back to the 1920′s. This is a miniature of a longer‑term bottoming process. So let’s take a look at a possibility here as far as a pattern. The pattern generally goes like this: you have an extended move down, a push up or a bounce, down, up, down, up, back down, and then up. Right?
What does all that mean? Well, we have in essence a prior area that was fairly easy to define, right? 5958. Now, let’s go back here. Remember, it was this area right here where we could see five days the pound had spent pretty much bouncing off of one price or a very tight band of prices. What we’re looking for here is the market to break through to the downside.
We get one false breakout, a test, another false breakout, a test, a third false breakout, and then finally another test which pushes down below all of these lows before we get the final breakout. So that is what is called a complex bottom, or what I like to look at as a bottoming process. It’s the multiple testing and retesting of a particular area or zone. So we might get that in the future. This is definitely a pattern that we need to look for.
Now, how do we trade it? Well, simply put, you wait for the market to breakout way over here. Now some people are already saying, “Oh, Mac, look at all this. Can’t we make money in here?” Yeah, you can. But the question is, do you have the skill? Can you stay on‑task and on‑target and not get freaked out by the market moving.
In other words, if you’re trying to trade countertrend and you’re selling here, do you have the guts to sell as the market is rocketing to the upside and then coming back down? Likewise, if you’re looking to countertrend here and buy, do you have the guts to buy when the market is falling apart and we’ve got this recent down move in the past?
When it comes down to the nitty‑gritty of trading, that is really what it’s about. As traders, we see this opportunity, right? We see this easy money bouncing back and forth and back and forth, and we think, “Oh, my goodness. All I’ve got to do is sell here, buy here, sell here, buy here, sell here, buy here, then we’re going be rich.” Well, yeah. And again, if you’ve got the guts to do it, go ahead. The prudent, less risky way of doing it is waiting for the final breakout.
Now, why do I say that? Well, because let’s follow the process here. The market has pushed down. Sellers are in charge of the market. When the market pops up ‑ this is normal, it’s normal for the market to pop up. What’s important is what does the market do on this down move? If the sellers are still in control, what’s going to happen? Boom, the market is going to keep going down just like it did back here.
Think about this: sellers are in control of the market. They push down, get the normal retracement, and then what? Boom, the market just breaks right through the support level. It doesn’t do it here. The market pops back up, sellers try and push it down again, they get even less action there, it pops up, and then finally you get ‑ boom ‑ this concerted, almost like an all‑out effort of a weight lifter trying to get it through, trying to get it through, and he just fails and he gives up.
It’s when the sellers give up that they have to do ‑ what? This is the key here, folks. When you understand this, trading will become a whole lot simpler and, dare I say, easier. When the sellers give up, they have to buy. They’re getting liquidated, oftentimes by force. In other words, the market is liquidating them. And so all the people that sold in here, once the market breaks to the upside, those guys are sprinting for the exit.
That’s what we want to take advantage of, because that is where we get the big move here and the follow‑through. So let’s now fast forward a little bit more. That was back in October. November, December, boom. Here we go. And so what do we see here? Well, we see the sellers were in control, but look at this retracement. This is not a very good retracement.
Now, what does that mean? Well, let’s be realistic. It’s Christmas time. This is coming right into the holiday. People are on break, folks. I mean, just because they’re greedy bankers doesn’t mean that they don’t take some time off. They’ve got family and friends and wives as well ‑ the wives, of course, being the key part there, telling them, “Honey, you had better take some time off.” So the market has a very shallow retracement, starting to push down.
So, what’s the play here? Well, we don’t have one. Why? Because we need to wait, at the very least, for the market to push back up and come back down. This so far is not telling us anything. So some of you might be saying, “Well, Mac, come on. I need to make some money. I’m here to make money. I thought you said this trading, we could trade and make a couple hundred bucks, on average, as we’re trading.”
Well, all that is possible, but you’ve got to realize that sometimes the market is just simply not presenting opportunity, number one, and so as a trader, number two, we need to look at our take from the market on an average basis. How much are we going to average over a year? The trap that traders fall into is they think, “Well, hey, every time I sit down at the computer, I need to make money. I need to ‘average’ a couple of hundred bucks a day, which means I need to make a couple hundred bucks today.”
Well, no. That may mean you make no money for a short period of time and then you make a lot of money over an even shorter period of time. We need to wait to see what happens with this market as it’s coming down into support rather than jumping in and assuming we know the likely direction of the market. Right now, there aren’t any patterns to speak of.
In fact, if I go down to an hourly bar here ‑ no it’s not going to draw on there. I don’t have enough data. Let’s go back up to the daily. And so if we go to the hourly here, the red line is the top end of our support zone up here. You can see: no pattern to speak of. There were a couple of attempts to push through. We had a bit of a triangle or a pennant pattern there. Very, very sloppy. But as you can see, there is just nothing going on, folks. Nothing. No reason to push and try and make a trade where there isn’t one.
So, where do we have the next opportunity? Well, frankly we’ve got to wait for the market to come back up to 6071 to go long. What that is going to do is clear the resistance over here and right here and give us a good opportunity to get in on the market possibly pushing to the upside. Remember, though, we’ve got resistance just barely above that level, a couple hundred pips or so, at 6201.
Now, on the short side as well we want to be careful shorting down here because these lows are right in ‑ let me get this up, here we go ‑ because these lows are right in the support zone. If we sell at 5864, we are still right in the middle of this daily support zone. Not a very good place. So, what do we need to do?
Well, a conservative trader, you’re going to wait for the market to come all the way down to the bottom end of the support zone at 5702 before you go short. If you’re more aggressive, you can wait for the market to give a little dipper, meaning coming down, bouncing up to 5942, and then selling as it comes off of that level.
All right, Insiders.
Comments on this entry are closed.