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. We’re looking at the British Pound on my backup charts. We ran into a problem with Windows. We’re actually using Windows for our server, and we’ve had to make some modifications, and my programmers got the server going up and down. And so rather than run the risk of begin in the middle of my video and having my software not work, I’m just using the backup. OK. Why am I drawing the arrows on the chart? Well, if you remember it, we had the Underground event in October, and what came out of that was a very small group of traders that I’m working with on a coaching basis. And so I want to just share some of the feedback that I gave to them and talk a little bit about what you can do as a trader to improve your results.
First of all, the reason why I drew the three arrows here is we’ve got to remember that the best kinds of trades are the trades that are the result of somebody else having to do something. And the example that I’ve given is if we had a crowded theater ‑ movies ‑ and we’re inside, right? And we don’t just yell “fire, ” we actually set a fire. And so the building is burning down.
If we could stand at the door and ethically live with ourselves and say, “If you want to come out, that’s going to be $10…” OK, so the building is on fire, right? People need to leave. But in order to leave, they’ve got to pay the money. Now, of course I’m not condoning doing that. What I’m saying, though, is we want to set up a similar situation in the marketplace.
And so when you see consolidation happen and you see over the span of hours and hours the market unable to penetrate, it’s either going to go up and break through that price or it’s not. It’s that cut and dry. Remember, in order for the futures market, like the Forex, to move up even one pip, one little pip, someone has to be willing to trade at that price. In fact, two someones need to. You need to have someone buying, and they need to be matched up with someone willing to sell to them. OK?
That’s how the market moves. It’s not magic fairly dust. It’s not somebody’s computer program. It’s somebody willing to buy from someone willing to sell. And the reason why the market ‑ any market ‑ is unpredictable is we never know in what quantity or how long these people are going to be willing to buy and sell.
I mean, think about it: if price is down here, in order to come up to this level, someone has to be willing to buy. But at the same time, someone also has to be willing to sell up here. And let’s think about that for a second. If someone is selling up here, it’s because they think the market is going to go down. Or, it’s because they are a bank and they kind of have to take the other side of the trade.
Well, let me not get on a rabbit trail there. We don’t have to get into all of the reasons why someone might or might not get into the market. What is important isn’t that we try to figure out all of the millions of reasons why somebody needs to trade. We just need to see when we’ve got general agreement.
You see, when we have this general agreement or this consolidation ‑ a flag pattern, right? There is your flag, folks. Whenever we see these patterns come out is where we have the opportunity. Because the people who sell up here and the people who buy down here are going to have to make a decision if the market moves up or if the market moves down. OK?
So in other words, if the market moves up, all the people who sold, at some point they’ve got to make a decision. Nobody has unlimited money. Nobody has the ability to take on unlimited losses. Even the Federal Reserve or the central banks around the world cannot realistically take on unlimited amounts of risk ‑ although I really have to tell you, Ben Bernanke is redefining what I thought were some of the pain thresholds. The Fed right now is taking on literally trillions of dollars worth of risk, trillions of dollars worth of currency, and they just seem to be like a Hoover.
And likewise, when the market is moving down, the people who bought eventually will have to make a decision, and they have to get out because they’re running out of money. That’s why we look for these areas of consolidation. That’s why we look for these opportunities in the market. And that’s also why, as traders, we can afford to be patient.
So, the two things that I want to share with you that I shared with my small group of traders that I’m coaching is this. Number one, look at the market from the other guy’s perspective. You need to start thinking to yourself, “Who is in trouble here?” And it’s not necessarily something that we do right away. This is something that happens as we see the pattern developing.
So the market pops up, it comes up here the first time. And it’s after the sweet spot, so maybe we’re not really paying attention. And then we go to bed. We come back and we see, right in here, wait a minute. The market has been banging its head up against this level over and over. We’ve been in this uptrend here, so there are obviously some buyers in the market. So let me develop a plan so that if the market breaks to the upside, I’ll make a trade. OK? That’s an example of what I mean by thinking about the market from the other guy’s perspective. All right. Enough of that.
And so yesterday we talked about some possibilities, some probabilities. Let me zoom out a little bit. A couple of days ago I was talking about the double top here, waiting for a little dipper. If you remember, I talked about looking for resistance and looking for the little dipper. And we got that. It was a little deeper than I anticipated.
And here it is. The market broke up, came down, gave the little dipper very, very quickly, and then shot up to the upside. So we did have some opportunity late in the day, but we’re pushing to the end of the week. It’s going to be tough, as I’ve said before, to get trends coming into the last couple of days. So keep that in mind as you’re managing and looking for your position. Thanks, precious.
And so we did get the dip down. Here’s what it looks like on the daily bars. Remember what I was talking about, specifically this area over here. It just didn’t quite get down there. But this is also a good example of what it means to be flexible. When I put this red line here ‑ and here is what it looks like on a 15‑minute chart. There is the red line. The market pops up, comes down, boom, gives us one. This was late in the day yesterday. Gives us one, comes down again, comes down again, again, and again. So we get all of these probes to the downside. When we put all of this together with what has been going on on the daily, this uptrend, break above resistance.
You see, this is why knowing about the market and knowing the whys and the hows will help you make decisions. So when we see all this stuff happening and we see, “Ah, you know what? Mac said a little dipper, but it’s not quite there, ” we can then go down to the hourly bars and see, “Ah, but you know what? One, two, three, four ‑ this thing has been pushing down, we’ve got an uptrend. You know what? That’s a good time to look for a position.”
Then we get another little dipper when the market comes up and ‑ boom ‑ comes back down. You see, it’s that process of reasoning, developing a trading plan based on the fundamentals of the market. We’re not just guessing here. This is actually how the market operates.
All right, so let’s go back up to the daily, take a look at what is going on here. Let me zoom in ‑ or zoom out, rather. You can see ‑ let me put the red line on it ‑ we’re at the top end of this prior consolidation area. OK, this was the flag pattern back here.
And so we’ve got to anticipate that the market, the pound is going to run into some resistance there, which is fine. It’s exactly what it should do. The market is going to move from support to support, from resistance to resistance. At the same time, though, we’ve also got to be conscious of opportunity. This is a good time for looking for countertrend trades.
Of course, waiting for the new session to start coming into the European session is going to be beneficial, so let’s talk about that. Countertrend trades, hopefully what we get is the market holding steady through the Japanese session ‑ or the Asian session, excuse me ‑ maybe even breaking down a little bit and then coming up to maybe 6320 to 6340 on a little dipper, and then looking for the move back down.
On the flip side of that is if we get a consolidation area, the market goes sideways. If it does manage to pop up, we need to watch for the market to come back down to that same area, 6320 to 6340, anticipating the market moving back up. So, very simple trading plan. Specifically for tomorrow’s session, remember, it’s Friday. Don’t get sucked into waiting into 10 AM, 11, 12 in the afternoon for a trade to happen. It’s just way too late in the week for that. You’re better off waiting for a trade setup come Monday.
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