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. Hopefully you got a chance to take a look at the video from last night. I did finally get it going late. I just made sure to install just enough software to get that out. So again, if you did have a chance to take a look at that, you’re going to want to view it. What we’re seeing now with the pound is ‑ this is the daily chart, by the way ‑ this type of market action is very, very common. And so you can see over here to the left we’ve got a consolidation are here. Consolidation is another way of saying the market is going sideways.
Now, you’ve got to realize what’s going on in consolidation is we’ve got buying pressure and we’ve got selling pressure, both. And so the market is being held into a very tight range. The reason why ‑ well, let me actually just put it very simply: the market has a memory just like you do. You remember things in your past that are important to you, and the one thing that is of the largest importance to the market is price, OK?
And so when ‑ I just adjusted my audio. That should be a little bit louder for you. Because the market remembers price so vividly, when we look back to the left on the chart, we can see prices that were important to the market. Now remember, we’re not guessing about this. We can actually see very clearly that we had lows in this general zone and we had highs in this zone.
And so the reason why we look at the lows down here and we look at the highs is those represent the areas of extreme, that the market could not go any further. And it’s where the market gets tired or exhausts itself that we want to concern ourselves with, because that’s critical.
Why is it critical? Well, because if price gets back into the zone in the future, which you can see it did two days ago, the options are very simple. It’s either, one, going to break out, or two, it’s not. The market is as simple and cut and dry as that. It’s either going to break out or it’s not. Liquid, active markets hate going nowhere for very long.
Now, some of you might be sitting there saying, “Well, hey, wait a minute, Mac. You just said the market went sideways which, by definition, is neither one of break out or not, ” right? Well, if you observed that, congratulations. Go to the head of the class. What I mean is once we’ve identified the sideways area. OK?
That’s the critical thing. We need to look back into the past and see this first. You see, most traders get caught up in trying to figure out what is going to happen next. We don’t know what is going to happen next. In fact, if you were looking at this market ‑ lets go back in time ‑ if you were looking at this market right here, most of us would not guess, “Oh, the market is going to stop dead in its tracks.” We’re going to think, “Oh, shoot, this thing is going to keep going.” I mean, look at this: big down bar, blah blah blah.
And then, all of a sudden, what? The very next day, boom. Yeah, it punches down, but it bounces way back up. I mean, it comes up like that. And the next day, sideways, sideways, sideways. You see? So, then even coming back here looking at this big down bar, right? We’d look at that and say, “Oh, crap, this move is over. This thing is going down to the floor. Look, it did the same thing over here, and so it’s going to do that same thing right there.”
But then what happened? Bang: next day it goes nowhere, and all of a sudden it’s right back up. So you have to realize that we don’t know what’s going to happen next, and we don’t have to, nor do we even want to try. It’s a fool’s game. Really, I mean, it really is a rookie’s game to try and figure out what is going to happen next.
What we need to look for are these areas, like I said, right here, where the market has gone sideways. We can tell at just a glance, these prices were important to the market. They’re going to be important to the market again. Price pops up, it comes into this area, that’s where we start looking.
Now, the skill: when you get more skill ‑ because some of you are probably saying, “Well, yeah, but Mac, look, you’re missing out on all this. I want to get action all the time. How do I make money over there and over there?” Well, that’s where the skill comes in, all right? So let’s take it one step at a time.
You first want to get good at identifying where the market has told you already there are important prices. Actually, there are important prices all over the place, OK? Then, once you get good at identifying and understanding why those prices are important, it becomes, really, very easy to decide where to make a trade.
So for example, we’ve got a sideways market right here. We know where price was important. Don’t we have another sideways area right here? And some of you might be saying, “Well, Mac, look. This ‑ it poked out of the bottom.” Yeah, absolutely, but look for one bar. Boom: pushes down. Bang, right back up. OK?
So I just draw another line down here, all right? Or, even better, make this into a bigger zone like that. And so then after the zone is already made, price comes back up, look where it comes into: right back into that old zone. You have an opportunity to trade up here. It starts coming down. Where is your next opportunity? It’s coming in right back there.
OK? So again, get good at identifying the zones where you have some potential profit, and stop trying to predict what’s going to come next. Who cares? There’s just no way to possibly know what is going to come next, folks. It’s a fool’s game.
All right. So let’s take a look at our 60‑minute chart here. Let me pull this up so we can see. Excuse me, sorry. Again, as you probably hear in my voice, I’m fighting off something. Successfully, I might add. My wife got this stuff called Inca which has been good. Let me move this toolbar out of the way.
All right. So you can see, this is the hourly bar. We get a little bit more detail here, and just like on the daily chart, we can see what prices were important on the hourly, right? We’ve got all over the place. Again, we’re looking at the extremes. We’re looking where price has gone in the past so that we can identify zones. And what is interesting here is this zone over here has played out ‑ let me use a better line here ‑ has played out more than once.
Let me just draw a straight line across. You see that? Let me use a different one. There we go. And you see, what throws traders off is when the market does something like this, right? It pokes out of the bottom. And we immediately want to say, “Oh, look, it doesn’t work.”
Well, I’d agree with you if I was trying to tell you that price is going to bounce off of this zone exactly. That’s not what I’m saying. What I’m saying is these zones are places in the market where people are interested in price.
Let’s look at it this way: I’ve been using the $5 TV. Let’s use gasoline instead. If this is, say, $3 a gallon gas, and so it gets down to here, and that’s $2.50, are you going to be so ‑ and if you’re a buyer of gasoline because you’re out of gas and you see the next day that all of a sudden it goes down and it’s like $1.80, are you going to be pissed, mad? Are you going to say, “I’m never buying gasoline again?” Or are you going to say, “Ah, I’ve got a half a tank. Let me fill up, it’s a buck‑eighty.” OK? So a buyer is a buyer. If you were willing to commit at $2.50, if it goes down to $1.80, guess what you’re doing: you’re going to buy.
That’s all we’re talking about here. It’s not some concrete level. It’s not that it didn’t work. It’s that for some reason there weren’t enough people to buy, or, for just this short period of time, you might have had a bunch of sellers come in. There may have been news. You have to take the context of the market into account.
But the punchline is we had an area back here that was interested. The price was interesting to the market. Guys came in and bought. They came in and bought again. You can see it bouncing up off of that zone, and you can see it coming right back down there again.
And so identifying these zones is critical for us as traders. In fact, really, it is trading. If you want to get to the heart of what good professional traders do, they understand fundamentally ‑ they understand that the market is driven by people willing to buy or people willing to sell, and outside of that ‑ sorry. Hopefully I got the mute in time. My point is, it’s the past that gives us our edge, OK? It’s the rookie that is trying to look to the future.
So you can see that we came off of this ‑ buy zone, is what I call it. We came off of the buying zone, and prices lifted up. And now we’re starting to get this kind of compression. These are all good signs, by the way, meaning good signs for trade. I don’t mean good signs, the market going one direction or the other.
So we’ve got compression. We can see that we’ve got interest over here, we’ve got interest over here, we’ve got interest over here. I’m actually a little bit more excited about the short side because if the market does break down very much below these points, you’re probably going to see a big move.
Why? You’ve got buyers here, here, and here. If the market breaks to the downside, eventually these guys are going to have to do something. They’re going to have to get out. They’re going to have to liquidate, they’re going to have to sell. Bottom line. That’s how the market works.
OK, so we’ve got our compression pattern. What that means, setting up for tomorrow, really, I like going short below about 6240 more than I like trying to get short higher than that. I realize there are about 40 pips worth of range. I think it’s a much better trade waiting for the market to break below here. If you’re really conservative, you’re waiting for a break to the downside and then a little dipper back up to the 6240, 6250 area before going short.
To the upside, there is a lot of overhead resistance, right? You’ve got this zone here, you’ve got another zone right here. And so if this market is going to claw up, it has got to get through 6300. It has got to get through 6350. And so if you do go long, you can see right here, 6284, that’s only about 20 pips before the market runs into this first level of resistance. You’ve got to watch out for whipsaws.
Again, if you’re conservative, I’d actually want to wait for the market to probably bump up against 6350 and then wait for the market to go down. Now, here is what the rookie trader says: “Well, Mac, the market is at 6284. Why not just make the money from 6284 to 6350?” Well, because again you’re trying to predict the market.
Look: if a big money buyer is coming in, they’re looking at the same thing that I just described. They’re looking at resistance over here. They’re looking at sellers over here. They’re looking at sellers over here. They’re going to want to see if those guys are still sellers. And so if they buy and they push the market up, they’re going to stop buying for a little while, and then if the market comes down, they’re going to start buying again.
If the market lifts up, then they’re going to make a run for it. Then they’re going to push the market. This little dipper is in the very nature of how smart money buys and sells in the marketplace. That’s why we use it. That’s why it’s such an effective concept, right? So it’s not about predictions.
So again, I think the conservative play here would be waiting for the market to get up to 6350 and then wait for a little dipper. And the rub is it might not. It might just blow to the upside. And then people are going to say, “Ah, see, Mac? You don’t know what you’re talking about.” Well, yeah, test it over time is what I would say.
So if that does happen, then you go long if it breaks above 6350. So what, right? The key is this: what most people do is they are afraid of missing out. They’re afraid that if they let the market go up and come back down that they’re going to miss out on the market making this big, huge run to the upside. But if you go back and you trade that by hand, you will find more often than not the market will come up, give you a second look, and then make its move, simply because that’s how the operators make do.
And let me tell you this: if the market is going to make an explosive move, number one, they’re not going to make it easy on you. They’re just going to buy the heck out of it, lock everybody out, and all of a sudden it’s going to be up at 6360, up in this area, on one big huge bar, and you’re going to be too scared to get in because that’s what they want you to be. All right?
So, if the market does make a big move up, you’ve got to watch out. And actually, let me stop right here for a second. What I’m giving you is strategy, and I realize what most people want is, “Hey, Mac, just tell me to get in at this price and get out at that price, and tell me I’m going to win 80 percent of the time.” That’s not trading.
That is not professional trading. I don’t know what else to tell you. That’s just not the way it works. Professional traders are constantly working and looking at the market and strategizing about what the other person is doing. And so if you want to trade like a professional, that is what you’ve got to do. All right?
So, let’s get back to strategy. If the market makes a big ‑ if it’s a big, huge bar, like in one hour or four hours it just makes this enormous move, we’ve got to watch out, OK? That could be a fake‑out from the players in the marketplace similar to what happened back here. You know, you’ve got one big, huge bar, you’ve got a good retracement off of that, and then another big, fast move.
We’ve got to watch out for that pattern, because it’s a favorite pattern. We would use this tactic all the time to sucker people into the market and then take their money. OK? So what we would do is we would buy very aggressively, the market would start to come down, and we would nibble at it, right? We would still show that we’re big buyers.
And then the second round, other buyers would come in. Not us, other buyers, and they would push the market up. But because there were no real big players involved, you know what would happen? Boom ‑ the market would just crater.
Now, the key here is ‑ and the skill comes in on the professional side ‑ they’re actually going to short up here. So we would buy, we would nibble as buyers over here, but then through different accounts we would sell. Guys, this is just the game. This is who you’re up against, OK? What does this translate to into strategy? If there’s a big bar, you’ve got to watch out. It’s in the coaching manual on the website. You’re going to want to check it out.
So, let me do a recap of the strategy here because I know I digressed there, mostly because I forgot, I don’t have my clock up. Usually I have a clock here telling me how long I’ve been going. All right. There is our pennant pattern. Here is one level of resistance. Here is another level of resistance.
And so what we’re talking about is if the market does break ‑ whoops. Where did I get that nice blue? Was that “I?” No. Crap. All right, whatever. If we get a break to the upside, the conservative play is waiting for the little dipper, back down to about 6315, and then looking for the move back up. Breakout, conservative play is going to be a break below here, which is about 6213, and then getting the little dipper back up again.
All right Insiders.
Comments on this entry are closed.