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, we are looking at Monday, January 26. As you can tell from my voice, I’m still recovering from something. If you remember when we were talking about the pound coming off of this first resistance level up here. Let me use a little bit thinner line. We had planned on catching the market, moving down, and we identified a couple of areas that we were interested in taking trades. And so let’s zoom way in here on the daily. If you remember, one zone that we identified was given by an area here. This was the sideways action on the daily, if you remember that. But the zone was made up of close here, and then also the low here. And you can see of course that included the push down here and the push down here. And if you remember… Well, let me just give a recap. These zones are created by the close of a bar and then the extreme. In this case the low. The reason why we look at that, and I’ll give you a couple other examples where we have multiple highs or multiple lows and closes.
The reason why we look for this is for some reason, price in this area was too low. Right? And how do we know that? Well, market took the price up of the pound, got up into this 6300 area, which we had identified as the bottom end of a resistance zone. And then traded down. OK? So sometimes during the day on this day, traders kept selling and selling and selling until finally they decided, well that was enough. And they started buying. How do we know they bought?
Well, because if they kept selling price would have stayed down here or gone lower. Instead, it retraced and went back up. And so because the market itself has told us that this area is of interest, we will decide that that’s a scenario of interest. So, later on over here, once we’ve identified the zone here, we wait for a price to get back down into that area. Which you can see it did on this day. This was last week. Now it’s not… We have to be careful here as we’re not looking for some line in the sand, guaranteed reversal point.
That’s ridiculous. What we are looking for, though, is some place to focus our attention. So once price gets into this area, we look for one of two things to happen. One would be that price comes down and starts going back up. The other is that price comes down and keeps going. Now, the continuation or price coming down, pausing a little bit and then continuing to go. Well, let’s just say this. We like to wait for confirmation. And so what we like to do is wait for price to get into that area and then confirm. OK? So if it’s going to move up or it’s going to continue going down, we like to check for patterns and other things in that area.
Now, why am I going through all that? Well, because sometimes we forget that we’re dealing with a market that’s made up of people. OK, it’s not about math, it’s not about some PhD or some Nobel Prize winner figuring out some math that will describe the market. Because, frankly, that doesn’t work. What works is looking at the market from the human perspective. OK? And so if we look over here on the four hour bar, what you’ll see is that when the market started coming down and it got to… This is the bottom edge of that zone we were looking at. You can see on the four hour bar that it broke through fairly quickly.
Right? It had a triple bottom. This was actually a bit of a pennant pattern here. And then it just broke through. Then if you remember, we talked about how sometimes these types of trades can be difficult because the market just rushes through. It doesn’t make a lot of stops. It just bulls its way down. What we wait for at that point then if you would recall, we were looking for the little dipper. Which came really after the weekend… Not the weekend, but it came after a couple of days. The market popped back up, came back into this zone, which is what we’re looking for in a little dipper. And then started moving down.
Now, why do we look for these types of patterns or these types of things? Well, it’s because when the market makes a consolidation, a sideways movement like this, what happens is the sellers and the buyers are lining up on both sides of the fence. The sellers think that they’re right, the buyers think that they’re right. The house is different from the area right here where the market’s trending. Well, what we can see when the market’s moving down like this is that pretty much everybody agrees that the sellers are in control.
What does that mean? Well, it means that there aren’t enough people that are willing to put their hard earned money into the market enough to stop the downtrend. OK, let’s look up here at the 15 minute, just for example. When the market is moving up, what this says is there aren’t enough sellers to put their hard earned money to stop the market from going up. When we get the sideways action, we can see that both of these people, the buyers and the sellers, are active at the same time. That’s what we like to see first, and that’s what we like to use as our catalyst to make money.
Once we see the sideways action, or once we see the sideways action on the chart, that’s where we start to look for a move in either or sometimes both directions. OK, that in a nutshell is a recap of really the last week or so of trading. What we’re looking at now, and here’s the current market, is not much of a pattern. Although we can see the price has come back into our prior resistance area. If we go back up here to our daily chart, let me zoom out and then back in. A little bit more, sorry. We could see that we’re coming back into… Or, I’m sorry.
There was the resistance area, the top of the resistance area. And you can see we’re coming back into the bottom of that resistance zone. So taking our zone really right here across. Let me stop right there. What we see is price broke out of the bottom and it’s now hooking its way back up. And so what are we looking for now?
Well, this could be a little dipper, meaning the market might just decide to continue going down. And so we need to be watching out for that. And what does that mean? Well, let’s go up here to the hourly. What that means is we need to look for signs of compression. Sideways action through maybe six or eight hours or the market moving sideways is going to be necessary. Then will come out either in a pennant pattern, something that looks like this, where you get the pinching of a compression. Or we might just get a flag, where the market goes essentially sideways. Bing, bing, bing, bing, like this before making its move.
We need to see that compression in order to get those lines in the sand, where the buyers are coming in and saying that’s too low. And the sellers are coming in and saying that’s too high. At this point, really we have a marginal trade at best. We’ve got a little bit of a pattern forming here, it just hasn’t been going for very long. And what this means is going long above 6260, but because we don’t have… And this is very important. Because we don’t have a lot of time here, we don’t have a lot of hours gone by with the market going up and down and up and down.
And the buyers and sellers lining up. We don’t have a lot of people that have the potential to be wrong. OK, so like down here. Actually, let me do something different. Right here where we have the market going sideways right here. There are one, two, three, four, five, six, seven, eight, nine, 10, 11, 12 hours of the market going sideways. The guys that sold up here at the top, the guys that bought down here at the bottom, basically.
They’re lining up hour after hour and as time goes by, they get more and more committed to their position. They get happier with the fact that they’re not losing money, they’re looking forward to profits. And so when the market breaks to the upside, the guys back here who thought they were going to profit by the market going down now have had their dreams of riches crushed. And so they’ve got to get out of the market.That’s what causes the market to make these fast moves and as momentum traders, that’s precisely what we need.
All right. So not a very good pattern up here, although there is a bit of a pennant above 6260. You’ve got to watch out for 6280 or so. That’s only about 20 pips before the market runs into resistance. And that’s why if anything else, this is a very marginal trade. You’ve got a big block of sellers that are sitting above the market. I really like the idea of a short trade here better.
And I know I’ve been saying that over and over, but you can see that’s panned out in the market. On these hourly bars you can see time and time again the market making its move to the downside. So I like the long trade, but I like it better when the market’s making a little dipper back into the 6290 to 6280 20 pip range. On the short side, really again, we don’t have a pattern. This is not an ideal setup. Plus, we’ve got… And if you saw this, this block right in here that’s kind of a rough estimate. This goes all the way down to 6180.
So again, just not an ideal scenario. What does that mean? Well, it just means we’re starting to consolidate over a longer period of time. If we pan out now or zoom out. And this is why it’s so important that we don’t get stuck on low time frames. Once we zoom back out, you can see that the market has started to move sideways right here on the hourly basis. And so we need to watch that. Yes, this is compression. And so this is where if we get a break above 6250, a break below 6100, we can get some momentum down on the daily bars.
That would mean the market pushing down, oh boy, probably to about 5982. So maybe a three or four hundred point move to the downside if this thing can get going. What that also means though is we need to stay conservative. Remember, our job as traders is not to try and sit down and make money every single day like we’re at McDonald’s or we’re at a job and just by sitting down at the computer we can make money.
Our job sometimes is to identify when there’s nothing to do. And this really is one of those times. Yes, the market could break to the upside. If you’re an aggressive trader, by all means you can take that trade. And we might get lucky enough to have a move back up maybe even to 6400 over time. That’s just not likely until we can get some decisive trading. In other words, big money needs to come in and show everybody that they are willing to drive the market.
Otherwise, the only people that are left are day traders, and day traders by definition aren’t around for trading the positions. They’re not around to move the market to the stratosphere. So, successful trading is about putting this all together, putting together the technical, the patterns, the math. All the mumbo jump with the reality that we’re trading with and against other real people with real desires and sometimes real strategy. So keep that in mind as we’re moving forward. And by the way, if it sounds like, oh gosh Mac, you didn’t really say anything. I spent 12 minutes and that’s all you got?
Well, my challenge to you would be you’ve got to start looking at the market as a professional trader. So let me say this again. Some days there’s just not a lot to do. Some days the market doesn’t give you clear signs. Yeah, we’d all love to have a trading system where we could just sit down at the computer and every time we sit down we’re there to make money.
Again, based on the way the market is forming up, we’ve got resistance overhead, we’ve got support down below. My point is not that you can’t trade. My point is that you’ve got to be an aggressive trader. This type of trading is very easy to… It is very easy to get whipsawed in and out. For those of you that are action trading junkies, here are the trading levels that I’m looking at. Or even if you’re just an aggressive trader. Going long above 6264.
What I’m watching out for there are going to be whipsaws as the market starts to chew through all of the sellers here. Which means I am using a bit smaller position size and preparing myself mentally for those quick reversals. If the market does break to the downside, I’m looking forward to penetrate through this price level here, which is 6223.
Once it gets into there, it’s got to chew through some value, some buyers that are in here. But once we get back down through about 6180, I’m expecting a fast move back down to about 6100. So again, strategy wise I’m willing to use slightly larger position size to downside than I would to the upside. Simply because the market has farther to go and has a better range. All right.
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