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, it seems there was another problem with the video. I’ve narrowed it down to my laptop, and since I’m going to be in the office for tomorrow’s session, I’m not concerned about it moving forward. But that problem will be solved, let me put it that way. If you will remember, in yesterday’s video we were talking about the support zone in the market down here. And what we were discussing was that when the market comes into a support, particularly where you’ve got recent support ‑ OK, so this was just a couple months ago or a month ago that when the pound got down into this area, it eventually did go up.
And in yesterday’s one‑on‑one support session, what we talked about was how we need to keep the mechanics of the market at the foundation of our trading. Now if the market has gotten into a zone of prices and then managed to move up from there, what we know ‑ and we’re not guessing at this, we know ‑ is that there were more buyers.
So if price drops down into that area again, we are going to make the assumption, then, in the future. OK, so this is what’s important. We observe what is going on in the past to help us make assumptions ‑ or, if it makes you feel better, predictions ‑ about the future. So that’s the basis for the trading strategy, which has been to essentially be long or at least be biased to the long side as long as the pound is sticking around this support area.
When we go over to our four‑hour bar, really, because the market has been going sideways for so long, you’re not going to see a whole lot of trends on the four‑hour bar. On occasion we can find a pattern over here, but really, what I want to emphasize ‑ let me zoom in just a little bit more, there we go.
What I want to emphasize is that when the market does move off of a support level, what you can find here on the four‑hour bar is that your target, or where you’re eventually expecting the market to stop, is pretty easy to find.
In fact, if we look backwards on the four‑hour bar, we can see areas during the day where the market has pushed down and, again, develop a zone of prices ‑ in this case running down about like this. There we go. Whoops, a little bit too low. In fact, let me get that arrow out of the way, too. There we go.
OK, so what are we looking at here? Well, we’re looking at the close of this little ‑ this four‑hour retracement, as well as some closes here, here, and then finally the low. Now, one of the things that we can do as traders is get fixated on certain things, and it’s because we’re trying to predict, we’re trying to get certainty, we’re trying to guarantee that we’re going to make money. And folks, it just isn’t there.
And so how you draw this zone, there is no magic in that. All we’re trying to do is identify areas on the chart where we can make trading decisions. That’s it. To try and do literally anything else is reading something into the chart that is just not there.
So if price does manage to get into this zone ‑ in fact, let me use a blue rectangle over here. There we go. Now I’ll actually put that on the chart. There we are. So, as price is reaching up toward this zone, we become interested. And you can see, sometimes price just doesn’t get there. This four‑hour bar misses the zone by quite a bit, actually.
Now, does that mean we missed a trade or we missed a target? Yeah, maybe it does. But the important part here is that we’ve identified a price area where there were previous buyers that were then overwhelmed by sellers. And so our assumption now is that as price gets into this zone that we’re going to see those same sellers either defend their prices, or we’re going to see the buyers back off because they’re going to be thinking, “Well, jeez, there were a bunch of sellers in this price area. We need to get out ahead of that price area.”
Again, remember, trading is based on traders. Traders are creatures of habit.
Now if we go up here to the hourly view, what we can see is very important and very instructive. And this is something that I’ve tracked for almost a decade now. It’s a trading strategy that I discovered back in 2001. In fact, this is at the heart of Forex Deal Butler.
What you can see here is that ‑‑ let me use a straight line ‑‑ the market starts here, moving up at an angle. And as it’s moving up, instead of being on an angle now, it almost looks like it’s curving to the upside. And it’s really better described not by the lows but kind of by the general movement of the market.
When you see any market get this kind of acceleration or momentum, this is where we’ve got to keep our eyes out for a possible reversal. And the reason why is very, very simple. If the buyers in a marketplace are flooding in very, very quickly, they’re not giving other people a chance to adjust to prices.
I mean, think about it. How many times have you been ‑‑ whether it was during the real‑estate boom, or maybe during the stock boom ‑‑ and you saw prices going up and up and up, and you said, “Ah, you know what? I could’ve bought that when it was $25. It’s $50 now. It’s just too expensive.”
And then it goes to $100, and then you’re thinking, “Wow. That $100 is way too expensive. I knew that stock when it was $25. I knew I should’ve bought that.” And then it goes to $150, and then $200. And finally, you’re thinking, “Holy crap, this thing’s going to go to the moon.” And then what happens? Boom.
Well, the reason why that happens is it’s the very nature of the markets themselves. Markets will continue to move up until all of the buyers ‑‑ well, let me say it a different way.
Markets will move up until the sellers can overwhelm the buyers. Period. Markets will move down until the buyers can overwhelm the sellers. And so the faster that happens, the more likely the reversal. Because the guy who’s a day trader back here, once he sees the British pound is up, say, 50 or 60 pips, he’s not going to jump in on that.
And I’ll tell you, very practically, why. Because if that day trader jumps in over here after the market has already started to move up, his boss is going to come back at the end of the day and say, “What the hell were you doing?” And if he does that too many more times, he’s going to get fired. It’s just the nature of their marketplace.
So, remember ‑‑ well, maybe you don’t remember. You need to look at the one‑on‑one support session. It’s up on the website. It should be posted already. Because I talked about, at length, how to plan for and make money based on knowing who you are trying to trade with or against.
Because if you’re a day trader and you see the market move up like this, you can’t get in, not because there’s no opportunity in the market, but because if the trade doesn’t work out you’re going to get your head bit off, and if you do it too often you’re going to get fired.
Now, there is the chance that this move will turn out to be the smart money. But here’s the thing. That is going to show up on the four‑hour, and it’s going to show up on the daily. In other words, the smart money is only going to get involved when the daily charts are in support, if he’s going to buy. And he’s only going to sell if the daily charts are in a resistance.
So if you’re trying to profit off of a big move, you have got to wait until the likely time that the smart money is going to be involved.
You see, the mistake that we can make as traders is that we assume that every time we decide to get into the market that the market is going to make a big move. Like this. We see the market makes this huge move, so we say, “All right, I’m going to get in over here.” And then we say, “All right, the market’s going to do that. It’s going to move hundreds of pips, and I’m going to make tons of money.” Well, the only way it’s going to do that is if you have big money willing to push the market.
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