USDCAD Dec 18th-19th

I cannot determine which way price wants to go today to close out the week.
Intraday update USDCAD:

  • The weekly VWAP level is 1.16184 and price is currently trading below it. So far today it has been tested twice holding each time.  The first bounce from it took price back down the weeks DVAL which held.
  • For most of the week price has traded inside the weeks DVA
  • The current week’s opened above last weeks value area.

The daily bar is inside of the previous two days trading range.


USDCAD after the close Thursday December 18th, 2014

  • Daily Value Area: the day opened inside the previous days value area.
  • The Fed FOMC announcement moved price up but it did not take out the high from earlier in the week, Tuesday.
  • From the open price moved sideways developing a narrow value area while inside the fixed value area.  Around 2am price moved out of the DVA and then down to the fixed VAL and then through it finding buyers near the FOMC announcement low.
  • From this low price moved up to the DVAL
  • Volume Profile: the previous day had low volume near the low of the day.  This should have alerted me to buy if and when price came into this area as the risk would be low.  Plus, the overall trend is strong to the upside. The buy target would be back up and into the DVA as the DVA was inside the fixed value area.  Targeting the DVA would have given a 20 pip winner and a 40 pip winner to the developing point of control.
  • The developing day’s Vpoc became resistance and price closed down below the developing and fixed value area.

CADJPY Week Dec 14th-19th

CADJPY Post Market Homework & Pre Market Preparation – 14th-19th


Possible Buy trade Levels: 102.00 / 101.89 – 101.34

Possible Sell trade Levels: 103.18 / 103.60

These observations are to understand the big picture in CADJPY.

Daily Bar Chart: before the open Sunday Dec 14th

  • Of the current 1362 pip strong bull run up CADJPY last week saw a 444 pip retrace down from the high put in earlier in the week.
  • Of the current up impulse leg the 38% retrace is at 101.348 which also is a potential price action support level.
    On the daily bar chart, price has rotated below the 5,10, and 21 ema lines, closing below them on Wed, Thurs, and Friday. Price may make it up to the 10 EMA and if it does that could be a high probability short trade.

Weekly Bar before the open Sunday Dec 14th

  • The one-time framing of weekly bars stopped last week.  Last weeks weekly bar engulfed the previous 3 weeks highs and lows.
  • The weekly bar closed below the 5 ema line but above the 10 (101.89), which it has not touched since the end of October. A buy trade on or near the 10 ema may be profitable.
  • The 2013 high at 101.110 was broken back in the first week of November, but it not been retested since being broken.  Buyer might be waiting for this level and it may provide price action support.
  • Price is well above last quarters high and the current quarters open.

Monthly Bar before the Open Sunday Dec 14th

  • Even though the daily bar and the weekly bar saw bearish selling last week, the monthly bar still is well above last months open though it is a down bar at present.
  • Potential target down is last years high at 101.053 which is also close to the 5 month ema line.
  • Price is well above the current years open.

USDCAD Homework & Preparation – Dec 8th

USDCAD week of Dec 8th – 12th, 2014

Post Market Homework for the week

Saturday Dec 13th, 2014.  I did a bad job this week formally doing my post market homework and pre market preparation and it reflected in my trading success or lack of it.  Here is what did happen this past week.

USDCAD Weekly VWAP Levels

  • Previous week value area: the weekly fixed value area moved up and we opened above it.  Price went into last weeks fixed value area briefly on Tuesday, other than that price traded above last weeks value area all week.
  • Developing weeks value area: Monday we traded above the developing weeks value.  Tuesday we moved into the weeks developing value area, down and through the DVAL briefly.  Price spent less than an hour inside last weeks value area before it moved up and out of it then back into the developing weeks value where it moved up and through it.  Wednesday’s price found support on the weeks developing VWAP level.  From here it moved up trading above the weeks DVAH on Thursday and Friday.

The low of the week was put in on Tuesday with no retrace as price has been strong to the upside.  New highs for the year were set on each of the 5 trading days for the week.

With the week being a strong up week, I should have been stalking longs.  Ideal long entries were available several times after break above the weeks open.  There were a couple trades from DVAL to the DVAH.  The first was on Monday though the width was not as wide at the time but price was moving up strong since last week.  Again on Tuesday, though it came midway through the RTH session and the DVAH target was not met until midway through the Wednesday RTH session.  From here price traded above the developing value for the rest of the week.

Counter trend: there were DVAH to DVAL trades,too.  The first started Monday evening with target hit early Tuesday morning.  Aside from this counter trend trading would have been high risk with low probability.

Also on from the weekly VWap, Friday’s RTH session gave a nice support level at the DVAH, this buy signal produced about 57 pips impulsively up.

Friday Daily Vwap Levels:

Friday (above, chart on right) the fixed value area moved up and we opened inside of value but just below the fixed VAH.  The open was also just above a thin volume area from the Thursday.  If price were to move into this thin area then the probability is high it would go further down.  The high of this thin area held as support on Friday and presented a low risk area to take buy trades, or destination trades for short trades taken earlier in the RTH session on a pullback up to the DVAH.

The day was choppy but a low risk sell and buy trade was available during the RTH session with well defined targets. During the early part of the RTH after price got accepted back into value a move back up to the DVAH gave a low risk sell signal with A target down to the fix VAH.

The move down gave a low risk buy signal after buyers were found at the high before the thin volume area as they moved price back into developing value.  Buying this VAL with stops below the days low and target to the DVAH or the days high produced a winner.  Part of the position would have been closed at the DVAH and part left for a runner to the days high with stops at break even, at the very least.

NOTE: on Friday price moved into the previous days value area but the current days volume profile shows it did not get accepted there.  This increases the odds that price will move up.

Of course this is all hindsight analysis but trade signals keep repeating themselves.  In the right context Buying fixed or developing VAL and Selling fixed or developing VAH presented winning trades.  To gain from these set ups, I must be honest with myself.  If it is low risk put the stop on and accept the small loss because as seen here the winners are available.  With the right risk to reward the winners can pay for the losers and grow my account.  In order for the winners to pay for the losing trades, I must allow trades time to develop and play out.  Part of letting trades sit and breath is getting ideal trade entry location.  This is why patience is needed on entries, as I must wait for price to come to my identified levels.  It is not easy to sit and wait for price to come to my levels but it is much more pleasant than sitting through a bad trade before it turns around.  Trade location is important and knowing them can only come from doing my post market homework, pre-market preparation, and adjustments to them made from market generated information.


Thursday & Wednesday’s Daily VWAP Levels

Thursday trading again shows price continuing to move up in USDCAD.  Long entries were available at the confluence area of fixed and developing value area lows plus near a volume profile low volume node from the previous day. This is a low risk area to take buy trade because if price cannot get back into accepted value and move up to the top side value area extremes then it will move down further and my stop will be close to the entry area.  The over night entry though required patience as price got accepted into value but slowly trickled down along the DVAL and down to the fixed VAL but from here it found buyers and went up.

Before the start of the RTH session all of this information would be available to me.  The key would be to see that price is trying to move up and any buy trades should have stops below the overnight low.  Overnight, after moving from the value area lows to the value area highs the pullback was stopped on the developing VWAP, but again patience was needed as it stalled there for several hours presenting misdirection signals.

Short trades at the highs would have been losing trades but with low risk if I was honest with myself.  Though, reading price behaviour properly would have shown that momentum was to the upside and the probability that the highs would hold is low.

Note: Thursday we opened inside of the previous days fixed and developing value, and the fixed value area was smaller in height.  We had value inside of value and often when this happens breakouts present continuation moves.

Thought: My entries do not (often will not) have to be this perfect as outlined here, in hindsight, but as these levels are put in place they are available to me as factual evidence.  If entries are early, I can use these now known levels to see that the direction is still biased to the upside and they help further determine safe stop areas.  I must remember stops levels are not there to say I am right, that I knew price would come to it.  Instead stops are to be used to limit the amount of loss. If price gets to a properly identified stop level and it’s qualified then chances are price will go beyond it and I don’t want to be holding positions against that move.

Price opened inside of the fixed daily value area on Wednesday after find strong buying during Tuesday’s RTH session. Looking at the previous days volume profile I would have seen a double acceptance area labelled point A and B. During Wednesday’s trading price found support at the low end of point B acceptance area.  After moving up above the developing value price came back to the earlier low for the day during overnight trading.  As price went below the DVAL and then back in a low risk buy trade was available–buy value area lows.  Stops would go below the days low or below the fixed VAL.  If price came down here then it would indicate sellers are in control and would move price down to Tuesday low of the day or more.  But because price opened inside of value and we had moved back into developing value the probability that price would move up to the DVAH and the fixed VAH were high. Another buy entry became available at the open of the RTH session as price had a small retrace close to the DVAL which now also saw a intraday support trendline at this level, which held.   The target was the second acceptance area from Tuesday, labelled point A.  Seeing this level also should have alerted me that this could likely be another destination for price.

Thought: Wednesday saw the Vwap and volume profile levels give excellent clues towards where price would go and ideal entry and target before it happened.  I should see the logic of what would happen if I buy the VAL and use my imagination to see that price can move from the value area lows to value area highs.


Post Market Homework after Tuesday Dec 9th close

Overnight price found resistance at 1.15000.  From the high price moved down 100 pips to about 1.14 where buyers stepped in for support.   The move down was sharp with almost no trading done inside of the days developing value once it went below it.  The move through the previous days value was quick with it slowing down a little at the previous days fixed VAL but price did not touch or enter the days developing value here.  This suggested the fixed VAL was not a support area, the slow down here possibly was short entered at the highs taking profits.  If the fixed VAL had no buyers then the next logical place would have been the fixed VAL from Monday which is also very near the beginning of the most recent up impulse leg.  This level held and from here price moved up and into the days developing value.

The Cumulative Delta (CD) continued moving down aligning with the down move of price today.

Note: The daily bar left a big bullish pin bar wick.  Priced touched the daily bar 5-ema and came very close to the daily 10-ema but did not touch it.  If price retraces down into today’s wick look for price to touch the 10-ema.a

Pre-market preparation for Tuesday Dec 9th.

The day opened above the previous days value and traded up to a new high for the year overnight where it found resistance and strong selling at 1.15000.  From the overnight high price traded down into the developing value and the 3am bar (London Open) poked down to the previous days fixed VAH.
Cumulative delta on the 30-minute chart continues to move down.  Look for the developing value area low to be significant level for the day.  If it holds as resistance price will keep moving down.  If price gets accepted into the developing value look for a move up.
The 7am bar has moved into the previous days value area and closed there pretty strong, the fixed VAL is in play.

Post Market Homework for Monday Dec 9th

The daily bar closed up for a 3rd consecutive day and put in a new high for the year at 1.14860.
Below is a 30-minute chart with the daily VWAP and it’s levels.  Price opened slightly above Friday value area and traded above it almost all day except for a few pokes just under Friday’s VAH.  The next bar after each poke into Friday’s value area came back into the days developing value.  Eventually buyers moved price up above the developing value area where we saw initiative buying.  The pullback was to the DVAH and the day closed near the days high.  The day’s profile shows acceptance above the value areas.

The path of least resistance today was up.  Buying the developing VAL and the previous days VAH would have produced winning trades. From 6:30am to 9:00am price was in a balanced bracket of about 18 pips but eventually broke to the upside and one time framed up to the high of the day.  The pullback from the high came right to the developing Vwap which held nicely.

The overnight was set at 3am but once that was taken out it became support later in the day.

Of note price was moving up but the Cumulative Delta was moving down.  This divergence was very evident and I don’t know how to interpret it.  We’re nearing the psychological round number of 1.1500

Monthly & Weekly Bars as of Dec 8th

The monthly USDCAD bars have been one-time framing up since July 2014.  At present, price is at the years high and broke last month high of about 1.14660.  The big psychological level of 1.15 is in sight.  The months low was put in on the first trading day of the month at 1.13144 and at present we are trading about the months open of 1.14290

The Weekly bars show a strong bullish move up as the 5 and 10 EMA lines are pointing up and have not touched each other since they crossed up back in July.  So far this week, price has been trading above the 5 EMA and has not touched it, yet.  On this chart a significant support area is 1.12706 the high from March 2014. The weekly 5 and 10 EMA levels should also present support with the 5 EMA a potential target for any short trades.

The daily bar chart show price moving up sharply over the last 3 trading days including today.  For most of November price was in a down channel but closed out the month up breaking the down resistance trend line.  Price looks like it is developing a new balance area.  The 5,10, and 21 EMA lines are all aligned up with the 5 and 10 serving as support each time they have been touched since the down channel break.

At the close of today’s trading day, I must update again with Value Area levels for intraday trading to prepare me for tomorrow and the remainder of the week.  Done after close of Monday, posted above.

 

Developing A Trading Plan – Part 2

Time periods and tools used: VWAP / Volume Profile

In part 1, I talked about the importance of doing post market analysis.  Through this homework, I can see factually how market logic played out using my tools. I also talked about doing pre-market preparation.  Pre-market prep is important because this is where I must use what happened (homework) to develop a plan of where the key reference levels are and plan what to do there; buy, sell or monitor for more insight, or look for follow through.

My post market homework and pre-market preparation I must consistently use the following tools:

  • Vwap with it’s standard deviation levels.  These levels produce the value area highs and lows.  There are 6 key levels:
    developing Vwap / VAH / VAL, and the fixed Vwap / VAH / VAL.

    • With in the VWAP levels I must be mindful whether price is inside or outside of value for both the developing and fixed value areas.
  • Volume profile with strong attention to the VPOC, the extremes, low and high volume areas.

*I will focus on using the VWAP and Profile tools on the day and week time frames.

  • The previous days and weeks high, lows, and open.
  • Fib retracement and extension levels for the previous day, week, and impulse legs with in these periods.

At times, I will look at the Cumulative Delta and use trend lines to help further read, interpret, and understand what is happening on the charts.  Though the drawing of trend lines should be done during post market home work and pre market preparation so that these levels are already available during trading hours.

Included equally in my analysis is the daily candlestick bars and the activity on this chart.  Here I will use the 5,10, and 21 EMA lines.  I will identify bracket balanced areas.  This chart will be the starting point for everything I do.

In addition, I must be aware of the activity higher time frame charts like the weekly and monthly bars.  On these charts I will also look at VWAP and Profiles but must understand that I am not trading on these levels.  They are only to be used as guides to see the whole market and bigger picture.  They can also be used to evaluate the boundary limits of moves starting intraday.

Developing A Trading Plan – Part 1

Trading Preparation:

What I should be looking for & looking at

Part 1  | Part 2

Trading is not easy, it requires a lot of focused dedication.  It is easy to spend a lot of time looking at charts without gaining any useful information, at least for me it is.  I need to use my time more efficiently.

I must do my post market homework in an efficient formatted way, otherwise I am wasting time not making use of information on the charts and tools used.

I must have a system for pre-market analysis otherwise executing trades during the live market is just guessing and hoping to be right, or worse gambling without regard to un-calculated risk exposure.

I need to develop a better routine to post market review and pre-market preparation.  Just looking at the charts, marking it up with levels and reference points is not enough.  I need to have a consistent method and reason for choosing levels and selecting key reference points.  If I cannot explain why I select these areas and their relevance then I am just wasting time.  Moreover, explaining what happened alone without hypothesizing how it will affect future activity adds no value to me finding and executing trades.

The purpose of me trading and doing all of this is to grow my account and earn an income.  I must become more structured.  I can only achieve this through better more efficient post market homework and pre-market preparation.

First: Post market homework

After the market has closed all accessible information is known, this should be the easy part.  Here I am explaining what happened and why it happened.  It’s hindsight analysis but important for me to understand the context of the day.  For example, why did sellers sell the high and buyers buy the low based off the tolls I use.  The below chart discusses the logic of what happened in hindsight.

 

 

In the above chart, I purposely leave out the price and symbol.  It does not matter what it is, price behaves and gets the same reaction.

Part 2

What did not happen is insightful, too

In Forex trading, when studying price action:

It’s not only about what happened, what did not happen is insightful, too

When I look at the charts it is easy to only focus on what happened, but often there is invaluable insights in what did not happen.

Only focusing on what happened may limit my ability to really read what is happening.  Here is a quick video that may assist in illustrating my point.  Then below is some chart examples.

Here are some price examples from the chart of what happens when I can identify where price does not go.

Understanding the relationship between where price does go and does NOT go will help in placing stops and limits.  Trading levels instead of individual bars and time periods will also make me a more patient trader allowing to filter out the noise.

Where to draw Horizontal Lines and why? Part 3

Using reaction at price levels to determine price direction.

Support and Resistance Trading.  Part 3.  

Part 1 of this case study showed how I choose support and resistance price levels using red horizontal lines.  Part 2 of the case study I discussed how I can use the levels to determine trading direction, where to enter, place limits and stops.  Here in part 3, I will continue to discuss the clues provided by price action for USDCAD during Q1 2013.

Once price chooses a direction, I must remain focused and watch closely for clues suggesting the move will continue, stop and or reverse.  Stop and or stalling, at a level, in itself, is not enough to suggest the move is over.  The clues of continuation or reversals come from price behaviour at structure levels: making or failing to make new HH or LL, putting in new HL or LH.  All of this helps to define the trend direction and it’s strengths.  In addition, I like to use Fibonacci retracement and extension levels. 

Note: 1.00000 is a psychological big number, it can be expected to see natural resistance around it.  So too is 1.01000 but to a lesser extent.  Careful with trading at these levels and be wary of false breaks though once a side is chosen the moves can be significant.

The chart below brings in my use of Fibonacci retracement levels when they align with horizontal lines. 

The second chart brings in EMA lines, I like to look at the charts in this order.  First identify levels, then bring in Fibonacci levels and then EMA lines. 

 

Where to draw Horizontal Lines and why? Part 2

Identifying Support and Resistance Levels.

Case Study: USDCAD 2013 Q1.

PART 2.

How I draw, qualify and use horizontal lines.  USDCAD Case Study Jan 2013, Q1.

To begin, I will identify the key horizontal lines from October – December 2012, Q4.  Then use these to read and understand why price moved as it did during January to March 2013.  Here, I am using quarterly segments as forex trading requires patience in regards to time.

  • The first chart identifies 4 lines: the periods high, low, and it’s structure high and low.
  • Chart 1 summary:
    • High 1.00582  Low .97364.
    • Early in the quarter structure high (SH) resistance is about .98800 which then becomes the structure low (SL) support in early November.
      • This suggest below the line sellers are stronger than buyers and therefore affect price more.  When price level .98800 is broken, to the upside, it suggest sellers no longer find this price level attractive and sell less, if at all.
      • After price broke above .98800 it suggest buyers are outnumbering sellers.
      • After trading above .98800 price then came back down to  it, again.  It would be highly probable to expect buyers to outnumbered sellers here and price should move back up.  That is exactly what happened and a new HH was set in Middle of November.
    • Later in the quarter, early December, the SL at .98800 is broken, as price came back to it, buyers were not liking this price level and therefore price continued further down establishing a new structure low at about .98200

I will now use these identified levels from chart 1 to read and interpret Q1 2013, chart 2.

  • Chart 2 has two red horizontal red lines which were the highs and lows as identified on chart 1.  Now, in this case, I need to read price action to see how Q4 high was reached instead of the Q4 low.
  • The end of December had put in a new structure low at .98200 and this level held throughout January as price moved sideways early on.  If price was going to the Q4’s low of .97364 then it would need to break the structure low if .98200, this did not happen as price broke out of the sideways box, up.
  • The green box labelled Rotation Bullish; when I see a price pattern like this, I view it as possibly market movers switching sides.  In this case switching from sellers to buyers.  They are buying USDCAD.
  • The early part of January gave clues suggesting price may move up towards the Q4 high.  First, the structure low at .98200 held.  Second, a bullish price rotation pattern emerged, and price moved up outside of it.
  • If price does not move towards the next key support level then chances are it will move to the opposite next key resistance level.

All of the above tells me sellers are selling less and less at these price levels.  When sellers are selling less it means price will move higher.  Or, I can say: buyers are buying more and more, and as their demand to buy more grows price will move up.

Either way the behaviour of price is suggesting taking long position should have a higher probability of being right than taking short positions.

  • Taking a long trade once price moved out of identified bullish rotation box, in this case, paid nicely.  Though price stalled a little above the rotation box it did not show any signs of reversing down.
    • Possible signs of reversing down would be price moving back into the box.  Or breaking below and closing below the impulse bar that moved price out of the box.
  • From the slow down above the green breakout box, price then moved up and through SH quickly hitting limit 1 target.
  • The closes above the structure high (SH) formed a bullish flag pattern further suggesting the Q4 high is in play and reachable.  Once price took off up, again, it quickly reached Q4 high hitting limit target 2.  There was nothing in price action suggesting sellers had any fight or interest in slowing down the buyers.
  • Above the Q4 high additional highs were not made suggesting sellers liked this price and started selling preventing price from moving further up,  and or buyers were unloading their longs, and or fewer new long contracts were being added at this level.
  • As price moves down from this level, I need to look for clues to answer is price reversing the long-term trend or is the current up trend just pulling back?
    • From this new high, above the Q4 high, price retraced down to the previous structure high (SH), around .99700 finding support.  Once a bottom was found and price resumed up it can be safe to say a new higher low (hl) has been put in and price is not reversing but just pulling back.
  • Once the steam of the bulls ran out and sellers entered the market a double top was set in early March and priced moved down from there finishing out Q1 2013.  This will be where I pick up for Part 3.

Conclusion

I can use previous significant, in this case the quarterly, highs and lows to identify support and resistance levels to gain insights for future price action.  At these price points, I can draw horizontal lines then wait for when price reaches them again.  If price does not move to one and then aligns to move to the opposite level then, I can look for trades in that direction to that level. Once the level is reached, I should continue to read the price clues, left behind by buyers and sellers, to see where price may go next.

I can further draw in and use structure highs and lows to gain insight to which level price may move to and how to evaluate it once it gets there.  The key is to read and see who is winning the battle, buyers or sellers.  If buyers are winning then price will move to resistance levels.  Once it reaches the level another battle will occur between buyers and sellers.  If at resistance levels buyers are winning the battle then price will break that resistance level and move further up.  Often when a significant high or low is broken price may come back and test it. These are ideal areas to join the longer term trend but entry signals must provide high probability with low risk.

Where to draw Horizontal Lines and why? Part 1

The Art of drawing horizontal lines and how to evaluate their strength. 

Identifying Support and Resistance Levels.

This case study is to assist me in better choosing where to place horizontal lines and how to evaluate their usefulness.  I will select obvious highs and lows from recent price action to draw horizontal lines, for this I will use red lines.  I will determine these horizontal lines from past price action but their usefulness is in the future.  Well chosen price levels to draw horizontal lines can serve as boundaries to where price may move to and or reverse from, in the future.  In between these obvious support and resistance levels will be other valid points to draw horizontal lines,  I call these levels structure high or low, and will use blue lines to highlight them.

This case study will only identify horizontal lines and look to see when they come into play again.  I will focus on the battle between buyers and sellers before price return to a line, again.  Once price returns to an earlier identified level, I must continue to read the battle between buyers and sellers at the lines.  This is a significant battle to understand and to know who is winning, as it will give valuable insights towards whether the line will hold or be broken through.  If sentiments are correctly read based on price action at these levels it can help prevent taking low probability bad trades in the wrong direction.  Reaction at these key significant levels can be excellent guides towards the medium to long-term trend direction and strength.

Clues towards who is winning the battle, at key price levels, identified by horizontal lines, may come from structure levels and or when higher lows (HL) and or lower highs (LH) are set.  When higher lows are being made it suggest buyers are greater than sellers and in control of the overall up trend.  When lower highs are being made it suggest sellers are greater than buyers, at the key levels, and will move price down.

Using my combination of support / resistance levels with structure highs and lows has help me avoid a lot of bad trades with low probability of success.  Understanding it more and combining it with a few other price action tools should help me identify higher probability trade set ups, and then entries with protective stops and realistic limits.

Here is the EURUSD daily chart with key significant highs and lows identified by red horizontal lines and in between structure highs and lows with blue lines.  Below the picture is a definition of how I may use these lines.

  • A support horizontal line is drawn at the lowest low for a chosen time period.  The support level will hold if buyers like this price more than sellers and enter the market taking long positions.  The absence of sellers at this level will move price higher until sellers see a level they like and enter the market.  How do I know, from price action, that buyers are greater than sellers?
    • Knowing that a level has held is not an immediate result.  When price approaches and reach a support level, depending on the time line being used, the first challenge would be to wait for the bar to close, this is where patience and focus is greatly needed.  Once the bar closes, I need to look where it closed.  If price moved and closes below the support level, then this may suggest the level is broken.  This would happen if buyers did not come in and buy at the support level or if they were outnumbered by sellers.  More clues are need to assist in correctly evaluating.  For example, after closing below support, if price moves back up and puts in a new lower high then moving back down to the support level this may suggest the level is broken and price should move further down.
    • If price bounce off the support line and move higher up breaking structure highs and lower-highs then it suggest the level held.  Setting higher lows above the support level is another clue support has held.  Further, indicator tools should become aligned bullish.  If these fail to happen then the support level may become weak and price may break through it when reached again.
  • A resistance horizontal line is drawn at the highest high for a chosen time period.  As price approaches and reaches the resistance level, it will hold when sellers are selling more than buyers are willing to buy, here.  If more people are selling than buying at a resistance level then it should hold and price move down (of course, if this does not happen then buyers are stronger and price moves up, sometimes it is not what happened but what did not happen that can help read price action).
    The further down price moves without significant rallies up shows the strength of sellers over buyers.  If price cannot break and close above the resistance level and then proceed down breaking structure support levels with rallies only producing lower highs, this all suggest sellers are in control and price is likely to move further down.  When this is happening all indicators should read bearish.  If at any time this is no longer true then it may suggest sellers are losing control and buyers may be coming into the market in greater numbers.  This is why patience, focus, and discipline is needed to win at forex; when all three of these are being used it can help to prevent bad wrong trades with low probability.

In Part 2, I will review and discuss the above as it played out in USDCAD Q1, 2013.  I believe this simple tool of drawing horizontal lines and then reading price reaction at them can be used on any trading instrument and on any time frame.  Though, dentifying these levels, especially on higher time frame charts (4-hr to weekly) will aid in analyzing the reliability and limits of price action tools and indicators on lower time frames, 1-hour to 15-minute charts.

I went LONG NZDUSD

My most thought out and complete trade, ever!

Final update and thoughts post trade.

1st position hit limit for 159.9 pips gained.  Newly added (4th position) hit limit and closed for 61.6 pip gain.  Original position 2 and 3 hit trailing stop and closed for 140.2 pips each.

My most thought out and complete trade ever, and still I did not remain in the trade until targets reached.  I over managed and was to aggressive with the stops.  The final two open positions closed after hitting aggressive trailing stop on “shake out” day.  Had trailing stop been better placed, targets would have been achieved as price move up sharply after “shake out,” right up to 0.81015

Though price had put in a double top and moved down to the 21 ema sharply, I could have been more patient as this alone was not a signal that price was reversing trend from up to down.  I have a lot of tools I could have used to help determine if this was a reversal or pull back.  In hind sight, almost all of my tools showed it did not signal a reversal though live the signals were and remained bullish.

The aggressive trailing stop was poorly placed as it was both above the 4-hour 21 ema, and at a previous resistance area that was coming back to be tested as a, now, support level.  This is not an ideal area to sell especially in a bullish trend and impulse legs.  The resistance turn support held and price quickly propelled up to targets.

I have to let my winners run and be more patient.  Had I read the charts with a little more focus and patience, A long trade should not have stops above the 21 ema, and at a recent broken resistance level.  It would have been better placed below the immediate impulse leg which began at the opening of the week.   I was concerned with locking gains and lost sight of the trade set up and it’s that it’s potential was still in place–price action was bullish not bearish.  I had little to fear except greed.

The fear and greed cost me, since closing this trade, prematurely, I have missed out on a few excellent trade set ups for NZDUSD.  This is just another example of losing even when I close for a gain.  I lost my focus, edge and confidence as my emotions were focused on missing out hitting identified targets.  This distracted me from seeing and feeling the rhythm of price and I became unsure.  I need to trade with more focus, patience and never stop reading the charts while keeping my emotions out of the process.

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Update Monday July 22nd, added a new Long Position

Update of open Long trades in NZDUSD.  Added a new long position and adjusted targets.

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The Entry on July 12th.  Writing blog July 19th. 

I have been studying price action of NZDUSD, almost exclusively the past month or so.  Here is the NZDUSD Case Study.

From the rotation, price moved up sharply breaking structure resistance to the upside.  I thought, if price moves back down to the previous resistance it should now hold as support and I should take a long entry.  Priced moved down and closed below the 21 EMA but also put in an immediate short term double bottom and price remained above the lower lows.

Seeing all of this, I took three long positions.  It was not the best entry at price kept moving against me, but stops were not hit.  Stops were big as they were below the established lower low below .77000 and limits were big too.

Partial target taken at double top of the recent highs from July 11th.  The next target is at a previous LH, from June 19th, which is below .81000 and also near the .382 level of the impulse leg retrace.  Extended target is further above, at the high of June 14th, and just above .81000, but may get adjusted if target two is achieved.

Partial Target hit and remaining position are positive and risk free.  Two positions remain open.

At the time of writing, Friday evening, 1 position hit limit and closed with two positions still open and stops at positive levels.  The daily chart is looking bullish and the 4-hour chart has run into some resistance. This is expected resistance and why position partially closed here.

Next Wednesday July 24th, 5pm EST, NZD official cash rate announcement followed by statement.

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The Overview

NZDUSD fell sharply from about .85800 down to .76800 creating a down impulse leg.  But, I started following it from .81300 down to the low of about .76800 which was hit on June 24th.  From here July NFP numbers, and FOMC minutes were on the horizon.

Before the release of the NFP numbers, I was studying which way price may move and noticed a pattern I have seen many times before.  I call it “rotation.”  Rotation is market moves switching sides, in this case unloading shorts and picking longs.

I was initially looking, even expecting, price to retrace up to the .382 level before NFP and FOMC releases.  That did not happen as price moved side ways, in a range between  of about .77000 to .78200, for about 11 or 12 trading days.  As price unfolded in this range, I thought a direction would be given with the release of both NFP and the FOMC minutes.  Either price would continue it’s way down establishing new lower lows or begin it’s retrace to .382 or higher of the big down impulse leg.

Here is a chart daily chart highlighting the identified points.  With the release of both NFP and FOMC price did move sharply down, from where it was, but it did not produce a new LL below the June 24th low.  This led me to believe that a bottom was already found at about .77000

I should start to look for long trades up to the .382 level.  If price won’t break a support or resistance level then it is likely to go in the opposite direction.  In this case, it found support at .77000 and could not break it.