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.


Update Monday July 22nd, added a new Long Position

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


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.


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.

1-hour Breakout strategy on News release

NZDUSD 1-hour break out strategy on NFP news release

Here is another example of a highly reliable strategy to further train my reticular activating system (RAS).  Though, the specific example here is on NZDUSD 1-hour it can apply to any currency pair on any time line.  I like it on the 15-minute and 1-hour charts.   The same set up on the 15-minute timeline is shown in the second chart.

Training my RAS to look for these will improve my odds of recognizing and acting on it live and improving my chart time analysis.

  • This set up took a several days to develop and the key was knowing when major news is being announced.  In this case, the US Non Farm Payroll (NFP).
  • The first step is identifying extreme highs and lows and watching how price behaves at them.
    • There are two highs identified by the red horizontal lines at 0.78577 and 0.78293
    • There are two lows marked by the red horizontal lines at 0.77093 and 0.76821
  • The next step is to identify the most recent HH and see that a new one  is made above 0.78577
  • The Thursday before NFP released price moved up sharply, right to the 0.78577 level.  The 9am and 10am EST 1-hour bars were impulsively up but did not break the resistance red line.
  • Over the next 14-17 hours price slowly pulled back to an earlier resistance level that was taken out by the 9 and 10am EST bar.
  • A price shelf is formed on the small horizontal support blue line labelled 3.
  • This is where the reliability of this set up increases.  From the blue line price moves up trades and closes above the 0.78293 level.  Now, the NFP news release could have easily carried price further up breaking the 0.78577 level.  In that event I would have written and said price moved up sharply pulled back close to the .382 level and then continued up another leg.
  • But, when price does not do that and instead breaks down below blue line 3, after the news release, it says that “No'” price will go down and likely to the next support level.  This is what it did.
  • In addition to breaking blue line 3 price also broke trend lines 1 and 2.  Again, if price was going to move further up after the news release there should not be any reason for it to be below these lines, including the 21 ema.  As I can see since Wednesday price has been moving up with the 21 ema and the trend lines as moving support.
  • Often with misdirection like this the bar before the breakout is the opposite colour.  This was again true in this case, the big impulse bar down is preceded by an up bar.  I call this “misdirection before and impulse bar.”  It can only be confirmed as such after the IB is closed.
  • Note: as priced drops on IB and then further on the next two 1-hour bars there is no price action indication to take a counter trade.  There is an excellent example of when to take a long trade here after the break of the pennant up and above the 21, but that is for another article.
  • The entry could have been on the break of any of lines 1, 2 and or 3.  Stop goes above the redline of 0.78577 and limits first target at 0.7735.  with a double bottom adjusted target given the sharp move down with no sign of a pull back.  It was an ideal impulse drop to a significant support.

NZDUSD Case Study

Price Action Case Study: NZDUSD

June 25th, 2013

The key to synthesizing all of the clues given by price action, from the various time interval charts, is not to focus on the live bar or the recent bars, but to look at what did and did not happen. When all of it is taken into consideration then the fractal harmony between time lines begins to present itself.

In hindsight, I can look at a chart and give a detailed explanation of why and where to take an entry, where to exit, and when not to do something.  With in the explanation, I can give understandable reason to take entries, set limits, where to place stops and how to adjust them accordingly.  The goal is to anticipate these explanations live and execute them as real-time trades.

The difficulty of hindsight analysis is translating the actual time into “real-time.”  When I look at a chart in hindsight and explain what happened, I can do it in a short time, but live is much longer.  Every 1-hour bar has four 15-minute bars, every 4-hour bars has four 1-hour bars and sixteen 15-minute bars.  This takes time to unfold.

It’s easy to say wait until the bar closes but that takes time and patience.  It further takes focus to see if the set up or pattern or trend direction is still valid at the close of the bar.

The purpose of this case study is to learn to read price action and become more aware of why price moves in the big picture.  I am hoping it will serve to help me see and understand the rhythm and purpose of price levels and who is effecting price more, buyers or sellers.

One of the goals is to help develop and train my reticular activating system (RAS).  If I can train my RAS, I can become more efficient at looking at the charts.  I need a systematic approach in defining what to look for and then determining what to do.  I need to learn to identify and see repeatable reliable price behaviour and when they presents themselves.  A well-trained RAS looking for high probability low risk opportunity will improve my understanding of when to trade and how to manage it.

Trading systematically is reading what has happened then being able to anticipate what may happen next.  Anticipating what happens next may be done through “if then, do this” statements.  Given that this has happened then price may go there and when it gets there expect a result.  The expected result is taking a trade in that direction.

Charts taken Wednesday June 26th:

Explaining the chart images:

Chart 1 is the plain 15-minute chart for NZDUSD.  Included is the 21 EMA and the grey shaded area is 1 full day of trading showing the previous days high and low.  Inside the grey shaded area the horizontal line shows the daily opening price level.

Chart 2 shows how I mark up the chart to read what has and has not happened and what it may mean.  Insightful clues can be gained from knowing what has happened and how it happened.  Reading single events in isolation is not enough to see what is happening.  Each event is a piece of a puzzle, forming a pattern, and they must all be read together for potential clarity in price direction.

I will review what has happened going from left to right:

  • At the extreme left, a channel is formed.  While the channel was live there were very little to suggest which way price would break.  In this case, price broke to the downside closing both below and the channel and the 21 ema.  This leg down also closed below structure indicated by the blue line (BSD, break structure down).
  • From the channel break, I could conclude the bears are in control and therefore look for short trade entries.
  • After trading and closing below the recent structure level it rallied back up to the 21 ema leaving a bearish pin bar right on the 21 ema line.
  • Bringing in all of this together presented a high probability low risk short trading opportunity.  That is, price broke down outside of the channel, close below structure low and all below the 21 ema.  This suggest that sellers are stronger than buyers and price needs to drop further down before buyers become interested in buying.  It’s low risk as stops would go above the channel high but early clues to exit and adjust would be if and when price broke above and closed above the identified pin bar on the 21 ema line.
  • Off this initial entry price drops sharply 30 pips before rallying back up to the 21 ema, again.
  • At the second rally to the 21 ema price touches the line 3 times without going to far above it or even closing above it before dropping 50 + pips.
  • The termination of this down moves ends at a perfect Fibonacci 1.618 extension drawn from bear pin bar down to the bottom of the 30 pip drop and back up to the pin bar high.  The termination point also leaves a bullish pin bar but this is not the defining signal that the down move is over as price is still below the 21 ema and in a down channel.
  • Insightful clues that the down leg is over starts to present itself when price bounces off the 21 ema but cannot produce a new LL.
  • After the higher low is put in price rallies quickly with a small size impulse bar (IB) and closes above the 21 ema.  It then drops down but failing to close below the small IB and produce a new HL.  Still there is not a clue to take a long entry.
  • The signal for a long entry does not come until after the big impulse bar that moves price all the way up above the earlier channel starting off these swings, the drawn in upper red horizontal line at 0.77826.
  • An aggressive entry could have been after seeing a close above the 21 ema or on the big IB bar as it starts to move up into an area it should not be if sellers were still in control.
  • A safe systematic entry could be seeing the big IB move, drawing in fib retracement and then waiting for price to show bullish tendencies at either the .382 or .618 levels.
  • In this case the bullish buy signal came at the .618 level.  It is a little tricky to see but this is where patience, focus, discipline, belief, and confidence is important.  At the .618 level price break below the 21 ema but cannot produce a new LL or get down below the IB bar.  When it break back above the 21 ema it suggest that the retrace is over and will continue back up.  Stops would go below the cluster at the .618 level or below the IB bar.  Target would be back up for a double top where the strong resistance boundary is.  Trade to boundaries!
  • The second half of the chart shows very similar pattern as the first, like a pattern repeating itself-fractal!
  • Quickly: from the resistance boundary price retrace and puts in a structure low moving up but failing to break the previous high leaving a LH.
    • From the LH price moves down and breaks the recent structure put in place and closing below the 21 ema.  Price then rallies back to the 21 ema which is aligned with structure.  It then drops 40 pips down putting in a HL failing to establish a new LL.
    • From the HL it moves up breaking and closing above the 21 ema then moving back up to the resistance boundary high.
    • This time price closes above the HH but on the 15 minute chart.  A fractal pattern may be presenting it self between the 15-minute and the 1-hour charts.  After setting this HH and breaking structure up price sharply drops down to the previous higher low (HL).
    • Again, do not trade at boundaries until they have been clearly been broken and in sync on a couple of time lines.

Chart 3.  Combing the 15-minute chart with the 1-hour chart begins to show fractal harmony and boundaries of moves.

  • Displays the same price action from the 15-minute chart but in 1-hour candlestick format.
  • The important key here is to see the down channel suggesting a down trend is in play and remains in play.
  • The second key is to see the range trading developing, possible trades at boundaries.  Long trades at the bottom of the box and short trades at the top.
  • No trend reversal, to the upside, until price breaks above and out of the box.