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.
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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.

 

Top-Down Look at USDCAD, July 2014

USDCAD Monthly Candlestick Chart

Below, the chart on the left is a monthly chart, it requires a lot of patience.  I won’t be taking position from this chart, but it can help to determine major support, resistance, and trend direction along with targets.

Using a monthly chart requires a lot of patience, it takes time to realize a pattern or set up and waiting for it to be confirmed.  A bar is not complete until a month is over.

The horizontal support and resistance line marked by the orange dash line are valid until the closest line to price is taken out.  These levels serve as boundaries of where to trade to and where to trade from.

USDCAD Weekly Candlestick Chart

Above, the chart on the right is a weekly chart.  It’s current trend indicate up.  It has recently taken out a resistance level at 1.06484 with price returning to it.  It should hold as support now, would have been a good place to look for Long trades on lower time line, like the daily chart.

If the up trend holds and continues the next levels of resistance might be just below 1.13 and then 1.17

If the up trend cannot hold then look for support around 1.05, 1.03 and then down to even at par.

It takes 5 days to create a weekly candlestick so time is needed to see the formation and confirmation of a pattern.  Great care and patience is needed.

I can use the monthly and weekly chart to identify strong reliable support and resistance levels.  These levels can be used as targets to exit trades and target for entering trades.  The timing can be assisted through the lower time line charts like the daily, 4-hour, and 1-hour charts.

Upcoming Fundamental report

On July 18th Core CPI m/m will be released.

Recent Fundamental News

July 16th Bank of Canada, as expected, left rate unchanged at 1.0%.  The last rate change was an increase from0.75% to the current 1.0% in September 2010.

USD FOMC Fund rate was left unchanged June 18th.  The last time the Fed rate was changed December 2008.

USD NFP report last release July 3rd, with the release alternating between above and below forecasted number.

 

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.

How not to trade, importance of well placed stops

This morning after watching a news release I took a short trade on USDCAD.  The trade was up about 22 pips with in 15-minutes, but ended up closing for a 9.1 pip loss.  Two things, first, I traded the news and second, poorly adjusted my stop.  After being up 22 pips my stop should have either remained above the daily high where it started or to break even, no in between.  Moving it to break even would have made it a risk free trade.  I did neither, instead made a bad decision with the stop at a 9 pip loss.

By choosing a 9 pip stop instead of break even or leaving it above the daily high; I was undecided between it being a trade or a scalp.  And, I over managed the whole thing.  If it’s a trade then leave the stop above the daily high, if a scalp then move to break even.  Waffling between the two turned a winning trade unnecessarily into a losing one.

USDCAD, Wrong Stop.  Trade technical price action NOT the news
USDCAD, Wrong Stop. Trade technical price action NOT the news

To make matters worse, I stopped thinking and over traded!  After the short closed for a loss I took a poorly thought out long position.  It was poorly thought out as I saw price rally up but it did NOT make a new higher high.  Instead it rallied into a former support level turn resistance.  Since it did not make new highs, I should have been more patient, waiting for a deeper retrace.

I took the long trade at another resistance level which got broken during the rally.  I was thinking this was price coming back to test the resistance as now support but, I should have seen that the rally only produced a new lower high NOT a new higher high.  This means that a long signal was not in place at this level.

The news release moved price but in an undecided way.  The moves were in both directions to support and resistance levels.  The Resistance level was at a .618 retracement and the support was also at a .618 retracement.  Trading either .618 resistance / support levels would have produced quickly in excess of 30 pips, in both direction.

Lessons:

  • When trading I must understand the difference between scalping and trading.  If scalping, I cannot allow a winning scalp to turn into a losing trade.
  • A scalp which is winning should either hit targets, close for positive gain or close for break even, but cannot close for a loss.
  • When scalping, I must define stops and limits in advance and even more so after entry and then even more so if it starts to be in the money.
  • Stops and limits are not only determined by price level but time can also be a factor, especially when it comes to stops.  For example, after identifying stop area(s) sometimes it may be best to use them only after a certain time has elapsed.
  • Never stop analyzing levels, do not get blinded by price.  Look for rallies or declines, do they create new higher highs or higher lows / lower lows or higher lows.  This may help determine trend reversal or trend continuation.
  • Do not over trade!
  • Do not over manage a trade! (If it is a trade)
  • Always identify whether it is a scalp or trade and set limits, stops and trade management accordingly.
  • Do not trade 15 minute charts.

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Another example: News moves price sharply but to a Resistance level and can’t break it.

Rally from News to Resistance level
Another example of price moving on news but, in this case, to a Resistance level.

The above chart shows another example of news moving price sharply to a reference (resistance) level.

How to trade this?

  • The 9pm bar would have been hard to trade live, it would be best to wait for it to close then analyze close relative to levels.  After it closed as a big up bar the simple instinct might be to wait for a retrace back down and enter long.  Is this right?
  • Upon close inspection I can see the rally during the previous day created a new short-term impulse leg up.  The low of the 9pm EST bar was just shy of retracing to that .618 level.
  • The move up from the .618 (point cc) broke above and closed above point bb.  However, it did not close above the earlier high (point xx) that produced the last leg down.
  • Yes, bb was broken but the nearby xx did not.  xx is a critical point as that was the highest high that produced the most recent down leg establishing the lowest low.
  • Price then remained in this resistance region for about 6 or 7 hours without breaking through or  closing above xx.  This suggest that the resistance level may hold and price continue back down in the overall down trend direction–presenting a high probability low risk trade.
  • Price could have continued up and break point xx and stop the resistance short trade out but depending on entry it would not have been more than a 30 pip loss.
  • If price cannot break a resistance then it will likely go the other way to the next support level which, in this case is over 90 pips away.  This gives a better than 3:1 ratio again, presenting a nice high probability low risk trade.
  • There are several entries, but no entry should be before point dd is set–that is the 1am EST 1-hour bar.  This is the first indication that sellers are greater than buyers.  The 1am bar went out of the resistance region but closed down.  After this bar closes any short entry in the resistance blue box would be ideal giving a very low stop-loss with a good payout.  It is important to see some selling come back into the market like it did after the 1am EST bar as price could have rallied up higher to the qualified Fib extension point sitting above which is also in another resistance zone.

NOTE:

It is important to see that this could have been a losing trade but it would have been low risk.  There was about 9 hours of price action between the 9pm EST news rally and the ideal entry going short from a resistance zone.