Hope you all have a great Christmas and a relaxing time to recharge before the daily routine kicks in again.
More charts to come over the next few days and excuse any typo's, I have the feeling some posts may be sponsored by B&W (Brandy and Whiskey).
Doc
Thursday 25 December 2014
Sunday 21 December 2014
Pro money actions
This is a tough post to put words to. Pro money activity is not a single candle or formation that happens, it is a combination of time, price, reaction to their efforts and how easy or difficult it is for them to slow and finally turn a trend or range in progress. It is expensive for pro money to do this work and it has to be done in places where it will the best opportunity to work and not have to do it again at a later time. Too much effort with little result means a range is likely to form and then its a game of who has the deepest pockets. Ranges are very expensive to break and he who has the most cash wins. This is why I tell you to wait for a break and test of the break to see will it hold. Let the pro's do their thing and be happy in that you can see what has happened and can react accordingly.
Here are a few charts of the Eur/Usd and a break down of one approach used by pro money. There is little point in learning the pattern or naming anything other than the most basic parts there are in this, because all it will achieve is you filling your brain with useless words and terms and not concentrating on how price looks. Once you have at least one good eye, all you need to do is watch price form and close. I say form, because you want to see where the action took place as a candle formed, this can be useful intel especially around price areas of interest to pro money.
There will be plenty emotional tugs in your mind as to why you must trade in the direction of the candles because they just look so good and strong and are moving with great progress. This is nothing more than a sucker punch and you are falling into their trap. It is very hard to show anyone why not consider going opposite to the main move when it is so obvious to them that thats not where price is going. Breaking these emotional ties will be difficult and takes a long time. If something looks too good to be true, and even if you are in this money making move, you will have so much confidence that nobody can talk you out of taking profit or closing the position completely in readiness for the turn.
If I had a penny for each time someone wanted just 10 more points, or I know it will turn around now, or it looks weak/strong etc, I could give up work and retire. Be ruthless with your entry, stop and target because without knowing all three before you enter the market, you are on the poor man's slide to becoming broke and throwing money away. All three functions must be plotted either on the chart or in your mind before you enter and DO NOT change them. You must know what is the most money I am prepared to loose before I take a new trade. This is basic money management and it must be a realistic figure. Wealth is not created in a few trades, but over a longer period of time where smaller bites are taken out of the market and not look for big moves. Take small profits all the time and take small losses a lesser amount of time. Then your account grows and given enough experience and confidence you can then slowly places slightly higher value trades in the market, this gets extra profits for the same point risk and target as you will have always done. But dont jump into increasing trade size until such time as your account can take it.
I could write volumes on taking care of your capital, but let the most basic things be your guide, protect your capital and it allows you come back to trade again tomorrow. But loose it and you can no longer trade.
Moving on to some charts.
4hr chart of the Euro and I have drawn in a box on top showing historic supply. We know sellers were active here in the past and that the area has been untouch for a long time relative to this time frame. We know any new entry into this price area is likely to see some sellers come back in and we watch for signs of the bullish move showing signs of weakness.
The big sign in this chart is the single long bullish candle with a spike on top. This is printed as a bullish candle, but is in reality bearish. We this from the reaction to it in the next closed candle. If such a powerful bullish candle resulted in the next candle being strongly bearish, then how can the up move continue. Could it be the orders up in the box be some over whelming that the buying was really an attempt by pro money to show the retail trader that the price is really heading for the moon and its been like this for the past half days trading session and you are missing out unless you go long right now!
Sure, its the ulitmate sucker punch that happens on all financial instruments and on all time frames. But they happen much nicer on the 4hr and daily. Which is why I take most of my trade leads from the 4hr and daily time frames.
1hr chart.
A little closer in on price action here, count 4 candles back, but start from the candle with the spike. This is how the 4 hr candle looked as it was forming. Can you now see how the strength of the buying started to slow down towards the end of its life?
This folks is the basis of price action, it is often reported as closed candles only, but its also important to look for how it behaved as it was forming. Become fully informed and get as much intel as you can in these important areas.
15min chart.
Here is the first real clear sign of the bullish move in trouble. Again look at the candles from the spike back left to where the large bearish candle held price down for one time period. That puch back up to the spike was nothing other than the tugs on the retail traders emtions to get in now before you miss the rocket take off. The candles rarely form the same pattern time after time inside these boxes. You must look at them in context with the other candles around it and not try and fit them into a pattern, but allow the newly formed pattern make sense to your logical brain. Ask yourself some fundamental questions, who would be buying up here, who would be selling up here. If I bought up here, who am I buying from?....if I am selling here, who I am selling to?
Your customer must always be, the retail trader. And I guess there are folks here who have been my customers. But unlike the faceless institutions who just take your money, I tell you how this works. There is a lot of work for you to do in learning to be patient and getting an entry after you have seen the evidence of pro money at work. There tends to be a second shot where the more careful traders step in and place their orders. It wont happen all the time and its important you not be hard on yourself for missing what was a perfect trade. Unless I see the right entry after a good setup, I let it go and wait for another. In time this will save you money and help you grow an account rather than pull the trigger on any entry after a good setup. Quality rather than quantity is the message.
Down to the 5min and this time frame and sometimes the 1min is where I take my entry lead from after all the higher time frames are shown good intel. I have zoomed in closer to price action so that I can explain this clearer than the regular chart view.
The brown box is of course the bow from the 4hr chart and I have to make this clear because there are emails asking me at times why some of my chart have two background colours.
We still start with the highest candle that looked not too unlike this on the 4hr chart. There is still a large wick and a bearish reaction. The bearish reaction is not as impressive as the 4hr, but it does still tell us a story. There are tails on the tow candles after the climatic bullish candle and there were some buyers remaining who were most likely have been the retail trader cannon fodder types. The large bearish candle is an important placement because it showed up in a place where only buying within a pull back would have otherwise taken place.
A small bullish move up over the next three candles happened with signs of selling coming in as price rose higher. Again, any bullish continuation would not have shown this. There are also two tests on bullish candles which are checking for remaining buyers. Each test resulted in lower prices and helps solidify pro moneys investment in more down side. They wont jump in right away and slowly unwind one position and sell into remaining buying. This is will different each time which is why looking for patterns wont be as productive as you analytical and logical brain can be.
Note the bottom of the brown box, it has setup into a resistance area. This wont always happen but in this instance it shows up the willingness for pro money to effectively put a cap on price and do not want to see higher prices.
A second 5min chart. I have drawn in a yellow line to show what was and what will further be shown as another area where price has reacted in the past.
Here is another 4hr chart zoomed out and showing the same yellow line as the above 5min chart.
In this chart we can see way back left where this area was important and if you look for long enough on high time frames you will see there are a few of these on other price areas. Make yourself aware of them.
Towards the upper right of the box you will see another spike into the box drawn in all of the charts. Take note of the similar approach used by pro money, highly emotive push for price to reach the moon and if you are not in, you will miss a big move.
Also note the reaction was different to the last, even though the push is the same. This is why I say to not learn patterns just for the sake of knowing patterns.
I hope this helps some of you and that something does go click in your head. Lots more can be written on this, but for the moment there should be plenty in that to feed your brain. Take some time now and apply this to other pairs from high time frames all the way down to the 5min.
Here are a few charts of the Eur/Usd and a break down of one approach used by pro money. There is little point in learning the pattern or naming anything other than the most basic parts there are in this, because all it will achieve is you filling your brain with useless words and terms and not concentrating on how price looks. Once you have at least one good eye, all you need to do is watch price form and close. I say form, because you want to see where the action took place as a candle formed, this can be useful intel especially around price areas of interest to pro money.
There will be plenty emotional tugs in your mind as to why you must trade in the direction of the candles because they just look so good and strong and are moving with great progress. This is nothing more than a sucker punch and you are falling into their trap. It is very hard to show anyone why not consider going opposite to the main move when it is so obvious to them that thats not where price is going. Breaking these emotional ties will be difficult and takes a long time. If something looks too good to be true, and even if you are in this money making move, you will have so much confidence that nobody can talk you out of taking profit or closing the position completely in readiness for the turn.
If I had a penny for each time someone wanted just 10 more points, or I know it will turn around now, or it looks weak/strong etc, I could give up work and retire. Be ruthless with your entry, stop and target because without knowing all three before you enter the market, you are on the poor man's slide to becoming broke and throwing money away. All three functions must be plotted either on the chart or in your mind before you enter and DO NOT change them. You must know what is the most money I am prepared to loose before I take a new trade. This is basic money management and it must be a realistic figure. Wealth is not created in a few trades, but over a longer period of time where smaller bites are taken out of the market and not look for big moves. Take small profits all the time and take small losses a lesser amount of time. Then your account grows and given enough experience and confidence you can then slowly places slightly higher value trades in the market, this gets extra profits for the same point risk and target as you will have always done. But dont jump into increasing trade size until such time as your account can take it.
I could write volumes on taking care of your capital, but let the most basic things be your guide, protect your capital and it allows you come back to trade again tomorrow. But loose it and you can no longer trade.
Moving on to some charts.
4hr chart of the Euro and I have drawn in a box on top showing historic supply. We know sellers were active here in the past and that the area has been untouch for a long time relative to this time frame. We know any new entry into this price area is likely to see some sellers come back in and we watch for signs of the bullish move showing signs of weakness.
The big sign in this chart is the single long bullish candle with a spike on top. This is printed as a bullish candle, but is in reality bearish. We this from the reaction to it in the next closed candle. If such a powerful bullish candle resulted in the next candle being strongly bearish, then how can the up move continue. Could it be the orders up in the box be some over whelming that the buying was really an attempt by pro money to show the retail trader that the price is really heading for the moon and its been like this for the past half days trading session and you are missing out unless you go long right now!
Sure, its the ulitmate sucker punch that happens on all financial instruments and on all time frames. But they happen much nicer on the 4hr and daily. Which is why I take most of my trade leads from the 4hr and daily time frames.
1hr chart.
A little closer in on price action here, count 4 candles back, but start from the candle with the spike. This is how the 4 hr candle looked as it was forming. Can you now see how the strength of the buying started to slow down towards the end of its life?
This folks is the basis of price action, it is often reported as closed candles only, but its also important to look for how it behaved as it was forming. Become fully informed and get as much intel as you can in these important areas.
15min chart.
Here is the first real clear sign of the bullish move in trouble. Again look at the candles from the spike back left to where the large bearish candle held price down for one time period. That puch back up to the spike was nothing other than the tugs on the retail traders emtions to get in now before you miss the rocket take off. The candles rarely form the same pattern time after time inside these boxes. You must look at them in context with the other candles around it and not try and fit them into a pattern, but allow the newly formed pattern make sense to your logical brain. Ask yourself some fundamental questions, who would be buying up here, who would be selling up here. If I bought up here, who am I buying from?....if I am selling here, who I am selling to?
Your customer must always be, the retail trader. And I guess there are folks here who have been my customers. But unlike the faceless institutions who just take your money, I tell you how this works. There is a lot of work for you to do in learning to be patient and getting an entry after you have seen the evidence of pro money at work. There tends to be a second shot where the more careful traders step in and place their orders. It wont happen all the time and its important you not be hard on yourself for missing what was a perfect trade. Unless I see the right entry after a good setup, I let it go and wait for another. In time this will save you money and help you grow an account rather than pull the trigger on any entry after a good setup. Quality rather than quantity is the message.
Down to the 5min and this time frame and sometimes the 1min is where I take my entry lead from after all the higher time frames are shown good intel. I have zoomed in closer to price action so that I can explain this clearer than the regular chart view.
The brown box is of course the bow from the 4hr chart and I have to make this clear because there are emails asking me at times why some of my chart have two background colours.
We still start with the highest candle that looked not too unlike this on the 4hr chart. There is still a large wick and a bearish reaction. The bearish reaction is not as impressive as the 4hr, but it does still tell us a story. There are tails on the tow candles after the climatic bullish candle and there were some buyers remaining who were most likely have been the retail trader cannon fodder types. The large bearish candle is an important placement because it showed up in a place where only buying within a pull back would have otherwise taken place.
A small bullish move up over the next three candles happened with signs of selling coming in as price rose higher. Again, any bullish continuation would not have shown this. There are also two tests on bullish candles which are checking for remaining buyers. Each test resulted in lower prices and helps solidify pro moneys investment in more down side. They wont jump in right away and slowly unwind one position and sell into remaining buying. This is will different each time which is why looking for patterns wont be as productive as you analytical and logical brain can be.
Note the bottom of the brown box, it has setup into a resistance area. This wont always happen but in this instance it shows up the willingness for pro money to effectively put a cap on price and do not want to see higher prices.
A second 5min chart. I have drawn in a yellow line to show what was and what will further be shown as another area where price has reacted in the past.
Here is another 4hr chart zoomed out and showing the same yellow line as the above 5min chart.
In this chart we can see way back left where this area was important and if you look for long enough on high time frames you will see there are a few of these on other price areas. Make yourself aware of them.
Towards the upper right of the box you will see another spike into the box drawn in all of the charts. Take note of the similar approach used by pro money, highly emotive push for price to reach the moon and if you are not in, you will miss a big move.
Also note the reaction was different to the last, even though the push is the same. This is why I say to not learn patterns just for the sake of knowing patterns.
I hope this helps some of you and that something does go click in your head. Lots more can be written on this, but for the moment there should be plenty in that to feed your brain. Take some time now and apply this to other pairs from high time frames all the way down to the 5min.
Saturday 20 December 2014
Eur/Usd
A quick look at the Euro/Usd before the Christmas week crazy trading kicks in, this is the time of year when price action wont be as useful as it would otherwise and the end of year is also a time when many positions for those in the pro money world who trade longer time frames.
This is my ten mile high view. Look for the obvious and proven price history, ignore the current candle because it is not yet closed and of no value to us. We see where price has been and how it reacted. The short story is, price has come from a higher price to a lower price and with good pace and little to hinder it. This tells us the bears are in full control and there are no signs of this changing on this time frame yet. If there is no sign change, or no sign of change, then we continue with a bearish view until price proves otherwise.
Another monthly chart with one important addition. A yellow line to show support and resistance. This is an approximate area and not a single line/pixel or 1 thou tolerance line. It is an area.
We need to know ahead of time where price can potentially react, we need this for entries, exits and stops. All are of equal importance in trading. On the next chart we will look a little closer and get more intel.
Weekly chart.
Not much different you say, close but look again. The yellow line now has a corrected value to 1.20000. This is a price area that many will look for a bounce, if enough traders share the same view, then there will be a bounce because it becomes self full filling. Plus there are strong technical reasons for a bounce there, we see historic buying to the left of price in May 2012. When old and clean price areas like that are untouched for a long period of time, then can show violent reactions and price takes off quickly. If this happens, you may not see a pull back until price has gone some distance. But if price stays in the area for a longer period of time, it means there are less interested buyers. That would not be good for the Euro, because any drop through 1.20000 will be hard to contain. If it did happen, I would expect the ECB to announce some major purchase of bonds etc to happen quickly. This is nothing more than a money game to see who can do the least and spend the least to make the most amount of money, that is from a Gov perspective. Any Gov react to the markets rather than stop them falling, they are always last to the party.
Daily chart.
I marked what looks like messy price action to show the bears are still in control. The retraces are chaotic, yet still comply with standard supply and demand groups. Note how price is slowing down as it gets closer to the major area of buying back in 2012. Pro money has to unload as price falls and buy in before it hits what eventually becomes the bottom. Otherwise a single close and open of new positions would create such spikes that it would be near impossible for anyone to gain a good entry and hold onto it. The last few days show a strong push down and given the time of year it is, this may be nothing more than positions being liquidated and willing sellers taking the orders for a quick trip down for equally quick profit into a safe area.
Price has closed lower and shows a strong close with no buyers or signs of a pull back on this time frame.
Lastly the 4hr chart.
I have placed some white lines showing the retraces and the boxes where the bears took over again. It does look more and more messy the lower you get in time, but its still perfect supply and demand trading. Wider stops than normal were needed inside all this mess in order to pull out a few winning trades.
On the last two candles there is some buying, not much and still closed below the previous bottom. The closer we get to 1.20000 the more risk you take on when shorting.
There are other pairs who are also coming close to major potential turning points and it is no fluke that this happens in or around the same time. For the past 100 years the markets have behaved like this and will still be behave the same in the next 100. You or I wont change them one single bit with our tiny influence.
I did get an email requesting to show on a chart where pro money comes in. Looking at the chart below I will give you a hint, look for the box and then look for the reaction. The reaction is the result of pro money, but they hide most of their tracks inside the box. On lower time frames there is more intel on what it looks like and will look very much the same, you are safer to trade the retest of the pro money result than the initial break. Any strong break will have a test and continuation, most of the time. But trading a break is a lower pay out and higher stop hit count.
Oil
It wont come as any surprise that Oil has been on the slippery slope to lower prices and it may be beneficial now to take a look at where this began and where it could go.
My chart history wont go back far enough to show you the big picture, so I have borrowed a chart from the Nasdaq website to aid this post. If anyone from the Nasdaq are unhappy over the use of your public chart and request I remove it, I shall do so.
Here is the Nasdaq 10 year chart on Crude Oil.
The media has been full of experts saying they will see 40 dollar prices. It does not take an expert to pull that figure out of the air when you look at historic prices.The business TV news and various financial web sites who pimp this news provide me with hours of entertainment, the best comedy shows I have ever seen.
Clearly there was a 2009 major buying in Oil at the 40 dollar price area. It is inevitable we see some reaction there again. Low Oil prices have two wanted effects, one is from Opec and the other is from Governments who wish to punish a large energy exporting country.
Here is the weekly chart, all you see is Oil falling of a cliff and one tiny blue candle formed in the perfect place to test the resolve of buyers. Clearly other plans were afoot and down it goes.
The tiny candle is now a support and resistance area and is likely to be a strong one too when price eventually comes back to it.
Daily chart. The newly formed support and resistance area is now marked with a line to help guide your eye. Note the strong break of this and the very painful retest which look like buyers. Indeed there were buyers and I will let you think who was behind that. A hint could be a non english speaking nation.
Clearly damage limitation was in full swing, but when the worlds finance houses are against, nothing will save your behind. On the futures charts I saw a huge volume spike on that candle, and was sustained for the day. Thats not the typical pull back I would expect to see.
On the bottom right of the chart there is new price action showing a slow down. A battle took place between the bulls and the bears and is not yet resolved. We will delve in deeper in the next time frame lower.
4hr chart.
The support and resistance area is now more clearly defined and once broken, price did not look back until a long fall in price took place. What looked like buying in the above chart is also more clearly defined in this time frame. What we see is buying over 3 x 4hr periods and into near term supply, which clearly held. None of this comes as a surprise given the news driven frenzy at this point.
At the origin of this supply test I have a white line showing the next area price has to test for remaining buyers. Price pushed through the line hard on the way down and when it retracted we see a number of candles with wicks on top. This shows us sellers came back in and around those higher prices where the near term selling originated.
The initial fall from the S/R line was too fast to keep going and some slow down and pull back for a good percentage of the move was inevitable. On the right of the chart we see the start of this happening. There is no major floor for buying with a view to turning the market bullish again. Above price there are a few places where the continuation could happen. Of course you also have to keep in mind the tricks of pro money. If everyone is expecting 40 dollars a barrel for Oil, if the price keeps retracting some will think the buyers have come in early. This can happen for weeks, or a wide range setup. Looking at price action at each of the potential continuation areas above is key to you getting a feel for how pro money are positioning.
1hr chart.
I mentioned a price range in the above text and now I will show you one potential range. This 1hr time frame has set into a range already and look at the reaction of price at the top of the range vs the bottom of the range.
It is obvious there are still more interested sellers than there are buyers. In the past I have said that when price forms a range, it only makes sense to sell of the top of the range and buy off the bottom. But keeping in mind of the overall trend you are in and ideally, buy or sell in line with the overall trend to help reduce risk.
My chart history wont go back far enough to show you the big picture, so I have borrowed a chart from the Nasdaq website to aid this post. If anyone from the Nasdaq are unhappy over the use of your public chart and request I remove it, I shall do so.
Here is the Nasdaq 10 year chart on Crude Oil.
The media has been full of experts saying they will see 40 dollar prices. It does not take an expert to pull that figure out of the air when you look at historic prices.The business TV news and various financial web sites who pimp this news provide me with hours of entertainment, the best comedy shows I have ever seen.
Clearly there was a 2009 major buying in Oil at the 40 dollar price area. It is inevitable we see some reaction there again. Low Oil prices have two wanted effects, one is from Opec and the other is from Governments who wish to punish a large energy exporting country.
Here is the weekly chart, all you see is Oil falling of a cliff and one tiny blue candle formed in the perfect place to test the resolve of buyers. Clearly other plans were afoot and down it goes.
The tiny candle is now a support and resistance area and is likely to be a strong one too when price eventually comes back to it.
Daily chart. The newly formed support and resistance area is now marked with a line to help guide your eye. Note the strong break of this and the very painful retest which look like buyers. Indeed there were buyers and I will let you think who was behind that. A hint could be a non english speaking nation.
Clearly damage limitation was in full swing, but when the worlds finance houses are against, nothing will save your behind. On the futures charts I saw a huge volume spike on that candle, and was sustained for the day. Thats not the typical pull back I would expect to see.
On the bottom right of the chart there is new price action showing a slow down. A battle took place between the bulls and the bears and is not yet resolved. We will delve in deeper in the next time frame lower.
4hr chart.
The support and resistance area is now more clearly defined and once broken, price did not look back until a long fall in price took place. What looked like buying in the above chart is also more clearly defined in this time frame. What we see is buying over 3 x 4hr periods and into near term supply, which clearly held. None of this comes as a surprise given the news driven frenzy at this point.
At the origin of this supply test I have a white line showing the next area price has to test for remaining buyers. Price pushed through the line hard on the way down and when it retracted we see a number of candles with wicks on top. This shows us sellers came back in and around those higher prices where the near term selling originated.
The initial fall from the S/R line was too fast to keep going and some slow down and pull back for a good percentage of the move was inevitable. On the right of the chart we see the start of this happening. There is no major floor for buying with a view to turning the market bullish again. Above price there are a few places where the continuation could happen. Of course you also have to keep in mind the tricks of pro money. If everyone is expecting 40 dollars a barrel for Oil, if the price keeps retracting some will think the buyers have come in early. This can happen for weeks, or a wide range setup. Looking at price action at each of the potential continuation areas above is key to you getting a feel for how pro money are positioning.
1hr chart.
I mentioned a price range in the above text and now I will show you one potential range. This 1hr time frame has set into a range already and look at the reaction of price at the top of the range vs the bottom of the range.
It is obvious there are still more interested sellers than there are buyers. In the past I have said that when price forms a range, it only makes sense to sell of the top of the range and buy off the bottom. But keeping in mind of the overall trend you are in and ideally, buy or sell in line with the overall trend to help reduce risk.
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