Thursday, May 24, 2012
Wednesday 23rd May 2012
We saw yesterday an example of weakness at resistance, examined through analysis of price swings. Today's market shows a nice example of how we can see weakness within individual candles using the methods discussed here:
Wednesday, May 23, 2012
Tuesday 22nd May 2012
EUR/USD here shows us a good example of weakness at an area of resistance.
Let's look first at the 30 minute chart to get some context. And then the 5 min chart to see what initially appears to be strength, but is in fact unable to penetrate resistance at three attempts before giving up and reversing.
Note the weakening strength of slope C compared with A and B. And note the reducing projection on swings A, B and then C.
This is a beautiful textbook perfect YTC Price Action Trader reversal at resistance.
Here's the 3 minute view for those who prefer this over the 5 min chart.
Tuesday, May 22, 2012
Tuesday 22nd May 2012
Today we have not so much a price action lesson, but rather something which I thought was pretty cool as it occurred on the Hang Seng index. That is, a gap closure in two directions.
It's the simple things which excite me! (I know... I need to get out more!)
Let's look at the 15 min chart first to get the bigger picture, followed by the 3 min chart which shows today's price action.
NOTE: I am mainly concerned with gaps between the current open and prior day's highs and lows. I'm not personally too concerned with gaps between the current open and prior close. Those who are would say that a new gap still remains open, as Tuesday's gap open at A did not move down to meet the prior close. Different strokes for different folks!
Monday 21st May 2012
For over a week now the E-mini S&P has been in a strong downtrend.
Today (21st) was the first day the market was able to break the prior day's high, since the 11th.
So let's look at this event. First up the 60 min chart to show some context:
Now the five minute chart to see some detail.
The first thing we observe is the fact that the prior day's high offered formidable resistance, taking several hours to break. This is to be expected, given the context of the strong downtrend. It's a good example of why S/R work - trader perceptions and expectations.
Markets offer no "absolute" values for when a price is to be perceived as high or low. Rather, we make subjective assessments by referencing price to other significant levels. In the "trading world", a prior day's high or low is considered a significant level by MANY traders, so it becomes our reference point, or anchor. Price well below the reference point is considered low, offering much potential upside. Price approaching the reference point is considered high, offering less potential upside.
The bulls who entered lower will be taking profits (at least partial) in the vicinity of the prior day's high as they expect significant opposition from shorts who see this area as a great place to enter a pullback in the direction of the higher timeframe trend. Both result in bearish orderflow. Very few people will be interested in entering long so close to such a significant level, with such small potential upside. Buying dries up. Selling increases. This is how resistance plays out.
This time though the market offers a great example of how price will behave if it will break through such a formidable barrier. Note how price continues to push against the resistance, with any particularly bearish candles (such as A and B) unable to continue to follow through lower. This is evidence that the sentiment has potentially changed. Failure to continue lower should have us seeking opportunity long in expectation of a potential break higher. (ie. trust the trend until we see evidence to suggest reversal).
Thursday, May 17, 2012
Wednesday 16th May 2012
Today's market offered a nice example of a pennant. But more important than the pattern itself, is the context within which it occurred (as always).
Tuesday, May 15, 2012
Tuesday 15th May 2012
I've focused on this a few times recently, but the market just keeps on coming up with some great examples. Plus repetition is good for learning!
The opening range (first trading timeframe candle at session open) provides a great way to determine initial market bias. Price above the opening range is bullish; below the opening range is bearish. And it also provides a great area of potential S/R if price should return to this level.
This applies to any market.
The first two charts show the Hang Seng Index for today and yesterday.
The following chart shows the EUR/USD yesterday.
Of course, not every day trends smoothly away from the opening range. Monday's ES chart shows a messier example, where price alternated above and below the level. Despite this the opening range still offers us a gross assessment of bias (price above the opening range is bullish; price below is bearish). And again it acts as S/R. Even when the environment is range bound, the opening range concept proves to be useful.
Thursday, May 10, 2012
Wednesday 9th May 2012
It's been a really SLOW week in the HSI so far, in particular today.
But even in a narrow-range sideways market we can find something interesting in the price action.
Today's 5-minute chart offered the following price action, which for maybe 8 out of 10 traders would be screaming, "This market is going down"!
Of course, 8 out of 10 people are often wrong!
In this case, I was sided with those who were wrong. I did have expectations of a downtrending session, as per the red arrow in the first chart.
However... and here's today's lesson... I was able to drop my expectations quickly through having considered the following - (a) what price action will be required to validate my expectations, and (b) what price action would invalidate my expectations.
People often say that having a bias in the market is dangerous. I disagree. I think everyone who trades has a bias. You can't trade without some expectation for future direction of price. The danger though is when you are unwilling to drop your bias when faced with clear evidence it's wrong.
In the YTC Price Action Trader we are taught to always question our bias. In our initial analysis we include a step which asks, "What price action would invalidate your assessment of future trend direction?" (Vol 2, P163, Step 5).
And in our ongoing bar-by-bar analysis we are continually asking whether the new candle supports our current premise, or whether we need to reconsider our analysis. (Vol 2, P184, Sect 3.53)
It's fine to have an expectation. But make sure you know when to drop it.