Currency Futures Blog

Focus for tomorrow 11-17

Momentum indicators:
-Think strategically
-Where is price going? Why is it going there?
-Think about fading the 1rst and 2nd retrace in a trend
-Fade significant price movements
-Play with strategic movements
-Take indicators into potential stop areas
-Consider taking the ST momentum indicator by itself when fading a low for 5-6 ticks on a 2-3 tick stop entering on a limit order
-Be EXTREMELY selective, if you dont have a reason besides your triggger to enter then dont

Breakout plays:
-Actively search out breakout points and enter on a stop behind the pivot with a 3-4 tick stop and profit target placed at resistance
-Plan this all out far before the trade and place reference lines on all charts being used to make the trade

So coming into my trading session which started at 1am PT price had pretty much already taken out anyone who had been short in recent memory. I am focusing on the recent pivots that I think might be stop areas because it seems logical to me that the closer this area is to our current price the more traders who will have yet to unwind the position, in addition longer time frame traders are less likely to use an exact pivot to the tick than say a swing/day/scalper but also I must be aware that the longer the time frame the more significant as well. The hour moves seem to be an ideal trade off although I currently find it easier to see the potential stop areas on the 5m charts.

Link to larger image

On the 5m charts its quite clear to me that 14992 was a very important price as the high of the session, after that price is was clear some stop areas were being created particularly at 7:15am PT when we see a huge spike up break the pivots at 14980 and several between there and 14982. This bar however failed the break the session high at 14992, beautiful actually. As price settled away from here you can several pivots being established as great potential stop areas at 14976 and 14980-2 just seemed quite likely that there should be many people getting short at these lower high pivot points. Low and behold later in the day as soon as price broke 14976 it took off with enough momentum to carry past the session high up to ~15015 at the peak.

Going into tomorrow’s session I am thinking the shorts are getting setup again as we have the peak and two very significant potential stop areas. Will these areas be hit I dont know but I will be prepared for the session tomorrow even though as I speak price is dripping out of the CoCV.

Link to larger image

So this post is going to be a lot more subjective because honestly who can really say what is going on strategically, one can only speculate as to where significant stop areas will be and if any of the big money in the market is of a mind to take them out that day. That said I honestly feel at this time it may be one of the best ways to determine a general direction (although I wouldnt trade off this in isolation) but more importantly it seems to offer some insight into the risk and reward presented to trades going into strategic areas, both for and against your position.

My basic ideas at this point are as such:
-ALWAYS have a stop if you are fading a potential stop area PARTICULARLY if there are other areas that could be considered stop areas that might get hit if price starts to run. No one likes to be sitting on a -80 tick trade in 30 seconds… I dont worry too much about this because I always have a runaway stop but something to be cognizant of in a fast moving market.
-Use these areas to create big reward potential for trades! One runner can make your whole week so why not take trades that are in line with the strategic movements of the markets? Maybe they work out maybe they dont but even if this happens a small portion of the time it is going to add a lot to your bottom line.
-Dont fight strategy, getting setup is part of trading the market so why not try and line up your ideas where the big money is trading to take advantage of those unaware of the big money moving against them.

So without further ado, my trading plan for tomorrow:
-Look for my momentum setups that fit in line with the strategic movements of the markets, this strategy relies on catching big trades from time to time and what better way than to operate within the context of bigger market moves?
-To do this I am going to create a daily strategic profile likely focusing on the 5m and 60m charts to try and figure out where potential stop areas might be established. Who is the big money looking to punish? Where are there easy targets?
-Start analyzing the markets for breakouts points, doing so during the day by keeping a running diary of where I think these stop areas might be developing.
-Trade 1-2 breakout points during the session by using a buy/sell stop to enter either to the tick or 1 tick behind
-Analyze the past days strategic points and prepare for the next session’s potential stop areas by posting them in this blog

If you take a look at the last post you can see the 60m chart and how Sunday wrapped up the strategic ideas about price running against all the shorts. It finished crossing volume channels after initially bouncing off the 5 day MA. I got a nice momentum setup fading the bull run after the open and scooped out a nice trade. Price had failed right around the 14940 mark on briefly on the way up (although it was the only significant pause in this run) so I was postulating taking profits at this point when price rocketed up 14 ticks in less than 15 seconds… Crazy considering nothing volatile was happening at the moment, luckily I had my trailing stop on at 14944 and got out with a nice trade but certainly something to think a lot about. Its not easy to see on the charts which really renewed my motivation to concentrate on the markets more and trying and get a feel for these finer points of support and resistance although I suppose this wasnt an unlikely area considering how close it was the 5 day MA and the previous days value area high (VAH) at the time.

Link to larger image

Here is a 5m chart that shows the rest of the session, I sat down to trade at 1am PT and price was pretty choppy not my ideal trading conditions. I ended getting chopped out of one position (that I feel I correctly took) but then I sat out for quite a while waiting for price to stop rolling over itself. I talked with Richard when he logged on around ~4 and he said this was pretty standard for a day with significant news and the fed speaking, no one is going to be letting themselves get too exposed with significant news coming particularly on a Monday morning. If you want to check out another currency future blog Richard’s blog is here:

Click here to see a great currency futures trading site

Link to larger image

To be perfectly honest I was bored stiff but also being very cautious about handling a news oriented day with so little experience. I got a setup at 5am PT but I was overly cautious and passed it up anticipating the news at 5:30am PT, pretty nitty but that is where my head is at currently and I honestly dont think that is the worst place to be. I sniped a little trade right before the fed with a perfect setup and also got hard stopped out of a less than ideal position before that. After the fed was released I watched Richard make some great plays fading support taking the meat, fading it again. It seemed like he missed some potentially huge fills and he still managed to take ~15 ticks out in one support area down the the lower CoCV, a beautiful thing to watch. Not really something I am ready to attempt yet but it certainly gets you thinking to see something like that.

Here is the basic 60m charts. For a basic overview what I see:
-A big channel of volume running from 15050 to 14520
-Channel of concentrated volume (CoCV) from 15020 to 14950
-CoCV from 14890 to 14850
-Technical support at 14820
-Technical resisitance at 15050

I consider these critical areas with significant implications if they are crossed.

Link to larger image

Recap:
Start at Thursday of last week we crossed the CoCV and quickly established at the lower CoCV after a slight pause at the 5 day moving average (MA) which also happened to be a pivot from 10-26 and price paused here the last time the price jumped across the volume channels. Wednesday finished with price creating a weekly low and returning to the CoCV. On Friday price returned to the previous day’s value area eventually crossing it. Before it did that however it it setup a technical pivot right at 14900 outside of the CoCV. After that it retested the low at 14820 but failed at 14823 with a great long setup for my momentum indicators.

Here is where it gets really interesting, I have been working (and being helped) to think strategically so at this point in the market who is getting setup? Who is going to be in pain if the market moves against them? Well at 7am PT you are seeing a huge amount of people short, why? Well basically the market had been moving down for the past 24 hours at this point and really price hadnt traded below the lower CoCV since Friday/Sunday 11-6 to 11-8. Who is going to feel pain in that situation? No one. So where should we expect price to go? Well that’s exactly what happened and everyone who had been getting short at the beautiful high pivots on the 60m chart are going to be in major pain.

*IMPORTANT*
Even though I am expecting to see a lot of pain if price were to crossover the hour highs at 14892 meaning stops getting hit and having price run, I wouldnt necessarily expect to see price run past the standalone pivot at 14900, or at least not as hard. Why does this make sense? Well trying to think strategically as a trader going short at those moments in time where would you feel the most confident (assuming you are a bit naive!)? BELOW the standalone pivot of course, it takes some balls to fade the high of a session but most people are going to feel pretty good about going short when price has made a lower high and failed a this area before. And at this point on the hour chart we can see THREE failures, this is setup for a BIG run at this point if price were to break above this. Not to mention this is all happening just below the top of the CoCV so there isnt a whole lot to stop price from taking a good run if it exits the concentrated volume.

REMEMBER:
-Dont expect price to run off of the standalone pivot (particularly the high of the session) because why would be people have gone short at that moment in time?
-Finding a reasonable stop area on the 60m charts will create a bigger breakout than finding this area on smaller time frames