I am going to start posting my general sentiment for the day. I am going to start with just the EURUSD and see how it goes. If you would like to see other currency pairs analyzed just let me know.
Looking at the European open into the US open it is pretty clear the short-term trend is down. So today I will only be looking to short higher lows.
On Tuesday (11/16) I woke up late. I woke the family up and hurried them off to school. To make matters worse, I stopped for coffee. When I finally fired up my monitor I saw that I missed the start of a massive downswing.
In the past I would have immediately started to panic and would start selling at random points, not wanting to miss the big drop. I knew the drop was coming because price had been congested in a small range for a few hours so once price dropped below 1.3575 – the party would be on.
At the very far left of the 30 minute chart you can see that price made a swing high at around 1.3655 then immediately dropped to about 1.3575 before chopping around for the next 7 hours.
When I did cut on the screen it was a little before 8:30 and I usually don’t like to start trading during the equities opening bell. So I nervously sat and drank my coffee while the market continued to drop.
I wait 15 minutes and then start to look for opportunities to join the party. But with all of this selling, how do you know where to get in? I have all to often been the sucker selling the low of the day and then trying to decide how much pain I could tolerate before dumping my position at the high with a big fat loss! But not anymore! Losing money has a way of getting your attention like nothing else can!
A 3 minute chart with 3 moving averages is all we need to join any trending market – EVEN IF WE MISS THE INITIAL MOVE!
The moving averages are all exponential – one at 8, one at 13 and one at 21. (There is some voodoo or magic with the 21 EMA, I am still trying to figure out what it is…). When a strong trend is underway the 21 EMA seems to hold as support. Price may occasionally pierce the 21, but rarely closes above this magic line until the trend is over. Combining this with a little market structure, we can time our entries by looking for pullbacks towards the 21 EMA during a strong move. I have my charts color candles that make lower highs (LH) and lower lows (LL). I have also programmed my charts to make the space between the 13 and 21 EMA appear as a cloud. Any time price enters the cloud and the slope of my 3 EMA’s are still pointing down, I am looking to sell. Since LH’s are a three candle formation, you will not know that it is a lower high until the next candle closes. But once I see the LH has painted, it gives me the confidence to know that I got in at a good point. From the chart you can see that during this downtrend price entered my “cloud” 4 times (There was actually a 5th and a 6th that can’t be seen on this view). and each gave me my standard profit target of 21 pips, with relatively no drawdown.
If you have bigger balls than I, then each of the entries could have been a point to add on – building a nice sized position to really capitalize on the move. I am working on this, but not quite there yet… so I took the trade successfully 5 times losing on the 6th try as the trend started to reverse.
Now if only I could be this patient every day….
The following is a 1 minute chart showing the concept of market structure.
I have become fond of 1 minute trends as I am very risk averse and with the short timeframe can enter trades with very low risk.
The white candles indicate a market structure high (MSH) and the blue candles indicate the opposite – market structure low (MSL).
A MSH is a three candle formation that starts with a new high, followed by a higher high and finishes with a third candles high being lower than the first candle. These formations almost always indicate a change in the trend.
Once a MSH or MSL has been identified you simply fade the prevailing trend placing your stop 1 pip above the MSH/L. Very low risk. I usually shoot for a minimum of 21 to 34 pips, however you could just ride the trade out until the opposite market structure formation.
For a more detailed explanation of market structure check out this link.
For a while now I have been trying to become a pure price action trader. Well, as Jessie Livermore once said
“The game taught me the game and it did not spare the rod.”
What the game has taught me is that price action trading is for the disciplined screen watcher. Price action trading requires too much discipline for me! I have come to the realization that I need at least a couple of indicators to keep me from OVER trading.
My best trading was done in 2007 with just pivot points and a 21 EMA. Trading seemed real easy back then. I would just wait for price to hit support, then break the 21 EMA. I almost never lost using this method… and as I am writing this I can’t seem to remember why I stopped using it.
Anyway, I have starting using moving averages with pivot points again. I have added fractals and will even add the awesome oscillator to keep me in trades longer.
Above is a snapshot of today. I took 7 trades off of the 1 minute chart. All but 1 were winners. I’ll start posting what I’m doing in the coming days.
In the meantime – enjoy your weekend.
Yesterday I used some faulty numbers that generated an area of confluence that absolutely did not exist!
I lost money.
I have double checked my numbers for tomorrow. Here are Tuesdays numbers:
Open: 1.2883
High: 1.3035
Low: 1.2829
Close: 1.2997
Based upon the above numbers, tomorrow’s pivots are:
R3: 1.3284
R2: 1.3160
R1: 1.3078
Pivot Point: 1.2954
S1: 1.2872
S2: 1.2748
S3: 1.2666
Good trading and good night!
Merriam-Webster defines confluence as: a coming or flowing together, meeting, or gathering at one point <a happy confluence of weather and scenery>. Well, well, well… we have a confluence of resistance around the 1.2900 level. In my last post (just a few hours ago) I talked about naked resistance between 1.2900 – 1.2920. After calculating tomorrow’s pivot points guess where R1 is?
Okay, I can’t contain myself! Its 1.2901!
It is right at the same level that has served as strong resistance for at least 30 days. This is what I consider an area of confluence, and thus a place where I am more willing to load up.
So the plan for tomorrow is to short, short, short any failure between 1.2900 – 1.2920.
If price gets above 1.2930 I’ll accept defeat and live to trade another day.
The following is a chart of the past months price action on the Euro.
A casual glance will show that over the past 30 days or so price has been trading in a 300+ pip range with strong resistance around 1.2900 and pretty firm support between 1.2620 – 50.
While I prefer to day trade, this looks like a perfect set-up for a low risk swing trade. Just look at the chart!
I’ll be looking to short any failure at 1.2920 (Euro likes 20 & 80), risking no more than 21 pips and looking to book 300 pips.
Stay tuned! 
The ones you miss seem to always turn out well.
R1 right down to the the pivot.
EURUSD has been in a down trend for a few weeks. In a down trend I like to look for short opportunities when price has mini-corrections up to R1. Looking at the chart it looks like I missed the trade while dropping my kids off at school.
Price is more than 21 pips away from R1 so there is no way I am entering this trade as in order to keep my risk:reward ratio favorable, all of my trades must be low risk. However, if price does go back to test R1 I will consider a short, but at this point I will not chase.
Missed opportunities always bring up the question of resting orders. If you have an edge and want to enter the trade when price hits your levels, why not just put a limit order in and let the chips fall where they may?
I don’t really have a good answer for that. I just prefer to watch the price action, switch to a lower time frame and get a feel for what might happen. Trading is not an exact science, but more of a grey area art. Maybe over time I’ll get more comfortable automating my trading, but for now I have to sitting in front of the screen for it to happen.