Currency Market Volatility – Wow!

Currency Market Volatility

Currency Market VolatilityCurrency market volatility gave quite a shock this week.  The huge expansion in volatility across the currency market caught many hedge funds and larger operators flat-footed.  Many were positioned in the currency market or had trades closely tied to it and had to scramble to get out of positions due to the substantial increase in volatility this week according to the Wall Street Journal.

Could we have seen the currency market about to become highly volatile before it happened? Well, I don’t know about that, but we could see that a pullback of some degree was likely.  I discuss the currency market volatility in this week’s video blog, and why the downdraft was so large (hint: it has to do with the hedge funds).  I also walk through a Wyckoff analysis of the US Dollar futures (DX) and give a trading few ideas regarding currency market volatility.


Tick vs Time Charts & Free Webinar

Free Webinar Info Used to Earn 16 Points!

The Free Webinar we held yesterday had much useful information about trading by price and volume, including tick vs time charts.  Fifteen different trade setups across five different markets were detailed in this 50-minute presentation.  This morning, one trader wrote to say,

I can’t believe how good the content is.  The info regarding tick vs time charts was pure gold.  I took a trade in the ES this morning based off what you taught yesterday and made 16 points profit!  Wow!

For those of you who registered and missed yesterday’s presentation, you can still access it at the link provided.  For those of you who didn’t register … well, OK, you can still sign-up and get the content.  Here is the link: Free Webinar Wyckoff Principles

Tick vs Time Charts

Several traders asked about why I use tick vs time charts in my intraday trading.  Pros understand the value of tick vs time charts; most novice traders don’t.  Tick charts build bars based off the number of trades that take place (called ticks).  You set the amount of trades or ticks for the bar (for example, 3000 ticks in the ES).  One thing this does is make the overnight data much more readable, especially when combined with the Weis Wave for volume. The chart shows an example.

Tick vs Time ChartsHere we see a standard, 5-minute bar chart of Crude oil and alongside this, a 750 tick chart.  The vertical red dashed line on both charts represents the beginning of the trading session. Note the 5-minute chart is drawn out with small price bars, lots of gaps and numerous spikes.  It’s difficult to read.  The tick chart, on the other hand, compresses the same data into a readable form.  At A, the 5-minute chart looks threatening.  We see large bars down and heavy volume.  It’s hard to justify a long trade here, but that is what was called for.  The tick chart shows this as a non-threatening pullback and, indeed, a nice Wyckoff Spring.  Note the volume and compare with the 5-minute chart.  See the difference between tick vs time charts?  It should be jumping out at you.

Major Sale & 30% Discount

In honor of Black Friday and to celebrate our new website, we have put all of our video tutorial on sale.  You can enjoy a 30% saving off the listed price by using the coupon NewWebsite30 at checkout.  The 30% discount may be applied to both trading courses and trading psychology courses.

When Your Analysis is Wrong – A Lesson in Trading Psychology

Last night, I was looking for the market to react and begin to head lower today (see last post below).  That analysis turned out to be wrong. How do you salvage a trading day when your analysis turns our to be flawed?

In truth, there are many days that my nightly analysis turns out to be wrong, or, more correctly, the market doesn’t do what I anticipated the night before. It took me a while to learn this, but the fact that my analysis turns our to be wrong is okay. Marty Schwartz was instrumental in teaching me about wrong analysis. He had been a net losing trader for about a decade. When he turned the corner and became one of the most profitable commodities trader of the 1980s, he attributed his turn-around to accepting the times when he is wrong. He said,

“Before, admitting I was wrong was more upsetting than losing the money. I used to try to will things to happen. I figured it out, therefore it can’t be wrong. When I became a winner, I said, “I figured it out, but if I’m wrong I’m getting the hell out, because I want to save my money and go on to the next trade.” By living the philosophy that my winners are always in front of me, it is not so painful to take a loss. If I make a mistake, so what!”  — from Market Wizards

This is an excellent attitude and one I try to adopt.

2014-08-18 ES 9 & 3K TickSo, let’s see how to do this in the context of today’s trading. Clearly, the market rallied strongly in the Asian and European sessions breaking yesterday’s high on sizable volume. You can see this on the 9,000 Tick Chart. Look at the volume on the wave up at A. I circled it in blue. This was a big clue that the market was not going to be weak today. There is no sense in standing in front of a train.

So, we shift our gears. One of the great values of having a game plan coming into the market is that if the market is doing what you expected, it’s great. But if it isn’t, that’s great, too, because you also know what the market is doing. Think about that. This is the real value of a game plan.

The market drives up through yesterday’s high on strong demand. Shortly after the US session opens, the market is still holding gains, shows a lack of supply, and has a spring (3,000 Tick chart at green arrow).  That’s our cue to go long.  Nice trade.

The take-away message is to remain mentally flexible. If we have to be right, we wind up fighting the market on days like today. That’s no way to trade.

Webinar Today

T & BI just finished the slides for today’s webinar on Tops & Bottoms. There are 60 slides covering how to read a top and how to read a bottom.  I think you will like them.  We will have a thorough discussion on market tops and bottoms, including the all important structural characteristics, how markets behave in these locations, entries, use of the Weis Wave, bar-by-bar reading of tops and bottoms, recent major tops and bottoms, and much more.

Join us tonight at 5:00 Eastern time (New York time zone).  We will run about two hours, maybe a little more.  Everything will be recorded.  Come learn how to read the next top or bottom by clicking on this link: Tops & Bottoms

Coordinating Time Frames

One of the key skills in trading the markets by its own action is the skill of understanding structure.  Someone recently told me that they look solely at price and volume; they consider structure irrelevant.  I can’t understand that attitude.  To my way of trading, using structure is essential.

A good example of how structure plays a significant role in trading occurred on Thursday, just prior to the big run up ignited by the record low European Central Bank rate cut.

The ECB Trade

2014-06-07 ES 9 & 3K TickWhen looking at structure, it helps to coordinate more than one time frame.  In the charts, we are using the 9,000 and 3,000 tick charts.  Tick charts have certain advantages over time-based charts (like, for example, a 5-minute chart), most notably the advantage of compressing overnight data into an easily readable format.

By coordinating the two time frames, we can see that the market was in an up trend and at A, the market returned to the supportive level of the 2-Day high.  Volume on the 9,000 tick chart showed a drying up of supply at this structural market point.  Since the 3,000 tick chart was oversold at this level, a trade could be confidently initiated to the long side as the market began to turn up.  Traders who leaned against structure and the indications of supply and demand at a key point made a perfect entry on what turned out to be an almost 20-point run up.

20% off Video Tutorials

All video tutorials are 20% off.  Use the coupon code: May20 at checkout.  This sale ends on Sunday at midnight, eastern time.