Friday’s forex webinars, not only delivered some great trades, but also some excellent trading lessons which reinforced not only our volume price analysis methodology, but also our unique approach to the forex market. It was also great to welcome so many Quantum Trading customers, and even more importantly to learn about their trading successes.
As usual our own trading day started during the tail end of the Asia session, and what caught our eye immediately was the weakness in the euro, and the euro complex in general coupled with strength in the Aussie dollar and the British pound. In addition, from a fundamental perspective on the horizon at 8.00 am London time was a speech due from ECB President Mario Draghi, thereby putting all euro traders on alert.
Of the euro pairs we monitor, it was the EUR/GBP which looked the most promising on the 5 min chart where a failure to move through the resistance in the 0.7020 region resulted in a two bar reversal candle pattern which was the trigger for a dramatic move lower during the webinar. The most striking feature for the euro during Friday morning’s trading session was the fact the single currency was heavily oversold across all the timeframes, from the 1 min chart upwards. With so much negativity towards the euro this sentiment was consistent, universal and helped further by Draghi’s comments.
The only question throughout the early phase of price action for the euro complex was whether this bearish sentiment would continue, and which is always reflected in the volume price relationship. Indeed midway through the move lower on the eurgbp the market delivered a trap move (around the time Draghi was speaking) with the trigger of the volatility indicator (the purple arrows), on an up candle. This is classic trick played by the insiders whose motivation is to suck traders into weak positions.
On this occasion it was to trap traders into thinking that bearish sentiment towards the euro, and reversing. Once the trap had been sprung the market then continued lower in dramatic fashion on rising and well above average volumes with consequent stopping volume only coming into the market on the price waterfall as the EUR/GBP approached the cluster of support at the 0.6984 region.
This was the point we ended the first of our forex webinars explaining that our expectation for the EUR/GBP was the pair would first move into a congestion phase, with accumulation and testing, before any reversal was likely. The pattern of price action for the eur/gbp was also repeated on the eur/aud which delivered a smoother downwards trend, but with no associated trap move. Whilst we were considering the euro complex, the Aussie was also producing some great moves to the upside.
Aside from the vpa and volatility lessons, the overriding take from this session is the extent to which a currency, market or instrument can stay overbought or oversold, and the importance of including patience as part of your trading tactics, particularly if you like enter positions on pullbacks or potential reversals. Accumulation and distribution takes time (even on the faster charts) and is the one of the reasons so many traders get stopped out of trades, as they do not give the price action time to settle down and reveal its future direction. Finally what was interesting in this London session was the relatively muted participation from the US dollar – it was all about the cross pairs and the commodity dollars.