9/1 Market Behavior Analysis: OK vs Favorable Market Conditions (and how to profit from both)…
Today, I want to show you the difference between an OK market condition and a very favorable market condition.
At the London open, we have a weak AUD (orange line) which is continuing to get weaker. However, on the strong side we have the EUR (pink line) and the CHF (turquoise line) but there is no momentum and they are even turning back the other way.
So this is an OK market condition. When you have one currency that is trending (like the AUD in this case) but don’t have it on the other side, you can place a pending order 10 pips away from the market. The idea is that if the trend continues, your order will be triggered with momentum. If trend reverses then your order will never be triggered and you’ll have nothing at risk.
- EUR/AUD BUY
In this case, it worked perfectly as the price did reverse temporarily and then took about 30 minutes to come back up and trigger your pending buy order. From that point, however price went up in your favor and it would have been a profitable trade.
Now, later on in the session we see this on the indicator:
The EUR has huge momentum to the upside (see the steep line to the far right) and the CAD (green line) has huge momentum down. This is the ideal situation to enter a market order immediately.
- EUR/CAD BUY
You can see the difference with a favorable market condition. From the point of entry, price moves up 76 pips without hesitation or pull back.
Our Currency Strength Indicator is an effective tool for picking out the highest probability, lowest risk trade set ups while avoiding market conditions that aren’t favorable. If you keep using this tool every day along with our daily Forex analysis, you will increase your win rate and be on your way to becoming a profitable trader long term.
Watch the full analysis video here:
Hello, this is James Edward from CompleteCurrencyTrader.com. Welcome to another Currency Strength Analysis training video and, today, we’re looking at the London Market open for a break-out trade.
So, this is what the indicator looked like at the London Open earlier today and, doing our initial analysis, looking for weak currencies which are continuing to weaken and match them against strong currencies which are continuing to strengthen. We don’t really have anything massively attractive at the moment.
For the weak side, there has been a big move on the Australian trader dollar, earlier, but that has, more or less, for the last 60 minutes, been going flat or sideways and it’s only just starting to turn gently back down to weakness.
On the strong side, it’s probably the Euro and the Swiss franc that would catch my eye. But, again, these aren’t ideal because we’re lacking the momentum (over here, on the right-hand side) we haven’t got the steep lines moving up to strength or moving down to weakness, so I wouldn’t actually be trading at the open. However, one of the options you do have when you have a situation like this where you have got strong currencies over the last hour matched against weak currency over the last hour is to use a pending order to see if that trait continues.
So, you may want to place a pending order, ten pips away on the Market Open from the Euro AUD or the AUD Swiss franc.
So, let me quickly go over to those charts.
This is the AUD Swiss franc on the five-minute chart.
This is the London Open (at this point where my [inaudible word 1:47, sounds like “massacre”] is resting). So, if you were to place a pending cell order on this one, in the direction of the trend, you’d place your pending cell ten pips below that Market Open price, which would be around about here [indicated by arrow].
And, you can see that, after the market opened, within five minutes, the trend naturally reversed. It was this fairly significant pull back when we were looking at it in this small scale of five-minute charts before that trend carried on. So you wouldn’t have been triggered immediately after the open; it would’ve taken a half an hour or so before the price came back in the direction of the trend and then you’d ‘ve been triggered (around about here). [indicated by arrow]
Again, it was a pull back. I don’t think it would’ve stopped. You’d have been entered here [arrow indicator] if that’s where your order was, ten pips below the open price. It would’ve gone into a loss, initially, but it wouldn’t have hit your 20-pitch stop loss and then, eventually, carried on, and you would’ve walked away with a profit from that one.
Of course, the other option was the–
[continues] … Euro against the Australian dollar. This is, again, five-minute price charts. This is, again, the London open here and, again, you can see that, immediately after, the price actually reverts. [arrow indicator “Grid 15830 1.58297] (In this case, much more significant.) You would not have been involved in that; you would not have taken a loss because, remember, you are using a pending order. (And, in this case it would’ve been a pending by order at ten pips above the open price.) That wouldn’t have been hit after the open. If you’d let that market order in–or that pending order in–eventually, that price did come back and that trend did carry on.
So that, initially, is–
[continues] … showing you the effectiveness [arrow indicator] of using pending orders in the direction of the trend.
So, you’re not trading immediately; you are placing a pending order and you’re waiting to see if the market confirms that trend or not. If it doesn’t, your order isn’t triggered and you don’t trade, and you simply walk away from the day without actually being involved in the market. And, of course, if the trend does continue, then your order is triggered when that trend does continue. And, at least, you are trading in the direction of that existing trend.
However, what I want to show you is, if you’d waited to see the ideal opportunity (which may not come), remember, we can’t always guarantee that conditions are going to be right in the market, so, if you are exercising patience (which is something you should exercise as a trader) and, if those market conditions do materialize, you can see the difference between a good market condition and an okay market condition.
[arrow indicator] So, what we have here is okay. You have a weak currency. You can match it against a strong currency, and you can use those pending orders and wait and see if the market comes to you. [arrow indicator] But these are not ideal conditions, by any means. However, 28 minutes into the market, if I fast forward through–
… you now have this situation. [arrow indicator] Now, first of all, I want you to realize how choppy the market has been over the last 25 minutes or so. (That’s what was happening initially within that first period of the market when most of the currencies weren’t really doing very much.)
However, look at the Euro now and compare that against the Canadian dollar (down here). You have the Euro, particularly, which is moving very, very steeply. (Look at the size of that move and how steep it is, over here, on the right-hand side.) It’s almost vertical. That is a very high probability trade, the way you are trading, with momentum behind you, which is going to push that trade very, very quickly to profit. And these are the ideal conditions that we look for in order to take a very quick profit out of the market. (This is 20 minutes after the market open.)
So, I think, just inside the [arrow indicator] time, here, you should still be trading at break out. (For me, personally, if there hasn’t been any activity within the first 30 to 40 minutes of the market opening, I would walk away because you’re no longer trading a break-out strategy. So I think this is just on the cusp.
What I’m really interested in showing you here, though, is inbetween the market conditions and how good a trade can be when you have that momentum. So, if I go over to the chart now, looking at the Euro against the Canadian–
… dollar and I bring that one–
… in to show you, this [arrow indicates] is that move (here). So here’s that market open. You can see, initially, that price reversed against the prevailing trend. And, then, things kick back in.[arrow indicates] This big push here, corresponds to what we’re seeing on the indicator–
… and I’ve marked with a red line [arrow indicated Horizontal Line 47196 1.48846] where the 28th-minute bar closed.
So, this is where the price would’ve been–
… at this moment (here) when you saw this pattern on the–
… indicator. So you could’ve entered there [arrow indicates Horizontal Line 47196 1.48846] with a market order. And you can see that, now, there’s no pull backs; there’s no hesitation at all. That has gone, very quickly, in one straight line up, a clear 76 pips, without any pause or hesitation. You’d have been in and out of your trade for profit within 10 to 15 minutes. That is the importance of looking for–
… momentum on this indicator and in the market. This is a much higher probability trade compared to that–
… simple trade where–[arrow indicator] yes, you are trading in the direction of the trend. You know that the Australian dollar’s moving down to weakness, [arrow indicator] but there’s no momentum there. That’s an “okay” trade, but it certainly isn’t the highest probability trade, whereas–
… if you just wait for the ideal opportunity, the ideal conditions, where you really do have the near-vertical lines (over here on the right-hand side of the indicator), [indicated by arrow] that is your high probability trade. They are ideal break-out trades. They’re the ones that you should have the patience to wait for, each day that you trade.
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