What’s the Right Trade
We keep getting emails from traders saying they like What’s the Right Trade. We are pleased and will continue doing What’s the Right Trade?
What’s the Right Trade: FX
In this week’s What’s the Right Trade we are look at the one of the key FX markets: the Aussie$/US$. Here we are looking at a 15-minute chart with the Weis Wave cataloging tick volume as a substitute for actual trading volume. Is this substitute legit? Yes. Actual volume is near impossible to obtain in the FX markets. A couple of years ago, however, one of the larger FX trading firms published a study showing that because tick volume is highly correlated with actual volume, traders can use it confidently as a surrogate for actual volume. You will see in this What’s the Right Trade that tick volume and the Weis Wave give the trader a special edge in FX trading.
What’s the Right Trade: Decision
Decide whether you want to be a buyer, seller or need more information at the decision point in the video. Be sure to say why this is your decision. Have fun with this, and we’ll post the answer in a few days. I’ll be traveling for the next few days so won’t be able to address the comments as usual. But don’t let that stop you! I’ll catch up in a few days.
What’s the Right Trade: Developing Your Technical Skills
Are you finding the What’s the Right Trade useful and educational. We hope so. We also have a full range of Wyckoff training courses that go into much greater depth and detail and cover a wide range of topics you might be interested in – all at a 25% savings for the Wyckoff Black Friday Sale. For more information, click the link below:
This looks a bit like a news announcement. I would be ready to go long but wait first to see what the next bar is doing.
Reasoning:
1) Price initially is in a downtrend and respects the supply line nicely. There is good volume on the downswings (larger waves) and small volume on the pull backs which are small.
2) Then price drops quite quickly down from the supply line on larger candles. There is a small reversal but price turns down again at the 0.6950 level.
3) Price continues to drop quickly on large candles and good volume. It stops around the 0.6945 level. This was a selling climax I think.
4) There is an automatic rally followed by a secondary test on lower volume. Price moves sideways on low volume
5) There are 2 springs of the selling climax with the first failing. The second spring is very close to the supply line and is in a position which may be what Wyckoff called the springboard.
6) Price surges up from there on large volume and a wide spread candle. This powers through the supply line and the top of the sideways action to the left (range) probably picking up short’s stops on the way. This may be called a jump across the creek?
7) Price then encounters some selling as price closes at the same level for 3 bars. Price action goes mostly sideways as there seems to be a struggle between bulls and bears. This area corresponds to the region to the left just before the increased downtrend.Volume isn’t very big but candle size is reasonable so I think there isn’t a strong effort put in by either side.
8) Price finds support around 0.6950 which is about a 50% pullback on the up move and corresponds to where price hesitated on the big down move which could have been preliminary support.
9) The last candle closes on the high and may be ready to go up now after this possible back up to the creek. Probably I should go long here but am a bit hesitant straight away due to the large candles and indecisive price action just above. A steadier pullback on low volume and small candles would have been nicer. So if price starts to go up I will enter as the sideways action before the jump across the creek will have built a nice count for a good R:R trade.
Richard,
It may have been news. I have found over the years that news will typically drive in the direction of the technicals. Traders step back and hesitate because of the volatility, but that may be what the pros want. Tom Williams talks about this. Traders on the wrong side of the market will get locked into a bad position. Traders not in the market will get locked out. Both become fuel for the next move up as shorts (in this case) go to cover and those not in the market scramble to get a position on.
Good overall analysis. An important question to ask: Are there enough aspects of bullishness to warrant a position at this juncture or is further confirmation of bullishness needed?
Dr Gary,
Good question.
This practice and “Deep practice” which I have recently started, really make you think what is going on, why and what is most likely to happen next and so hopefully leads to better trading decisions.
So with my basic understanding of Wyckoff the bullish type factors may be: 1) Price oversold with possible selling climax. 2) Sideways price action and then break through resistance and the supply line on high volume. 3) Pullback on low volume and a possible spring.
But, at this stage of experience, I am not confident enough that price will go up because sellers seemed to come in quickly to stop further upwards movement. Maybe absorption is going on but I will wait for further confirmation before taking a long trade i.e. such as price continuing up and then pulling back with a smaller swing than the up swing, to the bottom up-trend line (or above it) on low volume.
Deep Practice is designed to hone technical skills, understand the mental game, and build confidence. It’s a program offered no where else based on 45 years of psychological research on what makes great performers in all disciplines great. It’s the quickest and most effective way I know to develop chart reading skills.
What’s the bigger picture here? Is it one of strength, weakness, or unable to be determined. (Hint: This one can be determined.) Is the bigger picture big enough to take a position? At this stage of your understanding and in these types of exercises, try to see the bigger picture. Things like absorption and other, more refined analysis can come later. Don’t slow down your learning with these kinds of questions. Try to make your decision based on the overall context of the market.
Dr Gary,
This one is a tough play but I would have a slight edge to the downside. And here are my reasons. Well for starters there is weakness in the background. That expanded range bar went up on extremely low volume (little effort for big results) a typical mark up move by the smart money. The next bar has a higher high but closes on the prior bars close with increasing volume.The third bar has a lower high with a lower low with increasing volume. It close in the middle of the bar and in the same area of the prior two bars.The forth bar with ultra high volume could not get past the high of the second bar which to me indicates that there was to much supply present. I think that the market is in the redistribution stage. Last of all, the market is starting to move lower with increasing bearish volume. Those volume bars show way to much effort with very little results. The market should have moved a lot higher with the increase in volume bars. Furthermore. before the last bar you had two expanded range bars closing on the lows. In addition, the bullish volume is running out of gas.
Dan,
Be sure to watch the answer segment, which I’ll post on Wednesday or Thursday. You will want to study the answer carefully, comparing it with your analysis. Then, go through your charts and look for similar situations and see how they resolved. After doing this, you will “own” this important setup.
Hi Gary,
Price falls in the first half of the chart 500pips on good supply volume to, I assume, an over sold position. Preliminary support sets up with SOT in PB, closes are middle of the range to firm and we get a nice little rally with a demand weis wave larger than anything on the chart so far. Price then moves sideways between a range as accumulation takes place and supply volume drops off. Preliminary support is finally broken with what could be climactic action or a minor climax with a mid bar close indicating demand again. Supply volume has all but disappeared, price holds within the range and a classic test sets up with a reversal bar that pushes down but closes firm. If a long wasn’t taken 3-4 bars prior, then this would have been a good place.
Price takes off to the upside (JAC) on a very wide ranging bar and strongest volume the chart has seen- typical price action in FX markets! Its pushed thru an area to the left where supply dominated the chart and holds in a range between 0.69650-0.69850, absorbing supply. Can see this with the large weis wave volume and little comparative result.
Price then backs up to the creek (not quite a 50% retracement which either suggests strength or that price hasn’t backed up enough yet), supply shows little volume, we get SOT in PB, price is sitting on support set up from swing high to the left where demand first showed up, a reversal bar sets up a minor spring, and I’d be entering long on the close of this bar with this story and low risk. I’d be looking for price to push thru 0.69850 and go higher, reasonably quickly. If price continues sideways within the range, I’d scratch and let the chart tell me what its likely to do next.
Dean.
Hi Gary my analysis is as follows.
The AUDUSD has been in a down trend with LL and LH. Seller have been in control until what appears to be a selling climax over 3 bars where prices have made a new low to date of 0.6945 (fourth down wave from left). On this down wave comprising of 3 bars the volume is as high or higher than any of the proceeding down waves even though the duration is half as long. Also the downward stride has shortened.
Analysing the fourth down wave further, the first bar in this down wave is an up thrust of the proceeding bar closing on the low indicating weakness, sellers are in clear control. Next bar is down, range has shortened, close is in the middle, volume is very high indicating that some buying has entered the market. The third bar is also down on wide spread with close above mid range, close is near to the proceeding bar. Again buying appears on this bar signalled by the mid range close. At this stage the price appears to be in an oversold position related to the trend channel.
The next bar is particularly bullish. We make a new low and then prices reverse to close slightly up.
From this point the rally to a high of 0.6964 appears to be the Automatic Rally which is confirmed by the next wave which is the secondary test of the proceeding selling climax down wave.
The next six bar prices are range bound which is resolved by a drive down in a shakeout type fashion. On the bar that price breaks the low of the selling climax low buying steps in to support the market with a close mid bar. Volume is very high and one would have to expect further testing of this bar. This bar springs the trading range support level of 0.6944. The test comes just before the breakout bar where prices penetrate the close of the spring bar and reverse to close firm.
The breakout bar clears the trading range to the left on massive volume in a clear sign of strength signalling a change in behaviour.
After the breakout bar, a trading range forms which sit above the Automatic Rally high support level.
The last three bars are of particular interest considering what has transpired to date.
Third bar from the right is a wide spread down bar close on the low on average volume indicating that sellers are in control but the supply is not overwhelming. The next bar is an up thrust bar closing on the low wide spread on increasing volume. Downward progress has diminished and prices are at a critical level right above the established support level of 0.6964.
The last bar springs the low of the trading range and reverses to close firm.
I think we have all the required signs of strength to take a long at this point and they can be summarised as follow:
1. Down trend has been stopped by a selling climax in an overbought position with shortening of the thrust.
2. Automatic rally followed by a successful secondary test which held just above the low of the selling climax.
3. Spring / shakeout of the low of the selling climax followed by a test.
4. Sign of strength / breakout of the trading range formed between the low of the selling climax and the high of the automatic rally.
5. Test of the breakout rally which holds above the automatic rally support line.
With all the above signs of strength a long is warranted immediately.
Gary, in you answer would you be able to perhaps give some indications on where you would place your protective stop.
Adrian
Good analysis, Adrian. Stop would go a tick or two under the low. That’s the danger point. If to far for your account, you either reduce size or just paper trade the setup. Even if you can trade it outright, you will benefit from paper trading it. Most trader don’t understand this (and actually are unwilling to understand this, thinking if it doesn’t have money behind it, it isn’t worth doing), to their distinct dis-benefit.
Dear Gary,
difficult to say if I would buy it in real time situation, however it is SOS, retest of reaction high before a low and spring, so more bullish to me than bearish. What I don’t like is two wide down bars with lower end closes just after the upthrust and SOT. Individual bar volume would help a lot here, as I’m not used to wave volume. I would pass on this and would wait for a deeper pullback.
Also small range spring bar looks like no demand.
It appears the downtrend has ended based on the change in the stride, or steepening of the decline causing an oversold condition. In addition it appears the price bars with the highest volume on the way down closed in the top of their range. Finally, the spring before the big up move would be further indication of strength. Actually, i may have taken this trade on the test after the spring bar right before the big up move, having bee n convinced the downtrend had ended.
.So, I believe the big up bar is a jump the creek breakout situation. i think the bars following are the reaction or testing of the breakout, The volume on the down bars is significantly lower than the up bars. and i would likely take this trade on the next bar open after the current reversal bar, with a stop below the tail of the reversal bar.
Keep assessing like this Craig, and you should be all set.
Good afternoon,
We have been in a down trend, price has touched the supply line 3 or 4 times, it is clearly respected. This supply line will be A.
After the first 12 bars have been printed, we have A and the demand line aa. We break through aa on high volume, its a large down bar, closing on the low, this happened with increasing volume, giving the move validity. Sellers in complete control. This is the largest down bar on the chart at this time (lets call it bar Z). 6 bars later we make a new LL, and can add a new demand line B. New channel is A,B
From the LL – add a support line, from here we have a rally and and it ends on a bar that dips into the area of bar Z, (lets call this bar Y) (bar Z was a previous area of supply) Buyers are unable to make a close in this area, which suggests to me that supply is still present). Noting that this was the highest up wave on the chart.
From Bar Y. we fall down on increasing volume ( fairly large move 150 pips). Although there is one big difference, it is the lowest volume down wave since the down trend began and this down wave is smaller than the previous up wave.
It appears as if were in a period of accumulation, bar Z to the LL was a selling climax. In this range we find a minor resistance level around the 69550 area. We hug this line with a cluster of closes for 8 bars, we then break the support from LL (call this bar X) this bar is a wide spread, down bar, closes in the middle, most importantly the volume isn’t large enough to break into new ground, it doesn’t draw out any supply of great significance.
This is the final gut check, sellers came in slammed it down, broke support, buyers came in closed it in the middle. It does make a LL, and closes under support , however it doesn’t test the demand line. Could be a shakeout bar, (fish stopping etc. before the move up) we can also see SOT( downwaves getting smaller)
The next bar is the confirmation required a nice test, low volume, dips under previous close reverses and closes above the close and right on support .It is also an inside bar. Most importantly here there is no follow through from the weakness of bar X.
An aggressive trader could place a long above the close of the test bar (certainly for an lower TF trade ,5 min).
The following bar rallies and tests the minor resistance again, price drifts for 6 bars, notice that the high of the rally bar and the new LL (put in from bar X )we can draw an apex, energy is building for a move.
The last bar breaks the apex to the downside, dips under the test bar then reverses to close in the middle, now the market is ready, (one last check)
The market smashes through the confluence area of minor resistance and the supply line on ultra high volume, with the largest spread up bar (or any bar) in the chart. This in turn creates the largest up wave on the chart, a COB.
This is a huge move with very heavy volume, may take a while for the market to digest. However, we form a range, looking at the last 3 bars (discounting the last bar) these two down bars dip into the previous supply area of bar Z. The fact that the last bar on the chart reverses in this area, dips under the support and closes firm, shows that there isnt any supply left in this area. We are now poised for another move up. In a smaller TF an aggressive trader could trade this spring.
Personally I would be looking to long this market, would I establish a position as yet, perhaps not , this move drew out high volume, market is still active producing wide spreads etc.
Either a lower volume retest into bar Z area, I would long, or perhaps a test of this spring, I would like to see a little more confirmation, a further SOS before adding to my position (if taken a trade from the previous range) or establishing a new one. If the market broke 69850, a low volume retest of this level..
Greetings Gary,
There is INSUFFICIENT BACKGROUND for a 15min chart.
If I were trading a 15 min chart, the objective would be a significant intraday swing or perhaps a multi day position, hence I would need to know more of the multi day background to formulate the story to support a trade using this time frame.
Is the Low of yesterday an ice line with price coming off a multi day high and potential distribution phase, and today’s rally is a test of ice, or is today’s Low testing yesterday’s very early morning jump across the creek and a potential multi-day accumulation phase that led to a very powerful rally which is not displayed on the chart? I don’t know, as all I see is the last 2 ½ hours of yesterday trading, so will stand aside on a 15min chart. Realistically, I could not trade a 15 min chart without at least yesterday’s high / low or ideally all the relevant background.
Without more background, I would at least change the chart to ticks vs time, to reveal more detail, especially expanding the picture of price action for the last 10-15 15min price bars and hence provide more information to do a deeper dive assessment and consider the merits of a potential intraday trade. Otherwise, I would be handicapping my decision making process by using inferior data while the savvier competition will scoop the edge with tick based charts for this particular scenario.
I would not place my pole into the water looking to fish on a 15 min chart without more background, or at least change my fish finder to display a tick based chart. Also, as a side point, I would move to a lake with more transparency and trade the Aussie futures vs Forex.
Stan,
While i would agree that having the daily highs and low, trend, and other higher time frame data can be vitally important, we are just looking at the principles on this chart. Do you think there are sufficient Wyckoff principles to take a trade here? I think there are.
I find that many times on the intraday, the daily may be in a downtrend (for example) and we are far away from yesterday’s high or low, and the intraday is calling for a buy. The daily, in otherwise, isn’t all that helpful. We can’t set out all the multiple layers of support and resistance here (and, again, I do agree with you, that would be ideal), unfortunately. So, I try to select market conditions where the principles are readable on the given time frame. I think that this is the most educationally valuable for the most readers of this blog. Given these limitations, see if you can work this out.
Gary,
The bullish background of the spring, its 2 tests, and the subsequent JAC, has NOT been overwhelmed by any overtly bearish CIB, hence I see the 7th bar back from the right edge as the 1st test of the JAC (the .6964 level) and the last down wave as the 2nd test of JAC, and thus I would buy the close of the last bar on the chart with a stop a couple of ticks below the low of this bar.
Following provides additional detail to sustantiate the trade.
Current day activity had 3 High V down waves, reaching a low at about .6944, with price bars clearly showing buying on the last 3 bars of the 3rd down wave of current day (4th down wave on chart).
Followed by a reaction rally to .6964, then trading range activity / possible accumulation.
Price then falls and forms a potential spring on a bar with about a mid way close implying some demand. The up wave that follows the spring has the highest up wave V of the day and is also a potential CIB, subject to confirmation.
5th bar after the spring is a low V test of the spring with strong close of bar and 1st good buying opportunity, and 1st confirmation of potential CIB.
3 bars later there is a 2nd test of the spring, with strong close. A tick chart would likely confirm the high volume of this bar started after price rejected the low of the 1st test and volume increased as price climbed into a strong close. The 2nd test adds to the likely confirmation of CIB and is the 2nd good buying opportunity.
The 2 axis lines/areas in the vicinity of .698 and .699 are areas to anticipate likely selling and hence potential targets for the 2 longs. With the data displayed, taking entries from the tests of the spring have a reward to risk ratio in the order of 3 or 4 to 1 (eyeballing). The 2nd test of a spring is my favorite entry, but does not always present itself, hence I will usually enter on the 1st test and look to add to a position with the 2nd test.
10th bar from right edge is very wide, great EOM, strong close, on very high volume. However, this 15 min bar likely coincides with the start of early London morning / pre-market London trading. Regardless of what it coincides with, on a tick chart there would be several bars with bullish indications but not one overwhelmingly wide EOM bar. I am always suspicious of exceptional activity outside of prime trading hours.
This 10th bar leads to an up wave with demand volume overwhelming supply. However, there is clearly selling present and price can’t close above the .698 axis area.
Price then has a 1 bar retrace followed by a 2 bar up wave on about the same per bar volume of recent price bars. Very little upside progress but nothing overtly bearish.
The last 2 bar down wave is on lower down volume than the preceding up wave, with the last bar of this down wave having about twice the volume of the preceding down bar, with SOT, buying off the low and holding the low from 5 bars earlier and holding above the reaction rally high of .6964 with buoyancy, hence nothing overtly bearish about the down wave and story remains more bullish than bearish.
The bullish background of the spring, its 2 tests, and the JAC, has NOT been overwhelmed by any overtly bearish CIB, hence I see the 7th bar back as the 1st test of the JAC of the .6964 level and this most recent retrace as the 2nd test, and thus I would buy the close of the last bar on the chart with a stop a couple of ticks below the low of this bar.
As stated in my earlier post, since we don’t have the complete background, I would be very cautious about this trade. If yesterday was clearly a very bearish day with evidence that distribution has occurred, with .699 being a very clear and unquestionable ice line, with potentially large P&F downside objectives that have not been met, then today’s action would not be overtly bullish in the overall context. I would still take the 2 trades as tests of springs, as they have great reward to risk ratios, but probably pass on this last long and wait for a higher reward to risk for a short set up if price can get back to the ice line.
The last trade just appears to be too easy of a set up as a test of JAC, and hence my original comments about the complete picture. Often the trades that appear to be too easy turn out to be traps and without a complete background picture, I would be very suspicious of the easy set up.
Hi Gary,
In the chart study for this week’s episode I would be a BUYER. I see a downtrend with good supply that starts to plummet on high volume suggesting a SC. This is followed a sideways range with a lack of supply, some buying in the price action, a spring of the SC low which is then tested on NS and a clear bullish COB representing a SOS. It shows strong demand and great EOM up driving through the local resistance (mini creak) at 6955-6960. Finally the market shows a lack of supply in the shallow pull back – holding gains, testing on top of the prior resistance, with SOT in the last few bars and a spring of the mini trading range. A perfect long setup with strength in the background.
Many thanks for taking the trouble to setup these weekly exercises, and Happy Thanksgiving to you and Helen and of course Aster!
Brian T.
Good analysis, Brian. As Dean said above, you put the trade on based on the chart conditions and then you manage it. If it starts to back up on you or just continue sideways, you can exit. Buying close to the danger point means buying at the point of least risk. That is what is called for here.
Hi Dr Gary
Ok this is how I see it, the downtrend has been broken on good volume and then consolidates into a sideways range. The highest volume bar on that chart dips back down into an area of support around about the .69650 area. After this bar the volume drops off and the price settles into the range. Of interest is the fact that the 2nd last bar looks bearish, is on increased volume but fails to have any follow through to the downside and the last bar looks to me to be a low volume test indicating supply has dried up. Supply has probably been absorbed as the range has developed and I would be long on the close of that last bar. If I’m wrong well my stop is under that range and my loss is minimal.