TradersClass

Superior Trading Skills through Education

 
It's not Rocket Science Print
Written by Site admin   
Wednesday, 12 April 2017 10:24

  Detective Clipart 25573Just some detective work as a discretionary trader. It's not slavishly following a 'cast in stone' algorithmic style, the type of system that only considers a never changing set of criteria that is much better traded by a computer than a human.

Detective work takes a look at the chart to find those clues that just might build a case to put on a trade.

One of our recent Traders Class trades was the New Zealand vs Japanese Yen. The evidence started with a classical charting pattern, a Double Top.

  nzdjpy

The chart shows the right hand, second top, that formed in January and then price action backed away.

The red line above it, picked out the high of the first top in December and, at the bottom of the chart, our Activity Index set up a classic divergence pattern with a much lower high.

This telling us there was much less buying activity during the second top forming. These were the first two pieces of evidence, so this pair was now put on watch!

We just needed to wait for the neckline to give way at 80.66.

Then there was a nudge from the underlying fundamentals. At the end of January, Trump 'talked' on the phone with the Japanese PM Shninzo Abe, inviting him to visit. Trump had previously tweeted that the Yen was way too low, creating unfair competition. The scene was set for Abe to receive an ear bashing and more if he didn't allow the USD to weaken against the Yen!

Add in New Zealand finance ministry comments that they would like a lower NZD to help their dairy industry and the background was set.

Even without having read this news, the chart was giving way niceley. On 9th Feb a rally started that became another classic retracement patern, the A-B-C, Zig-Zag-Zig. It's THE most common pattern in all markets.

The C wave then completed just under the Fibonacci retracement 61.8%, another classic trend bounce back and continuation pattern.

During this A-B-C bounce, the Volume Activity Index dropped below it's zero line, the Swing Trend turned red - the down trend is underway. That's now four more pieces of chart evidence pointing to a potential down trend. 

Price now tested the neck line, bounced, and found sellers pushing it back down from the middle of the Bolinger bands, one of the other tools we use.

Finally the neck line broke down and so the trade is fully confirmed. Seven pieces of chart evidence had presented themselves plus the two, non chart, fundamentals.

The lower red line was the classic double top target level at 313 pips and it's still running - adding on a further 150 so far.

Evidence like this, is readily on view, we just need to know hat to look for. Twice a week, Traders Class, members receive updated videos showing the charts that are presenting the evidence that gives us runs like these.

 

From the blog

The NASDAQ takes a 500 point tumble...

 

The NASDAQ takes a 500 point tumble...

Markets thrive on uncertainty and that's exactly why these false break-outs work so well. The majority expect the new high to be just the start of the next trend wave. The warning signs were there, a combination of divergence, volume, wave count and Fibonacci

We just needed price action confirmation and this started with the bearish engulfing candle at the high. The next few days neatly set up the sell level as the Colour Charts confirmed. Then, tumble, it did.....

Where we are now is in the happy position of sitting on a very healthy profit. However, there are now warning signs of a possible rally that could evaporate those profits.

The prudent trader will be converting most of those paper profits into real ones, leaving just a small part of the trade on for the gamble of an even bigger move.

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