I have learned quite well the technical analysis and I am still learning, but whenever I try to analyze a chart, I always draw the trends. For me, everything is a trend. However there are few “fakes” or “Out of control” or “Indecisive” which happen when trend is not followed.
But I am not expert in fundamentals. I have heard that most of the investors who move the price are mainly the “big boys”; banks, hedge funds, institutions, etc.
So, in the next chart of USD/MXN I am presenting, it shows how there is not much activity, but when there is, I can see how these “big boys” are buying and selling. But I still don’t get how these kind of investors take these decisions like the red circle showed on the image:
Check the price it broke at 9 am. I still don’t get how after breaking a trend line, one big or several investors would begin to buy, expecting to still go up if there is a clear resistance line above. And of course, the price went down again to follow its obvious trend line.
I mean, these guys must be playing with a lot of money. How would a random spike like that occur?
while there institutional Forex activity, currency flow is subject to a number of events like goods commerce, stockpiling, and other factors which directly impact a currency pair even without being linked to currency trading;
institutional money tends to leave a trace, and real volume charts can help us filter out fake moves from genuine ones: try to load real volume info and read Emeraldorc’s thread on volume, here in Forextown…
Hi.
Were there any big news announcements at around that time? A lot of traders will dive straight in when these occur, then the price reverses often when they have properly digested the news.
So, what you’re looking at is one small moment in time during the life of a currency pair where thousands upon thousands of differing strategies and market participants are interacting in a centralized location.
You need to develop a trading plan which defines how you identify, interpret and interact with the market environment you have circled.
It’s not as black and white as you want it to be.
Jake
But do bear in mind that even the strongest patterns can fail, and it is what you do when this happens that can define your trading (everybody knows how to draw a trendline, manually speaking)…
I am nobody to give you lessons, but I would try looking up the price-volume analysis thread…
Yes, of course I keep in mind these kind of price actions where different strategies combine and currency flow happens in different ways, also note that this was a 1 minute chart, so it happens more often than long term. However I just wanted to discuss what’s behind this, the reasoning of why someone would buy at that moment.
At that time (9 am), the momentum was so slow, and i was just watching it, and it suddenly spiked, however, this spike, was going up like if people were euphoric of a new rally. What really amazes me is how it really stops at exactly the resistance line, this kind of price action makes me believe they are investors using charts, the ones who are moving this price and not other currency flow sources.
But if they have control over this kind of supports and resistance, Why make an euphoric buy when it all indicates a very high probable support bounce downwards?
What I have thought, is that they might take advantage of the minimum tenth of a pip and beating any commission and spread into what it would be, a minute trade. Is this possible?
Here are updated images of how at the end it went down as expected by the trends:
Ignoring the time frame on this chart, If I were to draw a trend line it would be the upward sloping green line above. The two points I would pick to draw the line through are indicated by the black arrows. The reason I would chose those points is because they mark the two lows through which the line can pass without passing through any other prices before the highest high on the chart. Those are my rules for drawing trend lines (they are not mine, they are old rules passed down for a long time by traders. Vic Sperandeo gives those same rules in his books).
I have also indicated the highest high across the chart with a green line and a green arrow. The red arrow and the red line indicate the minor low (the price move that dove toward the trend line) just before going to the highest high. Clearly, since the highest high, prices bounced off of the trend line a few times before finally going below it. The few failures to make a new high above the green line are signs of a change in trend to downward and this would be a great place to look to go short with a stop just above the green high line. That said, we do not have a confirmation that a downward trend has began until the price breaks below the red line, the last minor low of the previous upward trend.
The period wherein the price stays between the highest high and the last minor low of the previous trend (and the chart is within that period) is known as “making a line” by the old-school dudes and in W.P Hamilton’s book about Dow theory, The Stock Market Barometer.
Price ranges (volatility) can be high when they are making a line because of the indecision in the market.
If the price moves above the green line to make a new high, the trend will be considered to have resumed and the trend line will need to be redrawn to fall entirely below all price activity between the new minor low just previous to the new high.
Just some trippy thoughts.
PS the rules I describe are not for time frames under the daily. The reasons are a different discussion.
Thanks for your approach and thoughts Arbitrager! I really found useful your comment mentioned in the quote above. I am going to look for that book to search for interesting knowledge.
I also agree completely with you, however doing it into another approach, a more general one, we can see it really was a pullback:
My point with this is not really if it was indecisiveness or not. Whether it is a right trade or not, the investor thought it was ok to buy, but my principal concern is: “Why would they bet it on a very top resistance line, still in the head, and not just wait for confirmation?”
As seen in the image above, it is .32% and who knows if it was really going to make a pullback.
I am still curious to know if there are some kind of investors who would go for micro-trades, with durations of 1-3 minutes! As you can see, they stopped right at the resistance line, just pure price action.
Another reason you get spikes and rebounds off support/resistance levels is that huge numbers if traders use the same or similar strategy. Many are looking for similar entry and exit signals, so when price reaches a level that triggers their system bingo, they all enter or exit a trade, seemingly in unison.
If you look in Pipschool at the popular indicators, it often says these can be self-fulfilling due to the sheer number of traders using them.
One thing to look at would be the fundamentals of the USD versus those of the Mexican Peso, and then look at a historical chart like this, showing this pair over the last forty years: Zoom on historical exchange rates graph
You will notice that we are around a price level (15k)
that is basically very close to this pair’s all-time high: can this pair push higher? Is it due a major correction, or even reversal?
