EDITā¦After posting this, some of the pics are hard to read due to resizingā¦Iāll look at trying to get better pictures updated here to make it easier to read. Although, I think the important thing is how I went through the gyrations to form a bias for this trade.
EDIT 2: Updating rationale for declining to be short in the market yesterdayā¦there was a key point regarding the ADR that I forgot to document. It was a factor I considered, but neglected to document.
OKā¦this will be a long post, but I wanted to document a thought process I went through this morning and also my daily checklist to trading as it evolves. This is intended to be a development exercise for me to be able to reference back to as I mature as a trader to see where Iāve improved and use as a reference point. Additionally, it should also provide others an opportunity to comment and share dialog in what I hope will result in some meaningful discussions through replies and dialog among traders learning the ICT approach to the markets.
The ICT is like Hooters with a slight twistā¦the restaurantā¦not what youāre thinkingā¦āSimpleā¦yet refinedā whereas Hooters is ādelightfully tacky yet unrefinedā (Hey ICTā¦after I make my first million, Iāll take you to Hooters at the Inner Harbor to celebrate.
)
I know this will take a long time to write and will have many pictures at various steps through the process. Hopefully the community likes it.
OKā¦hereās the chart when I first started getting grounded for the day at around 6:30am this morning.
What to make of thisā¦A rapid swing higher, some consolidation, followed by an equally fast retracement. How do I get a daily bias to be long or short.
To answer that, thereās 3 places I look to get get a bias.
- fundamental information
- Market flow
- Pivots as well as using the bias that the daily low/high is established in the first 5 hours of a trading day (00:00-05:00 GMT).
Fundamentals
Here is a link to the perf chart for US Treasuries
PerfCharts - StockCharts.com - Free Charts
What I notice from this link is that the 2 and 5 year broke to a higher high yesterday and the 10 and 30 year did not. Also, in general, it appears to me that a bottom is forming looking at the recent trand and this chart could be positioning for a move higher. I have divergence on 2 of the treasuries making a higher high and 2 not. Could be a change in sentiment resulting is a ārisk onā sentiment. A change in sentiment would mean bearish for the Euro-USD (risk on meaning a desire to own dollars, so selling the euro as a result).
Noteā¦not sure Iām fully using this chart correctly so feedback is appreciated. I found this thread a week ago and have been reading the posts and watching videos as well as conducting my own analysis of the charts in real time. So and other insights people have on this is appreaciated. Even though that is my analysis from aboveā¦I havenāt been looking at this enough to trust myself to actually use it in analysis.
Next, I looked at the dollar chart.
$USD - SharpCharts Workbench - StockCharts.com
What I notice on this chart is the dollar has been ranging the past few days. We are retesting highs on the dollar from last week were we had the upper wick hit the same level on Thu/Friday last week. I also note on Thu/Friday last weekā¦we established short term resistance and both days were down days for the dollar retracing a strong up day on Wed. My bias is the dollar seems to be in indecision if it wants to move higher from the āgolden crossā that formed on October 12th or continue down. (golden cross being 50SMA crossing over the 200 SMA)ā¦noteā¦since the US stock market run up that started on October 4th (a weaker dollar results in a higher equities market)ā¦the golden cross formed early in this most recent stock run upā¦just find that interesting.
But anyway, but to the E/U analysis from looking at the dollar. It appears to me the dollar is consistently retsting the 50 SMA on the bottom side and could be bound to the upside by resistance formed last week. When this chart goes higher, it means bearish for the E-U. My bias from looking at this is we are in consolidation and waiting for direction. Until direction is established, should expect a reach down to the 50 SMA and look for resistance to hold. Translating that to the Euro/dollarā¦expecting downward retesting of the 50 SMA means bearish dollar or bullish Euro.
Another interesting observation I have as I learn how to tie fundamentals to trading biasā¦the past 2 days have been strong down days for the Euro-USDā¦but the USD index isnāt trending. There seems to be little correlation to the movement in the EurUSD compared to the USD index. So againā¦as I learn to use the information these charts tell me, Iām not trusting my analysis of them in my trading biasā¦but simply starting to incorporate looking at them to see how the information here can be utilized in the future.
Zero Hedge
I also read zerohedge.com to get some fundamental analysis to get insights to the rumors and headlines that is moving the market. Recently, they have been giving a lot of attention to the overall situation in Europe (Greece, Italy) to give some ideas of the news coming out and what you donāt get from a basic forex news feed. Overall, zerohedge was indicating today was a quiet day and not a lot going on.
Market Flow
Donāt feel the need to post the market flow charts. Everyone should know the market flow from the daily, 4 hour, and hourly is bearish. The most recent fractal high is at the same level as the previous fractal high.
So my bias from market flow is Bearish.
Pivots and using a bias that the daily high/low is established between 00:00 - 05:00GMT
OKā¦now to start dressing up my naked chartā¦
First, the pivot calculatorā¦
On the pivot calculatorā¦I see an bias to trade between MS1 and MR2 for a range.
One question I have on this calculatorā¦there are separate fields for open and close. I know for close I enter the prior day close, but for openā¦do I enter the open for today which almost always should be the same as the close (at least within a pip or 2). Or do you enter the prior day open. It makes more sense to me to enter todayās opening price and Iām wondering if this calculator has you enter open as a separate entry to account for potential Sunday gaps from the weekend. Anyone that can respond to confirm which open price to enter into the caluclator. I used the 5am GMT (NY midnight) opening price which was the same as the closing price.
And now, my first 15 minute chart.
OKā¦I put some information on the chart to make some sense of it. I added the period separators and daily pivot macro indicators. I also drew in the midpoint horizontal lines (the white dashed lines) to highlight mid point levels. I also use the āisessionsā indicator to highlight my kill zones for trades. I also added the ICT Trader Trinity indicator to get the prior week high/low plotted. In addition, I also plotted a line for the high of the asian session range body of the candles (the short/short/long dashed horizontal line)
Here are my thoughts.
-
Price has just broken below the prior week low (the line indicated by the dashed green line from the TT indicator). It also appears to have formed some turtle soup on this breakout and the turtle soup is right on top of yesterdays DS2 level.
-
Todays MR1 level is pretty much right on top of the DS2 level from yesterday. Given the bias from the pivot tool being MS1 to MR2, I could be biased to the upside since we are trading right at MS1.
-
We are in the buy zone of pivots
-
For the London open timeframe, we saw a significant price move up a little consolidation, then a reach higher for a 157 pips up move for the open and hour after open. We are now retracing back down and the first 30 minutes of the NYO is down.
-
The retrace down is in a OTE for the move upā¦but the pace of the move has me nervous. Thatās a pretty fast up move and down move.
-
The price is trading right at the Asian session high of the range that was established.
-
The move up moved back into the range of last weeks weekly candle and this retrace down just moved back below last weeks low.
UPDATE: - The ADR for the EU is about 165 right now. We had a 157 pip up move, so an extended down move is not likely. Doesnāt mean it canāt happenā¦but playing probability.
Assessment
I decided to do nothing. I felt like I had a lot of conflicting signals and not enough confluence to take a position for the following reasons:
- The pace of the move and retrace had me nervous. Nothing was on zerohedge at this point in time to explain what was happening to drive this.
- Market flow is down on all timeframes.
- We have been moving down since the market opened on Sunday without any significant retraces from higher timeframe charts. There have been retraces that could be identified on 15m charts, but hourly, 4 hour, and daily are showing no signs of retracement levels.
- The pivot tool caluculator is telling me to be biased long.
- The Asian session high could now be resistanceā¦but it is untested. We are trading near the asian range high now, but no indication if the resistance turning support will hold.
Given the mixed signalsā¦i do nothing.
My plan for the rest of the NYO session is as follows:
- If price trades downā¦This will be a no trade session for me UPDATE: and likely no trade today. The ADR range has almost been filled with the up move.
- If I get another up move and retrace with a OTE, I will evaluate then.
Nowā¦fast forward to the 8:30 15 minute chart for my analysis here.
Wowā¦I canāt believe it. We got an upmove and retrace back to the OTE during the NYO session. As I said aboveā¦if price continued lower, I was going to stay on the sidelines for this session. The only scennario I would have entered is if NY saw an upmove and retrace.
Hereās the diffeneces that I considered to make a trade from having a bias now versus before when I saw conflicting signals.
-
With the moves up and retracingā¦I see today as a ranging day, not a trending day. So I give more weight to my pivot trade bias even though market flow is down on all timeframes
-
Knowing the structure of the markets, a retrace is reasonable after 2 strong down days.
-
I had just listened to one of ICTās feedback videosā¦the 3/9/11 one. In the video, had had a monologue that seemed very appropriate for this specific session. He highlighted you donāt have to have a bias for where the market is going for the entire day or out in the futureā¦only the next couple hours. With 2 up moves and retraces into OTE zones it seemed reasonable to expect an upmove for the next couple hours.
-
The asian session range from last night is now tested support in addition to prior resistance becoming support.
-
Itās reasonable to expect some bouncing back into the weekly range because we have recently brokwn lower.
So I decided to take a long position. I entered a buy limit at the top end of the Asian session range. Even though this represents more tahn a 78% retrace, I had a feeling the price would reach back to this level for an entry. This allowed my to tighten the stop a little bit.
I entered a market order buy and got filled at 1.34649. I set an initial stop loss at 1.34336. (some slippage on entering the market order is why itās not an exact 30 pip stop loss). I actually entered this order on my mobile phone as I was commuting on the train to work. I realize I made a mistake in my lot sizing stop loss placement here.
Here is a chart showing the trade and after the pic, Iāll walk through my trade management for this one.
I closed the trade in 3 parts. The first part was manual after a 50% retracement move up and moving back down. I waas still a little unsure if the trade would work out, so I closed 30% after it looked like the trade might fail after an initial move up in my favor. It went 25 pips in my favor, and didnāt want to have a failed trade just because it didnāt reach 30 pips for me to close out 30%. So I took 30% off the table and moved my stop loss to break even.
Then I closed another 30% at the 138% extension level and MR1 confluence.
I was holding out for R1, but the trade moved back down and closed as a 15 minute candle closed below the pivot.
Overallā¦feel it was a great trade. Made 4% of my equity. And was a good exercise on forming a bias for the day that proved to be a winner.
The candle may end up down for the day with this most recent move downā¦but I made money in the hours I was trading to the upside because your bias has to be where is the market going the next few hours. Was difficult to go against all 3 higher timeframes showing bearish market flow. But this one worked out.