Nice One

Take a look at the one hour chart of the Dow Jones below.  At Point A (previously in the day) we see a test/shakeout - a bullish sign.  Also at Point B we see what looks like a test.  This bar finished at 1pm (UK time).  As mentioned before, I avoid being in the market at or before the Open, so watched what the market did on the Open, and then at Point C I see my opportunity - this is a test bar - down-bar, volume less than the previous two bars, and it closes near the high.  This means the market dipped down to the low of that bar and did not find any sellers, only to close near the high.  Now I want to find confirmation of this strength, so I look down to the 10 minute or 15 minute charts.  On this occasion the 10 minute chart gives me confirmation (see the next chart down), and at Point A I see a test.  It is a black bar, volume less than previous two bars, and a narrow spread.  At this point I enter the market long and exit at Point B where a sign of weakness arrives (a narrow spread, increase in volume, and Tradeguider has also picked this out as a sign of weakness).  The narrow spread coupled with increase in volume shows that the price has been capped and there is little interest to the upside.  I took my profit but, in hindsight, of course, I could have taken more.  BUT we don't have a crystal ball, and this is real money we are dealing with, so it's best to err on the cautious side (in my opinion).  It is with increasing confidence that we can stay in the market longer, and this is something we develop over time, using caution, practice, and minimising losses.  It is losses that erode confidence.  Always maintain good psychology so that you are strong for the next day.

Back Into It

Many apologies for being 'absent' for quite a while.  Since Christmas I have had many other commitments that have not only required my time but also my attention.  Trading is a game of concentration and if we are not totally absorbed in it and we cannot give all our time and attention to it then it is best to STAY AWAY.  A poor psychological state will lose us money.  We want to protect our trading account.

Today, before the market open, I saw a nice sign of strength.  See the chart below which is a 30 minute chart of the Dow Jones.  At Point A we see an increase in volume.  OK, this volume is not ultra-high, but nevertheless it is an increase compared to the bars before it.  The next bar is up, which means that there was some buying at Point A, but the bar which is what we are looking for is Point B - a test - low volume compared to that at Point A.  Now the market opened, and then we need to see confirmation, which we see in the 15 minute chart (see further below).  This is a test, even though it is a black bar (meaning it closed level with the previous bar).  It has a narrow spread, and very low volume.  At this point I scrolled down to lower timeframes to check we had strength there also in order to get an optimum entry point, then went long.  I followed the bars, checking lower timeframes, where there was evidence of testing along the way.  This is why VSA is so good - you can check and manage your trade by looking out for signs that it is going to continue in your direction.  I exited the market close to the resistance level above, taking my 20 pips profit.  Happy with that.

An Experiment

Today, as I have an appointment later and need to go out, I tried something a little different.  At the market open I watched the one minute chart (see below) and traded a principle, purely on this timeframe, to take advantage of the market volatility.  It was a successful experiment.  Take a look at the one minute chart of the Dow Jones below.

At Point A, a few minutes after the market open, we have seen a down-move.  At Point A we have an up-bar on low volume (volume less than the previous two bars).  That means there is little interest in the up-side from the professionals.  I entered the market at Point A, short.  At Point B, the market has, over two bars, tried to go up, but on low volume.  This was confirmed on the two minute chart as one bar on low volume, so I knew to stay in the trade.  The market then falls nicely to Point C, but the volume as you can see is very high on this bar, and the next bar is up.  This is possible buying and a sign of strength, and this is confirmed at Point D - a low volume bar which comes back down into the area of  Point C (with the very high volume).  This is a classic sign of strength.  When the market goes back down into an area which previously had high volume (Point C) but on low volume, this means the supply has dried up - there is no interest in the down-side, and the market is likely to go up.  I exited my trade at Point D and took 10 points profit.  It's important to exit a trade when you see an opposite sign, ie. a sign of strength when you are short, rather than to wait and hope it will be OK.  This is not always the case.  The market is unrelenting and will chop you up into little bits at every opportunity.

This was an experiment, and not something I would recommend, and the utmost caution was required.  However, it does show two principles clearly - one of strength and one of weakness.

Beware the News

ALWAYS check when the News items are coming out.  You can do this by going to www.forexfactory.com and generally only take notice of the News items that have a high impact (coloured red).  I made the mistake today of not checking the News.  Take a look at the 10 minute chart of the Dow Jones below.  At Point A I went short (an upthrust).  However, at Point B the market turns around and we have what looks like a test/shakeout, so I get out.  The market then falls, to my annoyance, but on seeing the turn around at Point C (a down-bar, low volume, closing in the middle), I go long (buy), and make back my losses.  So ..... break even today too!

I then (obviously too late) checked the News, and there was News came out at 3pm - hence the confused signals.  If I had known News was coming out I would have been wary, and probably not entered the market until seeing a principle as a reaction to the News coming out - hence I would have saved myself the hassle.

When not to trade

Sometimes the market will go sideways, and even though you believe it to be weak or strong, if you enter a trade and nothing happens after 5 or so bars, then it is time to consider getting out.  I believed the market to be weak today at the market open, which, at the time of writing, appears to be the case.  But for most of the day it has gone sideways, then when it finally dropped, there was no clear evidence that it was going to do so at that time.

So no trades today.  I'm off to the supermarket.  Deep joy.  But I would not be surprised if I came back later to see there was an opportunity whilst I was out ..... happens so much!

Ignore the signals at your peril

Tom Williams often says "ignore the signals at your peril".  I did just that today and only managed to break even.  Below is a 15 minute chart of the Dow Jones, followed by a 10 minute chart.  If we focus on the 15 minute chart we see at Point A what we call preliminary buying.  As the market has fallen (and I was short at this point), high volume comes in, and the software has picked this up and given a green signal.  At Point B we see confirmation of this - a test/shakeout, at which point I closed out at took a 20 point loss.  However, on seeing the market's change of direction, I went long and closed out at a 20 point profit, so broke even overall.

Take a look at the second chart (10 minute), at Point A.  It was at this point that I closed out my second trade, and took my profit.  The bar at Point A has low volume (volume less than the previous two bars), as it approaches a resistance level (see the black line above).  Always be careful to watch what the market does at these levels of support or resistance.  If it approaches a resistance level on no demand (volume less than the previous two bars) then beware - this could be a sign that the market will turn around.  In fact, the next bar was down, but the bar after that continued up.  It can be annoying to watch the market go your way when you've closed out, but be happy with your profits.  There will always be another day.  It is caution and consistency that is the key to success.

Never try to tell the market what to do.  On my first trade I was convinced the market was bearish overall (by examining the daily chart), so even when signs of strength were coming in on the lower timeframes I chose to ignore them, thinking that the market will continue down.  The market may well be bearish, and finish down overall today, but in the meantime it will whipsaw, go up, down, sideways - this is how the professionals like to knock us out of the market.  So always beware, take notice of the signals, and use the utmost caution.

Trade the Trend

The chart below is a 10 minute chart of the Dow Jones.  Although the title of this post is 'Trade the trend', I saw an opportunity for a short position at Point C.  At Point A we see that the market has come up to a resistance level, marked R3.  My Tradeguider software makes it possible to put in support and resistance lines.  They are important levels.  Many traders use these levels, so they are significant and must not be ignored.  Watch the market as it approaches these levels.  If it is slow and approaches a resistance level on no demand (volume less than the previous two bars), as it has at Points B and C, then it is possible the price will fall in response.  Also, the bar at Point A has very high volume signifying possible selling by professional money, and hence a sign of weakness.

Now I say 'trade the trend', because the trend is very powerful.  Any trades against the trend (like I did today) are risky, and don't expect them to last long.  If the market is bullish then any down-moves might be small.  The power is in the trend.  However, as I was out this afternoon and looking for a trade in the evening I took this short position (sold) at Point C.