Ivob's channels, volume, and VWAP thread (EUR/USD)

Thank you.

A successful continuation? Price make a point 1, break out (breakout = one complete bar outside channel). After that I expect a retracement (or sideways movement!) which makes a point 2 and point 3 is the start of continuation. Note that the retracement always takes longer than the 1->2 move unless volume is very very high. It is successful if point 3 continues the move. Note that channels often overlap so point 3 can be inside the original channel. Today I will give special attention to annotating point 1-2-3's as well as other stuff.

Good trading.
Ivo

Failed breakout of a sym pennant... The fbo bar is peaking volume... at the opening this is really a signal and in general sym pennants are very powerful, I don't pay much attention to flat top and flat bottom pennants except when the inside bar is higher volume than outside.

Took short the bar after the FBO as soon as I noticed volume dropped. Next bar confirmed. Stop quickly to BE, and monitor for a move down and take some partial profits at 1.24 and the low. I do not move stops a lot (except to BE) but prefer to take partial profits.

Ivo

point 3 down completed... carefully monitoring now for continuation down.. as we just got a low range bar with relatively high volume. That is the first sign of change but price HAS TO follow thru (in this case up) with decreasing volume.. in order for change to continue.

VE = volatility extension... the left trendline is pushed away. We want some of these...
The left trendline is for taking profits.. It's the optimal spot. At least partial profits should be take here.

The easiest, safest way to trade is then (after taking profits...being flat) to simply wait for price to move to the right trendline and then 2 things can happen
1. failed breakout: take new trade in dominant direction. In this case short.
2. BO: do nothing.. let price breakout... and wait for new point 3 (in this case long). If there's no clear BO it's an FBO!

So always trade in dominant direction is the easiest.

Advanced traders can also take trades in non-dominant direction... I usually do not do that AT the left trendline and certainly not at the 1st or 2nd bar but somewhere in the middle of the channel. (I look for a specific bar...one that tries to reach the left trendline but fails, later more). Then at FBO of right trendline I reverse... at BO I hold, maybe take partial profits, and wait for point 3 up after BO. Price does not very often just go thru even though it may look like that initially.

It's a continuous process, just knowing where we are in the sequence at all times and knowing what must come next.

Ivo

This short could be taken blindly.. There are different ways of looking at it..some people call this a "Gartley 222" (look it up). I just stick to channels.
Note that the shallow downchannel was well in place before price touching it and I marked it "fbo". It is high opportunity (100 pips) and almost no risk, especially because we are below VWAP, so we trade with the trend.

Just being aware of a point 3 up right now in the shallow downchannel... After all we did have a bo and it went to the trendline without stopping, 6 bars in a row. But at this moment the short looks good.

I always draw these shallow channels... The datapoints are more recent, it is more up to date with the market and the volatility.

Ivo

being careful about this.... news coming up as well in 10min.

We had the news and price broke out and made a point 3 up. Of course profits were taken before it.

News is funny...because it keeps a lot of traders on the sidelines.
One can trade the news on itself (very hard...and brokers play tricks) but once institutions have certain plans to buy or sell why not wait for the news first and see if it has any surprises? Seems logical to me. This is why best opportunities are after the news is out.. the market then reveals its true intentions.

The trend is up now, we broke VWAP. awaiting a point 3 up (because we had bo).


Ivo

In circles areas: The power of symmetrical pennants...
After breaking the first pennant (where I entered short) we do have some pause bars..but they are after BO (of blue channel..and of the news-up-bar).... the action after breakout is to hold. All those news people have to cover their positions...

BTW the green area is a lateral formation->sideways movement. The breakout of the sym pennant clears the lateral as well.

We are trending...down..

Ivo

preflight check

Yesterday was a nice move. One of those days to not close the shorts too quickly. I had an excellent day and am grateful for the opportunities the market offered.

These are my thoughts regarding the daily. Of course this does need to happen today.
We had BO...we had point 2, now we are waiting for point 3... up.

People think wow it went down so much...well..so what? We have to relate it to the move up. Where in the sequence are we?

Right now we are trading around yesterday's lows. Only 26 pips so far.
Average volume is lower than usual around this time. We have news later on.

Good trading to everyone.
Ivo

Key moment of the day so far including annotations.

The long was "textbook"...little more range than previous bar...(circled area) but much higher volume and peaking. Followed by 60% volume bar ending at the high... It passed 1.23 so many people were fooled...perfect spot for a trap.

We finished the sequence 1-2 and are waiting for 2-3.
However... an FBO of the blue downchannel will make me close the long and possibly go short again, depending on price action. But a point 3 up makes sense...we did not retrace yet, and we've been going up 5 strong bars in a row.

Note the failed breakout of the sym pennant leading to a perfect short (that I missed)

Ivo

sym pennants breaking should not be ignored... closed long. 9 pips profit, better than nothing. Taking a break, collected some pips (35 so far), nothing big.

Not very easy, especially the chop around 1.23. I made a couple of mistakes there.

Note the lower volume right before breakout. This would have been a hold when long at the circled area.

Seems it is making the point 3 up I talked about in the preflight check.

GLOSSERY

VE: volatility extension: left trendline is pushed away
BO: breakout
FBO: failed breakout
FTT: failure to traverse: Price trying to touch Left trendline but cannot make it
SYM: Symmetrical pennant
FTP: flat top pennant
FBP: Flat bottom pennant
LTL: Left trendline
RTL: Right (supporting) trendline
Point 1-2-3: 1-2 = move, 2-3 = retracement 3 = continuation
VOL: projected volume as a % of the volume of previous bar.

Ivo

preflight check

Not much can be said. Daily picture is still valid. The trend on the 5 and 15 is up. We have an upchannel and price is above VWAP.
High minus low is only 34 pips.
Volume low and will very likely be lower than Friday's (projected is 59% now).
No news. Direction for the day is hard to say but I aim for chop/low volatility... which means taking the usual moves BUT taking profits quickly.


Ivo

The short was a breakout of sym pennant. First trade of the day.

So why aim for trendline "a" instead of "b" with my short? Even though VWAP is there...

Because it's datapoints are more recent.... unless I see really high volume at trendline b and price bouncing of I will hold until a.
Considering the slow market it would be good to take (at least partial) profits there.

So: Always draw shallower (more recent) trendlines... This trendline is more up to date with the market and it's volatility.

Ivo

Characteristics of a slow (low volume) market.

- regression to the mean...
- high volume = change very near
- trendlines/channels becoming wider. (price goes thru on low volume..and snaps back eventually making a wider channel)
- fake moves/hard to see direction.
- 100% retracements
- overlap, overlap, overlap on higher timeframes (1hr)
- movement in non-dominant direction

A slow market will often fall back into being slow after 1 fast bar.. Also this is regression to the mean... A Basketball player on the cover of Sports Illustrated will often not play as good the next year.. Why? Regression to the mean!! (there's a luck factor, we have to balance our recency bias based on a single dataset and have to go back to the a-priori probabilities if the big picture hasn't changed)

Our mind is wired to see causalities. It's hard to think in statistics... it's not sexy, it's not spectacular, there's no explanations, it's boring. The media don't like it so they make up explanations for something that happens. But it just happens..after that, same old thing..

Anyway, in slow markets I will not enter exactly at point 3..I prefer a re-test and take quick profits.
One has to be either very early or late..but being later means be early with profits as well because especially in slow markets the move is over before we know it. It's an exchange: more certainty, less profit.

Ivo

Possible shorts trendline a or b.
Of course always wait for rejection there.
Better if it coincides with the horizontal red line (volume peak).
Looking for longs only and after price breaks a.

Ivo

The sequence is 1-2-3

We were waiting for a point 3 up.
The sequence is disturbed/broken by the fbo (failed breakout) forming a new point 3 down..(not drawn, it still says 2 in the image). So it bounced of trendline "b" in combination with horizontal red in the previous image which was a good entry short at good time of day. Looking for new lows at this moment. moved stop to BE.

Ivo

Stopped out at BE.. point 3 up came...now looking for the next opportunity short. Trendline a.

Ivo

There was no short, so there was no problem ;-) Price was outside channel for one full bar so we have BO.
There was a volume peak at trendline but bar ended at the high.

This changes the game. After BO (and 7 bars straight up) we expect a point 3 up. This may take time to form (it's a retracement!). I wait at least the same time as price took to go from p1 to pt2. The long is taken at point 3 up. (not at BO).

BTW I am wrong very often, but the trick is to be quickly to detect and then get out at least at BE or with a small profit or be right, stay in and end up with a bigger profit. Basically I can say I am never wrong but always right (in the moment!)...it just doesn't always end with a profit.

Ivo

quickly up or out..

It was "out"... and calling it a day with +11 pips. Not very good and not very bad.
Ivo