Trading Reversals, Fundamentals vs Technicals

At what point should we bet against fundamentals because of technicals? Let me give you an example, but before I do, I just want to state some of the facts I believe to be true about the markets and relevant to this thread.

1. Price is never too high to be bought and never too low to be sold.
2. Overbought and oversold doesnt exist the way retail traders think it does.
3. The most popular trading system in the retail world is NOT trend following like SMC traders and other cults have tried to sell you (not tell you, but sell you lol) and I can show it to you (see some of the pictures I will post below).
4. Reversal will happen at some point, but trying to predict it is very expensive.

About trend following vs reversal amongst retail traders.

Here is GJ weekly chart.



It has been going up since the end of march 2023. Now look at Myfxbook sentiment of retail traders SINCE march 2023.




All they do is trying to catch the top that is still to come and SPECIALLY recently. The ratio of sellers vs buyers is absurd right now. Every retail trader is trying to sell GJ and have been since march. 3 months! Oh and this is not a cherry picked example. Pick you pair, look at a strong trend and look at Myfxbook sentiment. Retail traders try to sell every rally and buy every sell off because "oh, there is a breaker here", "oh a turtle soup here", "oh supply and demand zones brothaaaaaa".

Now try and tell me retail traders mostly do trend following...No, they dont. Therefore, if you truly want to trade with "the big boys" you should follow the trend. With all that being said, im well aware that at one point, price will reverse. What should we do if we want to counter trend but fundamentals and technicals are in conflict.

CHFJPY




We all know CHF is the most stable, secure currency right now. It has ben barely affected by the shit show going on worldwide with geo-political events and instable economics with inflation through the roof and the interest rate hikes. Overall, great currency. But it has reach the ALL TIME high of that chart. We SHOULD see some sell off from long term buyers closing their position (totally or partially). Combine that with higher time frame traders seing that all time high and selling it. So we have profit taking on buys and new sell positions being opened. What do lower time frame traders see after that? A selloff. So now we have both longer term traders and shorter term traders beginning to see a potential reversal.

BUT here is the catch. CHF is still VERY strong and JPY VERY weak. At what point should a trader sell against fundamentals due to technicals?

Here is a CHF and JPY index chart. It represents the CHF against all other majors and the JPY against all other majors.




Now these 2 in comparison on a line chart.



We can see a MAJOR divergence. Im going to add all the other major to the chart so we can see the overall picture of which currency is the strongest and weakest.



I zoomed out on the Weekly chart back to August 2021, so we have roughly 2 years of data. We can see CHF is definitely the strongest one and JPY the weakest one. I didint include the symbol names on the chart because you wouldnt see clearly but here is a second picture, copy of the first one, with the names of all the currency Indexes.



Back to my main question. Should be sell the strongest currency for the weakest one from a fundamental standpoint because of a technical set up? Big money is to be made here if you sell CHFJPY and it ends up working, but you probably will take profits at 1:3 RR because human nature...

CHFJPY is at a major top. JPY index is at a major low. We have no data on CHF index top because it has never been this high.

One last chart comparison: currency vs world currency unit. If you dont know what it this, feel free to google it. It just adds a layer of fundamental view and true value of a currency.



Same thing here. CHF is the strongest and JPY the weakest near its all time low for a possible double bottom.

Like Paul Tudor Jones said, he made big money at the top and the bottom and not a lot in the middle. I do agree there is a time and a place to sell high and buy low. Is it the time now?

Thoughts?

Great Post

I am going to kick this off by saying Im a strong believer in Monthly charts. I believe market turns at major Monthly swing point/structure. I know most retail traders use the Daily as their "highest time frame". I dont. I believe the markets will never turn and do a MAJOR reversal at a Daily swing point. Of course, im sure you can find the exception. But in vast majority, market turns, big market turns, happen at monthly swings.

If you base your counter trend trades on the Daily time frame, I suggest you stop right now. Look at this EU chart. From October 2022 to January 2023.



Look at all these structures being taken out on the WEEKLY chart. Now, imagine if you were trading the Daily or H4 chart trying to do what? Like 90% of the retail community, trying to sell and catch the top. Dont believe me? Lets take a look at myfxbook sentiment from October 2022 to January 2023.



Big surprise? Not really. Retail traders have been massively short during all that uptrend. Still think im cherry picking like I did above with GJ? Look at Gu. Look at ANY other chart and compare to myfxbook sentiment.

Usually and curiously, the real market turns will happen in conjunction with a change/surprise in fundamentals at Monthly zone and this is where I personally go against the trend and with the "crowd" trying to sell an uptrend or buy a downtrend. At some point, retail and sentiment will be right and market will turn.

I trade major reversals on a Monthly chart and usually I just place a pending order and when/if I move to BE and get taken out, I will look to re-enter using one of the 3 types of price action confirmation. I firstly use pending order because of what I think traders will do at those massive reversal points (see the CHFJPY example above): long term holders will exit completely or partially their position, longer time frame traders will look to hedge the other way, creating a reaction. That reaction will be seen by shorter-term traders and then you know the rest of the story.

I think there is a place and time to bet against fundamentals and technicals for a big turn. Those type of trades, for me, happen at Monthly swings. No matter what are the fundamentals, I will usually trade against the trend at those times.

I will be betting against the fundamentals of the JPY when price lines up on both JPYWCU and the JPY Index. Both seem to be lining up at the same time. Of course, I wont sell blindly a pair like GJ or EJ. I will look for the one with the best technical opportunity or the one that will give me a signal based on my 3 confirmation set ups.

Here is the WCUJPY chart.



Here is the JPY index chart



Zoomed in on the Weekly:



I believe the BOJ will intervene again in the markets and this will induce a sell off in all the JPY currencies. The only set up I see as a valid one for me to trade would be AUDJPY:



3 points dotted line is the Yearly chart KL. 2 points dotted line are my Monthly KL. 1 point dotted line (there is none on this chart) would be my Weekly KL. I strickly analyze on the Yearly, Monthly and Weekly, mostly Monthly and Weekly. On this chart I also identified the last highest point on the chart before the sell off (red line).

If we dont have a line up with AUDJPY and the JPYWCU or JPY index, I might still take this trade as I will probably be able to move my SL to BE and not getting SL and if I do, well, risk management is there for that reason. AUDJPY might cross the highest point before the JPYWCU or JPY index reaches its low. In that case, next best opportunity will probably be USDJPY sell

very interesting approach,im following you to learn from you the highter time frame trading,thanks for the insightfull sharing.

Its been a while since my last post and I dont want to do hindsight trading, so I will show you trades im watching for and not the ones im in right now:



AUDCAD at Monthly support. We are betting against the overall trend but since its at Monthly, its fine. We can see multiple wicks on the Monthly pushing from the support, but price is still moving down as we can see on the Weekly (lower lows and lower highs).



I need to see a Weekly or Daily candle closing ABOVE my blue box which would signify a break of structure/change of character/change of order flow (call it whatever you want).

Pending order, Trend trade: NZDUSD sell



Monthly is clearly down. We had a massive push up as seen to the left, but we have break structure to the downside since then (I was long early 21 when the bulls broke structure but eh, cant win them all).


We are now breaking structure to the downside (clearly selling pressure). I will wait for a retracement back into that KL with a SL above the last swing point. Yes, it is a 200 pips SL, but you dont choose your stop, the market does. If you want to avoid those 200 pips stop, then swing trading and position trading is not for you. Of course, this is not ideal and usually my stops are between 70-150 pips.

You COULD put your stop above that Daily micro swing but a 60 pips stop but I wouldnt recommend. Either dont take that trade or fully commit to it and take it with the correct stop placement.

Maybe a quick word on my 3 confirmations signals for entering a trade, but just before, as you can see, I also use pending orders. When I trade with the overall flow (the trend) and I have a break of structure and a good stop placement to the left, its just a no brainer. Why wait for confirmation? Its not because you use confirmation that its going to go your way. We all seen the best confirmation signals and hoped for the best but the price didnt care and just went the other way. We all experienced that im sure. So if you have a strong bias, a possible stop placement and something that makes sense, take the trade.

Everything can be a signal and everything can be a Support&Resistance so you have to be careful. Lets do a little test. Open any chart on the Weekly. Click on the horizontal line, close your eyes and move your cursor up and down and click anywhere (with your eyes closed), im SURE you will find price reacted some way or another to your KL. As I said, you need to find a way to draw KL that makes sens to you. I use recent structure and if I have multiple options, I try to go with the most touches (wicks and body close).

My 3 confirmation signals MUST happen at a Monthly OR Weekly KL. They are:

1. Very specific type of Pinbars. Lets say I want to sell at a resistance. My Pinbar has to be the highest bar of the previous ones. I want Wick has to be at least 50% of the whole candle (not just the body). Close needs to be near the end. So if price is trading in a range at resistance, the Pinbar has to take out all the previous candles highs.
2. Very specific type of Engulfing: Again, lets say I want to sell a resistance, the Engulfing has to engulf the WHOLE previous candle (both the high and the low). So again, it has to be the highest bar.
3. Change of orderflow. Lets take a buy example this time. Let say price comes at support, meaning we are currently making lowers highs and lower lows. I need to see price breaks structure to the left, indicating buyers are in the place. So price needs to make a HIGHER high. Then I wait for a retracement either at my KL OR, and this is where I use fib (there is another instance, but not that much relevant right now). I draw a fib of that swing leg up, and I place a pending at 61% with a SL below the low of that swing leg.

Hope everything makes sense. If you have questions, feel free to ask. If you want a chart review, I can but only on Daily and above and no indicators filled charts please. Lets keep this clean and simple. We aspire to be professionals after all ladies and gentlemen.

thanks for your guidance,
what i see here is bearish engulfin on monthly chart of february 2023,you came down to weekly chart and on daily chart you are trading now in oct,isnt it way too long ?
i think we can trade all Bearish engulfing after we see BE in monthly chart right?

As i said, I dont want to do hindsight trading. I did take that trade in Feb 2023, but got stopped out with a reduced win (hit my trailing stop). Now im looking for new opportunities. If you have a bearish engulf on the monthly and you wait 8 months later to trade it, yes, its too long lol. However, I do not trade Monthly engulf directly. They usually need a very big SL. This is why I wont take an entry at the low of a bearish engulfing on the Monthly.

And remember, I need all my signals (pinbar and engulfing) to happen at KL on the Monthly or Weekly charts. I wont trade a bearish engulfing just because... I, however, take them very seriously in my analysis if they happen on the Monthly or Weekly and I might try to get involved in a retracement

You know, if you want to win in a losers game, you have to avoid doing what every losers do. What do retail traders do that we can do differently?

1. They do NOT follow the trend. They almost counter trend trying to catch every top and every bottom. Price is always too high or too low. We have empirical proof of that with the examples listed in my first post with myfxbook sentiment. You can confirm this yourself.
2. They certainly do not look at the Monthly and Weekly chart. The Daily is usually the highest time frame most retail traders will take a look at. I use the Daily as ENTRY, not analysis.
3. They take their profits too soon. This is why I never set TP and I only trail my SL on the Weekly OR Daily chart. Sometimes I will get stopped out BE, sometimes I wll get stopped out with a reduce win compared to what I hoped (like in my NU trade back in Feb 2023), but this is the game. If you are not ok with it, change now.
4. They do not add to their trades. This is probably one of the hardest thing to do.

So, a couple of quick questions you should ask yourself.

1. When & why you move your SL to BE?
2. When & why you take partials?
3. When & why you trail your SL AND on what time frame. Why that timeframe?
4. How many pairs you will look at and why?
5. What are the criteria for you to open a trade or close manually a trade?
6. What needs to happen for you to ADD to your winning positions?

What is the trend is a very hard question to answer. Ask 10 traders you will get mixed answers. Some people consider the trend to be what price is doing right now, in this instant on the 1 minute chart. Some others use the H1 or Daily. I personally use Monthly & Weekly. Here is a tricky example and this is why we trade both ways, with and against the trend, because sometimes, you just dont know. We NEVER know what is going to happen next, but sometimes the price give you mixed signals as well.


Monthly structure hasnt been broken yet to the downside, so Monthly is still up. However...


Price broke 2 structure to the downside on the Weekly chart. We could say the longer term is up, but intermediate term and shorter term is down. Now, what do? Nice Weekly PB (green arrow).


Lets take a look at the Daily


The blue box was that Weekly PB. I waited and drew my fib from that swing leg up, placed a pending at 61%, got in at the green arrow, got stopped out BE at the red one.

Thats trading.

Now, this doesnt mean Im done with this pair, but ideally, what I would like to see is a change of order flow on the Daily chart (break of structure to te upside). Patience game now.

Very interesting.
But I think I'm getting lost, because I don't understand what a KL is.
Could you explain it please.

Of course. A KL is the abbreviation for "Key Level" which is a general area of resistance that price may encounter.

Here are a couple examples and there is no right or wrong answer. It needs to make sense to you.



As you can see, it can be a Horizontal line with multiple touches, a previous high or low with a single touch, but still relevant since price dropped from there or rallied, a general area where price might reverse.

Some will use fancy terms to label things such as "supply and demand" or "orderblock". Makes them sound smarter than they actually are and its a great sales pitch "you probably arent a winner right now because you havent learn this "new fancy term" and this is why you are not consistent". Its basically all deviations from the same old Support and Resistance. There are some slight differences, but lets not over complicate things.

Hope that makes sense ADance

Thank you so much, your aproach permit a better vision of the value of long time frames, and its utility to confirm my intuitions about the development of the market.

Hey guys, Im looking to short gold right now. Pending order.







Price has been going up without signficant retracement. Again, think about emotions. What are long term and short term buyers will want to do here? Take some profits off or close completely. What are some long term traders not involved yet will want to do here? Probably go short.

We just missed my entry, but Im not canceling my order unless we have a significant move away from it OR past 1pm Est time. I dont always close my pending orders at 1pm Est time, but today being friday and with all the geo-politic turmoil, I dont want to get exposed over the week-end to a new position. Im staying in the ones im already in because they are in profits so they probably wont gab down 200 pips...

We are in and we will try to move to BE as quick as possible. We are betting against the fundamentals (geo-political events being instable, gold is gaining value) and against the bullish trend.



Besides the previous high at 2067, this is the only place I see myself being interested to short. Ideally, this area will give us a decent pullback to MAYBE allow us to get involved long in line with the underlying trend and bias

Since I do not want to do hindsight trading, forget about my first entry here. I will explain how I plan to add to my winner.


Initial short taken from resistance on the Monthly & Weekly chart. As you can see, I use a moving average. Its the 200 day moving average. I use it exclusively on the SP500 only.




If we break below the 200 day moving average AND below that low on the Daily chart (blue box), I will look to short on the retest.

My reason to initially short was, as I said, the resistance on the Monthly and Weekly chart, but since we are betting against fundamentals and since we had a lot of pullbacks BEFORE reaching my area, I didnt place a pending order. I entered at the close of that Bearish PB on the Daily (Green arrow).

As you can see, it fits my criteria highlighted in my previous post about my 3 types of entries. It is the highest bar, wick took out everything to the left, closed near the low, wick is at least 50% of the whole candle. This is where you need to differentiate between a good opportunity to blindly sell with a pending order (like I did with gold above) and wait for confirmation.

Gold had no pullback prior to my sell area, so Im planning on speculators to take something off and to add on later. This is why a pending order on gold is okay and not on this example. Anyway, lets wait and see if I can get a break. To let you guys all know, if we break below, I will also trail my SL to 4420 on my initial position.

Move SL to BE on gold

With the SL moved to BE its a risk free trade now. Thats the thing we trading, we never know if its going to work. I didnt. Some might have close the trade because it went negative... This is where you have to trust your analysis and your bias and not make an emotional decision. I know WHEN I will move BE. I know WHEN I will exit a trade. I know WHEN I will partials. Do you?