No Brainer Trades

As of now ex the rate buzz going around yes but it could definitely crawl higher even despite of this. The buzz has picked up speed in the just very recently so it coud very well fuel some momentum, though its been doing so already for the past few days. Still overall looking for shorts in the 1.5800's but not booming with confidence; its not a solid, easy-to-predict scenario as we would like anymore. Regardless, overall positioning has shifted towards USD across all majors in this area as predicted, so just hanging in to see what the next move is and still taking the trades based on s/r.

Long EUR/JPY 165.00 - 164.96

Next level I'm looking at downward on this pair. I think EUR consolidation and JPY strength is generally going to be the catalyst to move it there, ex any news going on lately. Next level to the downside is 164.49, though not as strong.

Long AUD/USD .9501 - .9488

Here's one that's a little more realistic near-term. We've got a .50 retracement and already solid s/r from the uptrend. If price goes any lower than this range its going to be down to .9478, another 10 pips, before retracing.
There is news out tonight that usually stirs the volatility pot for this pair. Just a heads up. If it spikes on the data I'm no-go on the level.

If all goes well I want to hold onto this one for a bigger-sized move, possibly right back up to those highs and then .9750, if changing market conditions allow during the time the trade is on.

Edit: There are a couple noteable upsloping, diagonal trenlines on this pair visible from the daily and weekly charts. If and when price breaks through this level, just be aware that they are there. Look for them to coincide with horizontal support and resistance if and when they hit to go long - no brainer fiesta there. Everyone is crying AUD fall using exponential indicators but I dont see it clocking in market sentiment yet. Still looking up medium term.

Lot of value here:

http://www.nasdaq.com/investing/forex-open-interest.stm

This is the kind of stuff that gets lost in the pile for traders. Good for determining market direction/trade continuation.

Great find.
Thanks

Sell GBP/USD 2.0100 area

Held up well through thick and thin. Same rules as usual.

Billy Ray,

How does one access the futures market prices so that the change in prices can be useful? I read the article with great interest.

Thanks

Daniel

Hi Daniel,
The CME website offers delayed quotes on all futures contracts as well as options on these contracts. Also, opening a demo account with a futures broker will give you access to the information, though I'm not sure as to the depth of info available (open interest, etc) from one broker to another; I'm personally using a Reuters-based platform that I pay for month-to-month and get it all. If anyone knows of any Futures brokers out there that allows you keep a demo without expiration please post away.

Anyway, here is the link to the CME data:
http://www.cme.com/trading/dta/del/p...roductType=cur

Yet another article on guaging market sentiment and predicting daily direction / seeing where the smart money is. Strategy is along the same lines, but talks more in depth about the Commitment of Traders Report.

http://www.babypips.com/school/getti...ith_forex.html

Most people brush this stuff off in lieu of MACD's and RSI's, but if you REALLY want to know what's going on you should be looking at this data.

Also, because of liquidity issues, I can say from my experience working at a multi billion-dollar hedge fund that these positions are oftentimes difficult to scale out of/in other words, they stay in them and take them off in bits and pieces; so they're usually good for several days or weeks or months, depending on the situation. Scalping is not a common practice for many of these investors, especially on futures or equities purchasing very large quantities. They're the ones moving the market, and shouldn't be ignored.

Use this link for free cot charts: http://www.timingcharts.com/ or http://www.freecotcharts.com

Just a note if you go to timingcharts.com and select the COT Index under the "Net Positions or Index" function, you have a good oscillator display of the current action with max out points on a scale of 1 to 100.

Hi,

First of all I'd like to say thanks for a great thread. I really want to gear my trading to the way you guys are doing it ( ditch the indicator).

So here's my first. This thing looks like it's sitting on the edge of a cliff will it hold?

Hi Siam and thanks. This area in general is a very strong one and sitting on a .50 retracement. It very well could hold but it keeps on getting knocked into recently; personally I'm looking to hold off until a little more action develops. I've already gotten in twice fading it now so its served its purpose for me. Next major area down I'm looking to buy at is around 1.0043-50, and then 1.0016-.9996, right around parity. By the way nice quote!

thanks for the market setiment info...really good stuff..just been studyin the cot charts now!

You're welcome! Also, keep in mind that the COT report is published once a week (every Friday). You'll notice that right after the change in the oscillator you have follow through in price in the same direction atleast for the next 2 or 3 days, so better to use the data early in the week.

Also, although it doesnt clearly state it, "commercial" refers to commercial hedgers - these are the banks that need to offset your trade every time you or any large institution makes it. You want to do the opposite of what they're up to, generally speaking, as they encompass large block traders and smaller speculators.

This data is good for determining how long to expect a move to last, etc; and can keep you in positions without running away scared, atleast that's what I mainly use it for. I used data like this early in the week on USD/JPY and was able to hang in there for 250 pips as opposed to 50 pips, just to give you an idea (scaling out as I go); between this and the option info it definitely helps.

Short EUR/USD 1.5998 - 1.6018

If the first fade of the AUD highs taught us any lessons, its going to be a few pips off of the local high, which I have at 1.6019. I'm posting this 20 pip range because I quite honestly dont know exactly what price its going to fall off from, but I have a feeling it will be around 1.6012. Either way, ex any news events, the level will pay.

Dear Billy,

I took a look at the call/put numbers for EURUSD on the Philly Exchange from your link a while back. The predominant price levels for calls is 156 (4832 contracts) and 157 (2768 contracts). For puts it's 152 (1946 contracts). The numbers drop off precipitously after that.
How do you use this info in your trading? As well, do you put resting stops plus 20 pip risk stops in place before each trade or do you judge price as it goes? And, is there a real quality-of-trade difference in each approach?

Thanks,

Lenoxer

Billy Ray,

Which Reuters platform do you use? Cost? PFG BEST may have a futures platform.

Thanks

Daniel

Hi Lenoxer,
Its a combination of things. First, I want to see if there is a noticeably large volume of open interest in the immediate area. In this case there was, when price was in the 156-157 area. Second, I look at the put/call ratio and see where the money is generally going. On that day it was well in favor of calls, and with so many open orders standing directly in front of the current price action, you can judge and see that the market is geared towards those levels. And then the interest rate talk came on Monday, swirled around the street all week, pushing eur to 1.5900. In general, the concept of open interst isn't supposed to tell us anything about market direction, but in a situation like this, it can be rather obvious.

Once these areas get hit it can be a matter of taking profits at that point, and usually the market needs time to cool off once it gets to those marks. Its not to say that price won't continue, and determining the exact reversal point just becomes a matter of defining support and resistance levels once its believed that price will max out. The other option is looking at the option contracts on futures, and seeing where the overall money is going. Unfortunately for those, I'm usually looking at close to net figures, as there seems to be less speculation and more hedging/option strategies going on (spreads, strangles, etc etc). They just generally flow with the market. If the EUR is up for the day, so will net calls over puts and the other way around. With JPY for instance though, you had almost no puts and a massive string of calls (JPY is quoted in reverse on these securities), so I pretty much used that info alone to sell it at the market on that day; not to mention it was topping out at 108.00 resistance.

For your second question, I'll put a stop loss usually just above or below the next level of resistance or support, which is usually about 40 pips away. That way, if the level I intend to fade gets broken, the next one up might very well hold. If the next one up is very far away, then yes, I'll use a tight stop.

In terms of quality there are intraday trades I take with typically smaller quantities, and then there is the no brainer where I'll usually put on a much larger position. In the next couple posts I'm going to copy and paste a couple articles I wrote for the new site to help clarify which levels will hold and which typically wont; happy reading.

Thx,

Not all things are quite the same in trading. Some levels are unarguably much stronger than others, and stand a much higher probability for success. When we are looking to determine which levels are stronger than others, the key word is time. Generally speaking, support and resistance levels hold much greater significance when they can be viewed on higher timeframes. Your probability for success generally increases by taking trades found these higher timeframes, but higher timeframes can also hide many potential trades which can be found in lower timeframes.

Before we go any further, it is important to note the significance behind the clarity of these levels. In other words, the easier they are to spot, the more likely the level is to act as a price turning point. If a level has been "sloshed" around for sometime, its significance begins to fade, at which point the probability of the trade will as well.

Typically, when we begin our search for potential trades for the day, we prefer a 3 or 4hr timeframe, and work our way to higher (daily, weekly, monthly) or lower timeframes (1hr, 30min, 15min), depending on the uniqueness of the situation. We scan through the charts and mark up potential price turning points of support and resistance. When price is trending, it is generally easier to mark up higher probability trades than when price is in consolidation, as there will be less areas of support and resistance to be noted. When price consolidates, it starts to become more difficult to determine where price will actually react.

We open our 4hr chart and are looking to see where price has historically bounced. When a particular area has been used as both support and resistance, we make a note of it, and start looking for other clues that it will be a good reaction point, which will be discussed later. Oftentimes, from our 4hr chart, we will see a “range” of support and resistance, anywhere from 5 – 30 pips. In order to more precisely determine where to enter the trade (it is possible to enter trades with zero drawdown using this method) we will scroll down to a lower timeframe and look at the last few times price used this level. We look to find an exact price where price has bounced off of the most; that price will certainly hold the most significance to us, and it is where we will usually choose to enter our trade.

Weaker levels are found on lower timeframes, usually from 15 min to 5 min charts. We typically do not use these timeframes when originating a support and resistance level, as our probabilities for success decline. These smaller timeframes are used, however, for trade management purposes and defining exact entry points for levels found on higher timeframes.

Other technical factors come into play when determining a strong versus weak level, such as Fibonacci extensions or diagonal trendlines, which will be discussed later. Finding your strongest levels on your charts is the first and largest concern, and should encompass most of your daily routine. These are the levels which pay, and require the most attention.

Confidence in any endeavor is usually just a function of experience. Trading is no different, and successful traders are rarely born overnight. From our own experience, we have developed a basic checklist in regards to when a safe trade setup stares us down. For newer traders, confidence in these levels will grow over time as you will probably see levels you have clearly identified act as a major market turning point. We encourage taking only the safest trades in the beginning, and later becoming more flexible on an intraday basis as your experience grows and you know what to look for.

Once we define a support or resistance level, we look at the following when deciding if we want to trade off of it or not:

Its historical significance. Has the price level proved to be strong over time? There must be at least two or three clear instances in which the level has acted as strong support/resistance.

If the level has acted as both support AND resistance. Levels that have historically held significance as both support and resistance tend to hold much better than those that have only acted as only as one or the other.

The time between now and the last time it was hit. If a level was just used, and then price makes a run right back to it, be hesitant about putting on a new trade. When a significant support/resistance level “sits” for a longer period of time, it has a much better likelihood of holding than those hit more recently. Look for major corrections/time passing between levels to enhance probability. This is one of the biggest things we look at.

If the level has not been "used and abused". Levels that have seen such a significant amount of price action will eventually bust. Breakouts are inevitable on any chart. Be sure that the level has not been used too many times to the point where it becomes insignificant and/or unnoticeable by the majority.

If price has already undergone a significant retracement not too far away (20 or less pips appx.) from the level we want to trade. For instance, EUR/USD is in an uptrend. You mark a level at 1.5715. It hits 1.5700 and then retraces down to 1.5670, and then starts coming up again, taking out 1.5700. Your chances of price then making another retracement from 1.5715 have now declined. Look for good spacing between pullbacks, usually anywhere from 40-60 pips on majors.

If there is a significant Fibonacci extension coinciding with the level. The top three Fibonacci levels, .50, .618, and .764 hold a lot of weight. Pay attention to them, especially if they coincide with significant support/resistance level. Commonly, price will either barely hit or surpass these Fibonacci extensions before retracing. This is usually because market movers are looking for the support/resistance level in the area. Plan to take the trade at the support/resistance level, and not the exact Fibonacci extension.

If there is a clear and unmistakable diagonal trendline coinciding with the level. Less important, but we still look at it. Diagonal trendlines that have been used and abused, just like horizontal support/resistance will eventually break. Be aware of this.

Be aware that neither a Fibonacci extension or diagonal trendline have to be in place in conjunction with horizontal support/resistance in order for us to take a trade. They are used only as guides, with Fibonacci levels holding much more significant weight.

With all of these factors taken into account, trade setups offer a very high probability. In conjunction with our rules on when not to trade, your account should be growing in no time. Again, experience pays off; the more you begin to take notice of price reacting off of these levels, the more you begin to realize their potential.