Trade Anatomy - ramblings of an old-timer

Hi OND

Thanks the feedback. Yes, I think you are hitting on a key point there. My original intention had been to go long the Aussie for a counter-trend move as in post 30. However, when I saw the lower-lows and lower-highs being made I saw an opportunity to get into what I considered to be the longer-term down trend. Now, when price broke through 0.8350 level today that helped to confirm my view, and is why I decided to continue holding.

But you are quite correct, I need to find the balance in ’the synergy between timescale and the length of time you want to ride a trend’ ( …much better than I could have said it). This is a problem area for me. My objective is to get into the long term trends, at the start, and ride them for as long as possible. A good example is how you’ve managed your current Euro trade. Unfortunately I don’t have the same risk tolerance as yourself, so I look for a move down, and then attempt to get on board on a retrace.

But lets take another step back. Like you say, if one wants to ride the longer term trends, one really need to be analysing based upon the daily/weekly charts. So lets do that, starting with AUDUSD.

The weekly chart shows a large bearish bar (16th May) which breaks the 0.8550 level and previous swing low. The next bar is an inside bar which tests this level from below, and is pushed back. It is for this reason, and on a technical basis, that I think the trend is heading down. Just to touch on fundamentals; China is tightening and it doesn’t look like the RBA has any further plans to increase the interest rate so this supports the change in trend (although one thing I’m not sure of here is that the Aussie is still a high-yielding currency so therefore would this not offer it a level of protection). Another concern I have is that the Aussie is only down because of Risk Aversion, and maybe the change in trend is just temporary. Fundamental spiel over, sorry, know you’re not keen on that, but it does have a consideration in my thinking

Earlier you said ‘The weekly chart got me interested. The daily chart got me in and the daily chart will eventually get me out.’ How do you read the Aussie at this moment in time ? Do you believe there is a long-term trading opportunity here ?

Perhaps it would be useful to do this exercise with a few other pairs as well.

Apologies for the long and probably rambled post, but it helps to talk it through, and also allows you an insight into any flaws in my thinking.

Your effort and patience is much appreciated by all those here,

Astellas

Astellas,

I agree, there is likely most benefit in now doing some basic analysis of a few charts. I'll start with the Aussie soon.

Just a quick note about the hourly chart and your open trade ... tick volume has dropped off sharply on the last two bars, suggesting that 8280 low was a swing low point perhaps (and creating a short-term double bottom in the process) so keep an eye on upward pressure.

Kind regards,

O N D

Hi O N D,

You mentioned about HiddenGap's posts and I skimmed through some of his price action analysis. It's indeed an educational read but the analysis was done in relation to both price bar and volume. I haven't done the diligence to find out what volume information they are referring to but I've read elsewhere that accurate volume data cannot be obtained for the forex markets as there is no central exchange.

According to your experience, do you think it's beneficial to obtain some kind of volume data to enhance one's trading? Personally I'd prefer to keep trading simple and leave the volume alone, especially if what we can get is just partial data at best.

Hi again

We are at a disadvantage when trading spot currencies because of the structure of the market. That being said, we can still make some tentative use of tick data. If you are using MT4 for charting, add the 'volume' option and you'll have an extra tool you can make use of. I've seen it said many times that the volume graph in MT4 is only a duplication of bar length but this is definitely not the case, as I will explain when I post a chart later.

I want to avoid going too deeply into my use of price structure quite yet as I want the thread to have a rather basic beginning and grow logically so that readers can find it a worthwhile journey. That's the aim anyway. However, I think it's time I speak a little about 'volume' as my trading is based on more than price action alone. I call my methodology an observance of price structure but others follow similar methods and call them something quite different.

Kind regards,

O N D

Kind regards,

O N D

I'm in the "tick volume is nearly useless camp" OND in part because it is limited to your broker ... and if you watch two brokers some have more active feeds than others. The other part is that its not really volume at all but almost certainly a measure of movements of the "price." But, although next to useless it might still say a little about activity.

Here's my question then: if you can get a futures feed as you can for the majors, is the volume on them of use in trading cash?

And another one: on what timeframes? I ask that because the daily seasons generate very different volumes at different times of the day.

As promised, I have attached a weekly chart for the Aussie. My technology wizardry is limited but hopefully the markings and text are easily understood. Each down arrow represents a point I have attached a commentary to.

I want to introduce the element of analysing volume alongside price at this stage. The first two or three posts in this thread give examples of analysing price (from Feb's previous thread and answering an email I recently received). I will therefore supplement that by looking at a current chart and including the tick volume in the equation.

The weekly chart shows the instrument is already well into a downward routine before a massive down bar is posted in October 2008. The move down actually began in July of that year and a massive decline at this stage, accompanied with increased activity, tells me to be alert to the likelihood that strong players are now beginning to take the opposite side of trades. Anyone who thinks they have a knack for always getting in just before price changes direction will recognise this part of the chart! It's where a new bout of selling is encouraged and absorbed, allowing the strong players to buy in at bargain levels.

Notice that a new low is made 3 and 4 bars later but on lower volume. This strongly hints that everyone who wants to sell has done so. Price must go up next. At this point, be aware of the slight difference between when we felt a swing low might be in place and when we were alerted to a climax of selling. The latter came first.

Price does indeed head up but not for long as there isn't the appetite to buy in by enough players. So, we head back down again temporarily. Notice there is then a bullish engulfing candle in first week of February 2009. You can analyse candles or bars or pure price but they all largely serve the same function. The bullish engulfing tells us that a new low was made and rejected and the week closed strongly.

The next four weeks frustrate the hell out of anyone who used to engulfing on it's own to get long. Price declines but not significantly. Contrast the bar/candle size with those that show similar volume. We see decent volume but no direction. A week later and it begins. Price moves up in a nice and orderly manner and then retraces slightly. Note the increased volume that brings the retracement to an end. Another bullish candlestick and the bulls are back in control.

Price keeps going back up but note how volume consistently and gradually drops. October 2009 and those of us who are paying attention are told the big money is now out. Again, note this takes place BEFORE the high of the move is in place. The attempt to push price down doesn't attract enough money and so the buying is allowed to take place relatively unhindered. This happens on relatively low volume and the bigger volume only arrives to take price down.

We then see another move up on declining volume. Buyers have definitely lost control of this instrument. Volume starts to creep up again as late April/early May sees a concerted move lower. Notice the two big candles i've marked on the chart and look at the volume accompanying them. The first one tells us the move is genuine and is supported by weight of funds.

The second one takes us way down to 8060. The candle is huge and the volume is relatively massive. More sellers joining the party? Personally, I'm now suspicious. This could well be a situation where buyers are now back in control but have managed to disguise the fact.

Rather than do all the work myself, I will now ask Astellas to combine his analysis of the weekly chart based on price with the information I have provided about volume and see if he changes his mind about anything

Over to you Astellas.

Kind regards,

O N D

Jing is a very popular software that you can use to draw arrows, highlight, and enter text. Easy to use and Free. Lots of folk on FF use it. If you find it easier use it, otherwise the tools built into MT4 are fine.

http://www.jingproject.com/features/

Hello

Please initially refer to the chart example I have posted for weekly Aussie chart.

I knew posting this and referring to 'tick volume' within MT4 would raise some questions but have a look at what I've posted with an open mind and then let's discuss further.

Short answer about using futures data is that it is worthwhile across various timeframes but we can get into that later. For most traders, securing a futures feed with volume is not necessary.

Kind regards,

O N D

I'm very grateful LVG

Annotating MT4 charts was rather cumbersome for a man of my dubious talents so I'll definitely give this a look. Thank you.

Kind regards,

O N D

is it volume on the close of bar you are watching or open?

regards damien

It forms along with the bar it is directly underneath.

are you waiting for the close of a bar to get the volume reading? sorry just trying to get the workings of it before i look at it?

regards damien

Apologies Damien - I answered your previous question in a hurry as I was distracted momentarily

Yes, wait for close of bar before interpreting volume.

Kind regards,

O N D

The folks in the VSA thread are all over trading with volume. If I recall correctly, eSignal aggregates over 100 brokers volume information to build their Forex volume indicator. I think IBFX has the most accurate volume indicator vs. other brokers in comparison with eSignal.

I may not be 100% accurate, but I recall something to the effect reading that thread.

The VSA thread, and the teachings of Tom Williams, are well worth further investigation.

It's interesting, I don't really trade in accordance with VSA in pure terms and I always called it something else but the overlaps are significant enough to tell me it's a sound representation of the way the markets work.

i dont see the issue im looking at this very moment at gomarkets ibfx and axis odl all have the same volume data? i dont want to hijack ONDS thread so this has been discussed many a times in other threads lets stick to the topic. of the aud/usd volume and p.a and wait for astelles reply. that is of unless of course old not dead wants to talk on this topic

regards damien

Unforturnately I'm not using MT4. I'll see if my trading platform offers similar kind of data.

I'm all for it - also read in one of your earlier posts that you'll "gradually providing building blocks of knowledge" in addition to price structure analysis. It'll be a great way for us to assimilate the philosophy of your trading approach. I'll be patiently learning.

Hi O N D

I think what you are implying is that when one sees a large bearish bar on heavy volume (when already in a down move) then be suspicious of large funds offering the price lower and lower in an attempt to pull in sellers, so that they may buy at bargain levels. Look for further evidence of this in a new low being made in the next few bars, but on lower volume.

I would imagine that one would also see this same volume characteristic when an up-move is coming to an end. However, in your chart you annotate ‘volume gradually dropped off – bulls are out’ over the period when the up-move seems to be coming to an end. Why do we not see climatic buying ? Or is this what adds to your thinking that the up-move may not be over yet ?

In answer to your question, looking at your chart I see climatic selling on the recent large bearish bar, followed by a new low being just about made by the subsequent bar. This subsequent bar also has heavy volume but only slightly less than the bearish bar. Although the volume is only slightly lower, the bar length is much smaller. So, decent volume can’t maintain decline in price – chances are we are heading up, right !?

To be honest I’m not completely clear here. Would be good to hear others also have a go at interpreting the current position of the AUD/USD using this information.

Thanks,

Astellas

Anyone else want to comment on the chart I posted?

Hi O N D

Whilst we’re waiting, I’d like to ask you a question on one of your old posts in Febs thread. http://www.forexfactory.com/showthread.php?t=54528&page=46 - post 687. There is a chart of the PA described on the following page in post 693.

You said “I thought it likely that there would have to be another test of the 16th Nov low before another push up and my limit order was therefore positioned at 160.50. This was hit for a profit of 153 ticks and price only went as low as 160.41 before moving up again.”

Can you put it into words why you thought this test was ‘likely’ ?

Thanks,

Astellas