Price Action, Pro, And Ichi Trading with 2ndskiesforex

quite a lot over the last few days since the markets have lower volatility and are more range bound intraday

so you'll see a lot more reversal/reversion to the mean plays for the next few weeks imo

kind regards
chris capre

AUDUSD
Sticking with the Aussie today, which I've been bearish on since Sunday - the pair sold off yesterday and formed a bottom off 1.0496 via an intraday pin bar setup. But notice how the reaction off said bottom was corrective while the selling price action was impulsive? This clued me into the fact the pullback was not heavily bought up by the institutions, and to look for a pullback setup at a good level.

Enter the 1.0533 area which I talked about on my price action commentary (last Thursday) as being a critical role reversal level. Sure enough, the pair started strong after the London open, only to struggle at this level for the next 6hrs forming two inside bars, but ending with a very strong engulfing bar to break the stalemate.

The strong engulfing bar was a clear communication who was still in control (sellers) and that the impulsive selling should continue. After a little fight at the 1.0496 support level, the pair finally broke it, but has since petered out. No surprise on the lack of follow through, as the markets have been putting most to sleep lately, even those who drink 10 cups of coffee before trading, or have ADHD.



Global Market Commentary:
A see saw of news today starting with Europe as the GDP numbers and ZEW came in much worse than expected, darkening the outlook as the EZ economy continues to shrink (quelle surprise) across the bloc with even the German economy slowing (no bueno) while the southern neighbors continue to borrow from the ECB at an alarming rate. This of course will continue to force politicians and European leaders to jawbone about how they will save Europe but offer no real solutions.

On the other side of the pond, July Retail Sales surprised to the upside, but was moreso a seasonal adjustment. Either way, nothing really moved much. But the July surprise sales numbers meant Good is Bad because this means a further delay of any CB printing money to save the bankers.

Gold was the main loser dropping about $12 on the day to close just below $1600, with all the US markets trotting in place on absolutely low volume and a low VIX print while European markets gained anywhere from .5-.9% on the day.

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Hi Chris and Knucklehead,
I have been a silent student of your http://2ndskiesforex.com for sometime. It helps me improve quite a lot. I really enjoy the comprehensive approach presented there.

I've just discovered this thread by chance and wonder why very few traders joining the thread?

Anyway, please keep it up! I have subcribed to both your web and this thread.

Thanks.

Well thanks.

I would say probably the reason is 2ndskies costs money for the courses and unfortunately there are so many scammers I think a lot of people are afraid to participate. But I learned from Chris and had so many people asking about where I learned I decided to start this thread.

But if anyone wants to discuss charts we will. That's what this thread is about, helping people.

So if you need anything ask.

Thanks again.

Hello Vnfx,

Thanks for the kind words and am glad this thread is helping out.

Not sure why few traders have come by, but I think in time, more will come.
I wrote an article called Why I Do This which I think will give people some insight into me, what makes me tick and why I do what I do.

Hopefully that separates me from others but allows people to make their own decision.

Anyways, glad to have you aboard and stay tuned as there is more to come.

Kind Regards,
Chris

AUDUSD
Yep, another day on the Aussie which happens to be one of my favorite pairs to trade daily. Yesterday I talked about how the impulsive price action selling on the pair, combined with a bearish engulfing bar, clued me into further selling for the pair.

As many of you know from my impulsive and corrective price action theory, the impulsive to corrective series will continue until it finds a counter-trend impulsive move. That is exactly what happened today, ironically via an intraday engulfing bar of the support zone we've been talking about around 1.0450 area. The pair then see-sawed for 3hrs forming a bear-bull-bear candle series, only to form a bullish engulfing bar communicating the buyers were now in full and others had joined the party.

The pair has since formed a flag/wedge at the top of the daily range, so am favoring the upside, but there is some decent resistance above with the daily highs at 1.0515, along with the 4hr 20ema at that same level. So it will need to clear this to bring in new bulls on a break, but if others suspect a STB (short term bottom) is in place, they will likely buy on a pullback to the key intraday flag support at 1.0496, so two plays for bulls while bears have their levels to sell at.



Global Market Commentary:
While global stocks continue to do nothing and have been as exciting as banging one's head on a curb, investors are really just sitting on the sidelines praying hoping the CB's of the world will hit CTRL + P and push markets higher, because we all know, a strong DOW is important to the corporate executives stock holdings economy for creating jobs.

Oil woke up from its crude slumber sparked by possible production/disruption fears as Saudi Arabia recalled its citizens from Lebanon, sparking general Mid-East/Iran War fears.

I would like to note the ultra low volume in the S&P which has been some of the lowest in years. In fact, its intraday ranges for the last 8 days have been so dismal, that 7 of the last 8x we had 8 day trading ranges this low, it has usually market a significant top in the S&P. See chart here (source ZeroHedge) so we could be seeing a major top in the index which is hovering just below the yearly highs and double top at 1420.

Upcoming Economic Events:

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IBEX 35 (Spanish Bolsa/Stock Exchange)
Wanted to mix things up a bit with a different instrument today - this time the Spanish Bolsa or Ibex 35 which has broken a key resistance and double top at 7224 which I talked about on my twitter and facebook accounts ahead of time.

What's interesting to note in the price action and chart below is the strong close for today, along with the tiny wick at the bottom - communicating buying straight from the open (conviction heading into resistance). This along with the weak 3 candle pullback from the last touch at the 7224 resistance, suggested the sellers could not muster a strong response, nor bring in other traders to their cause.

Now that the market has clearly broken through the key resistance level with a strong breakout bar, I suspect any pullbacks into this level would hold (barring any really bad news out of Spain which could happen), but if the pullback is corrective and weak in nature, then I suspect higher prices, so watch for a breakout pullback setup at the aforementioned resistance turned support. I never thought I'd want to be long the Bolsa, but its a good lesson for traders to not let bias interfere with missing a good trading opportunity, so am enjoying the friction.



Global Market Commentary:
Frau Merkel tried a different mantra than her usual 'Nein' today, with supportive remarks about doing what is necessary to save the Euro. This gave investors a boost of confidence the main funding backstop for Europe (i.e. German taxpayers) will save the sinking ships called Spain, Greece and Italy. That combined with global traders still pricing in QE3, or some other 2, 3 or 4 letter CB easing policy, helped buoy global markets.

Housing Starts and the Philly Fed both came in lower than expectations which in turn put pressure on the USD.

Gold gained $9.70 on the day to close at $1616 while crude is pressing up against key resistance at $95.21.

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AUD/USD
Just wanted to do a brief post on this ichimoku kumo break setup for the AUD/USD 4hr chart. I have always talked about many times that when a kumo break occurs with a flat top/bottom ahead, price will often pullback to that flat top/bottom giving you an ideal setup to trade the kumo break and reversal play.

This is a textbook example of a kumo break setup doing just that.

Did anyone get in on this?



For those wanting to learn how to trade the Ichimoku Cloud, along with lifetime access to the Ichimoku traders forum, using rule-based systems, make sure to check out my Advanced Ichimoku Course.

EURUSD
For the last 7 days, the price action for the Euro has been stuck inside a 125pip range playing see-saw with the bulls and bears changing color almost daily. This could be due to typical August / low volatility, investors waiting for their CB's to hit CTRL+P and help Bank Executives save the ailing banks and countries to prop up the market, or people just uncertain what will happen in the EZ. Regardless, if this continues, its best to employ shorter term trading strategies on the 1hr or lower time frames while the range holds and play reversion to the mean plays.

Near term levels to watch on the upside are 1.2385 and 1.2441 (short/medium term), while 1.2260 and 1.2166 to the downside.



AUDUSD
Closing for the first time below the daily 20ema and dynamic support in 15 days, this is the 4th time it has done so since the bounce off the yearly lows on June 1st. Each time it did this (close below 20ema), the next day was an up day or bull close. Although the day is starting off like this and price retreated towards the medium term channel bottom, for some reason this time looks a little different.

Why?

Well, this is the deepest penetration and close on the other side since this channel for starters. But its also the longest pullback of the 4 so far, telling us the bears were able to hold the bulls back for a longer period of time. Keep in mind the pair has gained over 1000pips in 2.5mos so it might be time for a deeper retracement before seeing if the bulls really want to give the upside another go.

If the channel holds, then the downside should be kept in check between 1.0360/1.0390-ish. However, if that fails, then expect further unwinding with 1.0242 and 1.0175 coming under pressure but bulls wanting to get in have their levels and play while bears can wait for a break of the channel before getting short, or a pullback that fails to make it above 1.0524/30 area where price sold off aggressively and sellers entered the market heavy along with stale longs taking profits.



Oil
In early August, the commodity broke above the Daily Kumo for the first time since the end of March. Since then, it executed a textbook kumo break pullback to the flat top which I have talked about as a common thing amongst kumo breaks. Since then, it has climbed for 5 days in a row, clearing the key resistance at $95.30 (May swing low support).

With the chikou now clear of the Kumo, along with the tenkan and kijun, the commodity has clear skies ahead of it, along with a clear ichimoku N wave structure, so I am expecting more gains ahead. The next layer of resistance comes in at $98.06 but after that, I don't see much stopping it until 3 digits ($100) a barrel. Keep in mind, any news coming out of Iran or the middle east could exacerbate upside gains.



Gold
True to form, Gold has for the last 15weeks in a row alternated perfectly between bull and bear closes without fail. Last week the price action was threatening the pattern, but sure enough, it closed bear side (albeit slightly). This highlights the indecision of the market on both sides, but no doubt, there is a subtle fight going on. Although there could be another leg down towards the $1550/30 area which has held for almost a year now, I suspect there is a subtle accumulation going on while the precious metal is cheap.

Central banks have been buying up large amounts of gold along with China, and this slow but subtle lifting of the lows suggests this may be happening.

Regardless, the twin compressions of the larger one year triangle and shorter term wedge in play (see chart below) are coming to a terminus point soon, and rarely do these go to the full end, so I suspect a breakout very soon, likely by early Sept at the latest. Bulls can wait for a pullback either to the $1580/90 area for the more aggressive players, or towards medium term support around $1550, while bears can look to sell above the key resistance at $1631 which the metal has not closed above since the first week in May.

Now that I have outlined the major components to Ichimoku Time Theory (ichimoku numbers), I want to talk about the 2nd pillar of Ichimok which is the Wave Theory.

Remember, the main pillars of Ichimoku are not the Tenkan, Kijun, Chikou and Kumo. These are components of Ichimoku to help you read the main aspects of what is going on with the trend, support and resistance, and price action - all within a glance.

But.....these are NOT the pillars of Ichimoku. This led Hosada to state the following when he realized everyone was getting stuck believing the Tenkan, Kijun, Chikou and Kumo were all Ichimoku was about;

“Of the 10,000 or so people who are practicing and trading ichimoku, only about 10 really understand it.”

The 3 main pillars of Ichimoku are;

1) Ichimoku Time Theory
2) Ichimoku Wave Theory
3) Ichimoku Price Theory

I have discussed Ichimoku time theory which is the basis for all the other pillars and all of the ichimoku components you use when you look at any ichimoku chart. Now I would like to get into the 2nd pillar which is Ichimoku Wave Theory. I will get into the basic components or waves only as there are several types of waves (basic, mid-term, etc.) so to give an introduction without confusing anyone, I will write about the basic waves in today's article.

3 Basic Waves
There are 3 basic waves which are the most important ones to learn because they are the basis of the ichimoku wave theory and will always be a part of your wave counts. They are;

1) I Wave
2) V Wave
3) N Wave

Ironically, an I Wave is 1 leg, a V Wave is 2 legs and a N Wave is 3 legs. Just like all the basic ichimoku numbers are building blocks for all the other numbers, it is the same with the waves. But let me show you a picture below to help give you a needed visual.



Looking at the image above, you can see how the one, two and three legs form the individual waves. I, V and N waves can all be up or down so that does not matter. Generally, I waves are impulsive price action moves, but they can be corrective. V waves are usually one impulsive and one corrective move, but can be two impulsive moves back to back. Whereas an N wave is usually an impulsive leg, followed by a corrective leg, and then another impulsive leg in the same direction as the original leg.

Being the most complex of the three, the N wave can have variations of this, but the first leg of the N wave should be impulsive with the other two having variations between them. Generally, most N waves will end with a higher high for an up wave, and a lower low on a down wave.

So the wave should end up lower or higher than where it started. If this is not the case, then it usually means a breakdown of the wave structure, but lets look at a few examples.



Using the chart above, I have labeled several lines, all of which individually are I Waves. As I said before, they all are components of each other, so a V Wave is really two I Waves put together, while an N Wave is either three I Waves, or one V Wave and one I Wave. But lets break this down in the chart above.

Starting at the top left of the chart, the first movement from A-B is an I Wave. Now by that token, the move from A-B-C is a downward V Wave. A-B-C-D would be therefore an N Wave, but also composed of two V waves (one up and one down). As a general rule, it's better to look at the wave structure from a macro perspective then a micro one, so breaking say four N Waves up into 16 I waves is unnecessary. Look for the larger macro structure (gestalt) of the wave structure and you got the trick.

Now, as I stated, even though A-B-C-D is an N Wave, it doesn't end with D being higher than B. When this happens, it generally means a range bound market at a minimum or a breakdown into a downward N wave, but rarely ever do these end up with higher prices above B, especially if C is breached.

Since this did happen, we actually have an downward N Wave starting at B-C-D-E. We can also count a downward N Wave from D-E-F-G. This brings me to the point that N Waves generally continue in their original direction until the ideal structure of the waves gets broken or disrupted. It also means N Waves can continue and parts or legs (ends) of them can start new N Waves in the same direction.

So if we were counting a new N Wave from F-G-H-I, since the wave structure is being disrupted, we would expect a likely reversal, and this is supported by the upward N Wave starting at G-H-I-K. This may seem like a lot, but this should give you some starting ideas of how to use these basic waves when reading an ichimoku cloud chart and will get easier with practice.

Usage in Trading
There are many ichimoku trading strategies we can use with these basic waves in trading, and if you were paying attention, I already gave away one idea. One example is how the wave structure generally performs (particularly N Waves). If the structure breaks down from its ideal formation, then watch for trend change - minimally a consolidation, but definitely not a trend continuation.

Another way this can be useful is if the number count (using ichimoku numbers) in a particular move is getting long, such as a two section, one period or a combined-6 move. These common turning points, combined with wave structure changes often bring a confluence of signals together which can mark major turning points in a move.

For example, in the chart above, the move from D-G is actually 1 day short of a one period move (a common turning point).

Additionally, you can combine forex price action strategies with these moves, especially reversal setups, so when you see (for example) pin bar setup happening at a major resistance, along with an N Wave structural change, this can increase the probability of a reversal.

Other ways to do this is if the V Wave is not a traditional impulsive move followed by a corrective move. For example, if it is an impulsive move followed by another one counter-direction, this could also be suggesting trend change or a range bound market, depending upon how it started the V Wave.

As you can see, there are many ways, too many to discuss here, but hopefully this gives you something to work with.

In Summary
Although there are other waves that we have not discussed, this is a good introduction and start to understanding Ichimoku Wave Theory and gives you the foundational theory to start practicing with the basic waves. But it is important to understand this is one of the key pillars underlying all of Ichimoku Kinko Hyo theory, so understanding the basic waves is a gate towards understanding ichimoku trading strategy as a whole.

Best is to practice wave theory by itself so you learn it as an individual component. Then after building some experience, combining it with ichimoku time theory. But hopefully for now, this gives you a nice introduction to Ichimoku Wave Theory as there is very little information about it available, nor discussed openly.

I have been watching the new wave video, and it's a good one.

yeah, lots of good things on this one
i like the wave theory a lot
simple, effective, good for prediction

Yea, gotta get used to the macro rather than micro, but shouldn't be that hard. Just really challenges, which is good.

Watching it for the third time already...didn't get much done at work.

Gold
Following in the footsteps of Silver, Gold broke through a key resistance level, clearing and closing above the $1630 level which had not seen a daily close above it since the 1st week in may. The breakout also came on the heels of some pre-breakout tension or pressure which led to a strong breakout bar and good close towards the high, suggesting little profit-taking.

I suspect there will be new technical models now buying the shiny metal and looking to add longs on a breakout pullback setup towards $1630 should it offer the dip. What is interesting to note is how this breakout preceded the Bernanke Jackson Hole speech next week whereby the market is waiting to hear if Helicopter Ben announces his plans to print more money.

Perhaps the breakout was a sign of strength ahead of the meeting regardless of whether he hits the CTRL+P button or not, which is good for the underlying strength of this breakout. But, it may also mean that if he disappoints (as I'm expecting him to) that the precious metals will sell-off a bit offering a good pullback to get back in long on the cheap, so plenty of options to take a position over the next few days.



Global Market Commentary:
After what seemed like and over-extended rally running on fumes in terms of volume, US indices fell broadly, likely from profit taking with the indices coming to multi-year highs. Although they started off up on the day, they all fell heavily for most of the trading day, many of them creating small reversal patterns on the daily charts.

Meanwhile, the ECB put out some more hopium that it will start buying Spanish and Italian bonds through Eurobonds or other possible methods, reducing risk in the zone and thus being a risk on day. The Euro thus gained vs. the USD ahead of the Samaras meeting with the European heads of state expecting to ask for an extension (not the first time) on their repayment schedule.

The Euro on the day closed up at 1.2465 while Gold and Silver rallied to several month highs along with Oil making gains on the day.

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Great thread guys, I wanted to post a TF chart but this forum won't let me post a tradestation chart for some reason...
anyway feel free to post more commentary on stock index futures

Hi Dart,

Are you a PA trader?

PA and Ichimoku....Pa wise I focus most on pinbars and engulfing bars....not as well versed on some of the other stuff Chris looks for but have been in this game for about 9 years so I do know a thing or two generally speaking

Are you in the 2ndskies courses?

No I'm not...I do pretty good as it is but would like to know some of the finer points of Ichimoku but not necessarily willing to pay for a education. I ran across your thread and saw Chris posting here and thought I might pick up a tip or two. I have seen a number of his videos and spoke to him regarding a webinar he did on another site a while back but lost track of him afterwards.