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Structure of a trade

  • #1
  • First Post: May 26, 2012 1:06pm May 26, 2012 1:06pm
Let me show you what a great short trade will look like with some market structure.

Gbp/Jpy makes another run for recent highs above 133. Last time it rejected these levels showing sellers in control by both longs closing and new shorts entering. Here's what a short opportunity can look like on the Daily chart.
http://i50.tinypic.com/jfu5v6.jpg

& the 1hr:
http://i50.tinypic.com/1zguvt4.jpg

Its another great bull candle on the daily and a strong one on the hourly right in to a resistance level.
Price has been driven up by informed traders, tripping buy stops from eager sellers which entered upon the break of 132. Now above 133, its in a known bear zone.
From a retail order book point of view: When price moves up so fast like it has been in the 1hr chart, its not only from shorts exiting with buy stops, but UNinformed traders entering with market orders to catch the move. As with all lagging indicators from some derivitive of price, these retail traders are entering on a trigger based on a strategy. The root of the strategy is price action which triggers from a higher high somewhere, some time frame. So we've also got a bunch of retail guys long in the market. Where would YOU place a stop in this chart if you went long during that spike up?

http://i48.tinypic.com/jra0qh.jpg

I'm trying to save rookie's time by exersizing your mind on how a market moves.. since that's the only way to profit via retail speculation. Relying on indicators for trades is not the way to go. The above is an example on how a professional can take advantage of this.
  • #2
  • May 26, 2012 1:43pm May 26, 2012 1:43pm
Look great, hope to read more. Thanks.
The only winner is the one who survive the longest...
  • #3
  • May 26, 2012 1:55pm May 26, 2012 1:55pm
Thanks! Study market microstructure and keep up on FX news. Then you'll be able to watch it play out on the charts in the form of price action.
  • #4
  • May 26, 2012 6:59pm May 26, 2012 6:59pm
Imho, most of those buyers who bought the break of the resistance (approx. 132.300-500) and which you circled would have already been out or at least locked in some profits instead of leaving their stops below 132.00 and waiting to get knocked out. Most of the stops below 132.00 were traders' who were buying (as you can see on chart no.3) retest of the previous break and failed, plus breakout traders who sold the break of 132.00.
Btw, if selling resistance (or buying support for that matter) like that, where would you have placed your SL? If above previous high then look at the bottom of your chart No 2 or the one below. I'm sure you see what I mean.
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  • #5
  • May 27, 2012 1:35pm May 27, 2012 1:35pm
Yes, the longs in chart 3 had closed many trades as price slowly went back to where it broke out but there are still stops (and lack of buyers) under those levels. There are still stops from the ones that haven't taken profit yet or guys trading off a higher time frame.

News releases and the current order book info are the other half of this. Chart info alone is not enough to trade high probability trades off of.

Me personally, I dont place stops above recent highs. Those are just asking to be run during illiquid times. When price gets near a trade level, I watch the 1min (or 5min depending on volatility) chart and trade small in 1/3 or 1/4ths. Stops @ BE once price clears the area.
  • #6
  • May 27, 2012 4:20pm May 27, 2012 4:20pm
Quoting EmeraldEyes
Yes, the longs in chart 3 had closed many trades as price slowly went back to where it broke out but there are still stops (and lack of buyers) under those levels. There are still stops from the ones that haven't taken profit yet or guys trading off a higher time frame.

News releases and the current order book info are the other half of this. Chart info alone is not enough to trade high probability trades off of.

Me personally, I dont place stops above recent highs. Those are just asking to be run during illiquid times. When price gets near...
Ok, thanks for your reply & explanation. Stops above/below major swing highs/lows are run during liquid hours as well. The point is to take the early sellers/buyers out while at the same time get breakout traders in, then take their money as well.. you probably know all this. With regard to your chart and your 'order flow' approach I'd have taken different trades but I'm glad this works for you. As long as you know why you do what you do that's all that matters.
  • #7
  • May 27, 2012 10:59pm May 27, 2012 10:59pm
Quoting EmeraldEyes
Let me show you what a great short trade will look like with some market structure.

Gbp/Jpy makes another run for recent highs above 133. Last time it rejected these levels showing sellers in control by both longs closing and new shorts entering. Here's what a short opportunity can look like on the Daily chart.
http://i50.tinypic.com/jfu5v6.jpg

& the 1hr:
http://i50.tinypic.com/1zguvt4.jpg

Its another great bull candle on the daily and a strong one on the hourly right in to a resistance level.
Price has been driven...

lol
  • #8
  • May 28, 2012 10:40pm May 28, 2012 10:40pm
I didn't say too much..

Did I?
  • #9
  • May 29, 2012 9:14pm May 29, 2012 9:14pm
Most retail traders use market maker brokers. Therefore, the larger the position, the larger the force in the opposite direction. When trading markets it's always best to run away from the crowd.
  • #10
  • May 30, 2012 12:33am May 30, 2012 12:33am
There's a saying, "The market is too small for a crowd"

Newbies, think about that line and how it can be applicable to trading.
  • #11
  • May 30, 2012 5:27am May 30, 2012 5:27am
Order board: http://www.forexlive.com/blog/2012/0...orderboard-42/

1.
http://i47.tinypic.com/35b6rkl.jpg

http://i47.tinypic.com/6gilhy.jpg



2.
http://i47.tinypic.com/2wf2umd.jpg

http://i48.tinypic.com/6o3qkx.jpg



3.
http://i49.tinypic.com/ddddht.jpg

Market structure.
  • #12
  • May 30, 2012 9:25pm May 30, 2012 9:25pm
an eye opener! Thanks Emerald
  • #13
  • Edited 3:08am May 31, 2012 2:50am | Edited 3:08am
For me personally, market structure was probably the most important thing I learnt/am still learning about.

I struggled to understand for a while why with all the study and effort i'd done into price action, why my trading still delivered such unpredictable results. What was lacking was a proper understanding of the structure of the market and what cycle the market was in.

It's absolutely vital in my opinion to be able to "see the picture". What I mean by that is to be able to filter down through the timeframe to you trade entry timframe. You may look at M15 and think you're in a bear market but actually, all you're doing is retracing down the wick of a very strong daily candle that broke resistance. if you don't start to underatnd and unravel that picture, you're going to constantly take trades in totally the wrong places.

The trouble is for anyone starting out is the time that it takes to start to wrap your head around it. The frustrations and lessons you learn are plentiful and you sometimes wonder exactly how you would begin trying to articulate what you've learnt to your newbie self years ago. In the most part, I actually believe that a great deal of it is a solo journey. You can get pointers and hints from forums and books but you have to still be able to make sense of it all in your own mind. It's not as easy as some people will make.
  • #14
  • Edited 1:42pm Jun 3, 2012 6:36am | Edited 1:42pm
Quoting EmeraldEyes
From a retail order book point of view: When price moves up so fast like it has been in the 1hr chart, its not only from shorts exiting with buy stops, but UNinformed traders entering with market orders to catch the move. As with all lagging indicators from some derivitive of price, these retail traders are entering on a trigger based on a strategy. The root of the strategy is price action which triggers from a higher high somewhere, some time frame. So we've also got a bunch of retail guys long in the market. Where would YOU place...
Hey Emerald, the Institutional orders are parked to go short at the Weekly swing low, close, 21 05 1995 /132.65 (its a massive SR line) also the weekly trend line, creating large institutional O/F confluence, The big guys run PA long through this to suck in all the "noisy" retail traders for easy money....

They play this out time and time again picking up change from a large contingent of the retail fraternity. the newbie retail guy is just interested in taking his bias from the noise...not looking where the big O/F is..

Nice post BTW

Ja.
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Memories caught in time but never forgotten
  • #15
  • Jun 26, 2012 7:04am Jun 26, 2012 7:04am
what happened to this thread?
wo-yoy! wo-yoy! wo-yoy! wo-yoi! wo-yoy-yoy-yoy!
  • #16
  • Jul 4, 2012 10:38pm Jul 4, 2012 10:38pm
Quote
USD/JPY: Strong offers 79.80/00 from exporters, sovereigns, buy stops through 80.07 Ichimoku cloud base, and 80.65, Bids from 79.30 down to 79.00 (talk of semi official interest). Sell stops through 79.00

http://i49.tinypic.com/2a5c9hh.jpg
  • #17
  • Jul 2, 2013 6:59am Jul 2, 2013 6:59am
Usd/Cad approaching buy stops @ 1.0550 and above.
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  • #18
  • Jul 2, 2013 7:31am Jul 2, 2013 7:31am
Quoting EmeraldEyes
Let me show you what a great short trade will look like with some market structure.
Yes, nice when you can show same thing before and not after the trade is over.
  • #19
  • Jul 2, 2013 7:49am Jul 2, 2013 7:49am
Its like trying to predict what will happen in the next 5mins. Like you said though, its all worthless after it happens!
  • #20
  • Jul 2, 2013 10:35am Jul 2, 2013 10:35am
Here's Oanda's retailer's order book before and after. Notice the sell orders still there after price had rejected 1.0550+
This was a new 2 year high in Usd/Cad as well. Previous high that was broke was @ 1.0557. I anticipated a run of market orders, but not to this extent and almost got stopped out @ 1.0580.
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