HCR-LCS + SFP Research thread

Coming to your question Steve, as hinted above in my post there are normally parameters and factors that you can look into to make out what price is trying to do and whether that can potentially be detrimental to your trades.

These factors include FTAs, Round numbers, LLS/HHR, EMAs and other things you watch like your HCR/LCS levels. By simply looking at where price is looking for support and resistance you can, for the most part, make sense as to what that "slow movement" is signalling.

Its like decoding the thing backward. You start off with looking at your bar to bar action and then putting this piece of the puzzle into the entire bigger picture to see if it makes sense.

In the above examples, bullish fake out setups that are moving slow to begin with are explained by close by first trouble areas on both setups and look bullish because you don't see any threatening bearish action (such as a close below the LLS) to realize your fears.

Once again its about not being emotional and not getting bogged down if your expectation of a setup to be a BAM setup isn't fulfilled. Its really about just looking at things objectively and making sure any actions that you take are well justified on grounds of simple technical analysis and the ideas of support and resistance.

hope this helps.

g.

Yes would have been an ideal place, (FOMC as I type), I was going to say I'd be looking for 4920 to hold

Ghous your pin LLS closing theory is Mind-blowing However was the LLS in your case the left eye of the Pin?

Pinbar - Was this what you meant? Price breaks out of the Daily Trendline - People are happy cause the even see a bit of a Pullback Retest (which tests the minor PPZ at the same time ) - and now they are expecting price to fall?
So people are selling while the big-ones are buying? Or was it simply due to some news... (Its possible as well cause EURUSD had a huge move as well at this time...)

Cheers
Stephen

Hi guys!

Could any of you give me a hint on this from an SFP + Order flow view? I already learned that wicks create vacuum that price can fill easily... What was wrong here? (I didnt trade it - just askin, cause i noticed while scrolling charts

Great stuff Ghous and many thanks for your time in explaining this in such detail.

It is 5:30 am and my mind is still not awake so, I shall ponder this and get back to you with any questions, on my return this afternoon.

Well, for a start, the Basics of SFP setup is that, the SFP bar must close above the swing low, not just on it.
If we look at the bar you chose, we can see that the SL should have been 35 pips + spread below the bar.
It did not fail if you had applied that ATR SL, even though it was not the real setup bar.
Also, note how the low of that candle is actually 1.28563 It is actually the SFP candle as, it took out the low but then closed exactly on the SP low, not above it. Maybe Helius or Quidsey can give you a better explanation.

Wow, You guys really nailed GU.

No it was for the lowest low of the former swing point. I.e the yellow lines on my chart.

g.

To begin with, the pin bar was headed straight into a big box of consolidation and immediate trouble area in that prior swing low hovering just above the pin bar. Always remember that price will take the path of least resistance. Here it was caught up between the order flow that triggered the pin bar and the bearish order flow being sourced from that consolidation box/FTA/PPZ.



Look at the bar that tried to penetrate the consolidation box and only ended up closing back under the it (the one I have a down arrow on). If this was some real bull muscle striking the next bar should have easily filled in this week and went on higher. Instead we see solid rejection off the level and price proves that the bullish order flow was weak in this case and price actually fell through the lower wick of the fake out bar / pin bar.

So how do you know before the fact, whether this was more likely to shot up or down? This is where our good old James16 knowledge of support and resistance comes in handy. The consolidation box that price is headed into occupies much more space as well as time compared to the order flow contained in the bullish pin bar. By all means that pin bar has a good decent nose but its still headed into what Mike refers to as "traffic". That should immediately put us off from thinking long i.e having a neutral or a bearish bias to this setup as opposed to pulling the trigger on it as a bullish setup confidently.

***----------------***

Order flow perspective of the pin bar and what happened after

What interests me more than anything else though, is though that the setup has still worked! Confused?

A fake out setup doesn't fail until we get a bar close underneath the low of the fake out setup. This poses an interesting problem for trade management purposes. Deciding exits on bar closes rather than price levels means keeping the stop loss open till we actually see the bar close. In this case that would have saved you, but you can imagine the risk associated with having to watch price drop all the way to the low of your fake out setup and then violate it and keep going only to eventually pull back. Specially on lower time frames this can be detrimental as you're playing with fewer pips and anything, a news spike for instance, could create havoc and pull you down into an irrecoverable loss. Tom solves this problem using the ATR approach. I go for an arbitrary stop placement beyond the fake out setup high/low which tends to work great with higher time frame setups specially.

Excuse the rambling, but the point that I am drawing your attention to, is that if you carefully notice you actually have a fake out off the low of the initial fake out setup. Refer to the post I made earlier about setups initially appearing as weak and eventually gaining strength.



Price completely fills in the wick of the fake out setup but could it be that the pros actually just pumped in more positions at the discounted price levels? That is precisely where the concept of implicit divergence comes from. The ability of bars to not close beyond prior important bar lows/highs is what implicit divergence is all about. Its unlikely that the pros will unload their entire positions within tight price ranges because the tighter the price range the more limited is the liquidity available in the region. Given the big consolidation box above, its unlikely the pros would risk dropping the load off so close to a region that could attract sell side order flow. Would it make more sense for them to allow some sellers to jump in and simply buy off even lower price? What if they take for granted the tendency of newbies to get excited about selling as prices are dropping ignoring all that comes in the way? Yeah baby! The poor sellers had no idea they were selling straight into the 128 RN. Round numbers are very good hide outs for pro traders. Options for instance revolve almost entirely around round numbers.

So we have a bullish fake out setup heading straight into a lot of traffic making us think that pros have gone nuts when essentially they have managed to kill 2 birds with the same arrow. They were able to drop part of their load, and by allowing the fake out setup to fail they lured in more sellers and dropped the remaining load at even lower prices and at even better liquidity levels (more sellers to buy from). Master stroke eh?

How do you see that on the chart. By simply noticing that although the wick has been filled in price has failed to close below the low of the fake out setup hence creating a fake out within a fake out setup. Oh well, what kind of load did the pros have that it actually took so much of selling to counter? The answer lies in the bullish wave that followed.

***----------------***
I know this sounds all complicated but the James16 thread has helped us to understand what's going on, without having to lift the curtain to see what's actually happening behind the screens. All we ever really wanted to know was pin bars headed into traffic are a no go. Then concepts like fake outs and implicit divergence further just systematize all these ideas and present them to us in a more simplified form. I was thinking of skipping this latter half of the post but your question seemed to targeting the order flow dynamics behind this particular situation hence I just wrote it down.

PLEASE DON'T GET BOGGED DOWN OR HURT YOUR BRAIN IF YOU DON'T QUITE GET IT AT THIS STAGE.

As long as you're understanding the fundamental concepts and the functional tools we are using here like the HHR/LLS regions, HCR/LCS levels, explicit and implicit divergence, round numbers and concepts of support and resistance, you are doing really well. Well enough to make all the difference to your trading. Its nice to know why you're doing what you're doing but that part of the knowledge isn't meant to hurt naive brains.

g.

hey Steve,

I see what you mean. You may be pointing to a fake out per say, and by the hard core definition but whats always more important in the market is the "visuals". What gets seen, is what gets traded. Fake outs are all about the pros getting to work and its unlikely they are basing their decisions on miniscule pip differentials. I always tend to simply ignore and not even consider such fake outs as fake outs. I.e ones that have extremely strong and authoritative closes and which represent fake outs only if you really zoom in down to the last pip.

I like to ideally see some kind of a wick formation or better still a pin bar to know the pros are at work. We don't have order books in FX to see what orders are coming in. When the chart is all you have its a good idea to make sure everything "looks" in order

g.

yeah well that just shot off. I took full profit off the the 1.5 BRN but its nice to see this take off.

USD/NOK proved to be more fruitful as it got a better bite on the USD sell off.

This was worth 3.6R based on an entry just under the HHR, a 50 pip stop and a 180 pip gain.

(Yes my stop on this one, was not beyond the fake out high. 6.2000 in confluence with the HHR privided nice additional padding for a tighter stop )

g.

My Brain hurts as it has been trying to get a handle on the fake out-Fake out.

But somewhere a dim light glows in the darkness of my mind &, it thinks,"You can feel it all around you, when you pay your taxes"

Certainly is an orchestrated sense of reality, that is being painted on these charts.

Re-read the first few pages of charts and examples, and ran across this on NZD/JPY. We have a S/R area around a D1 HCR (and later also LCS) level. Seem like a good place to watch out for an H1 SFP?

You mean the area with the purple line on my chart?

The short side of that swing, right now, is just too small.
Also, note the lack of space to the FTA and these consolidation boxes on the left.

I have been thinking about What Ghous was saying about filling in the wicks, all the time I was driving to the airport at 120 Kph. Life in the fast lane.

Not sure if, I am going off track here or even convincing myself of a phenomena that is not there, by thinking about it so much.

Anyway it is all in the chart.

Ah, I should have been more specific...I meant around the 79.75 level, as indicated by the blue box in my first chart. A swing into there from where price is now would be well a decent amount above the D1 ATR.

I have got to learn this patience and chilling on the daily chart, without flipping TFs like pages of a girlie magazine.

Please teach me how to go about this Ghous!

Ah, I see.

Well, if price gets back up that far, it is going to put it back inside the channel.
I don't like trading channel like that once it has already broken out and retracted to the high.

It as you say, an S&R or PPZ area but, there is no space because of the way that channel snaked slowly upwards.

Not sure if I get this,

Could you please rephrase what you just said Steve?

g.

umm....by simply not flipping the pages of the girlie magazine.

Seriously though, I have always loved the soothing nature of daily action and while my adventure buds have distracted me often, some hits always get me back on track. I, like most others, couldn't understand trading if it meant taking anywhere less than 20 trades a week and at least 6-8 hours daily in front of the charts.

With a lot of trial and error I realized I just wasn't meant to be a day trader. Every time I took serious hits because of over trading, over analyzing or just simply going crazy looking at setups pop in and out by the hours, I was advised to go back to the dailies by the seniors at the James16 thread and that would always prove to be a soothing and relaxing balm. I could ponder over my mistakes, take deep breaths and just relax and take some time off charts to clear my head in between the long waiting that was required in between setups. Obviously this only came about when I had detached myself from needs of crazy returns in excess of 20% a month. By this time I had obviously learned to not hold any expectations and simply just flow with the market action and take what was on offer.

It took some time but eventually I decided I wanted that soothing balm over me all the time instead of only when I got the cuts and bruises. The dailies made sure I had a life and wasn't required for a straight 8 hours in front of the charts. This was important for a uni student and also for some one living in the third world country with more than 6 hours of daily "announced" electricity outages and quite a few hours of surprises to to top that. Also this went well with my personality. Some people enjoy being bombarded with setups and getting involved with the moving market by the minutes and seconds but I began to enjoy the highly accurate and reliable action of the dailies even if it was a little slow.

Spreads are less of a problem. Broker tricks are less of a problem. News spikes and noise are less of a problem. I love my higher TFs

The daily closes here at 2 AM and despite setting alarms and getting up in the middle of the night to make my trading decisions I have just come to understand that my personality as well as my circumstances suit the higher time frames trading.

hope this helps.

g.