Spot Fx Trades based on futures volume and price movement

Posting every day to help order my thoughts and post levels that I'm interested in.
Main trading charts are 2 hour timeframe. Volume is below the price, other indicator is cumulative delta.

Also have charts zoomed out on a longterm 4 hour view that shows market delta as high volume nodes are areas where price has a good chance of price reacting to when it returns.




Go back through the chart, look at the other futures contracts (British Pound) and look at what happens when price returns into these big volume bars with the big move in price. You'll see that price always reverses and continues in the same direction until another big volume/price bar occurs.

So my job is not to spot when those big volume bars are going to happen.
Forget it, it's impossible (or try it then let me in on the secret). I've wasted a lot of time trying to do this and I have to accept that unless I can see the order books of all the big banks etc then I really have no idea-there are no clues that I can see. So what I'm after is the reaction to these volume spurts.

When prices return for the first time into these areas-that's when I trade.

These are easily the most important levels you will see. Ever wondered why price drops on the 30 min chart, it's going great guns lower and then bam, it shoots up 100 points?
It has approached these high volume areas for the first time-sometimes they're a week old, or two days, or two weeks.

On charts below-green areas show when solid buying took place, red is where solid selling took place. If these areas are circular then they show the start of bars where high volume occurred that also corresponded with sharp price movement.

Look at what happens when price reaches the areas that are marked with either green or red circles. Price will gradually make their way back to these levels and then shoot away again.

I am currently long the GBP/$ as you can see a nice pinbar in the area that is marked by the two green circles and the two green trend lines.

Note that this is not a perfect trade as this is the second time price has approached this area, meaning there will be less orders in the market to drive prices higher once again.

What do I mean?

There are two types of orders that are driving the market onwards, and one extra kind of trading activity (explained in point 3):

1) orders that never got filled in the direction of the price/volume spurt. These orders are still in the market and will be opened long (if it's a buy volume/price surge) when price returns to these levels.
2) People that were in the market and were short (betting against the volume/price buy surge). They will be opening their positions-initiating a buy, but TO CLOSE THEIR LOSING POSITIONS FOR A SMALL LOSS.
3) If these two types of limit orders are being hit, and then people are buying at the market price directly (as in price is 1.3400. Instead of using a limit order to buy at this price you are entering the market manually at the advertised price by pressing the 'buy' button) then this will propel the market higher.

In the absence of those traders in point 3), prices will rise for a while and then stall.

The long trade I am describing is not perfect as the first 2 scenarios have already been played out when price first returned on 26/27th January. There is a good chance that the market will not go too much higher and will hit resistance at 1.6526.

Why? Look at point 2) again-there was decent buying activity here, and they were all wrong as price plunged lower. So when price retraces back up then they will be looking to exit by selling to CLOSE their positions at a small loss/breakeven. It is this aspect that is not understood by traders as we all think that markets are driven by people opening positions all the time. Closing a position contributes equally to a price move-that's why Support and Resistance works!

As I was typing all that out, price has come close to the possible 1.6526 reversal point and dropped.
Have posted 30min chart below.
Look at the volume-have circled 2 30 min nodules showing high volume. The fact that this was buying volume is shown in the cumulative delta that appears above the volume that breaks down volume in terms of the difference between buys and sells in a set period rather than just showing all volume. Clearly shows that people were buying here.
They're now out of the money and need price to retrace higher so they can close their positions. Looks like they're doing it-who will win?

Nice explanation. Thanks for sharing. I have a question.

Do you use SET AND FORGET type orders or you wait for some kind of confirmation, if so, which one?

Thanks again.

Hi VMZ,
I wait for price to show me that it is reacting to these areas in the way that I want rather than just setting and forgetting.
Pinbars on the 1 or 2 hour chart are my favourite.
When dealing with these major price levels and major flows I find the 15min and even the 30 min a bit too choppy if trying to get a precise entry. If you are using stop losses, then entering on one of these lower timeframes with a tightish stop, it's a surefire way to frustration when price keeps going because it isn't 'quite' ready to turn yet. Of course-can use wider stops but I prefer not to and the 1 hour gives good signal and cuts the noise-same as the 2 hour charts as well sometimes.

Also I only enter in London and USA sessions (I'm UK based) as on balance, that's when major price moves occur.

Thank you for the reply. Let me ask, do you trade intraday or swing? What markets do you trade? Can I send you a link with some thoughts I had on todays session? (kinda showing what you just explained)

* Sorry for the many questions in one message but, it is to simplify messages. I appreciate your help and I assume that with your posts and stuff, you are willing to help people who need it. I hope not to bother and thanks again.


Please check this out, makes a lot of sense on what you just replied.


http://screencast.com/t/BucLJ3AqqFOF

Hi VMZ,
To answer your questions-I trade EURUSD and GBUSD.
I trade the ES a bit but something to note about futures volume, especially in ES-most of the action does take place in the USA session (see chart below).
I trade intraday but as these are big levels I partially close positions in profit and hold a part open overnight to reap any further potential gain.

Great looking chart there!
One thing to clarify-your zone that you've marked out at the top is one where the buying/selling ratio started to turn and gradually changed to selling. It basically rolled over gradually.
Am guessing you have spot fx chart so might not see volume (or it isn't an accurate picture). So you've seen the swing high and made your zone BUT the area you should be concerned with (hindsight is a wonderful thing isn't it?) is not when prices started to roll over gradually but when price left the area with violent force. And that is the first big red bar down-that's when the sell side really kicked in, and it's this area that I would look for a change in price when it comes back up to this area.

So you had that nice entry pinbar in the middle of that big selling bar rather than price reaching the zone where price rolled over gradually. My chart shows a different pattern as the hour bars are set to change on the half hour (due to futures opening times).

R.e. potential entry I would have entered the trade on the open of the next pinbar down or wait for price to retrace slightly higher before entering. It's never perfect but I don't wait for a break of the low as it reduces the reward and lengthens the stop loss. If you've picked the right areas, which you clearly have, then it will be rare for price to stop you out.

Your first profit level is where I would be looking to take out some profits as price could still bounce higher due to those people still short (look at the big red bar on the bottom of the move). Those people will be looking to buy and close out their losing position when price moves down into that area.

Look at chart posted below-I didn't trade this as it was too quick but it provides a great insight into how price really works.

Look at the bars that have been circled/marked on the far right of the chart. You'll see high volume (nothing massive but still decnet size), and the top indicator-the cumulative delta-shows that people went long here (the green circled bar) showing people were net long in this time period.

But price kept going and they're nursing a loss. So look at what happened when price came back to this area this morning, back to where all the longs were in losing short positions. It gets right into this volume bar and is smashed down-all of those people long are selling but to close their positions! Hence the price smackdown.

Apologies-due to how the chart is saved the crosshair appears to be 1 bar to the left of the relevant price/volume bar I'm talking about.

[edit] I am not looking to go short here as it's resting on a swing low. That's not to say price won't break out and go lower, but if you sell at the bottom of swing lows then over the course of a trading life I'm not sure how much money you'll make!

Here is sandp analysis for you (in hindsight-yay!).

Look at the couple of bars circled on the left hand side-a sharp drop with good combined volume.
So I know there are orders waiting to be hit somewhere in this area when price returns to it.
Price can react to these areas in the manner I expect and pass right through and go higher.
That's why I wait for a sign that these areas will be respected, and sure enough that entry is given by the bar circled that is to the centre of the chart.
Entry would be on the open/slight retrace higher of the next candle (can you see how it improves the risk/reward ratio?).

In your example that we have just discussed I would be less confident of the second drop from this area as it has already been visited previously, although in this case it doesn't look like that really mattered. Look at that big engulfing bar-happened in the evening so would nopt have been able to play it but damn-price is showing you where it wants to go isn't it?

Please note that price bars are only considered in areas deemed of interest-if they're occurring elsewhere then I just ignore them.

Live trading idea.
Wonder why I'm interested?
USCAD-note futures market is reversed for Cad so a long on the chart is a short on spot fx.
Is taking off-have limit order to open at 1.1178 but not sure it'll get filled at all.

Note the cumulative delta circled. Shows that despite the high volume churn there was actually a slightly negative (as it's red) amount of buying/selling-so net there were slightly less buyers and sellers that were opening market orders (as in hitting buy rather than using limit orders to open and close positions).

So knowing that, we can see that we've hit a strong hidden cluster of limit orders in the market.
Also, note that the volume stands out from previous volume, and the candle stands out too. Is a clear marker for a change in price. Just annoyed I'm not in for the ride.

Hey Bootsyjam!, first of all thank you for your reply and your awesome explanation of everything. I wished I could have replied you back earlier but, I was busy on my trading session and wanted the peace of mind required to read and analyze the whole thread.

I would like so much if I can contact you in a more formal way (e-mail,Skype, etc) so you can help me up to clarify a few things on which I still have doubts and confusion. Most of them are on the selection of the Supply/Demand zones. I think I am very close to set all this on, but unfortunately I know something is missing and I will appreciate if maybe you can give me a hand. We can exchange emails meanwhile, I think it's easier for us to communicate, what do you think?

Hi vmz-I don't have skype (security/privacy issues). Happy to email but if doing that then it's nothing I can't do on here!
Will only be able to post charts on weekdayssharpevant futures platform is on work pc in the office and avoid it on weekends!
Will pm you my email address anyway.

R.e. supply/demand zones, looking at the chart you posted you don't have volume displayed. This is vital - the supply/demand zones consist of 2 elements. A sharp/violent price move combined with high volume - that's the deal. Your SandP chart was a good example of this.

But as stated, you were looking at the zone where prices started to turn and roll over BEFORE the real heavy selling began. It is the heavy selling bars that we're looking for that are near swing highs/lows. Hmm haven't mentioned that bit before - that's v important!

But as you can see by that quick eurusd chart that I posted in post 7, you can see how important volume can be. If you don't have volume then you don't have the complete picture.

However, having said that, the most important thing is to have patience.
I'm on 2 hour charts and sometimes you have to wait for the perfect opportunity.

In all honesty this is what I struggle with-waiting for the OBVIOUS opportunities. That Cad chart is the perfect example-how obvious does that look to you?

If waiting for those sorts of trades when it's blindingly obvious to enter then you may not actually need volume1

Hope this makes sense, am typing this on my phone.

[edit] apologies for the random crosshair in the chart-it does not signify anything

Been ill for the last few days-not been trading.
See chart for AUD/USD.

Price has broken out of the range. Whilst there were clues that it was going to do so, can't say that it gave a particularly amazing buy signal before the fact unlike the USDCAD trade set up on Friday.

But the trade is not over yet. Look at the 4 areas with red circles. These are the clues that price was going to break out.
Each time price rose into these areas it was turned away but it kept going up to test these areas. These had the effect of eating into the sell orders still in the market. And when these sell orders were all eaten up? Boom. Price moved through this old area like a hot knife through butter as there were no sell orders left to halt it's upward march.

But now those sell areas are resistance where I expect price to bounce from. And this explains the mantra "support becomes resistance and resistance becomes support."

Why?

Because on those 4 selling areas marked in the AUDUSD chart there were people short in the market. And they're still short.
So when/if price comes down to these areas then they'll be looking to close these positions (point 2 in first post).
So be looking to see a pinbar/price reaction at these areas.

Please refer to chart in Post 9 as a starter to this thread.

Please see chart below for an update.

The large green oval drawn across the price shows where the tipping point is.

In post 9, I showed where the supply/demand had changed and that there were now sellers in the house.

The green oval is an S/R area which will be significant if breached. I will see this as a longterm change of trend.

Look at the high volume area in the bottom indicator window. Huge spike down with the strong initial move. This is also shown in the cumulative delta indicator above-loads of people selling. But then it kind of dawdles until those hidden buy orders were triggered (see post 9).
Price has continued to rise and has now reached this pivotal volume area. All the sell orders, in my opinion, are almost eaten away from this down move-look at how many times price has hit this area,gone down, and then come back up. Lots of sell orders being eaten away.
I expect price to move through this area soon, and it'll shoot through like a bullet. P.s. that is a sell on USCAD-CAD futures is inverted.

EURUSD
Bit of a mash this one-posting more to muse than to show a clear trade.
Looks like there has been heavy buying as shown by the green trend line under cumulative delta.
This has been in the face of good but certainly not strong selling volume in the past, so am looking for EURUSD to head higher.
However I will only wait for a clear signal from price that it really wants to go higher-no point jumping in as this has not been confirmed.
Note that the flat red oval resting over price shows where shorts in the market are gradually being eaten away which should help a sharp move higher.

BUT.

If the price drops lower then all of those longs that I've indicated will act as resistance when price retraces higher.
So let's see what happens tomorrow. Or overnight. Who knows?

Further to my USCAD thoughts, have taken a small short position at 1.1100 near the top of the channel (bottom of channel on futures chart). Looking for price to bust through to 1.100. Stop set at 1.125 so approx 3.8 RR. Let's see.

Exited USD CAD short at 1:1 RR. Was looking for it to push through in normal trading hours but didn't happen-don't want to keep a trade like that on as it's near important levels and could quite easily reverse against me so need to watch it constantly.

As mentioned in post 14, EURUSD went higher today. Sadly it took some warbling from the ECB to act as a catalyst making it untradeable unless you have nerves of steel. I entered a small long on GBUSD due to worse than expected USD news today and made some good money off that move. I do see steady accumulation on the GBUSD but it has fallen a lot further than the EURUSD so if it goes much higher it might be a lot more of a grind.

As for EURUSD, can see from the chart that it has hit an area where there was decent buying interest in the past so that will act as a brake. It's the first time price has returned to these levels so it's bound to have some effect.
Nice big volume off the news today, showing that the accumulation that is shown by the cumulative delta indicator (top indicator) where I have put a green trendline to show strong net buying.

The large red oval shows where price has eaten away at sell orders resting in the market before shooting through today. Will be looking for price to come down here and then will be looking to see if price is wanting to bounce higher.

Alrernative scenario (this has happened in the AUDUSD this week)-if the move higher is strong enough then prices may move even higher.
The evidence that this might happen is shown when after a strong move like today, prices actually stay up near the peak. There is no real correction down, prices stay elevated meaning that people see it as a fair price, so any injection of buying will mean prices move even higher.

Will be interesting to see what happens with the price overnight-if it stays in the top 30% or so of the move then I'll be looking to buy tomorrow (albeit cautiously).

[edit] apologies once again for the random crosshair in the chart! Although it is fortuunate that it's resting on an area of interest anyway but still-rather annoying].

First up-a few thoughts about trading, indicators and psychology.

I'm the classic home trader-I've been through all the indicators-decided they were rubbish, and then came back to them again!
The most popular posts on FF appear to be indicator related-as in "buy when stochs are below 30 and going higher" or buy when RSI crosses 50 and OBV crosses 40" etcetc.
I remember that this was attractive as it meant very little in the way of analysis on my own part. Essentially you were farming out the decision process to indicators which is VERY attractive as you don't have to take responsibility if things go wrong. Also, if you don't have a lot of confidence then these indicators are very comforting.

Well I've used them all, and now I don't use any other than volume. Because, and know this-it is buying and selling to both open and close positions that drive markets-NOTHING ELSE! To understand how markets work then you must understand and accept this, and understand the 3 sorts of buying/selling activity I list in my first post.

Seriously-do you think price is bouncing because the stochastic on the 15 mins is resting under 30 and is turning up? What about a rising RSI? Is that causing prices to bounce higher? Of course not.

So how about this-are the traders at the banks, hedge funds and sovereign wealth funds using these same indicators and are piling in thanks to that 15 min stochastic?

Of course not. The reason why these indicators work sometimes but not always is because of luck. And the luck part is that these indicators show a great trade when the price happens to be sitting on an area of interest that I am attempting to describe. In other words-areas where there has been serious volume in the recent past, and price is coming back to this area for the first time and the order process that I describe in the first post starts to kick in.

Of course there are other levels around, and you'll know what they are when the price bounces, and they will correlate with other price/volume levels. But these are harder to spot and less likely to hold/cause the required money making (for you and me) response in price. I'm just trying to pick the most obvious levels using volume and price as that's the best place to expect price to react to.

Finally-chart time periods. The 2 hour view is fantastic as it really shows up the most important and obvious levels from a daytrading perspective without losing too much detail (like the 4 hour chart), or giving too much detail (the 1 hour chart).

If I could recommend one thing it's looking at a 2 hour chart-picking the obvious levels, and then seeing what happens when price hits them.


Have posted a 1 hour chart (yes I know I said 2 hour-this zoomed out 1 hour chart gives the same sort of info but more condensed as you will see). Do any levels stand out to you giving a clue where the price might reverse? The answer, obviously, is yes it does! Not because of stochs/divergence/rsi/obv/whatever.
A parabolic move of 130pips was halted and reversed by an obvious level.

I know people want to devolve their decision making to random indicators but you really don't need to.

If I could say one thing, if you can't get 2 hour charts then just get these zoomed out 1 hour charts and see what happens at obvious levels.

Don't draw any lines across as it interrupts the flow (or at least it does for me-maybe draw a few if you have to).
This is all trading is-price moving between different levels of volume interest. Those indicators won't show you that, and they won't show you the best levels to trade at. But as mentioned, they do occasionally coincide with these levels, giving the illusion that they really do work.

GBUSD thoughts today

Big new this afternoon.
Price is stuck in a base-has been pinging in a channel for last few days showing that some sort of interest is buidling. Whether it is to sell short from this level or to go long-who knows.
One thought-the fx market is unregulated and is run by, on behalf of, banks. Banks are tight with govt and are most likely, IMO, privy to info being released before the event.
To trade successfully you need to buy low and sell high and vice versa.

Taking this into context-price has dropped to a lower level over the last week, and price has been in accumulation/distribution mode over the last few days.

My cumulative delta shows that traders have been buying at these low levels over the last few days.

So whilst futures traders can't see the bank's order books, they may well be privy to info that we don't have. And they're accumulating long positions. It might be a punt, or they might know something we don't.
But if there is worse than expected US data this afternoon then get ready for a sharp move higher. The question is do some people already know what the news is going to be and are positioning themselves accordingly?
I would wager that on balance there are definitely people who know in advance. Obviously if they were right 100% of the time then news trading would be easy. Well, knowing this can give you/me a statistical edge (which is what it's all about). If this works 5 times out of 10 then can you make money from it? Yup.

Just a thought.

What a shock. Secret job figures came out weaker than expected and the market is perfectly poised, as mentioned, to take advantage and buy low. How odd.

I should also add that the put/call ratio for US indexes/indices did not show any signs of insider buying in the run up to this news. So no-one was beating on positive results for the USA. Either their analysis is remarkable or...