The Fundamentals of Trading

Sweetaction, thank you so much for this thread. I am learning so much. I wanna ask you how do you trade gaps?

This Sunday (EST) there were some huge gaps. I tried trading them but I failed in most. I had one winner that made up for all my losses luckily. I think I entered too early and that was about 2 hours after market open. A lot of the gaps went the opposite direction and then came back to close it. That's where I got burned on EUR/AUD and GBP/AUD. That upthrust took out my SL. I feel like it did that for this specific purpose and then it shot down and closed it. I capitalized on GBP/CAD after it made the up move. I had a pretty good feeling the AUD and NZD crosses would go down after that upthrust but was afraid to re-enter since I already had 2 losers.

How do you know if a gap will start closing immediately or if it will go the opposite direction and then come back to close the gap? What is the best way to trade gaps?

i think you should read news, political... you can use double top or bottom to trade

Good Question - Complex Answer

This is what I do:

- Monday Morning pre asia the gap appears
- Normally one of two things will happen the the price gaps into a SR area or price gaps into a bit of no mans land area

There is one critical thing that happens Monday Morning pre asia, there is seriously no follow through and you can use this cause you know the movement will be slight or deliberate to get it to an order block, don't get me wrong there will be movement but its not like a move you would see in europe and USA sessions.

Many of the places the gaps appeared yesterday moved into a no mans land type area, now as we know price will need to find the nearest block of orders to get filled (there is probably some fancy technical name for this but i don't go for that crap this is how I understand it). This explains the movement pre asia and during the first part of Asia, traders in Asia new that those gaps would be filled when the liquidity comes into the market later in the day by Europe, their job was to get price to the order blocks so the bigger orders could get filled to fuel the price action and get it to close the gap.

So I waited for Asia to decide where the orders were going to get filled were and then traded it.

You have to always remember who you are competing with, the big money in this market new that as soon as every retail trader had seen those gaps they would be longing it (in the case of AJ) thinking the market will close the gap quickly, so they used that to get what they wanted and that was to soak up retail orders and get price lower and then higher later when liquidity came in to get the gap closed

If you take AJ as an example it gapped to 8320 then there was orders to be had right down to 8250 which roughly where it went first before going up, a similar story on other pairs.

Make Sense

Simon

Know your Competition

Just like a top flight sportsperson you must have respect for and know your competition as much as possible. When we trade their always someone taking the opposite side as this is how we get filled, so with this in mind, every trade you take ask yourself if I am being asked to take the opposite side of this trade do I feel good about it or do I feel really uncomfortable, you want your broker or whoever it is to feel like its a crap shoot.

If a trade seems too easy to you on the chart be afraid be very afraid, because 9 out of 10 times your missing something, often what you think should happen doesn't so be unconventional and think it about it from all angles, how many times have I wrote on here about how I think price might move in a certain direction and it goes in the other, you don't have to be correct you just need to be able to see the opportunity and exploit it.

Here is a good example that hasn't happened yet but lets see if it comes true in EURAUD we have spoke about the level at 14470 and its a good level but if you scroll the chart up their is a level at 14350, how many retail guys do you reckon will long this at 14470 without scrolling it up and looking for what else is there and they will get crushed, where as 14350 will probably be the better level, not saying we won't bounce at 14470 I am saying my guess is that it won't be the bottom of this fall.

Simon

The most valuable lesson I have ever been taught, was shown to me by my dad, he used to speculate on the share market, and he got quite good at it later in life, he had a really good mathematical brain one of those guys that could tell you if a company was making money or was overpriced with just a few figures, he was very good at buying undervalued companies. This leads to me a lesson he taught me early on, he took me one night to a share trading information course, just before we went in the door, he handed me a pen and paper and said this is what I want you to do:

- Write down every company they recommend and if they provide its current price and projection take a note of that as well.

So in we went by the end of the session I had about 1 page filled, in the car on the way home, he said to me take the notes back home study the companies that you have gathered tonight and and I want you to paper trade them so in other words don't use real money just write down where the price is today, and what the projection is.

So what do you reckon happened, after 12 months not one of them had gone up in price, not one of them had gotten anywhere near the heights they had projected they would. One had gone bankrupt.

The lesson here is to remember that this is a sack of snakes we are playing in and that you will do very well to be unconventional in your thinking cause if you think like the herd your going to get crushed.

Simon

GBPNZD

I mentioned the level at 20366 on a number of times over the past week and basically to the pip its been respected and how. This level is nearly 1 year old, the acceleration from it was 320 pips without a pause 1 year ago, so it seems we have a few buyers at this level tonight. What makes it so good:

1. The hard acceleration away from it last time round.
2. The time between touches
3. From 4am GMT today it basically fell like a stone into it.
4. It only just went through the level and then started accelerating see this on the very small TF charts.

This is exactly why the 3 keys I have mentioned on numerous times are so important

1. Become an awesome chartist
2. Be a great money manager
3. Have patience

If you do this then these trades come to those who wait and you can cash in big time, it remains to be seen what happens next but it looks promising so far. I got filled here at 20364, I used a 15 pip SL on a limit order. Even if it had blown right through my loss was minimal for a chance at a big level.

Simon

CADJPY

is now breaking the level at 8570, this has been used and abused and is now in breakout play. there is some minor levels on the way up but the level starting at 8700 looking more likely for this pair, that will fill the cup nicely over the next week. I thought it might of pulled back today but it didn't so we'll play whats in front of us

Simon

ECAD

Limp as a lettuce leaf that thing looking for the exit down to 14380 again, dosen't look like it can rally.

Simon

EJ

12500 minor level looks likely, the next stop if it can get through 12420

Simon

EU

Has hit its resistance line at 11345, its in distribution mode where buyers are being seduced in, its forming a nice pennant on 4h and normally they collapse eventually.

I think 11220 is coming for this pair, might take a little while but its coming imo

Simon

Simon were you watching GJ, it did not give any respect to 156 level, what are you looking at next, I have got 156.90, will see how it reacts there

156 minor level always need to watch imo,

15850 start point but even this one not terrific

one thing to consider most of the action you see in yen pairs is dictated by UJ, even though it wont move with the force of the others but the others follow it.

Yes right, I had these ones marked, been watching UJ as well with it. It is always UJ * GU = GJ :-) so keep an eye on both the pairs if want to trade GJ.

yep agree with your chart but see how 15850-80 has been used a lot that makes it a minor, can trade it but be prepared to either play a breakout to the topside or close a short quickly if no reaction.

GU
ignoring everything on the chart for now thats parabolic that rise, no love not even a little for the USD

Simon

You can't trade this but its good to see it and bank it in the memory.

notice how weak EU is compared to GU, AU, NU, and UJ.

This tells a little story about Euro, can't trade this per say bu the info but does gives clues to what price is really telling you.

note also the pathetic effort of Eurnzd compared to GBPNZD

Simon

GJ

so lets talk about GJ, not far now from the next stop at 15850 - 15920. I have attached my chart, this is not a great level because of:

1. The time is ok at about 3 weeks
2.If you look at the elipse highlighted on the chart see the indecision last time at this level, took ages to really go anywhere, this is not what you want to see
3. Its been used a lot since Feb 2016 and at least one time its blown right through

Its a breakout play imo, notoriously tricky to work out where it breaks so you can trade it.

With this chart 16350 is the best short, everything else is a breakout play to the topside imo at the moment if we see dramatic changes then I will reassess of course.

Simon

Regarding GJ, these are some levels that I am looking at the minute but will see what the reaction is there

upside - 158.80
downside 156.20

Hi there Simon,
Im currently looking at ECAD. On my first chart which is the daily.
On the 19th aug 15 there was a big rally up from support area 14392
We then had a staggered reversal/retrace back and it broke below the 14392. On the 3rd of Dec 2015 it broke back with great momentum through 14392.
It has currently but subtly closed below the 14392 area again how would you handle the subtile close?.
On the hourly so far i.e a couple of candles (into next block) there has been a minor retest and and the area has held.
I have 2 questions would the 2 rallies On the 19th add justification or have any relevance to treat the area in "general" as a place to either sell or buy, or would i only be looking at the 14392 for a long based on the rallies previous? (That is if it had not closed below the current area). ?The other question is as it has closed below 14392 on the daily would i be looking for a short towards the 14049 maybe 14205 based on reactions blow the 14392 level.

Many thanks

PS: sorry i do use naked charts just have not turned off MA default i saved

James