Market Commentary 25/01/16

EUR/USD Potential Recovery ?

In my last post I mentioned how EUR/USD would probably see some buy interest at the low of the ECB news conference which came out last Thursday.

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Although we didn’t see a break below the low ( which is what I was initially anticipating ) we did see a rally higher.

Annoyingly this meant the take profit order of the second trade I placed last week on the bearish pin bar was hit ! Which at the time, I was a little bit angry about as I sill believed the market had the potential to move lower.

It turned out to be a blessing in disguise, because upon recent analysis, it’s my belief EUR/USD may have the potential for a rally from the ECB conference low.

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The blue line connects the lows of this current consolidation. For me these lows are important because all of them ( apart from the false breakout low) are found across a similar price range. Whatever group of traders have been buying when the market fell to these levels clearly want the market to move higher otherwise they wouldn’t continuously buy when the market reaches the lows.

Whilst I’m still not sure if the market is going to advance or decline from where it is now, I think if we see a break higher in the next couple of days, with the movement itself consisting of multiple large range candles, I would interpret it as confirmation the market is advancing back to the highs of the current consolidation.

 

AUD/USD A Lesson In Order-flow

 

A good supply and demand zone setup presented itself had you been watching AUD/USD today.

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This was a trade I took myself based on a couple of different factors which I’ll explain below.

First, looking at the up-move, we can see three large range bars, the last of which manages to make a higher high. When I saw this, I knew traders have had their first signal in identifying the market as being in an uptrend. Following this we saw the market structure change. Instead of a continuation of large range candles, we began to see a diagonal consolidation ( marked with two trend lines ) with the market finding it difficult to reach new highs without selling coming into the market first.

This diagonal consolidation shows an important event taking place behind the scenes.

The professional traders are placing sell trades which are being matched with the buy trades coming into the market from the reactive traders trading the large range bars and the trend traders placing buy trades because they see the higher high as an indication the market is going to continue moving higher.

You can see the market has alot of trouble making new highs after the large range candles. What you must ask yourself when watching this is “who keeps buying and who keeps selling” Professional traders do not buy when the markets are moving up, nor do they sell when the markets moving down. This means the selling coming into the market up here has to be from the professional traders either taking profits or placing sell trades.

It’s important to note at this point I’m not 100% certain the market is going to move lower, I still need to see some sort of down-move take place before I start to consider this as a valid trading setup.

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Here’s my entry as seen on the 5 minute chart.

Notice how we initially had a bearish pin bar ( marked with an X ) run into the zone. I waited for the down-move out of the supply zone before placing the trade. The reason I do this is because a move down out of the zone confirms to me that someone has sold in the area, which means if their intention is to take the market down, they will want to protect the point where they have placed their trades.

I’ve marked this point on the chart with a black line. Essentially I wanted to see some sort of price action signal occur around the black line. What I didn’t want to see was a break above this line, as that would suggest the down-move creating the supply zone, was a result of the take profit orders consuming the buy orders and diagonal consolidation we saw previously, was professional traders taking profits rather than actually placing trades.

Since we don’t see a break higher, it means the trading setup is valid. When the bearish pin bar appeared ( marked with a tick ) I took the trade, put my stop above the high and watched as the market proceeded to move lower. I ended up exiting the trade earlier for an 83 pip profit.

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