We pointed out in ‘Slippery Currency’ that near-term price movement on the Euro would continue to be tight. This was still the case until yesterday, Friday 12th March when price managed to move and close above this range. Why did this happen? Well, the market had found some support at around 1.3500 and, as we had analysed throughout, price had to retrace (long – appreciate) following s sharp decline in value. In this short blog we shall do a round up of all three charts – monthly, weekly and daily – to assess the potential for prospective positional trades
MONTHLY – This chart remains net short. Although the initial, natural target remains the prior low, risks are beginning to emerge as we mentioned previously. At this stage, the probability of the market taking out 1.2500 is fading somewhat. This leads into the possibility of the market contracting even further. The faster charts will eventually help unravel these unknowns and pinpoint dominant direction.
WEEKLY – This chart is net short, too. But it needs to see a healthy pullback, which now seems to be engaged. Ideally, price should retrace no higher than 1.4150/1.4200. This may take several weeks. If this plays out we shall then identify the ‘when’ of placing a low risk, high probability short entry with a profit target of 1.3000. Price behaviour on this chart currently fully supports the continuation of the longer term positional short on the monthly. Having said that you must also appreciate that, for now, it supports the short term retracement trade.
DAILY – This chart clearly shows the price congestion and the breakout 
above the range. There is some room to the upside on this chart but not much if the positional short is to retain its validity. It is always stated that the trend on the longer time frame will overpower that on the quicker chart. This is substantially true except that confirmed signals of a change in price behaviour always appear first on the quicker charts. This is how we manipulate the charts – looking for validity and invalidity; asking what has to happen next to prove or disprove our analysis and so on.
This chart too fully supports the positional short on the monthly. There are, however, limited indications that the market may not challenge the prior monthly low. This picture will become clearer over the next several days.
Until we update.
I am going to be different. So this isn't going to be a standard ego raising biography, but a snapshot of what you must do to be successful.
Kevin,
When you say that the monthly chart is ‘net short’, are you referring to the relative positions of the subsequent swing highs and lows, in relation to current price?
If not, how do derive the analysis ‘net short?’
check out the next blog – may help you!
Hi Kevin
Great article by the way, it’s interesting to watch your approach. I’ve 2 questions:
1) Further to the explanation of “net short”: what is being “netted off”? This is
how I have interpreted it so far (with a bit of licence):
Taking the weekly/daily combo as an example;
let’s say current weekly direction is down(-), but daily is up (+), the net of
the two is neutral overall, but the weekly being the superior chart is the tie
breaker as such & by it being (-), we say “net short”. Getting warm???
2) You mentioned the possibility of a EU short (4150-4200), what do you
mean by the “when” of placing the trade. If price retraces to that area, what
what must happen next in order to validate a short entry?
Hi Peter!
Net short simply means that the only conceivable trade on that chart is short. It therefore means that the trade has set up and triggered already. So if you have an open position then basically stay with it. If not, then you seek out trades on the faster charts. On these, however, you can go either way – long or short – the preferable direction is typically in line with the net chart.
If the monthly is short and the weekly is long, there is no alignment between the two. They are at odds; one is fighting the other. If your objective is to get a positional short on the longer time frame, then you have to wait. What you have to do is try to understand where the charts are headed and look for a set up that would equal a high probability, low risk entry short. This is what we are doing in our discussion on the Euro.
We have set a reasonable entry target on the Euro to get short. But note: if price moves into that level, it does not mean that we just simply place the trade. We look for validation of the prospective trade in the price action. Specifically, we look to see how price moved into that area. Price has to confirm that it is weakening – an encouragement to get short. If price action is strong as it enters, then we will postpone the short and re-evaluate. Always remember that in trading there are only probabilities, not certainties
What if price doesn’t reach that set level before weakening and turning sharply lower?
Hi Kevin,
Thanks for the reply, I really like your very clinical method of interpreting the overall picture.
If you don’t mind I’ve another question: as far as taking a short is concerned on the Euro in that area, price needs to confirm that it is weakening. What I understand this to look like is:
(i) shortening candle ranges,
(ii) wicks on candles & those wicks preferably in the direction we intend to trade,
(iii)volume dying off (assuming we can rely on futures volume)
(iv) a long green shooting candle as we enter the zone.(see comment below re this)
What we now need is some combination of the above minus signs of strength to trigger the go ahead.
Re (iv)
Here’s the problem I have with the above. Just prior to price moving into our sell zone, let’s say we have a long green shooting candle- as I understand, this signals novice traders at work- i.e buying late into the trend. So even though it has the appearance of strength in reality it’s the opposite by virtue of where it’s located on the curve.
I must say I find these types of candles to be the most confusing of all as why would price rally so hard if there was truly a lot of supply in that general zone but as well as that, without one, there’s always the sense that one is coming to fully exhaust the existing trend.
Do you have any thoughts on this?
Re: If price doesn’t reach that set level, weakens & turns lower;
Should that happen, sell a retracement into that new level or go to the faster charts & find a new sell zone- confirm by signs of price weakness as it moves into that new zone.
Kevin,
Thanks for the clarification.
Peter,
Nice questions.
Peter
The first four points you make – i guess they are helpful but personally i dont get influenced by candlesticks and volume. I just look at the general movement of price and it is that on which my decisions are based
Ha. so dont worry about individual candle and candlestick patterns. For as many times as they prove successful I am sure they will be unsuccessful too. Single patterns are nothing out of context – it is the context that is far more important. I never try to guess who is buying and selling where i just focus on me. When you have an approach to the markets that is successful – watch the tape and try to understand why people are buying and selling at those levels!
Price action wil tell you what to do and when – if you miss the trade you have to go back to the drawing board and start over again