Monthly Archives: July 2013

USD/JPY Trading Plan, July 31st 2013 (English Language)

Hello traders,

A good opportunity in the USD/JPY pair is shaping up.

The pair is at major support, the 97.7 area. One of the two scenarios is going to develop (please refer to the below picture):

USD/JPYforex pair, daily chart - July 31st, 2013

USD/JPYforex pair, daily chart – July 31st, 2013

Scenario 1. Price never comes below the 96.7 level, the move higher resumes and the first target would be a recent highs in the 103.25 area.

Scenario 2. The 96.7 level is pierced on the downside and triggers a sell. In this case it is probable, in my opinion, to revisit the 94 area with a potential to moving lower into the 91.60 level. In this case the weekly timeframe would show a failed extension long which could set the scene for a full retracement into the 89.7 area.

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If you intend using this information for your trading please do your own diligence, find the advice of a trading professional and trade at your own responsibility. The information provided is for educational purpose only. Please read the Disclaimer and accept all the risks. Thank you.

Have a good day

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How do you know when the trend is over? July 30th, 2013

Hello traders,

I have found this interesting question on a forex forum. Actually the questions were two not just one:

“(1) How do you know when the trend is over?

(2) How do you know when the has started?”

(Of course we all know there is always a trend within the trend, so it’s up to you of where you see the scope)”

Note: what is here meant with “a trend within a trend” can be related to the “fractal” nature of the market. If we look at the trend in the 4-hour that could be higher. However when we look much closer at a smaller timeframe, e.g. 15min, that trend may be lower, bringing price into the next measured move higher on the larger timeframe.

This is what I would answer:

They say “The trend is your friend, until it bends”. The fact is that it is very easy to see a trend when it has already developed, i.e. the first measured move after the previous relative low or high has already been printed and visibile. Typically when the average trader is capable of seeing that, price is well on its way to hitting the closer high probability target. Here, I make no reference to any specific timeframe, because a trend can develop in any timeframe.

If you followed my work for some time you know that I attempt to get an edge in the markets by modeling the effects of Program Trading on price. Such effects materializes in sequences of measured moves that “frame” price, i.e. offering a way to see next targets and next low risk, high probability trades and – most importantly – helping determine a clear trading plan for the trades, in different timeframes.

The interactions of the different sequences of measured moves in the different timeframes (15min, 4hour, daily and weekly), along with planned and unplanned news, generate price variations we all see on our charts.

@new_reader: hey! Are you suggesting that there is order in the market and you can forecast prices?

@fibstalker: Yes, in a certain measure there is an order in the markets. But it not based on cycles and waves, bur rathed rooted into cause and effects brought about by classes of algorithmic trading.

@fibstalker: In a certain measure price can be foreseen, but only in markets with very high volume, when they are subjected to the force of traders group psychology, in absence of news and governments or central banks interventions.

If you read the content of my Blog, research papers and my eBook this will become more evident to you, and maybe the quick answers I provide hereunder will also be more clear.

1) a trend ends when the sequence of measured moves on the target timeframe is interrupted, i.e. the next setup in the sequence fails (stop is hit before target). This works even better when the failure happens just above or below and against a strong level of support or resistance in the higher timeframe.

2) when a trend in one direction ends, a trend in the opposite direction always starts. It may or may not be short lived, we do not know what the market will do next. What we know however is that a new trend is born. Moreover, if the new born trend fails right away, you are in a wedge or market lateral conditions.

There is much more to learn about how Program Trading affects prices and how we can spot its effects and use the information to successfully trade the markets.

Have a great day.

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AUD/USD Trading Plan, July 30th 2013 (English Language)

Hello traders,

please find in the following an update for the AUD/USD major pair.

In the previous review for AUD/USD (July 26th 2013) I had indicated the 91.20 as the line in the sand where the correction into the 0.95 area would have been aborted. Yesterday that level was pierced on the downside indicating renewed weakness for the Aussie.

In my opinion the larger target for the current move lower is at 0.85 (please watch the coming weekly review).

AUD/USD daily timeframe July 30th 2013
Picture: AUD/USD daily timeframe July 30th 2013

It looks like bears front ran the 0.9330 area of resistance having a target in the 0.8840 area. This are is close to the 2nd target of the current daily extension short in this pair, coming around the 0.8910 area.

Our model of Program Trading suggests some profit taking in the 0.8840 to 0.8910 area.
After and if that happens, we cannot exclude a retrace (profit taking of shorts) into the next area of resistance on the daily chart at the 0.9080 area. If bears participate in that area we could see new lows into the 0.8730 area.

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If you intend using this information for your trading please do your own diligence, find the advice of a trading professional and trade at your own responsibility. The information provided is for educational purpose only. Please read the Disclaimer and accept all the risks. Thank you.

Have a good day

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New Series: Effects of High Frequency Trading (HFT) on Modern Markets and Program Trading, July 30th 2013

Hello readers,

with this post I am going to start a new series of articles related to the effects of High Frequency Trading (HFT) on the Modern Markets and on Program Trading?

Why would we worry about HFT as retail traders? HFT can affect our day trading on the smaller timeframe (4 hours and lower). But most importantly HFT has effects on Program Trading. This is very relevant to me and to those who follow my trading method!

Why would that be? Well, in modern, high-volume markets knowing what Program Trading is doing can be used to develop a unique edge. My work as a trader and analyst is all about modelling the effects of Program Trading on price. So to my perspective it is very important to know how HFT can affect prices. And I strongly believe knowing HFT a bit better can help your trading even if you do not take advantage of the edge I have developed.

Hereunder is the abstract for the series of articles I am going to write, which are based on a recent research paper I have published for IFTA (Italian Chapter, SIAT)

High Frequency Trading (HFT) is widely spread in Europe and in the North American markets, with volumes estimated between 35% to 75%. Unfortunately the effects of HFT systems on the markets are very negative, especially during repeated and unavoidable stress situations, during which effects on price compound and multiply.

This series of articles describes the effects of HTF on markets highlighting, in particular, the causes of social and technical instability, the modification of price structure and the consequences on traders’ behavior. The presence of HFT influences the effectiveness of Program Trading – another computer-based class of algorithms with a stabilizing effect on the markets.

The portion of Program Trading referenced in the series of articles is indeed based on cause-effect rules activated by well defined price levels. Modeling such rules as a result of my research, allowed me to identified the trading edge in the method I use to trade the markets.

The rules used by Program Trading have evolved in the years to perfectly match the psychological response of traders, taken as an aggregated group, guaranteeing an ordered development of price on markets characterized by high volumes.

The presence of HFT disturbs the markets, which are not allowed to work properly due to the modification in price structure. The emergence of a weak price structure generates market dynamics not allowing traders who provide liquidity to be rewarded, while only rewarding perfect market timing, which we all know it is very difficult to obtain.

The last part of the series of articles will consider the potential evolution of HFT, from a technology point of view, too, and how professional and retail traders can counteract the presence of HFT if, as it seems, a more decisive and effective regulation of the phenomenon will not be undertaken by the appointed authority.

I hope you enjoy the new series of articles.

Have a great evening.

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Why you should always analyze the price in all timeframes? July 30th 2013

Good Morning Traders,

I get a lot of smart observations from readers and followers. Hereunder a recent comment and question with relation to the Bandwagon Theory allegory:

“Really nice allegory to describe the financial markets. One question about it, is this also something that you use in trading? So, if for example it takes the E/U 3 hours to climb 100 pips, and it takes it 9 hours to retrace only 50% of the recent upmove, would this be something that shows bullishness in your opinion? I´d say that it does because there has to be buying into the retracement (or it´d fall faster). Looking forward to hear what you think about it. ”

Following is my answer:

Yes in a certain measure I use this concept in my trading. I try to find an edge by modelling how Program Trading acts on price in different timeframes, which I like a lot because it works and it is so different from what the majority of other traders attempts to do (not saying it is the only way to be right more often about the market, of course). The way I do it is by using the Fibonacci retrace study in a different way (see examples in this and other threads in FF), learned and perfected with other traders.

The 50% level is important but you also need to understand how the market is moving on the target timeframe (is it in traditional moves or is price extended?) and in the larger timeframe too.

Based on my experience I do not think there is time symmetry and or proportion in the markets with relation to time. Corrections happen much faster or, when they are flags can take days, in a total unrelated manner compared to the initial move. In fact, I only try to model areas of support(entry), resistance (exit) and profit targets, not the amount of time price will take to react to these areas.

To answer your last question, it depends. Price is the combination of what traders do on different timeframes. So what happens when, let us say, you get a nice retrace on the daily to the 50% and anticipate a continuation higher, but you did not realize that the relative high (before the correction started) was at targets in the weekly (higher) timeframe?

It happens that we are toasted. Unfortunately profit taking coming from the participants (or programs) on the weekly timeframe has the potential to push prices well below your entry area at 50% and we end up holding the bag .

When I analyze price I try to take into account what happens in the lower and higher timeframes of the target chart.

Hope this helps

Have a great day.

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GOLD Analysis & Forecast, July 29th 2013 (English Language)

Hello Traders,

here is my analysis on GOLD. This is the first time I publish a review for this commodity futures. Hope you enjoy the review.

Gold reached the 1,336 level where the resistance area extending to 1,364 starts. Our model of Program Trading activity on the daily timeframe shows that selling could resume in this area.  In my opinion Gold will not be able to push above the 1,406 level.

GOLD futures contract, daily chart - July 29th, 2013

GOLD futures contract, daily chart – July 29th, 2013

If we saw the lows of this cycle at the end of June (i.e. price is not going to print new lows), even if down move resumes it is my opinion that we could see a retrace into the 1,265 area.

Below the 1,244 level it is possible for price to find a bid in the 1,225 area extending down to 1,214.

The related scenarios 1, 2a and 2b are showed in the above picture.

If you want to have  access to trading plans, watch weekly video reviews as I develop or record them, or get information on setups (before they happen) for the Euro-Dollar cross, the S&P500 index and some high volume  stocks, please subscribe my newsletter. It’s free and you get additional content like market commentaries, setups, e-books, articles on HFT and program trading, learning material on my method and video-analysis that I don’t make available on my blog.

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If you intend using this information for your trading please do your own due diligence, find the advice of a trading professional and trade at your own responsibility. The information provided is for educational purpose only. Please read the Disclaimer and accept all the risks. Thank you.

Have a good day

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EDUCATION: My free eBook “Key Concepts to Correct Trading Behavior” is available…

… so if you have not downloaded it, do it now (keep reading).

This book is a guide to key concepts for successful trading in the modern markets. As most of you may know, modern markets are governed by High Frequency Trading (HFT) and Program Trading, two classes of modern Algorithmic Trading (AT) that has an overwhelming presence is today’s markets.

While HFT can hardly be relevant for retail traders (like us!) because it’s too fast to allow a reaction (so I suggest you don’t even try to trade during BCE or FED days, unless you know what you are doing), Program Trading is a more silent, less visible but very powerful class of automated trading. It is very important to know what Program Trading is doing on different timeframes.

Don’t miss the eBook! This eBook has the potential to turnaround your trading or start you with a the right step if you are a new trader (click on the below image to download).

Key Concepts to Correct Trading Behavior” eBook

(click on the above image to download)

Key Concepts to Correct Trading Behavior – A guide to relevant concepts for trading success in a market governed by High Frequency Trading (HFT) and Program TradingeBook published in May 2013 and available for free at: www.fibstalker.com

Abstract: Are you interested in trading or a seasoned trader but still not part of that elite 5% of consistent traders? Do you want to be a successful trader regularly extracting profits out of the markets? If so, it is important you start thinking of trading from a different perspective, as well as, start doing something differently.

One thing could be to re-focus on those key concepts that truly describe, explain and affect price behavior. If you are a new or inexperienced trader you will benefit from the content of this book much more than more experienced ones. The reason is that you have a unique opportunity to shape up the right beliefs and mindset about trading from the very beginning. Traders with experience will need to work a bit more to change or slightly modify their current beliefs, as needed. But if they face the effort they will be able to quickly turn around their trading.

The key concepts presented in this eBook help understanding the psychology behind price moves, mainly driven by emotions in a way that rationalizing market behavior is not relevant and even counter-productive for successful trading. For instance, all the hype on market news and on its interpretation is misleading. News can and will only affect price on the smaller timeframes like 15min and 4-hour, but very often (if not always) it will have no effects on price patterns already in place, neither will on the outcome of well-formed daily and weekly setups.

In trading perception is much more important than facts and their rational interpretation in relation to how price could and will be affected, i.e. what is the anticipated traders’ reaction after a key event. An introduction to each of the five concepts that are paramount for trading success will prepare the trader to build the needed beliefs or help shifting the existing beliefs in order to (re)learn how to trade successfully.

If you have been in the trading system for some time, you will have realized that trading success requires useful and focused beliefs and the right psychology. The concepts presented in this book are counter-intuitive and challenge the widespread ‘truths’ of trading. Probably this is the reason why it is meaningful to analyze and study them carefully. A deep understanding of key concepts will also help understanding where the real profit opportunities lie.

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