The background is weak and there was a recent weak signal. But when prices got near the dynamic trend changing point, it was already green again; prices then spiked up, which goes to show the danger of not following the rules. Now in GU it’d be interesting to see another weak signal to see if there is another dynamic trend setup, or if prices come down to 1.5155 they’ll be near a trendline, that with the right background, can give a potential trading setup.
The Yen is on a trending channel, and recently got to the upper part of it. After an attempted break-out, the market quickly reversed, which was marked as supply by a purple dot above the candle. Looking back though, we can see there was an avalanche of demand bars around the 118.500 level. It was also accompanied by very high (red) volumes. Looking even further back, more such signals can be seen, starting from 18th March. This is actually a retracement of an uptrend started in January/2015, which is where that up trendline in the chart is coming from.
Given the accumulation signals, given enough time, the balance is tilted to the upside, so I’m not looking for shorts in this pair, even if there is a high chance that it’ll reverse to the support at 118.486, or even just to the up trendline – and there’s where I’ll be looking for longs, in a test bar. A break-out of the 120.842 with good volume would also be a good confirmation of the potential strength behind.
With the background strong and with strong signals before, there is a high chance that the trend will turn. So after the dynamic trend turned bullish, entered after an entry bar marked by the volumes histogram.
When the prices approached a previous long-term resistance, I closed half the trade; then even after seeing supply signals I didn’t exit, because in strong trends like this, there needs to be a large amount of supply to stop it. So I waited for the dynamic trend to turn red first, and so then closed the rest of the position.
In this short trade there were 2 major errors:
1) There was a nearby Major Demand signal. Even though a down trendline is nearby, with significant demand behind, there is a high probability that it’ll break, or that a significant rally is to happen, hitting the stoploss. In this case there was a demand signal which prevent further losses, but as you can see the price then rallied significantly.
2) The background was blue (strong) at the time – it analyzes the supply/demand signals and trend, so a strong background means the conditions are right for a trend change, not a downtrend continuation.
At 17th April, there was a significant selling climax in the market, marked by a green signal with a corresponding red volume in the histogram, at values way above the average. Since then, there was an attempted rally, but the volumes didn’t pick up nowhere during the whole rally, showing lack of interest by professionals. Without demand, the market had to go down to test the previous area of demand, and/or continue the accumulation.
Right now, the market is testing for supply, which can be seen by the gray bar in the histogram, with the candle making lows on the lows formed by the selling climax. If the test is successful (= no supply), the market should rally in the next few bars, because the smart money will jump in such an indication of strength. If it’s not, it’ll stall or even break the support. This is yet to be decided, and there is another factor going on – the market is trending lower, making successive lower lows. So for a possible long I’ll wait for prices to at least rally and make a dip where that red rectangle is, confirming a successful test and a change in the trend. If however this support is to be broken, the prices aren’t too far off the lower part of the channel, where a future price reversal can take place.
1. Background (100) was strong
2. There was a strong signal near the support, which means there was demand
3. Wait for an entry bar near the support. The Yen gave plenty of chances to enter, and some even at a better price than at this trade
4. Exit after a Supply signal. Note that there was a previous Minor Supply signal, but 2 of those are required to exit, as those often just signal a temporary reversal.
