All price movements in Forex can be divided in 4 phases:
- Accumulation
- Mark-up
- Distribution
- Mark-down
Accumulation means to buy as much of positions as possible, without significantly putting the price up against your own buying. This buying usually happens after a substantial bear move has taken place. To the professional traders, the lower prices now look attractive. Once the smart money has completed accumulation, there will be no resistance to higher prices – this is a start of bull market (mark-up). Once a bullish move starts, it will continue without resistance, as the supply has now been removed from the market.
A Bull Market occurs when there has been a substantial transfer of stock from Weak Holders to Strong Holders, generally, at a loss to Weak Holders.
Distribution phase is the same, only it happens after a substantial bull move and professionals are selling as much of positions as possible. Once the smart money has completed distribution, there will be no resistance to lower prices – this is a start of bear market (mark-down).
A Bear Market occurs when there has been a substantial transfer of stock from Strong Holders to Weak Holders, generally at a profit to the Strong Holders.
In NZDCAD we see clear indication of accumulation phase at the bottom of market and later mark-up phase. Now the price has come to the long-term resistance (previous high). Often this may be the point where the price changes its direction. Look for distribution phases on the top of the market.
In previous EURUSD analysis I noticed how the price is moving in an ascending triangle. The same pattern you can see in the above chart. Now Analytical Trader has detected bullish setup: Background is strong, dynamic trend turned to green. Only one component is missing – strong signal behind.
I want to note how accurately it showed SL (stop-loss), TP (take profit) and BE (break-even) levels.
SL level is below up-trendline – it is a safe place, because it will require effort to cross this trendline and it will not be easy to trigger SL in this level.
BE is right on a long term resistance – you will not get losses in case of false break-out.
TP is on the level of previous support and very high volume. There is a big chance that in this area the price may change its direction.
In H1 timeframe we see how the price crossed long term resistance (area of previous Major Supply) with wide spread up-bar on high volume. It tells us that this break-out is genuine. Before the break-out the price was moving in an ascending triangle – look how lows grow up.
More than 1 week AUDJPY was moving in a trading range (limited by 82.80 and 85.05) between long term support and 2 resistance levels (long term and short term resistance).
The first resistance level was formed when the price started to move down after several weak signals. Later the price came again to this level. Weak signals (Supply and Minor Supply) tell us that this time there will be no break-out. Two resistance levels which are very close to each other – it is a very strong barrier for higher prices. It will require effort to cross this level. Look carefully when the price is near the support or resistance levels. Volume, spread and strong/weak signals will help us to understand if the price is going to cross these lines now.
In the chart I highlighted down bar with wide spread on high volume. This movement was created by important news – “Nonfarm payroll employment” in the US. There is always high volatility in the market right after the news. Here we see that the result of this effort is negative – the market has turned and started to move up.
It is always useful to keep in mind the big picture. In the monthly chart you can see how GBPUSD has been moving in a trading range since 2009. Now the price is in the middle of this trading range starting the move from the low limit.
In the previous GBPUSD analysis I stated that the price was coming to long term support level and it is possible that the price starts to move up. Later Analitical Trader detected strong signal (Minor Demand) and the price turned its direction. In this chart you can see key levels in GBPUSD. Resistance and support levels are very important in trading, because by analyzing the price behavior near these levels we can predict further movement. Look how the price notices the levels. Analitical Trader detects strong or weak signals when the price comes near the resistance or support levels and helps us to understand the next move. At the moment the price is near the long term support level and again there is a strong signal in the chart. So it is possible that the price will change direction once again. Look carefully for weak signals.
One week has passed since previous EURUSD analysis. There was a very weak signal (up-thrust) in the weekly chart. But you need to look at the overall picture rather than one bar’s action. During 3 following bars the market didn’t respond to this sign of weakness. Though the background is weak, for the moment the market is not ready to fall. One of the reasons is that the US Federal Reserve on Thursday announced that it would keep interest rates near zero.
In order to understand the overall picture it is better to look at different timeframes. For example, if after weekly chart we look at daily chart, we can find very interesting picture:
Here we see how Euro has been moving in ascending triangle lately.
1,146 – is a resistance area. It seems that in this area some big seller or group of sellers place large sell-limit orders. Purpose – do not let the price to penetrate this level (they are not interested in higher prices). As soon as the price comes close to this area, sell orders are activated and the price bounces down. In one point this level was penetrated (high volume up-bar without result) and the seller had to defend the level by market orders.
Look at the lows – each time the move down stops higher and higher. The lows become closer to the resistance area.
It will be very interesting to observe development of this situation.
How we can use it in our trading?
Well, now we have 2 interesting for us areas: resistance and support area (up-trendline). We should be watching price behavior and volume near these levels. VSA techniques and Analytical Trader indicator will help us to identify imbalance between supply and demand, choose right direction. Look how accurately the indicator identified supply signals in resistance area right before the price moved down and demand signals when the price was near the up-trendline.
At first I zoom out H4 timeframe. Here I see that AUDUSD is moving in stable downward trend.
Then I draw down trendline with several touches. Price has noticed this trendline several times. It means that now this line is a resistance for higher prices, because traders will place their sell orders at the intersection of price and trendline. The area above the supply (higher) trend line is known as overbought area. Analyzing VSA signals (weak or strong) we can assume whether this break-out was genuine or not.
At the moment we see no strong signals in the chart.
Background in H4 is neutral and in D1 is weak – we should be looking for short trades.
Let’s get a closer look at this picture.
There is no selling climax at the bottom of the market (after substantial falls have already taken place). Selling climax – it is an imbalance of supply and demand causing a bear market to transform into a bull market. The volume has to be extremely high on down-moves, accompanied by narrow spreads, with the price entering fresh low ground. Also there is no accumulation area.
Here we see only 2 no-supply bars (bars in the bottom of the market with low volume). It means that global downward trend is not over yet and now we have a reaction to this trend.
When the price crossed down-trendline – we have 2 weak signals. Major supply – this is an up-thrust which happened on the news that Fed postpones rate hike.
At the moment there are no strong signals, but dynamic trend is still up (green).
