Dynamic trend: Turned up
Background: W1 – weak; D1 – strong
Point 1: There was a breakout of the resistance level, with an average range and a high volume. The following up-bar confirmed buying. In addition, on a smaller TF, we can observe a successful testing after this breakout, which confirmed the validity of this movement.
Point 2: We may see a “Shakeout” with a wide range and very high volume. Because the subsequent bar was a down bar, and the volume was high, we may conclude there is a large supply in the market, which must be tested.
Point 3: A second breakout of the resistance level (113.60) occurs.
- Consider buying if “No Supply” appears (down bar with a narrow range and a low volume) near the support level 113.60.
- Consider selling if the price breaks down the support level 113.60 and “No Demand” appears (up bar with a narrow range and a low volume).
On the previous week post about the Yen, we noticed that there was consistent buying in the hourly chart, and that a dip into the lower part of the range would give a long opportunity. This happened, and right in the next London session!
On trading ranges showing VSA buying signals, like we note on the trading guide, you can also wait for a breakout of the trading’s range high. If on the break, the volumes pick up, it’ll be a confirmation of accumulation. This is what happened in USDJPY, and since then, it has been on a long rally, until stopping on a long-term trendline.
Apart from the down trendline, the momentum of the uptrend is now fading, and there is significant supply showing up. This is inevitable on resistance areas, but still, if you’re holding a long in intraday, this is a good time to start reducing the position size, and wait for a trendline break to add into. Personally I’m holding a long daily trade, and waiting to see how the daily bar closes.
If the trendline is broken, it’ll be a long/adding signal. If supply keeps showing up on the hourly, and/or there are low volume rallies into the current selling bar, it’ll be a short signal.
After a wide upthrust bar, also marked as heavy supply, on last Wednesday, the Yen broke the support at 107.62 the day after. It broke with healthy volume, and the prices only stopped downtrending on a reverse upthrust, and later a churn, which are volume patterns that show demand.
On M15 the action can be seen more clearly, and the trading range in the last days is more evident on this lower timeframe. By today’s end of Tokyo session, at 5 am GMT, the market showed supply on very high volume, from the three timeframes – M15, M30 and H1. Right now the prices are trending lower, though on very thin volume due to Japan’s bank holiday on 3rd May. Thinly traded markets can be an opportunity for large players to make their movements however, since there is little to no resistance to any significant organized action.
It would be wise to be on the lookout for more demand/strength between 106.200 – 106.300. To the upside, the price 107.62 is the trigger for short positions, if the supply shown in H4 proves to be consistent. The fact that there are many announcements regarding unemployment on US will surely provide plenty of movements, and make the price reach these critical areas in USD/JPY.
Following the last update on GBPUSD, shortly after there was a breakout with a volume above average, with strong signals behind. This is seen in zone (1).
8 hours later, there was a churn down bar (2), which was an indication of more buying above the broken level. The long position was taken right after, with the stop-loss below the break-out bar’s low, and the take-profit below the next resistance. After a short correction on low volume, prices kept on rallying, until reaching a climax (red) bar, and VSA showing a supply signal next to it (3). This was a +148 pips move. There is where the trade was closed. Since the background is now weak, there is now a sell signal if the previous low is broken.
Update 7th March: After the low on the supply bar was broken, the prices went down on wide spread, but low volume, which should have been the warning sign to tighten the stoploss. The stoploss was hit above the nearby resistance at 1.42507. Total: 148 – 53 pips = 95 pips
After the confident 1.42450 and 1.40650 support breakout, prices haven’t managed to make the same thing with 1.38460 support, and now British Pound market tests the 1.40650 resistance level.
During previous 2 weeks bearish market confirmed its sentiment:
In point 1 prices tested 1.43890 resistance level which showed the interest from institutional players and was marked by VSA Indicator as W1 supply signal. Before that, in point 2, market showed, that there were no strong signs of the imbalance near 1.42450 support level which meant, that big players were not going to change its short positions to long ones.
There was a 1.42450 support level breakout on high volume which again showed initial sentiment of the market. As the result of that breakout, the 1.40650 support level went through as well, and the steady downfall of the market stopped at the level 1.3846.
Points 4 and 5 suggest that minor demand signals and low volatility on the bottom of the market is not the sign of the bearish trend finishing. The beginning of a sideways is possible, which is confirmed by neutral background.
Due to the absence of stronger demand signals on the bottom of the market, now it is too early to speak about the change in GBP market sentiment. In current situation it is important to see how the market will behave near the 1.4065 level and above it, if such situation happens. In case of a supply signal near the resistance, or no demand with a volatile down candle after it, it’s possible to take a short position, but only on weak background.
If there is 1.40650 breakout candle on high volume, it will be the time to start searching for long positions.
GBPUSD H4 – Downtrend and VSA
Having tested the 1.10050 short-term support in the point 1, the Euro went above 1.10440 level, and revealed, that there was no smart money interest near the 1.10684 long-term resistance, which was confirmed by low volumes in the point 2. The point 3 is the place where prices went beyond the 1.10440 level, and above average volume on down candle with the supply from VSA indicator showing the bearish sentiment of the market.
In the point 4 there was the 1.10050 and 1.09590 support breakout on high volumes – the good sign of confident bearish trend. Next evidence of down sentiment of the market is the point 5, the place, where prices successfully tested 1.09590 level resistance – it remained unbroken. Moreover, it was the good place for big players to add to short positions – that’s what they did, as the high volume volatile down candle showed. After that the 1.09150 level was went through, and the market eventually paused its down motions by 1.08380 level.
The current market situation can’t be called the end of the bearish trend due to the absence of the strong demand VSA indicator signals and to weak background.
Undoubtedly, there are demand signals in the point 6 and 7, but the volumes are not too high to be stopping volume and the up candle volatility after it, is around average.
So in the current situation the full picture will be seen at the 1.09150 resistance level. In case of high volume breakout candle, previous short positions should be closed and possibly reversed for long positions. If there are supply signals at the 1.09150 resistance level or low volumes near it as no demand signal, it’s possible to open new short positions or to add to current shorts.
In my previous EURJPY analysis I pointed out that the prices were just testing a down trendline, and given the accumulation seen behind, it’d be wise to wait for an up-breakout of the resistance. Subsequently, this trade was taken based on these developments:
- The background was strong at the time of breakout, which maximizes our chances.
- There was accumulation behind, shown by multiple demand signals without the price going to new lows. Note: there is a difference between the older post chart and this one, as the previous was from GMT-5 feed, while this is from a GMT+2 feed, both in Oanda. Nonetheless, the market picture is fundamentally the same.
- The break-out showed increased volume not exactly on the break-out bar, but in the next one. This is usually fine, but I prefer to wait for confirmation when this happens. The confirmation was given a few hours later, after the low volume down bar was broken to the upside, showing clear lack of supply in the market.
- The first warning sign to exit was the extreme volume up bar, with no follow-up. Later a Supply signal from the Daily showed up, which confirmed the weakness. Closed when the trend turned yello. The take-profit from an alert would give an exit around these prices as well. However, if you have the time to manage your trade, and can react to changing supply/demand in the market quickly, trading without take-profit with this system also works.
Right now I’m holding a short position in the daily, as this weakness is just below a long-term down trendline. The correction is seeing relatively low volumes, but that could be normal after the distribution seen on the red bar. Either way, the trend is still down, and so, I’m just watching where the market takes me for now.
Euro/Yen has been ranging since the beginning of January, when looked at from a 4-Hours perspective. Volume-wise though, it has been very active, and understanding this activity is essential to know what the major players are doing.
- First there were several demand signals just as 2016 was starting. This halted the down move. Afterwards there stopping volume when reaching 129.0 area (red bars).
- More recently, there was a major shake-out, painted as Major Demand by VSA – there was a lower low made, yet prices closed on the highs of the bar, and above the previous support. This was a move to hit stop-losses which provided plenty of liquidity for professional buying.
- Approaching the down trendline, there was a no-demand test (pink bar) – as prices penetrated the trendline, the volumes didn’t keep up, which means there wasn’t much demand. On the next bar, prices refused to close down though, on a relatively high volume. This could mean renewed interest in an up move, and the confirmation will be the trendline break on good volume (checking the hourly might be the best). If the bearish test succeeds, as in a failure to seeing a breakout of the trendline and/or test’s high in the next bars, I’d expect prices to drift downwards onto the support. The ultimate level to watch for is the resistance at 129.074.
As it was noticed in CADCHF analysis, price was moving in a trading channel. In the above chart we see how the price has broken the upper limit of this channel. Break-out was made by high volume up-bar. Later price touched the trendline (very often once resistance is broken it becomes support) and continued to rise. There are several wide spread up-bars with high volume near the break-out. Background turned to strong and it was clear that pattern of moving in trading channel was changed. It was time to look for long trades.
- Background was strong
- Several strong signals (Demand and Minor Demand) before trend changed. Reversal also confirms these signals.
- Entry after dynamic trend turned from red to green
- Exit by reaching TP level.
Total: + 125 Pips
Right after my exit in the chart appeared weak signal and signal from Reversal indicator, price turned down.
Reversal indicator is looking for different patterns compare with VSA indicator and quite accurately detects price reversals in the chart. The best view of market can be achieved by using both indicators.
For some time now that I’ve been looking closely at the Yen’s daily movements. Prices are swinging around a resistance made back in 2007, and it’s interesting to note that so far there has been a rejection of new highs. Every time the prices went above it, there was supply and the prices came falling down, which is what’s happening right now. In the beginning of July there was some demand coming in near the up trendline, which sustained the prices, but it may not be enough. The market will next test the trendline, and if decisively broken, we can expect lower prices; if it’s maintained, we should trade according to the action on the resistance, and either wait for a break-out and a test for a long, or a false break-out with more supply signals for a short position.
In the H4 the recent action can be seen more clearly, with supply and really high volumes above the resistance, and where the background had already turned to weak.
In EURGBP there was a short opportunity at the start of the week, as the support was broken. In this setup, one of the important things to watch for are weak signals before the break, which there were on the last market top. This guarantees there is a ’cause’ for the prices to go down, since it means the smart money had started distributing, effectively betting on a successful break-out. From there on, the sequence for a result of +27 pips was:
1. Weak background
2. Enter in an up bar near the broken support
3. Close in the TP level the alerts indicator suggested. Right after, there was a very strong demand signal that reversed the market