- At the time of entry background was strong – o’k
- No strong signals at this price level before trend changed. This is a mistake. Only strong signal + strong background can guarantee that there is imbalance between supply and demand in favor of demand.
- Dynamic trend turned from red to green – o’k
- The trade was opened in a low spread up-bar when the price didn’t move too far after trend changed – o’k
- At the time of entry background turned to strong. It means that imbalance between supply and demand is now in favor of demand.
- We have a long-term support in the chart. This support was established by previous low. Several strong signals (Major and Minor Demand) appeared as the price was approaching the support. One more strong signal here: Shake-out – wide spread down bar accompanied by high volume. But next bars are bullish and we see price reversal. It means that it was a stopping volume which contained more buying than selling. Otherwise the price would have continued to move downwards.
- Dynamic trend turned from red to green.
- Entry – when the background turned to strong in a low volume down bar.
- Exit after reaching TP level.
Total: +105 Pips
In previous NZDCAD analysis it was noticed that the price was moving in mark-up phase. It is possible to draw an up-trendline with several touches which represents support line for the price. The following trade was based on near-trendline setup.
- Background is strong.
- Strong signals (Major Demand, Minor Demand) near the trendline.
- Dynamic trend turned from red to green
- Entry in a down-bar near the dynamic trend
- Exit by reaching TP level
Total +138 Pips
In daily chart CADCHF is moving in a bearish trading channel. Background is weak. Lower and upper lines of trading channel are trendlines with several touches. Upper line is a resistance to higher prices and Lower line is a support. The area between the upper and lower trend lines is known as the trading range. In VSA terms, the (sideways) market is trading within its range, and will continue to do so until applied (selling or buying) effort makes it break out. VSA trader will analyze price action in the top and bottom quarters of the trading range, because important observations take place in these areas, as the price heads for the supply or support lines. The area above the supply (higher) trend line is known as overbought and the area below the support (lower) trend line is referred to as oversold.
In H1 timeframe the price has reached the upper line of trading channel. Near this area we see several weak signals (Supply and Minor Supply).
Today I would like to analyze I think the most common mistake amongst traders – opened trade at the top of the market, right before price reversal. The professional knows people react to the two fears – the fear of losses and the fear of missing out, and so trades with this in mind.
After substantial rises, the ‘herd’ will become annoyed at missing the up-move, and will rush in and buy. This includes traders who already have long positions, and want more. The problem is that usually smart money is selling at this moment. They do not have to wary that this selling will put the price down, because they have plenty buy orders coming into the market (from weak holders) which will support the prices (therefore volume is high). Without interest in higher prices from professionals, price will inevitably fall. This will usually happen after up-thrusts: a wide spread up during the bar, accompanied by high volume, to then close on the middle or on the low.
- At the time of entry background is strong – o’k
- Dynamic trend turned from red to green – o’k
- Weak signal at the top of the market without strong signals at this price level (In VSA it is an up-thrust) – Not o’k
- The trade is opened when the price moved too far after trend changed – not o’k
During upward trend it is better to wait a reaction to this trend and enter the market after strong signal which would suggest that the reaction is over and rally will be continued.
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.
