Like it was wrote on the last post, lately USDJPY, on the daily timeframe, was marked by 2 significant events: a shake-out (major demand), and supply after the rally. The other 2 points, refer to what happened afterwards and what is happening right now.
- On point (1), there was a big shake-out in the market, which VSA marked as major demand (as the volume was also very high). This shook-out many of the longs who held their stop-losses at those prices, until it made the intraday low in an area of previous demand, where the smart money supported the prices. After a series of tests the market rallied, and it reversed again on supply signals. That’s the past of course, but it’s important to keep things in perspective to understand what the market is doing right now.
- On point (2), there was a breakout, though a very unusual one – the volumes were very low. This is however a regular calendar event, before and after Christmas, when most traders stop trading altogether, and so unlike in normal circumstances, the low volumes on the breakout shouldn’t be seen as weakness (other factors should be analyzed instead). And unlike popular wisdom, this is one of the best times to make money on the markets, as there is virtually no resistance to a movement from short-term speculation, and likewise supports/resistances stop being a resistance to price movements, as most traders are enjoying their holidays. Many veteran traders however, use this time of year to make their important plays.
- Right now, there is some demand in the market, in the previous area of demand. The market is still trending down, which is confirmed by the weak background, and so it may be still too early to take a move. (3) marks the zone where we should watch for a trend change (e.g. dynamic trend to green). H4 could be used to trade in this zone, as the H4’s background will turn strong faster if prices are sustained. In any case, the alerts indicator looks automatically at different background periods and alert when the background confirms the strength.
On the hourly timeframe, we noted there was some demand coming in. However, on the early hours of 4th January, just a few bars later, very high volumes came in, first on narrow up bars, and then on wide spread down bars. This was heavy selling coming in, as traders were buying near the up trendline and many professionals were using the liquidity to sell (and thus keeping the bar’s range narrow), and in the 2 next bars no buying could stop the selling anymore, and the market went down violently on high volumes. It goes to show that you must be fast on your feet, as things can change quickly in the markets.