Recap 1 Feb, EUR GU EJ 4 Feb

Recap 1 Feb

EUR bias was up, initial moves followed that. Post US news was very erratic.

GU - Bias was up, GU stalled for 16 hours in total at the W pivot and previous weeks high. The 4hr higher low did not close higher. 4hr and 1hr divergence. The lower high following divergence gave a good trade opportunity.

EJ - Bias was up and we went up.

4 Feb

EUR - D is above our lwma and RSI 50 level, large upper wick. 4hr signaled sell with an evening star but now in the middle of a triangle. Triangles normally break in direction of trend which is up. D is inconclusive, no bias.

GU - Oversize engulfing close, it remains to be seen if this is a blow out last push down from sellers. Asia had no real move up. Bias down but can bounce from last weeks lows/W M2 1.5670-5680.

EJ - D positive close. 4hr double top with divergence but higher low flow in tact. 1hr divergence. There is potential for counter trend move lower. Bias remains up.

Counter trend - building a set of trade rules

I view trend and support and resistance levels as the two most important concepts in trading. Trend is time frame dependent so what doesn't work on 4hr counter trend might give a scalp trade on 1 min.

For the idea of developing a set of counter trend rules I'm going to discuss the 4hr chart. Trying to get a set of rules that assumes the D chart has not yet signaled a turn but will give trades in terms of 1hr set up and 15 min entry. Trades that should give some follow through on 4hr.

The best advice I can give is stick with the trend, use support and resistance levels and especially for GU and EUR the W pivots. Stick with the trend until you have very good reasons not to i.e. support/resistance level or W pivot, higher time frame divergences, price action sticking for hours proving it wants to reverse, engulfing closes that break the immediate range.

If in doubt leave the trade. Then don't worry if it goes in the direction that you thought it would. There is a good chance the trend will resume.

As an exercise put up EUR or GU 4hr chart, put on RSI (I use 8 rsi 8 sma) with a 21 ema and a tight price following ma, I use 8 lwma.


Have a look at how long the moves are when RSI is either above or below the 50 RSI level. Then have a good look at the moves against this that work or fail? So have a look at counter trend sells above RSI 50 level and buys below RSI 50.

Possible counter trend factors:

- A support/resistance level or W pivot
- Angle of 21 ema
- Time of day (London open, pre/early US open, London Close)
- Change in candle colour
- Close on the other side of 8 lwma
- RSI crosses
- Divergence
- Lower high/higher low engulfing close, morning/evening star pattern i.e. a multi candles pattern, change in flow
- RSI move through 50 level

You might notice that candles that change colour are poor signals even if at a support/resistance area or W pivot. You might see a cross of RSI at a support/resistance area, with a lower high/higher low engulfing close that follows divergence has a high chance of success.


I don't know what will jump out that you will see. What I do know is you should be able to put together a check list that will help avoid many failed counter trend trades. Always realising that until D has signaled a turn you are counter trend and need to change profit targets and always be looking for trend to resume.


My list is at http://vantagefx.blogspot.com/2012/12/counter-trend-items-to-consider.html and I also look at  specific times to avoid counter trend http://vantagefx.blogspot.com/2012/07/trend-continues-avoid-weak-preearly-us.html.

Correct entry even trading with trend

I've always been of the view that you make your profit when you buy, or in trading terms, enter. In that (even trading in trend) a poor entry will inevitably end in tears.

I saw this trade posted elsewhere so will use this as an example. Entry after the close of the candle marked x, so will be around 1.3670 or some 70 pips from the London open low. That has to be is a very high risk entry based on a 15 min chart and likely small stop. It might be different trading say a 4hr strategy with an appropriate sized stop.

So I'll stick with the view that your profit is made on entry, but obviously money management and an exit that is appropriate to your winning % and size of stop is vital.

Lower high following divergence

GU 1 Feb. A lower high or higher low following divergence is often a good trade and indication the flow has reversed.

In this case its a lower high.

GU W Pivot, divergence, failed to follow bias up

On the morning of 31 Jan I had an up bias for all currencies due to the 4hr flow. The 4hr candle that was open at the time I posted subsequently closed below the W R1 pivot, see arrow up.

Now the question must be asked if you consider the 3 day move up a rally in downtrend that you want to sell or the start of a significant move up. So a sell is either counter trend or resumption of D trend down. Either way you are going against the immediate flow up.

As posted previously (use blog search counter trend items to consider), if we are considering counter trend trades we want over whelming additional information to consider, such as:

- Proven support/resistance levels.
- W pivots.
- Divergence on higher time frames.
- Price action proving it does not want to progress for hours, double tops/bottoms , higher lows/lower highs, evening/morning star patterns, engulfing closes.
- Psych levels eg round numbers

In addition to the right kind of price action on 15 min, double tops/bottoms , higher lows/lower highs, evening/morning star patterns, engulfing closes.

In this case we have

- W R1 at 1.5877
- 4hr and 1hr divergence
- Price action stalled for some 16 hours failing to break higher
- On the 15 min chart the multiple tops are evident, we have divergence, then a lower high following divergence with evening star pattern. The right kind of price action to follow on 15 min with the higher time frame set up.

4hr chart W pivots EUR GU

Just putting up again to show yet again how the W pivots seem to attract price.

Recap 31 Jan, EUR GU EJ

Recap 31 Jan

EUR - Bias was up, London open was choppy didn't move up until US session. 15 min buys with stops below the last swing lows would have been safe.

GU - No bias either way D close positive.

EJ - Bias was up, as per EUR 15 min buys with stops below the last swing low would have been safe.

1 Feb

EUR, GU, EJ 4hr flows clearly up. Bias up.