Monday, May 14, 2012

$AUDUSD - one that got away

Family duties have kept me a little busier than expected lately and away from the markets, so I realize that I will miss my fair share of good setups.  So when I do come back to see a good setup that got away, what I will do is to acknowledge that the setups are still taking place, and that there will be many more in the future.  Because the markets are not going away anytime soon.

Here's a setup that took place earlier today that I wasn't around to take.  And although it wasn't a textbook perfect setup, there were enough elements that came together that would have made it worth taking.  Since my stop would have been around 15 pips, it went over +60 pips (around 4R) at one point.

There will also be some high impact AUD news in less than 2 hours, so it'll be interesting to see how it will impact the currency.  At this point, the trend is still down on many timeframes, so I would be assume the market is expecting that the news will likely be more negative than positive.


Liam Brennan said...

Looks like that news was a classic case of trapping in some shorts when really they were buying - if only for the short term.

Quickly put this chart together to show what I mean, it's not perfect with regards to my entries, but it's very close.

Firstly, i'd consider a spike in volume at that time of day - during Asia - to be out of place. Not "normal" if I dare use such a word. Anyway, the price was inevitably pushed down quickly on the news announcement trapping people into going short, this combined activity, people frantically selling as well as the market makers buying gives us the volume we see.

We push up over the next few bars (admittedly showing a small lack of demand) and then test the 50% retracement of the news bar. The test doesn't have low enough volume for me personally but I know plenty of people who would take that entry.

Just an alternative view anyway.

I enjoy reading your posts, cheers Grove!

Grove Under said...

Hi Liam,

Interesting example, thanks for sharing. You're lucky that you get volume data, since they don't on Tradestation for spot forex. However, maybe I'll also start looking at the CME futures contracts for volume.

Your example using volume provided a great "tell" that something was going on, and that combined with the pullback (looks somewhat similar to a 1-2-3 bottom) looked like a pretty good great setup.

Thanks again for your comment and example!

Liam Brennan said...

Re: getting volume data, loads of programs offer volume, i'm surprised Tradestation doesn't, it's only tick data for spot as i'm sure you're aware but i'm sure it's worth looking at the futures volume as it's centralised and the same across all programs.

Yeah you're right, that's always the first sign for me to see if anything is going on, my strategy analysis starts when we get a spike in volume or we're approaching a previous area with a spike in volume. It's fascinating stuff to see how price moves around it. Check out my blog yesterday to see how EU moved around a 15min volume spike.