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Forex Trading around 16:00 GMT over 11 Months.
Each frame shows 10 minutes of Forex trading in major currencies for 1 day. Notice anything interesting right at 11:00?
With regulators finally catching on that banks are manipulating every asset class, the largest of them all - foreign exchange - has come under scrutiny. Most specifically, there is considerable attention being paid to manipulation at the "London Close" around 11amET each day. Judge for yourself - see anything 'odd' around that time of day?
I found a little time to trade this morning and then waited until 6am to post a couple charts. I threw these together fairly quickly but wanted to point out a couple Classic Textbook chart patterns. Old Skool Market Profile (ok, volume profile).
This first chart shows Friday's profile with the High of 1.3560. There was a trade or two on the 1.3560 level around the Globex open then price drifted into Friday's Value Area and continued to drift lower. I wanted to show both profiles, but most of the commentary is based on the next chart.
The chart below has so many "near perfect" alignments I don't know where to start. First the failure to trade above Friday's High, this told me to watch for the "building" of an inside day. They have to start somewhere, and when price opens at an extreme of the previous day's range, that might be the "last chance" to enter a trade at these levels. Price did stay within Friday's range and started drifting lower into Friday's Value Area. Second, at 2am price went nowhere for about 30m then staged a "Pop" up to the VWAP at 1.3546.
This is where things started coming together and aligning with my analysis. I like using the 2 to 3am range as a "half-ass" opening range. My analysis tells me 70% of the time either the high or the low of this rage will not be broken before 6am. Add that to the fact Friday's High has remained in tact thus far, and I'm ready to risk a short trade here, using the notion the "Pop" to the VWAP will be the high of the 2-3am range, it was. Also, if the theory of the "high" holding until 6am is true, this provides an area for stop placement on the short trade. My analysis also tells me the average range between 2 and 6am is 39 ticks. So if I draw a line from the "VWAP" high DOWN 39 ticks price may travel thru several significant price level that may be used as targets. The Pivot, Yesterday's POC and Yesterday's 50% level are all within this projected range. The Classic Textbook MP trade is, when price enters "value" it may test the other side, or the Value Area Low, in this example it did. My analysis also tells me 70% of the time price will trade on the previous day's POC between the hours of 2 and 11am, today price found Yesterday's POC before 4:30am. After the smoke cleared, the range for today between 2 and 6am ended up being 38 ticks,, IMO, that's damn close to 39.
My mind has been wandering most of this week but I wanted to post a few observations before Friday (Black Friday). This first chart shows all the volume profiles since 11-19-13 (far left), the day the CFTC gave traders a peek at how the Open Interest is "divvied up" amongst the heavy handed participants. I snipped this chart early after the Globex session opened on Wednesday evening. I've been watching and trading off this chart all week, (NOT, actually this chart, this is a 15m chart so I could "fit" everything on one chart, I use a 1m chart). Look close at the LOW of Sunday/Monday and then look left at the profiles of the 22nd and the 20th, the lower value area of Monday "filled" in the thinly traded areas of the fore mentioned profiles, YES it was near the whole number 1.3500 which became (IMO) a major support level. The "fast" moves thru this area on the 20th and 22nd "left the door open" for price to return and test this area, and firm it up. This chart also shows (3) three "virgin" POC below Today's Open and (1) one above. Notice how price absolutely refused to trade in the previous day's Value Area on Tuesday and Wednesday, unlike my previous "Textbook" post, since Monday price rejected the Upper value areas and traded higher. Leaving the (2) two POCs of Monday and Tuesday untouched.
Now I'm going to circle around and chase my tail, I want to return to the CFTC Report on 11-19-13. IF traders looked at the report from the CFTC they may have noticed LONGS (Large Spec) are holding the smallest amount of positions since August. Another inside observation that can be taken away from the COT Report is the Number of Traders holding these positions. It is often said, the players never change. How many Large Spec are there in the Euro Futures arena? Currency traders trade currencies, they don't trade beans one day and oil the next, only the public trades that way. These are the professional traders that dine on those who come to "play" in their arena. Take a close look at the total number of Large Spec traders by adding those holding longs and those holding shorts. In the report below there are 32 traders holding 81,070 contracts long which makes up 34.9% of the open interest and there are 68 traders holding 72,159 contracts short which makes up 31.1% of the open interest. These numbers draw a pretty vivid picture of the "playing field" if you realize what you're looking at. The first thing a trader can take away from these numbers is the total of the Large Spec, add the 32 traders holding longs and the 68 traders holding shorts together and that sum is 100 Large Spec. Secondly, this data reveals both the longs and the shorts are holding relatively the the same percentage of the open interest, 34.9% and 31.1% respectively. I believe, this may suggest the market is "to close to call" and the future direction is unknown at this time, if you want more insight look at the Commercials 45.6% and 41.3% and those participants are split 50 and 51, what I'm saying here is no-one holds an upper hand, or do they?
OK, on Nov 19, 2013 the COT report tells me there are 100 Large Spec holding 66% of the open interest. I believe @WilleeMac has taken all leg work out of my next example with the spreadsheet he posted up-thread but I'm going to post this "in spite" of him. I'm old school and still hold a fondness for adding machine tape and ink on my fingers. Here's the deal, add up all the participants on both sides of the trade for each week over the period of a year (or more) and find the average number of Large Spec who report their positions. To make this post visual, I entered the 52 numbers (total large spec of each week) in the free on-line calculator. The results are on average there are 102 Large Spec in the Euro Futures arena each week, but more importantly look at the Standard Deviation (6) six, almost insignificant! Maybe there is something to the theory, "the players never change."
So what, more meaningless cashish number crunching, maybe, but if traders subscribe to the notion we each trade our individual beliefs wouldn't you think the Large Spec do the same, I'm just saying. My method of trading the 6E is a hodgepodge of ideas stolen from the many Masters who came long before me. I believe watching the dance of price discovery unfold during a trading session is fascinating, why does price stop here, why does it NOT stop here. Peter Steidlmayer said he believes there are over 10,000 different "time frames" being traded, simultaneously. He also believes when the price is right, traders will "come off the bench" and join the fray. I agree with this, when I see price respect VAHs, POCs and VALs as well as Standard Deviation levels intra-day again and again this tells me short term day traders are working the market. I also believe when price trades thru one of these levels either on the first attempt or the 10th and volume increases dramatically, this (volume) is the other time frame traders "coming off the bench" adjusting their positions as the price discovery process unfolds.
Back to the COT Report. Of the 100 Large Spec (the usual suspects) the majority of them (68 compared to 32) were holding short positions on Nov 19. This is an important distinction, the majority of traders were holding shorts, although the percentage of open interest was nearly balanced between the two sides of the trade. As I wrote in the first part of this post, price refused to enter the prior day's value area all week, price respected these levels and just kept inching higher, squeezing and squeezing the majority higher and higher, on lower and lower volume heading straight into Holiday trading. IMO, the increase in open interest posted on Tuesday and the preliminary increase in open interest in the Daily Bulletin for Wednesday may suggest an opinion of future direction may be exposed, soon. The chart below shows two levels I believe are tipping points, 1.3650 and 1.3464.
Black Friday
Blah, blah, blah it's not like I don't have anything better to do, but THIS is what this post is about. Black Friday has a reputation for big moves in the Euro, BIG moves. On average of the last ten years the Euro prints a range on Friday of more than 200% of Thursday's range. This is based on the Cash Market, but the 6E futures will reveal a similar range almost to the tick. Here's a chart for prosperity's sake, so far the range is 56 ticks, IF this range holds (I said IF), tomorrow the probabilities of printing a 100 plus range in either direction are very high. I believe both levels on the previous chart could be in play, I'm NOT going to predict the direction, but I will go balls out on the RANGE!
In an effort to avoid any further misinterpretation and/or deep seeded trauma, I'm offering this post to aid in undoing any psychological scars my choice of words may have caused to the readers of this thread.
