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Thursday, May 3, 2018

TEACHABLE MOMENT DAY IN GBPUSD ALGORITHM

“Remember … he who panics first, gets to panic again later!”

A very “teachable moment” today in GBPUSD, and I’m glad it came sooner 
rather than later … directly below today’s M15 candlestick chart with the 
GBPUSD algorithm. 


It should become obvious to anyone that has been around markets longer than 
about 1 day, to realize and understand that the main limitation of the Cable 
algorithm is, quite frankly, “chop” … and especially “chop” around the blue 
box … cuz really, what’s the difference between “chop” here at the boundaries, 
versus anything you would get following any type of MA’s [moving averages]? 
… well, of course, the answer is nothing, they both have the same problem. If 
every day, the market was “required” to move away from the first M30 
[2 M15’s], we’d have guaranteed trading profits and found the “holy grail” of 
trading! “Alas, Skippy, come on down from the clouds, cuz there ain’t no such 
thing”!

So, as today so elegantly provides, it was a nothing day filled with “chop”, and 
a slight move lower hunting for stops, before it came roaring back to about 
where it started … and while anything can happen from now to the “official” 
close at 8 P.M. EST, where it sits now is “unched” on the day with another  
“doji” pattern on the daily candlestick. “Oy is an element best avoided at all 
costs”!

And so the question becomes for every trader, “where do you pull the plug on 
movement around the blue box boundaries to avoid getting chopped up all day 
long with small losing trades that go nowhere”? And for me personally, that 
number is “3” [three] on any side of the blue box … and you’ll notice above a 
white “X” on the chart … that’s where I “pulled the plug” on trading today, 
even though up ‘till that point I hadn’t made a trade … from that “X” on, it 
can do what it wants without me, cuz I know from a probability perspective, 
that from that point going forward the rest of the day, there isn’t a very high 
probability the market is going to make a sustained move anywhere, and all 
that is gonna happen, is that I take positions and find myself “trapped” by 
gapping ticks that go up or down 3 - 5 PIPS in less than a second. “You sell 82’s 
and it goes to 80.9, and then before you can get to the “F” in “WTF was that?”, 
it’s 84 or 85 bid on it’s way to 88 2 seconds later where you liquidate your short, 
and by the time you close the liquidate box and get back to the screen, it’s back 
at 81 … no worse feeling in the world, and it comes from buying or selling “in 
the hole”, and it puts you at an immediate disadvantage to the market and 
subsequently forces you out”.

In the GBPUSD manual, I don’t cover this, for the simple reason every trader 
is different in far how out they want to go … my personal “max” has always 
been “3” [three], but that’s me … you could be 4, 6, 9, or whatever to the end of 
the day … my point is, it’s gonna have to be something or else you get “monkey 
hammered” with losses, and end up losing a helluva lot more than bargained 
for on a day with nothing going on. Directly below, the M30 in GBPUSD for 
August 1, 2017, where the market had one of these kinds of days, and even 
though it went about 20 PIPS, it came back to the blue box way to many times 
… my guess is, if you attempted to keep trading it all the way to the end, you 
got chopped up pretty badly … no need for that, cuz it doesn’t happen that 
often; simply call it quits and come back tomorrow. EASY PEEZEE!

One of the big reasons I didn’t get short or long early, on any of the breaches of 
the blue box boundaries, is that the retracements off of all of these, both short 
and long, never came back around in that classic “teacup handle turn” I’ve 
written about before … in other words, as an example from the long side, sure 
it breached 1.3608 a number of times, but every time it did, when it topped out 
and started to retrace down, it never stopped and started to go back up again 
and threaten the high, it just kept going down back into the blue box … ditto, 
only reverse on the short side, and this is the main reason, I don’t want to buy 
rallies out of the blue box, or sell breaks out of the blue box, cuz it can easily 
trap you and come right back … if it’s good, it will stop, retrace a little and 
then move. Take a look again from the other day when I “FUBAR’ed” the 
perfect sell, directly below … the sell isn’t at the breach, the sell is the blue 
rectangle I’ve put in on the retracement back up, and when that rolled over, 
“THAT WAS THE SELL POINT”!


Today, we didn’t get any tradeable movement away from the blue box until the 
orange arrow #5, and even that was a complete terror on the way down, as all it 
did was break 4 rally 3 the entire time, with some small sets of sell stops set off 
below 1.36500 … and every time the market hit those stops, the next 
millisecond saw price rise by 2 - 4 PIPS … and when you start seeing that, you 
are either at the low, or very, very close … and when it turns, it’s “lights out” to 
the upside, taking no prisoners and not coming back.

Another reason I’m not really in “sell mode”, is the fact that, “just how many 
days in a row, and how many PIPS does this stuff continue to go lower with no 
move higher”? We’ve been down now 12 trading days over 800 PIPS … and 
you’re beginning to see serious support emerge on any moves lower. The 
action I’m seeing, is reminiscence of bottoming formations … they take some 
time to unfold, and the key is lower highs every day in the series of moves lower 
… well, we’ve got both now, but it’s starting to get very choppy and ragged, and 
we have some HR1 trendlines from the top that are starting to become relevant 
and bear watching … cuz when the trade thinks the bottom is in, and it’s time 
to cover some short positions, look the hell out on the upside, cuz it will be quick 
and vicious in scope … something like 60 - 100+ PIPS in 35 minutes, with 
straight up panic and gaps at the top to take out buy stops … we aren’t there 
yet, but we are getting “Hoover Dam” close. And I’m betting it will coordinate 
perfectly with the GBPUSD algorithm, and after going lower, it comes back up 
and through the blue box and simply goes bananas to the upside … could be 
tomorrow NFP Friday, Monday, or Tuesday, or even later, but it’s coming, and 
the longer it takes the stronger it will be … right now, Cable is a “coiled spring” 
about ready to explode.

Turning to today’s GBPUSD market … no trades today, simply cuz there was 
no trading to do … market didn’t make any serious move until the 5th orange 
arrow, and even then it didn’t go down much, before coming back quickly.

Tomorrow’s NFP Friday, and so we got that to deal with, but watch a breach of 
the daily candlestick highs for some serious buy stops … who knows when it 
comes, but a surprising weak jobs report could be the ticket … in any event, if 
that’s the case, it’ll be fast and brutally vicious to the upside … I’m hoping 
Cable goes slightly lower, and then comes back through the blue box, and if 
that happens, things could get equally exciting … it won’t last long, but who 
cares, cuz if I’m long and it’s gapping higher, we’re gonna be selling the short 
term top … we’ll see what happens … I’m outta here for a very cold one 
… until tomorrow mi amigos … Onward & Upward!!

PAMM spreadsheet is fixed, I just haven’t had time to make the entries … I’ll 
post updated results tomorrow.

Have a great day everybody!

-vegas

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