A-B-C-D Trade - page 343
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An interesting article:
REFILE-U.S. data backlog a boon for computer-driven trading | Reuters
or cut & paste with http://www. preface:
reuters.com/article/2013/10/18/fiscal-usa-data-markets-idUSL6N0I81YN20131018?feedType=RSS
"LONDON, Oct 18 (Reuters) - Some financial traders stand to profit from the end of the U.S. government shutdown as a backlog of economic data to be released in the coming week churns market price volatility to the benefit of their computer-driven models.
With the issue of about a dozen potentially market-moving indicators postponed during the 16-day closure of federal offices, the rush of overdue numbers may help offset a drop in trading volumes during the shutdown, which ended on Thursday.
However, the week's opportunities are likely to be limited by caution ahead of year-end accounts and, longer term, many think the political wrangling in Washington means the Federal Reserve will maintain liquidity that has held down volatility.
Tuesday brings the employment report, delayed from Oct. 4. As well as data on the world's biggest economy, European and Asian numbers during the week may cause sharp swings in stock, bond and currency prices as investors parse the figures.
That will benefit high-frequency, or "algo", traders, whose algorithms rapidly pump out a large number of small computerised orders to exploit price moves.
"There may be some surprises as the market catches up to the data. This implies heightened volatility, which is good for many systematic strategies," said Aaron Smith, managing director at hedge fund Pecora Capital, which specialises in such trading.
"Our reaction during October was to dramatically reduce exposure to our momentum systems as price action was compressed and the market adopted a 'wait and see' attitude."
Also known as momentum trading, such computerised dealings at high speed can inject further choppiness into markets, which in turn helps high-frequency accounts generate profits.
Over the years, they have formed a sizeable portion of daily trades in the foreign exchange and stock markets. Boston-based research firm Aite Group estimates high-frequency trading accounts for about 40 percent of spot trading in currencies, up from 3 percent a decade ago.
In the U.S. equities markets last year, it accounted for 49 percent of volume, according to the TABB Group, another research firm. But that was down from a peak of 61 percent in 2009. In Europe it was 28 percent, down from 38 percent.
Lower market volatility in recent years explains some of the relative decline in computerised trading, which has also been subject to concern from regulators who fear machines could cause damagingly extreme price movements.
LIMITED OPPORTUNITY
While the deluge of data will trigger short-term opportunities for algorithmic traders, it is unlikely to lead to a significant longer-term pick-up in activity given most seek to preserve accrued profits in the later part of the year.
Price swings may also be subdued by expectations that Washington's debt wrangle has clouded the outlook for the U.S. economy and that the Fed will keep its monetary stimulus intact into 2014. In recent years, massive liquidity injections by the world's major central banks have crushed volatility by driving asset prices across the board higher, or lower, in lock-step.
Volatility in the currency market has tumbled in recent days; one-month dollar/yen implied volatility, or vol - a gauge of how choppy a currency rate will be - hit a nine-month low on Friday.
Euro/dollar implied vols have also fallen to their lowest in a month, suggesting major currencies are likely to trade in a narrow range in the coming weeks.
While the one-week euro/dollar implied volatility has risen, it remains well below recent peaks.
The VIX index, known as the "fear gauge" for Wall Street, has fallen sharply from a four-month high of 21.34 on Oct. 9 to 13.38 on Thursday. A level above 20 indicates expectations that stocks would remain choppy and lose ground.
"Volumes are low anyway and algos are not trading much," said Mankash Jain, head of FX and investment management at hedge fund Solo Capital. "November is a time for preservation, so it's unlikely we will see them coming back in a big way."
Same pair, with split screen. Chart on the right utilizes HAMA_T3 to identify pullbacks/trend.
This illustrates 2 ways to trade the recent move upwards.
1) Breakout of Swing 4 high
2) Pullbacks at Swings 3 or 5, with Swing 5 being just prior to European open and the reaction to U.S. Debt developments, U.S. credit downgrade, etc.
Back to some basics with support & resistance (S&R). Attached is a EUR/USD 4-Hour chart.
A-B) Swing low = Oct 25th 04:00 high 1.3831 to Nov 11th 12:00 low 1.3295.
B- C) 50% retrace of that swing A-B = Nov 19th 20:00 high 1.3579
C-D) 61.8% retrace of B-C = Nov 21 04:00 low 1.3403
The RSI indicator is set on 4-period, and this helps us see divergence.
Trade options were:
1) Trade the pullback OF A-B to the 50% level. A-B bottom had bullish divergence.
An extra aid can be the HAMA_T3, which allowed trader to see price candles stay above the support range.
The HAMA_T3 is derived from moving averages, which means it lags. However, it does have a use, when deploying it for S&R.
2) Bearish divergence formed right after the candle period closed at the 50% retrace of A-B.
The next opportunity was to short, from C-D. That ultimately resulted in a retrace of 61.8% of B-C.
The more conservative traders may opt to use a momentum cross-over, in a lower time-frame as an entry trigger on the short.
Where to locate Stop-Loss (S/L)?
One idea is to measure the previous swing and use 12.5% of that swing.
1) When trading the 50% retrace, the A-B swing was very large. Conversely, we can use the swing from Nov 6th 1.3547 to the bottom Nov 7th 12:00. Using 12.5% would place the S/L at about 1.3262.
Whether the trade targeted the 38.2% or the 50% retrace levels, the Risk/Reward was adequately above 1:1, which is the objective.
2) 12.5% of leg B-C would place the S/L at about 1.3614 for the short.
Not including spread/slippage the R/R looked like this prior to the trades:
1) to 38.2% retrace level = 38.2 divided by 12.5 = 3:1 R/R
1) to 50% retrace level = 50 divided by 12.5 = 4:1 R/R
2) same as 1) but add 61.8 divided by 12.5 = 5:1 R/R
Somehow lost the ability to edit.
The entry for leg B-C did NOT have bullish divergence. Therefore that was not an additional confirmation. One could use the aforementioned momentum cross-over to enter, or
recognize Point B as lower 50% extension of Oct 16 - Oct 25 swing.
Trading the bounce at the SDC expansion levels.
EUR/USD 1-Hour charts using the Standard Deviation Channel (SDC) to measure 100% expansion bounce opportunities.Indicated times are GMT.
Chart 1
Align SDC to Dec 19th 19:00 and Dec 27th 11:00 (obvious peaks)
Align Fib Channel tool to full size of SDC and drag down one level.
Bounce off 100% expansion to the downside = Jan 6th 06:00 BUY
Chart 2
Align SDC to Dec 27th 11:00 and Dec 30th 16:00
Align Fib Channel tool to half of the SDC size and drag down one level.
Bounce off the 50% expansion to the downside = Jan 3rd 21:00 BUY
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Note: to get the SDC to extend indefinitely to the right, go to its properties (double click SDC), then parameters. Check box labeled "Ray".
"Deviation" is set on 2.
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Yes, the first chart also had a bounce up at the 50% expansion. We'll let you make the adjustment to view that.
Having tested the 86-cents level, and bounced, AUD/USD at resistance.
Between now and the end of Feb, next diagonal resistance levels are:
R2 = .9298/89
R1 = .9177/69
That is to say there is a slight slope downward left to right.
The Ukraine-Crimea situation is causing volatility, and some pairs opened the week with gaps. Russian troops are on the move, occupying Crimea, and the Russian stock market is at a 5- year low now, according to Bloomberg news.
Dinner conversation
U.S. FED (FOMC) reduced bond purchases by another USD10B. When pressed for a time-line for first interest rate increase, FED Cheif Yellen estimated 6 months after last reduction in bond purchases. That would make it approximately one year from now, but many sectors will make their changes or moves much earlier. The stock markets reacted negatively and the USD strengthened.
Now, on to technical analysis. The attached 1-hour chart of NZD/CAD is marked with arrows pointing to pivot points. We'll let you try to figure out how they were projected. The hint is that it was derived from an alternative momentum technique, taught here in this thread.
Here are the turning points, at the start of each candle period:
Mar 4th 06:00 BUY
Mar 5th 22:00 BUY
Mar 6th 16:00 SELL
Mar 7th 06:00 BUY
Mar 8th 14:00 BUY *
Mar 11th 03:00 SELL
Mar 13th 20:00 SELL *
2 of these (*) were right after or just about at economic data release, as witnessed by the large candles. With a small S/L, it not not advisable trading during those events.
Momentum techniques lag, and we are not fans of it for that reason. This particular technique was developed as an alternative. As we can see, the entry point is very accurate. We have however, used momentum as an entry trigger of a lower time-frame, when we needed further confirmation.
The technique will be on the next post here.
Nothing is 100%, therefore you'll need to look at it in a large sample size.
[ATTACH]12926[/ATTACH]
The last example utilized the ATR crossing the fib retracement's 50% level, with a RSI(4-Period) Overbought/Oversold filter.
Indicator is the ATR, which will display in a bottom window, on default setting of 14.
Drag Fibonacci retracement tool to ATR, and plot on swings. Set fibs to 0, 50, 100%.
When 1-hour candle period is closed after crossing the 50% level, read the ATR value in data window, to see if it is below/above the 50% value.
Align the cross-hair tool to the 50% level to read the 50% value on right side of chart.
The RSI indicator set to 4-period, will be another filter and must be in OB/OS conditions. Some will use >70% O/B and <30 O/S.
This link below is a post using this ATR 50% cross method, together with other confirming tools, on a EUR/USD 30-min chart.
It marks the July 11, 2012 FOMC announcement, and starts the SQ9 count (yellow horizontal lines) from there. The SQ9 is an interpretation of a W.D. Gann technique. We look for a bounce at/around the important 90-degree level.
The green RSI (set on 4-period) contributes Bullish Divergence for the pivot up.
The blue ATR uses the 50% retracement cross of the last ATR swing.
Price rebounded upwards back to levels just prior to the FOMC, for a good risk/reward trade.
https://www.mql5.com/en/forum/198355
Post #3097
Remember, momentum techniques will often LAG. We can use additional techniques to assist. In this example,
- the Bullish Divergence gave us an advanced alert
- the SQ9 brought support and resistance for potential entry/exit points
- the ATR 50% cross, with OB/OS, was the entry trigger
To retrieve other tools and techniques, use the"Search This Thread" function. We've also posted under other titles such as "Gann is the Man".
https://www.mql5.com/en/forum
The attached chart features another example of the ATR 50% Cross, on EUR/USD 4-Hour.
The vertical dotted red line indicates where the 50% crossed below the 50% retracement level. Price was in overbought conditions, registering 83 on the RSI(4-Period).
We also used the automatic Gann Square of 9 indicator. As we can see, the turning point area was at/near the 180-degree level. Gann practitioners understand the important levels with 90-degree increments.
Together, these tools and techniques provided a nice SELL opportunity at the open of the April 11th 04:00 GMT candle period, at price 1.38916.