How to deal with traps using price action
Looks like it so far and it's one of the smartest traps we have to deal with again and again in any time frame.
As you can see after the Mar 8th candle we got an inside bar (yellow area) with a false breakout of the high-Mar 9th-, with price also closing below upper Bollinger line, meaning that volatility is easing and liquidity is coming in . Next day, March 10th, we got a pin bar, more or less confirming that bears are strong giving us one of the most reliable sell signals regarding inside bars and possible entry for short to those that are getting in near the highs of the previous day, after the false break out. Second entry, or adding to shorts is the break down of March 9th's low, until we get a slight reversal next day, with sellers still strong, since we have one more pin bar, with upside tail. Notice though that closed as a bull bar, above the close of March 10th. This is alarm for anyone who is short guys. Short term trend has been violated as easily you can see intraday.
Now note that, all this selling power didn't manage to break down last week's close at 108.36, a sign that even though sellers look strong, buyers stepping in every time and absorb the pressure defending the weekly low and leading price later to recapture last week's high at 108.64.
It's time now to see how strong sellers are near the weekly high area and if we get a close above the post Jan'17 trend line. As volume profile shows (fixed from the last swing low of Feb 23rd) volume is slowly getting in while point of control (POC, red line) is at last week's close area and it's shape -looks like a "P"- is Neutral Extreme Structure, meaning the value area is high with more probabilities of breaking to the upside. I exclude for now a Double Distribution in volume profile - as someone can interpret the shape of volume profile as "B"- because the value area in the low region is light and POC is near the highs. Last clue will come after today's close to check if final daily and weekly volume data is in accordance with price action. A close back inside yellow area will be suspicious hinting that maybe consolidation will continue, as we usually have a trading range after bullish channel breakout, before we break higher or lower for a possible correction, as this week time wise is perfect for a short term top. It will not be the first time that institutions are clearing both sides of an area before the final move begins...
Ok, cool with all this stuff now. How we can avoid such kind bull or bear traps in crucial areas where institutions need to fool the retailers in order to get the necessary market depth to change or add to positions i.e. stop hunting?
First and foremost, stay with the trend, especially the long term one as it is proved in higher time frames and use a Sar of Chandelier stop to get out if you are not an expert in price action. Second, always be aware where price is in relation with weekly, monthly, quarter or even yearly data. The longer the data, the more powerful are. OHLC prices are not random or by accident. They are the more reliable pieces of information about what institutions are doing. If you mark them in high time frames you will amazed that every support, resistance, demand or supply zone is located near or at these prices. Do it even for fun and will see for yourselves. If you will do it long enough you will never need again any indicator, oscillator etc etc as they are lagging price. Most of these are for confirmation only anyway.
From the moment dollar yen made a new quarter high at 106.10 by breaking up last quarter's high (LQH) the long term trend changed to bullish.Trend is changing in 3 units of time in any time frame and quarterly is a powerful one that enables to buy the dips or adding to positions (pyramiding), especially if price is above week and monthly high, as it's happening with dollar yen now. No need to go short or even scalp in such a case except if your trading plan, statistical data (win/loss, Risk/Reward averages) and experience allows it.
It's not secret that dollar yen is following the US yields, as posted here and here, so fundamental wise doesn't make sense to go short against the long term trend. Only with a close below last week's high (LWH) and even better under last week's low (LWL) possibilities are increased that we reached a short term top so selling can have it's right chances to succeed.
Commercials are currently 11.3K contracts short in yen, breaking out from the area that historically is marking the highs in yen, like 2016 and 2019, while sentiment has not yet reached the pessimistic area which signals short term reversals. Seasonal wise March is neutral for yen which is getting stronger in April and then again during 3rd quarter of each calendar year.
As posted before here
dollar has confirmed an intermediate bottom, and currently is at it's second daily cycle our of four that normally contained in every trend. Until we have a failed daily cycle, there is no reason to fight this trend.
Some thoughts here, hope it's helping guys,
Cheers, all the best
P
Looks like it so far and it's one of the smartest traps we have to deal with again and again in any time frame.
As you can see after the Mar 8th candle we got an inside bar (yellow area) with a false breakout of the high-Mar 9th-, with price also closing below upper Bollinger line, meaning that volatility is easing and liquidity is coming in . Next day, March 10th, we got a pin bar, more or less confirming that bears are strong giving us one of the most reliable sell signals regarding inside bars and possible entry for short to those that are getting in near the highs of the previous day, after the false break out. Second entry, or adding to shorts is the break down of March 9th's low, until we get a slight reversal next day, with sellers still strong, since we have one more pin bar, with upside tail. Notice though that closed as a bull bar, above the close of March 10th. This is alarm for anyone who is short guys. Short term trend has been violated as easily you can see intraday.
Now note that, all this selling power didn't manage to break down last week's close at 108.36, a sign that even though sellers look strong, buyers stepping in every time and absorb the pressure defending the weekly low and leading price later to recapture last week's high at 108.64.
It's time now to see how strong sellers are near the weekly high area and if we get a close above the post Jan'17 trend line. As volume profile shows (fixed from the last swing low of Feb 23rd) volume is slowly getting in while point of control (POC, red line) is at last week's close area and it's shape -looks like a "P"- is Neutral Extreme Structure, meaning the value area is high with more probabilities of breaking to the upside. I exclude for now a Double Distribution in volume profile - as someone can interpret the shape of volume profile as "B"- because the value area in the low region is light and POC is near the highs. Last clue will come after today's close to check if final daily and weekly volume data is in accordance with price action. A close back inside yellow area will be suspicious hinting that maybe consolidation will continue, as we usually have a trading range after bullish channel breakout, before we break higher or lower for a possible correction, as this week time wise is perfect for a short term top. It will not be the first time that institutions are clearing both sides of an area before the final move begins...
Ok, cool with all this stuff now. How we can avoid such kind bull or bear traps in crucial areas where institutions need to fool the retailers in order to get the necessary market depth to change or add to positions i.e. stop hunting?
First and foremost, stay with the trend, especially the long term one as it is proved in higher time frames and use a Sar of Chandelier stop to get out if you are not an expert in price action. Second, always be aware where price is in relation with weekly, monthly, quarter or even yearly data. The longer the data, the more powerful are. OHLC prices are not random or by accident. They are the more reliable pieces of information about what institutions are doing. If you mark them in high time frames you will amazed that every support, resistance, demand or supply zone is located near or at these prices. Do it even for fun and will see for yourselves. If you will do it long enough you will never need again any indicator, oscillator etc etc as they are lagging price. Most of these are for confirmation only anyway.
From the moment dollar yen made a new quarter high at 106.10 by breaking up last quarter's high (LQH) the long term trend changed to bullish.Trend is changing in 3 units of time in any time frame and quarterly is a powerful one that enables to buy the dips or adding to positions (pyramiding), especially if price is above week and monthly high, as it's happening with dollar yen now. No need to go short or even scalp in such a case except if your trading plan, statistical data (win/loss, Risk/Reward averages) and experience allows it.
It's not secret that dollar yen is following the US yields, as posted here and here, so fundamental wise doesn't make sense to go short against the long term trend. Only with a close below last week's high (LWH) and even better under last week's low (LWL) possibilities are increased that we reached a short term top so selling can have it's right chances to succeed.
Commercials are currently 11.3K contracts short in yen, breaking out from the area that historically is marking the highs in yen, like 2016 and 2019, while sentiment has not yet reached the pessimistic area which signals short term reversals. Seasonal wise March is neutral for yen which is getting stronger in April and then again during 3rd quarter of each calendar year.
As posted before here
Some thoughts here, hope it's helping guys,
Cheers, all the best
P
