EURO/DOLLAR 5-3-2007

The E/D is shakin and bakin more than Barry Sanders.

Lest you are deceived I want to tell you that most people are thinking that this pair is showing weakness yesterday and today. As I said many times, just because a market is moving down doesn't mean it's showing weakness and just because a market is moving up doesn't mean it's showing strength.

It is how it's moving up and down that signals weakness or strength, as in momentum.

If you jump up and you start to rise, that first impulse that got you rising, got you rising at a certain speed. As long as you rise at the same rate of speed or faster you are showing rising strength. But what if your rate of ascent, your upward momentum starts to slow. Yeah, you may be still rising but are you still showing upward strength? Then, if you get an extra push up you should rise even faster, and higher doesn't that make sense?

The same holds true if you are falling down and you get an extra push down. Your downward flight should accelerate and you should fall lower don't you agree?

Now look at the chart for the last two days. On Tuesday we had a bear pivot but...LOWER VOLUME. Not a valid pivot is it? I told you what to expect in pivot lesson 4-A what to expect from a low volume (invalid) pivot.

Then today we had an attempt at a follow through on a bar that closed lower than yesterday's close, but could not close below the low of of yesterday's bar. It should have. I mean it had higher volume. It had a larger push. INSIGHT...

These last two bars are not showing weakness as that might appear from mere sight. Vision (inner sight/the mind/reasoning) tells us that it is falling at a decelerating pace. If you are running and you are slowing down you are not showing strength in the direction you are running, you are showing weakness in that direction.

We know just from living that before something turns it slows down. This current E/D down swing is slowing down not speeding up.

Then we have to consider that it is slowing down at an area of support (a wall). That area of support is The bull pivot marked by the Red (S) for swing bar on the chart. Yes, it was not a valid pivot bar that created that swing bar because of lower volume, but this current bear pivot also has lower volume, and that means balance.

Consider also that the low of our red swing bar happens to be at 3 bar Resistance for this current bear pivot. Yes, you calculate it the same way I showed you for a bull pivot. Remember, the things I show you going up work the same way falling down. Add all this with the fact that this market is in an uptrend, not a down trend, and the deception starts to reveal itself even more.

Now add this to the equation. This is something I have yet to cover in our 3 bar series but I will, even though I've mentioned this in several lesson prior.

But, just remember that the open price and the closing price are the 2 most important areas of any single bar. These areas are support and resistance within themselves. This is of even more significance when the direction is counter trend.

Look at our red (S)swing bar. When you use the term top or bottom of any single bar, what that means is a range. This swing bar is a down bar right? See the yellow and green lines I have drawn. Those lines are drawn at the close and low of that bar. That space between the lines, that difference between the close and the low, that is the bottom. I usually will make my entry decisions at the lower range and make my exit decisions at the upper range when the move is down. As I say...USUALLY. There are exceptions to everything but you can't understand the exceptions for anything until you learn the rules.

So again...THE BOTTOM IS A RANGE. The bottom of this bar is serving as two areas of support right now.

First,the red swing bar is a pivot bar in the direction of the uptrend (the fact that it came on lower volume is balanced out by the lower volume on this down move). And it is in the range of 3 bar equilibrium.

It is still in play (still support)because there has been no close below it.

Since the bottom of the swing bar is a range, if price bounces off anywhere within this range, it qualifies as a touch/bounce off 3 bar support. This is what I mean when I say you cannot look for absolute exactness in where a market might go you can only calculate a reasonable range.

Between those yellow and green lines is the range that momentum can carry the market. A train rarely stops on a dime but you can calculate the probability of the range of it's stop.

So here is where I'm coming from. If you tell me to run through a wall and I start running towards it, don't you think I should speed up before I crash into it? If you see me slowing down just before I hit the wall you can come to the reasonable conclusion that I really don't want to go through that wall. Am I right?

If I'm slowing down going into the wall am I displaying strength or weakness? This is exactly what the E/D is doing. It is slowing down going into the wall.

So, can we say with absolute certainty that the E/D will bounce back up off this range? Of course not! But we can say that the probability is very good and that's what we trade. PROBABILITY...

See how we are discussing the market right now. I'm really not telling you things you don't already know. This is what I mean when I say release the mind of separation and you will see more. Market reactions are not separate from the things you see and do in your every day life.

When we look at the market according to every day reactions of cause and effect we see a different picture than if we look at the market as simply a bunch of numbers and bars. The picture takes a different shape. It becomes an image. A visual.

Am I saying the E/D will go up from here? No...I'm saying that if I were going to risk a trade I would go long on an intraday bull pivot above the range.

Because the picture is constantly moving in time all I can give you are odds. I don't try that the intraday bull pivot will occur above the range. I am just aware of it and if it happens I'm ready to make a move. My plan of action is already prepared for the (IF EVENT).

But I also remember that there are two arms on the scales of balance so here is the other side. Sitting on top of our lines like a heavy weight we have two bearish pivots. However, both are on lower volume. But...Since there are two of them side by side, the down move does have some internal possibilities. But, in order to make the break it needs some news in it's downward favor. So, I am at this moment scouring my sources for possible pending new that my provide the artificial Punch needed to make E/D fall further down. Until then, questions are resolved in the direction of the trend because the trend is your friend.

I cannot predict some breaking, surprise news event that may happen far across the waters that may give this market an extra push down. But right now, in this moment in time, this market is showing upward strength not downward weakness. So the way I do it, I search for possible news announcements for today's trading that may give a down push and if I find such a possibility, I will wait for the news.

Only if it should close below the range (green line) on higher volume has weakness been displayed. Then the ball carrier has made a move down field.
And even then I will not chase him, I'll just wait for him to pull back.

THE UNIVERSAL LAWS OF NATURE

JERRY

P.S. This is not to be considered a trading reccomendation. Only a lesson on the mental process of filtering trades.

THE PLAY BOOK

Now that most of you have a better idea about 3 bar equilibrium, yes I know, not all of you yet but I'm not done with you on that, but now to build upon that it is time to define the concept of an invalid pivot.

You know what an invalid pivot is but what does that mean as far as your trading? I mean if it is invalid, why even mention it or concern our selves with it. Well now that you know about 3 bar you are prepared to understand me when I say this.

"An invalid pivot can be expected to bounce off 3 bar. That is to say, you can expect an invalid pivot to reach the level of 3bar, but you should not expect price to close above 3bar, to wit, that's what's going on with the Euro/dollar for the last week or so. So, that's why trying to figure it out is probably driving some traders crazy trying to find a good trading signal within this consolidation range during this period.

Some of you who are familiar with football know about a play called a double reverse. It is a play designed by the offense to suck in an over aggressive defense by making them over commit in one direction, then the opposite direction only to realize in the end, when it is too late that they have over committed in both directions.

The play is designed to create confusion. Imagine yourself on defense. You chase the ball carrier to the left and just when you're about to tackle him he hands off to another player heading to the right.

Then, just when you lower the boom on him and crush him, thinking like Mr. T, "I pity the fool who tries to trick me," you look up from the ground and see that they guy you tackled didn't even have the ball!

Nope...he had given the ball to another player going back to the left where you just came from. As you rise from the ground and watch your whole team of defensive mates standing beside you, all realizing simultaneously that you've all been had as you look way down field, helplessly watching the new ball carrier run a long ways away from you.

Yes...you're been tricked, hoodwinked, bamboozled! Well, that's the current play in progress in the Euro/dollar. And to make matters worse there's even a play called a triple reverse.

In sports these are called deception plays. The Euro/Dollar is going through the play called the double "PIVOT" reverse.

First to the left with an invalid bull pivot, then handed off to an invalid bear pivot 2 days later, and the close of today's trading will tell us if ole E/D is about to hand the ball off again and go back left with another bull pivot.

But, a disciplined defensive player can smell out deception plays. Can smell out a double reverse as he sees the play developing. See, he always listening to his coach. Yeah, the defense also has a play book. And it does have guidelines to allow that player stop a double reverse without even recognizing that it's a double reverse. The counter for deception is called "STAY AT HOME." Meaning stick with the principles of the defensive scheme. The defensive scheme requires that, when the ball is reversed away from him, do not chase across the field. No, stay on the left side because if you chase you leave a big hole in your defense.

So, that's all he has to remember. DO...NOT...CHASE. PERIOD! Well what if it's not really a double reverse and you stay at home? If it's not a double reverse the new ball carrier is not going to be running across the field. he will be heading down field. He has committed to a direction. He is making progress on you. But as long as the ball carrier is heading across the field he is not a threat. He is gaining no ground on you.

That's your first rule of defense. Don't give ground. Not to make a spectacular tackle so you can dance over your downed opponent. This is what the double reverse is designed for...to take advantage of your overzealous emotions.

So, if your looking for a trading opportunity in the E/D right now, STAY...AT...HOME. Let it commit. It is running across the field and is not a threat to get away from you right now. It is bouncing between 2 false pivots, and bouncing off a long term monthly resistance level.

Let it make a break down field, show you it's hand. If you're going to be a serious trader, like a serious athlete, you must learn the play book.

You cannot learn the play book while playing in the game. To learn the play book you must study the play book, and there is a huge difference between just reading the play book and studying the play book.

I've got news for you. A coach can tell if you've been studying the play book, not by the number of questions you ask but, by the nature of the questions you ask. And if you don't know the play book, why would you get mad at the coach if he doesn't put you in the game. The coach is responsible for many players and if he puts you in the game he is jeopardizing the work put in by all the players who have studied the play book. If you want the coach to take you seriously them show him you're serious by STUDYING THE PLAYBOOK, not just READING THE PLAY BOOK.

So, that's why I've been a little sparse on market commentary lately because I've had too many players trying to learn the play book while they're in the game. Then, when they get hoodwinked, they want coach to pull out the play book and teach them the same play he's been teaching them in practice while the game is on. But practice is boring. Practice is hard work with no immediate results. I've heard quite a few famous athletes say this, "They pay me to practice. Heck, the games are fun, I'd play the game for free. I've been playing for free all my life just for the love of the game.

When the game is on the coach is busy with game management. The player is responsible only for himself. When the player is resting, the coach is up all night game planning. And then what if the coach is also a player. You know what a player coach is already. So add all this up.

Be coachable and you will be unbeatable...

So, understand that I'm not trying to avoid questions at this time. I am simply trying to teach you the playbook. You need to learn the playbook or the answer to a question will only raise other questions. 95% of the answers are in the play book.


Jerry