MARKET UPDATE SUNDAY JUL 10 @ 9:00 PM EST

Well, the market was about as wild as I expected on Friday as I told you in Thursday's update.  I also mentioned that we should have a gap open today Sunday and the professional did not disappoint me again.

Now, here is my impression about gaps.  About 70% of the time a gap will be filled before a market will continue in the direction of the gap.  On a down gap a market will immediately rise back up to test the next resistance level over head and an up gap will fall to test the closest support level below.

There are two types of gaps.  Exhaustion gaps ( SEE CADJPY ) and breakaway gaps ( SEE EURUSD ).

An exhaustion gap is a gap that occurs within the high/low range of the prior swing.

A breakaway gap will occur outside of the prior swing high/low.

Your 1 or 4 hr charts can be used to judge the gaps and the tests...

Exhaustion gaps are false moves and if traded, should be faded.  Breakaway gaps should be traded in the direction of the gap but only after the support/resistance level that the gap has broken out of has been tested on the pullback. SEE EURUSD has not yet been tested. AUDUSD HAS BEEN TESTED...

When retail traders see a gap open they immediately get a woodie for a move in the direction of the gap and want to jump in.  When they jump in the professionals whom caused the gap in the first place, will back price back to the next support/resistance level or if the gap comes first, before a support or resistance level, price will back up to fill the gap.

If, when the test occurs, price should close back withing the range ( last bar before the gap ) that preceded the gap it's a good bet that the gap was a false move and those retail traders who jumped in on the gap are now trapped.  See USDJPY

In the forex market, 90% of the time a gap will occur on a Sunday open.  Just another reason why I don't like to hold a position over the weekend and why I don't like to trade on Sundays.  Sundays are usually a trap unless there is a rare, major news announcement coming out during the Asian session.

Most of the time you would be better served to hold off trading until 1 hour after the start of the London session.

I would like to say more but the matrix is trying to shut down this blog again. If you've taken my 1 on 1 trader training course it wouldn't hurt to review the videos on gaps...Especially if you've been hard headed ( lol ) and trading on Sundays again....

Cheers, Jerry
jerryjstew@yahoo.com
jerry@forextradingmajic.com

EURUSD THUR JUL 7 5:30 PM EST

QUESTION:   

Hey Jerry,

I'm short form 1.4479. so fare 128pip
profit. it was already 260pips but I over slept..should I take profit now.
and then go short at 4409 again.

Thanks for the update.

ANSWER

Hi

Great question and I will give a detailed answer and place it on the blog because I don't know how available I will be tomorrow due to some outside obligations...

Yes, I would take profit now and look to reenter because of the 4 hr bullish reversal bar that we closed at 1:00 pm eastern standard time on my charts.  However, don't just reenter at 4409.  wait for a bearish reversal signal back down off of 4409 on your intraday charts. This is because we are closing the trading day( 5:00 pm est ) with a bullish turning bar.  Today's action is finishing with higher volume and no real commitment from the retail traders. That's a red flag to the current direction ( down ) on a heavy news day.
Yesterday the professionals were buying into weakness as they normally do and today was a follow through on that.

Currently there is no downward pressure on the market and that shows strength to the upside.  When a market is moving down we want to see higher volume.  When we don't that means selling pressure is easing.  when the current direction weakens it automatically means strength to the opposite direction.
  It's like pushing a basketball down underwater.  the deeper you go the harder you have to push down to keep the ball down ( increasing gravity pressure ).  If you release the downward force on the ball, the force of buoyancy will automatically push the ball back up to the surface. Right now there is an absent of Hi Sven

Yes, I would take profit now and look to reenter because of the 4 hr bullish reversal bar that we closed at 1:00 pm eastern standard time on my charts.  However, don't just reenter at 4409.  wait for a bearish reversal signal back down off of 4409 on your intraday charts. This is because we are closing the trading day( 5:00 pm est ) with a bullish turning bar.  Today's action is finishing with lighter volume and no real commitment from the retail traders. That's a red flag to the current direction on a heavy news day.
Yesterday the professionals were buying into weakness.

Currently there is no downward pressure on the market and that shows strength to the upside.  When a market is moving down we want to see higher volume.  When we don't that means selling pressure is easing.  when the current direction weakens it automatically means strength to the opposite direction.
  It's like pushing a basketball down underwater.  the deeper you go the harder you have to push down to keep the ball down ( increasing gravity pressure ).  If you release the downward force on the ball, the force of buoyancy will automatically push the ball back up to the surface. Right now gravity pressure is absent so the market will have a tendency to rise until reacted upon by a new force of gravity.  That may sound long winded but Lcm is based upon the principle of natural laws and understanding the natural laws behind price action causes the market terminology to make sense.

Then there is the psychological component caused intentionally by the market professionals. If there are too many retail orders sitting at major support/resistance waiting to take profits they will cut that level to cause confusion and panic to ( in this case the short holders ), by rushing price back up when price gets close to the take profit level.  We must understand that they are not all powerful but take advantage of opportunities.

In this case, the opportunity is this.  A market moves from swing bar to swing bar.  when price is anywhere inside the range of a prior swing bar a market has the potential to turn around. The swing bar is the balance point of any move.  The last bullish swing bar was on 6-27-2011  and that bar had a range off  4102 to 4293.   That is the prior swing range or range of the balance point.  Support/resistance in not a specific number it is a range ( the depth of the water ). We went as deep as 4221.

At that point my bull/bear indicator flipped from 62% retail longs to 57% retail shorts.  As soon as there were more retail traders short than there was long, the market turned around as it usually does to fade the retail trader.

To complete the analysis, the original bear pivot point was never tested from back up at 4494.  the risk has now shifted to this level especially since today was the 3rd bar in the down move.  In my course I talk about the rule of 3s and fibonacci bar count retracement which, is related to but not the same as fibonacci price levels.  I expect a pullback to the 4315 area tonight and for the market to challenge the 4409 area.  If that resistance level should hold then we should continue back down. 

However we need a catalyst and the first energy will be injected at 7:50 pm eastern standard time with the Jpy data coming out. Tomorrows new calender is full of major news releases from the major pairs and that means professionals can whipsaw the markets as they like in order to shake out stops above as well as below.  I expect a wild ride tomorrow and no support/resistance level is too far away on days like tomorrow.  Especially on a Friday.  Nothing like kicking some retail but on Friday to lock in the holders over the weekend, then gap open on Sunday to really get the herd into a stampede of confusion.

Summary: Right now the market is set up to more easily rise than fall so, shorts are more risky than longs at this stage.  For this reason I will exit my small 1/3 position if we pull back to 4315 today's open and take the small 30 pip loss and/or exit on a break of todays's high as that will create a new bull pivot point in process and increase any short risk exponentially.  It is not about absolutes it is about probability and at the moment of this writing the probabilities favor longs, especially since a higher close tomorrow will also create a new higher bottom which means up-trend.

This type of setup is typical for the first week of the trading month to get retail traders to start the month off with confusion to get the herd moving.  I have canceled my pending shorts at 4409 and need to wait for tomorrows daily close or a break below today's low to tell me more.

If you trade intraday only take signals that reverse or breakout of the levels I've drawn for you on the charts and use your intraday support/resistance for your stops.

Cheers, Jerry
 JERRYJSTEW@YAHOO.COM
JERRY@FOREXTRADINGMAJIC.COM 

USDCAD THUR JUL 7 2011 9:30 AM EST

 CLICK PAIR FOR VIDEO UPDATE
USDCAD

CHEERS, JERRY

JERRYJSTEW@YAHOO.COM

JERRY@FOREXTRADINGMAJIC.COM

EURUSD THUR JUL 7 2011 9:15 AM EST

CLICK PAIR FOR VIDEO UPDATE

EURUSD

JERRYJSTEW@FOREXTRADINGMAJIC.COM

JERRY@FOREXTRADINGMAJIC.COM

EURUSD THUR. JUL 7 2011

For intraday traders especially.  We need to pay attention to the U.S. employment data at 8:30 am eastern standard time.  No matter what our analysis is the markets are fueled by news.  News is used by the professionals to surprise the retail traders and cause market motion due to panic and confusion.

Your initial analysis can be dead on accurate but when the news comes out, market sentiment can change immediately.  When The news is pro U.S. the eurusd should fall and negative U.S. eurusd should rise.  But this does not always happen does it?  This is the first major data release of the month and the first major data release is known to surprise retail traders.

At the moment, retail traders are about 57% long holders so the market should continue down initially off the news to shake out these holdouts hoping for a pullback to get them out at break even.  Therefore the analysis I posted last night should follow the script I suggested.

But here is the real point.  What does your analysis produce when you are wrong?  How does your analysis manage risk when you are wrong?  What percentage of your account will you lose if you are wrong?  That's what it's really about.  Not how much can I make? Of course you're going to make money when you are right!  But, how much do the wrongs eat off the table of your rights?

Thus, I say to you again, analysis of direction is only one component of trading and I feel the easiest to learn.  Aaahhh...but the devil is in the details of how to correctly enter and exit.  Yes, I know.  Everyone knows how to enter and exit...But do they know how to enter in such a way as to minimize risk and maximize profits.?  right now I am short 1/3 of my normal full position per my post last night and looking to get out at 4182.  That's 3 mini contracts out of a normal 1 standard lot.  If you trade mini lots that's 3 micro lots.  For you newer traders, that's called scaling in to your position in order to minimize risk.

Your method of minimizing risk and maximizing profits is not just general either.  It must fit into the context of your trading system...

It will be fun to see how the news affects our analysis.  I'm hoping for a pullback up to 4409 so I can enter anothe 2/3 position. Nother 6-7 mini contracts to complete 1 standard lot.  10 mini lots = 1 standard lot

Cheers, Jerry


jerryjstew@yahoo.com
jerry@forextradingmajic.com

EURUSD JULY 7 2011

Click on pair for chart.
EURUSD

I am looking for a fall to 4175 but first a pullback up to minor support at 4409.  We broke down through minor support yesterday and that is an Lcm breakin signal that I teach in my 1 on 1 course.

After a signal there is usually a pullback. I am looking to enter as follows.  1/3 of my normal full position on a break below yesterday's low.  2/3 of my normal position on a pullback to 4409. 

Yesterdays move was controlled by the market makers and before they let price fall further the probability is high that they will rise ii on a pullback to get better positions for the further fall down to major support at 4182.
 


If you are considering a short trade today your stop needs to be above 4470

It works like this: 1. Market breaks down through minor support  2.  Market pulls back to test minor support  3. Market continues down to major support.

If the move does not follow this sequence, ( does not pullback ) Major support at 4182 can be expected to bounce price back up.  If this scenario should play our, look to enter long off of the supply line at 4137.

You already have the lines from yesterday's video, just add a line at 4182.

Always remember, a close beyond a support or resistance level is a signal when confirmed by volume.  That is a directional signal.  A signal telling you the probable direction of the next move.  How to enter to minimize risk and maximize profit is a totally separate skill/knowledge set.

After a signal you can just enter at the close of the signal bar but that is a choice for the individual trader.  Know one knows how much risk you can afford but you.  If a market does not pullback after a signal and you do not get in on the trade that is not signal failure.  That is trader failure.  If you do not have enough funds in your account to cover the reasonable stop after a signal, then you must wait for a pullback.  If the market does not pull back that is not a signal failure.  That is under-capatilization.

Lcm pivots will be 80 % accurate on the daily chart.  So, if you are trading intraday 4hr signals or less, you should take your signals off the daily support/resistance levels or the accuracy will drop to 65-70% unless you are proficient in judging trend and volume.


Again, here I am not trying to teach you the course but, to point you in the right direction...

jerryjstew@fyahoo.com
jerry@forextradingmajic.com 

DAILY PIVOTS

EURUSD

GBPUSD 

EURJPY 

GBPCHF 

CHFJPY 

NZDUSD 

EURGBP

JERRYJSTEW@YAHOO.COM
JERRY@FOREXTRADINGMAJIC.COM