Sam Seiden
Independent Analyst
I have seen and heard from many new traders who buy right at or near the high of the day or sell at or near the low of the day and then can’t believe the outcome. Either their strategy rules or their emotions had them entering the market at the worst possible price, which is obviously not ideal. The focus of this piece is to understand why this happens and how we can, not only correct, but also start to profit.
As I mentioned above, there are really two reasons someone would buy at or near the high of the day. One is because some good news came out, the market rallied to a new high and traders who focus on fundamental information bought or sold because they thought the market was going higher. The other is because they are momentum traders. If you have been trading for a while, you have probably noticed that most momentum style trades fail, and there is a reason for this.
Live Trading Session: 2/8/18: British Pound Futures
Let’s use a recent trading opportunity found in our live trading room, the Extended Learning Track (XLT), in the Pound Futures market. Notice the supply level in the upper left part of the chart. Our strategy rules tell us Banks are big sellers at that level. Notice when price rallies strong back up to the supply level. This happens because novice buyers see price shooting higher (momentum) and they end up buying after a big rally in price. What they ignore is that they are also buying at a price level where Banks are selling. When this happens, the outcome of price is fairly certain.
The Bank (or smart trader) wants you to think that price will break out and run higher so that you will buy into that momentum. The game is to buy low and sell high, which means finding someone that will buy from you at much higher prices. The reason price declined so fast and far from supply is because buying that momentum was the real sucker bet. There were few buyers left and plenty of Bank supply which means a strong decline in price and a profit for us (those on the other side of the momentum trade).
The next time you are thinking of buying into momentum or shorting a break down in price, make sure you look to the left and see what price is moving into. If there is fresh supply or demand at that level, you are likely better off taking the opposite position of the move. Always ask yourself if what you’re doing is in line with how you make money buying and selling anything.
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Editors’ Picks
EUR/USD holds lower ground near 1.1850 ahead of EU/ US data
EUR/USD remains in the negative territory for the fourth successive session, trading around 1.1850 in European trading on Friday. A broadly cautious market environment paired with modest US Dollar demand undermines the pair ahead of the Eurozone GDP second estimate and the critical US CPI data.
GBP/USD keeps losses around 1.3600, awaits US CPI for fresh impetus
GBP/USD holds moderate losses at around 1.3600 in the European session on Friday, though it lacks bearish conviction. The US Dollar remains supported amid softer risk tone and ahead of the US consumer inflation figures due later in the NA session on Friday.
USD/JPY rebounds above 153.00 ahead of US inflation data
USD/JPY stages a comeback and regains 153.00 in the Asian session, snapping a four-day losing streak amid some repositioning ahead of the US CPI report. However, expectations that Japan's PM Sanae Takaichi could be more fiscally responsible, along with bets that the BoJ will stick to its policy normalization path and the risk-off mood, could support the safe-haven Japanese Yen, capping the pair's upside.
Editors’ Picks
EUR/USD holds lower ground near 1.1850 ahead of EU/ US data
EUR/USD remains in the negative territory for the fourth successive session, trading around 1.1850 in European trading on Friday. A broadly cautious market environment paired with modest US Dollar demand undermines the pair ahead of the Eurozone GDP second estimate and the critical US CPI data.
GBP/USD keeps losses around 1.3600, awaits US CPI for fresh impetus
GBP/USD holds moderate losses at around 1.3600 in the European session on Friday, though it lacks bearish conviction. The US Dollar remains supported amid softer risk tone and ahead of the US consumer inflation figures due later in the NA session on Friday.
Gold trims intraday gains to $5,000 as US inflation data loom
Gold retreats from the vicinity of the $5,000 psychological mark, though sticks to its modest intraday gains heading into the European session. Traders now look forward to the release of the US consumer inflation figures for more cues about the Fed policy path. The outlook will play a key role in influencing the near-term US Dollar price dynamics and provide some meaningful impetus to the non-yielding bullion.
US CPI data set to show modest inflation cooling as markets price in a more hawkish Fed
The US Bureau of Labor Statistics will publish January’s Consumer Price Index data on Friday, delayed by the brief and partial United States government shutdown. The report is expected to show that inflationary pressures eased modestly but also remained above the Federal Reserve’s 2% target.
A tale of two labour markets: Headline strength masks underlying weakness
Undoubtedly, yesterday’s delayed US January jobs report delivered a strong headline – one that surpassed most estimates. However, optimism quickly faded amid sobering benchmark revisions.
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