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Chapter 19, Part I. Harmonic Approach to Recognizing a Trend Day Page 3

Discussion in 'Complete Trading Education- Forex Military School' started by Sive Morten, Dec 21, 2013.

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  1. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Identifying a trend day continued

    The major deceit and cunning from the market in a trending environment is that most people think that market has risen too high or it has fallen too low depending on the direction of the trend. They think that this is 100% excellent possibility to enter against the trend, because market just can’t move any further, since it has passed so large a distance already. As a rule this way of thinking leads to solid losses. In a trending period the market could go further…much further. If you’re an intraday trader and trade some short-term periods, say 5-15 min charts, you should be aware of the start of a trend in any time of the day, so as to finishing of the trend soon. Other words, trends could be short-terms or long-term. Sometimes a trend holds during whole trading session or even longer, but sometimes it takes just some part of a trading session.

    1. Open gap. This is not very typical for Forex market, since it 24-hours trading and it has no close during the week and more common, say, for settlement commodities sessions or equities. But on Forex this situation could appear on Sunday (or Monday, depending on what time zone you live in), when the market really opens after the weekend. A gap is a difference between the closing price of the previous trading session and the opening price of the next trading session:

    Chart #1 | 60-min EUR/USD Gap at Monday’s open
    [​IMG]

    Later price has returned in that area and filled up the gap – this is the most common scenario. But on commodities and equity markets, gaps could stay unfilled for a long period of time and create strong areas of support or resistance.

    So if we drop our time frame to a 5-min chart, then this gap will be early notification of a potential short term down trend:

    Chart #2 | 5-min EUR/USD down trend has started from gap on Monday
    [​IMG]
    But most important, is that price has not filled up the gap totally. See – it has tried to return back and fill it, but couldn’t do this. This is the first notification of a potential trending day. Appearance of a gap tells us that there is some imbalance in price.
     
    #1 Sive Morten, Dec 21, 2013
    Lasted edited by : Apr 17, 2016
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