Global Prime: Daily Market Digest

[IvanGlobalPrime]

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Qualifiers You Must Know To Call Support & Resistance Like a PRO

In this article, I am going to dissect a paramount concept in trading. Independent of the asset you are trading, most traders should care about it. I am referring to the selection of high quality support/resistance. This is my go-to guide to determine how to pick the SR areas of most significance where decisions will be made.

Why static horizontal areas are so important?​

The reason lies in the ability we all have as traders to easily eyeball where these areas are located in the chart. This makes such horizontal areas the most universal form of reference for participants to use. It also makes the selection of these battlegrounds objective in nature as the market can easily agree on the location.

As a result, horizontal support and resistance areas act as a magnet to attract and repel prices due to the liquidity that resides near-by. Since every participant can spot the whereabouts, it is precisely at these junctures where the larger share of stop placements will be found, which creates pools of concentrated liquidity, hence areas of interest worth fighting for.

Accounting for these dense layers of orders stacking is absolutely essential for large players with a need to transact hundreds of millions of dollars either on behalf of their clients or for purely speculative purposes. Besides, areas of support and resistance become the bread and butter where market makers will look to intervene in anticipating of rotational movements.

Have you ever asked yourself, what would happen if large sums of capital were to be transacted around thin liquid areas? Plain and simple, big players would be shooting themselves on the foot by getting poor entries. Why is that? Because the lack of counter-parties to fill in their orders would lead to average entry prices that are far from ideal.

An option widely used is to split up large orders into fractional blocks (smaller lot sizes) to disguise the big core positions, what’s referred to as iceberg orders.

That’s why major players are especially active around these areas of high liquidity. The viral and often misunderstood term of stop loss hunting is simply a by-product of the normal market dynamics in need to seek out pockets of relevant liquidity concentration. Thinking that these players are there to get u is nonsense. Liquidity is the oxygen of every large player, it’s essential to have them involved at the size of trades they intend to. There is no better place for large players to get involved than at the areas this article will teach you to identify.

Factors in the selection of support and resistance​

I’ve listed below the different factors and concepts that will assist trades in identifying high-quality horizontal support and resistance areas. While drawing the right areas of horizontal support and resistance can be quite discretionary at times (not an exact science), the list below offers a guide to make the task more objective and quantifiable.

Let’s put a debate to bed: Areas vs levels​

We tend to see the camp of traders endorsing the drawing support and resistance taking the candle closes as reference. Then we find the camp that tends to select the tails to draw support and resistance from. There is no right or wrong. What matters here is to understand the concept of liquidity to approach charts from the right perspective. The market often will distribute pools of liquidity at different intervals. Therefore, if you think horizontal support and resistance can be represented by the close of the candles, you are right. If you think about the tail and beyond as an area rich in liquidity, you are also right. Bottom line? It’s a holistic approach where you must account for both. This makes support or resistance based on areas the most optional visualisation technique as the premise here is than liquidity gets distributed and consumed within broad regions.

Top-down: Don’t lose sight of the forest for the trees​

The higher the time frame, the more relevant the area of support and resistance identified becomes. You must think about the top-down order of timeframes as dissecting the anatomy of a chart by studying the structure of its parts. As we move up in time frames, each candle contains greater amount of information. What this translates into is that the higher we go in identifying support and resistance area, it will invariably represent an opportunity by major players to find larger and larger pockets of liquidity to fill in their orders at the best average prices. Now, this final piece of advice is key. To limit the risk of suffering analysis paralysis, which is nothing else than an overdose of information, you should be pragmatic by looking to select these areas in a handful of time scales. A good rule of thumb tends to be a multiplier of 3 to 6. For instance, you can select your go to timeframes as the daily, the 8 or 4 hours and from there go down into the 30m or 1h.

Zoom out not to miss key data point​

You must go through the process of selection support and resistance areas by squeezing the charts so that you can visually identify the maximum number of interactions a particular area has exhibited in the past. It takes screen time and training your eye just like any intellectually challenging and technical endeavour. That said, anyway you slice it, it all starts from the very foundation of the ability to get enough data points of reference. It’s often said that history doesn’t repeat but will often rhyme. This too applies to areas of support and resistance. By zooming out the chart, it therefore help us to develop a much-needed eagle-view of a chart’s history.

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Recency: Markets adapt based on new information​

The more recent the formation in the make up of a new horizontal area of support or resistance, the more relevance to potentially assign. The markets are constantly evolving by adapting to new incoming information, that’s why the further back a support or resistance goes, the less relevance potentially holds. An area in the hourly chart that was formed 10 days ago may not hold as much relevance as one that just occurred in the last 24 or 48h. At the end of the day, it’s important to take a holistic approach by accounting for both the recent activity as the heavyweight barometer, but at the same time, understanding how many times in the past this area has also acted as a turning point, what’s achieved, is liquidity still likely to reside there?

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Velocity: Intensity of the supply/demand imbalance​

How impulsive the price departs a specific region will determine to a certain degree the quality of that area on a retest. The more impulsivity or velocity away from the onset of a support or resistance formed, the more pronounced the imbalance of supply or demand. That’s a universal principle of supply and demand that all market participants will immediately agree on. This leaves a distinctive residual supply/demand imbalance trail. The stronger the departure, the higher the interest may be to re-engage in these areas on a retest. The factor of impulsivity is one of the main aspects that adds credence to calling a quality support and resistance.

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Freshness: A measure of the residual demand/supply​

The first test of the backside of an SR tends to be the most powerful as it’s that first test that still occurs within the context of a developing trend and supportive market structure most likely. There is a psychological component as well whereby those that were looking to buy/sell at that SR recognise they were wrong, so the aim is to mitigate position which ignites the reversal on a 1st retest. The more times the level is tested, the more dubious the market structure becomes and the more we potentially exhaust the liquidity at that level.

Accomplishments of the price movements​

How the price departs from a specific price point. However, the impulsive departure is just one aspect that adds credence to the area of support and resistance. The second important component is how much ground did the creation of this static horizontal area of support or resistance gain? Don’t get caught up in one qualifier alone, the holistic nature of technical analysis is key.

What invalidates a support or resistance area ​

As important as it is to select an area of support or resistance where we anticipate a potential change in direction, it’s also cardinal that we come up with some rules to invalidate it. To determine that, the concept of acceptance and rejection above or below these areas is the most effective calibrator. This is the rule that I personally apply to dim a support or resistance as compromised. In fact, despite recognising that support and resistance should be treated as areas vs lines, if I can pinpoint a specific level where price failed to close beyond in several occasions followed by an ultimate close violating that well defined level (on a closing basis), that tends to be sufficient evidence to speculate on that SR compromised and start to be tradable on a retest.

Trade horizontal areas in line with market structure​

The best trades you will ever find off horizontal areas should occur in line with the dominant market structure. Therefore, you must constantly ask yourself if the retest of a good quality area of support or resistance happens to be under the right context. We should interpret the term context as whether or not the market structure is favourable for a potential rejection of the area or does the current contextual setting heightens the risk of a support or resistance failing to hold.

Closing note​

These were the main qualifiers to filer out the wheat from the chaff when it comes to the selection of quality support and resistance areas. The next logical step is to go through any chart and start practising the identification of these high areas of interest. I will reiterate that the more you practice this routine, the better you’ll the areas from which to calibrate your risk reward.

 

[IvanGlobalPrime]

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Why Coinbase Listing Is Such A Big Deal

The cat is truly out of the bag. From old school stock traders to the average Joes of the world, it’ll be hard to ignore how monumental Coinbase listing is. It represents a landmark moment where the ‘old guard’ of traditional finance welcomes the new cool kid with ‘blockchain’ tattoos on the block. Something once thought to be an impenetrable wall. It really is such an inflection point in the awareness and future adoption of cryptos. Why? In this article I lay out my thoughts on the reasons that make it such a big deal.

Mind-blowing valuation off the gates​

Coinbase direct listing defies gravity through its exorbitant $100B ballpark valuation. How is that possible? Well, it’s a company that in Q1 2021 alone generated $1.88B in revenue, it on-boarded an outrageous number of new clients, plus it enjoys over 6 million of monthly transacting users. Coinbase’s client base makes a mockery out of other disruptors in the space the likes of Robinhood and other big players. If you are interested to dig deeper into the less obvious details about the recent Coinbase earnings report, this blog post by Ellie Frost is a must read.

Other crypto exchanges may follow​

The big dogs in the industry the likes of Binance, FTX, Kraken, are starting to make the right type of noises. In fact, it’s been reported by Bloomberg that Kraken has been aggressively soliciting new investment in an attempt to double the current $10 billion valuation. Others like FTX’s CEO Sam Bankman-Fried have already provided a sneak peek via Twitter of what the company might be worth. This suggests to me they may be entertained the idea of going public down the road now that Coinbase is setting the ball rolling.

Spillover into broader crypto sector​

Dan Held, one of my favorite Bitcoin thinkers, writes that the effect of the Coinbase listing is likely to see a surge in the overall valuation of crypto companies (wallets, custodians, etc) due to the organic upswell of users. The rounds to raise new capital by all these companies will become more frequent and legit as the space grows exponentially. It’s a self-reinforcing dynamic.

Legitimises Bitcoin to accelerate adoption​

With Coinbase and other crypto-related companies going public, it undeniably brings a new level of trust and legality into the industry. The more an asset class finds this legitimacy, the more the adoption curve accelerates. History provides clear examples of this exponential S curve growths in the penetration on the mobile phone or the internet. Let’s not forget for a second that Coinbase is the primary gateway of a pretty hefty percentage of all crypto activities in the marketplace. Coinbase business nature blending in with traditional markets is simply huge.

New type of investors to join​

The offering is expected to be a watershed moment for cryptos as new investors not having skin in the crypto game take notice. Some investors don’t want to have direct exposure through Bitcoin but may be happy to do so through a publicly-listed entity. Others simply can’t for regulatory reasons. This float opens the floodgates to a new facet of investors.

Friendlier regulatory landscape​

Besides, the listing will be the final admission that validates the industry as a whole and lessens the risk of hostile regulatory actions. As the financial world moves in tandem with the common interest to see the industry grow given the lofty levels of involvement by institutions, the bar is set higher for regulators to shake up the industry. The truth is that the more the total market capitalisation rises, the more legitimised the industry becomes. Plus, each big player brings with them an army of lobbyists ready to influence the regulatory environment in a positive manner.

Reinforces narrative of Bitcoin as store of value​

Bitcoin’s purpose in an investment portfolio can be as a hedge against inflation, as a volatility calibrator given its non-correlated nature, as an alpha-generating bet, as an alternative against the debasing of the dollar and the exorbitant amounts of government spending and government debt, etc. Regardless, the one narrative that Bitcoin best embodies is to be a safe-haven asset. Other forms of value storage such as real state, bonds, currencies, art, you name it, still run capitalisations in the tens of trillions.With such an acceptance by the global investment community, emboldened by Coinbase listing and the network effect it creates, Bitcoin stands to win by absorbing a total addressable market in the tens of trillions.

Slow dissipation of the critics​

Unless these people have no limits in how much they want to discredit themselves, the Coinbase listing can cause that such die-hard critics who consider Bitcoin worthless and destined to ‘go to zero’ get to slowly either change the tone or go radio-silent. Since these people may have an army of followers, that may too support the transitions from the laggard non-believers into believers.

Coinbase listing in line with Crypto principles​

The icing on the cake is the type of listing Coinbase has chosen to proceed with. Instead of a traditional IPO (initial public offering), they’ve gone down the route of a direct listing approach. What’s the difference, you may think. Well, it bypasses investment bank underwriting. This is a clear indication of all the virtues such as decentralisation, disruption that blockchain embraces. What this means is that by adhering to such principles, it reinforces the notion to be perceived as a “crypto people’s exchange” as opposed to evil or traitor succumbing to traditional proceedings. This is sure to please the surging crypto community, which let’s face it, such conglomerated facet have become a powerhouse to influence the pricing. Ask Tesla short if in doubt.

To sum up, whatever the scenario that plays out, Coinbase is just a few hours away from being the new kid on the Nasdaq block that gets to hang out with the traditional financial peers. Quite a feat and certainly hard to envision just a year or so ago at the peak of distrust and negativity in the crypto market amid the COVID drama. Welcome to crypto, where things move at light-speed.

Such a fascinating time to be alive!

 

[IvanGlobalPrime]

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Efficient vs Inefficient Markets: How To Tell The Difference?

Courtesy of the avalanche of levered-longs in recent weeks into the crypto market, alongside some negative newsflows in relationship to a sudden drop in BTC hash rate, we saw one of the most epic long liquidation episodes that the BTC/USDT chart has ever recorded on Sunday. To put the numbers into perspective, check below the ‘jaw dropping’ stats where over usd 9bn got rekt.

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Source: https://www.bybt.com/pro/futures/LiquidationData
After such a violent washout of irresponsible longs in the crypto space, the BTC/USDT chart in particular ended up printing an outrageously disproportionate outsized candle as illustrated below. The capitulation-type movement from the latest all -time high circa 65k down towards 52k represented a sudden drop of value to the tune of 21-22% depending on the exchange BTC was traded.



So, in today’s lesson, I am going to make the distinction between what an efficient market looks like vs an inefficient one. I have no hesitation in sticking out my neck by stating that after the move that just happened, the BTCUSDT chart shows signs written all over the wall of a very inefficient move. Drawing this conclusion is key to understand what may come next.

Source: @edwardmorra_btc
In the left illustration, we can clearly see one candle standing out amongst the rest. That’s the first factor to qualify a market as inefficient. Secondly, identifying the main the narrative that led to such a drop is key.

In the case of Bitcoin, being a market with so much public access to data analytics, it is clear that the move was fuelled by a cascade of self-feeding sell stop triggers loop, combined with what appeared to be a brief spell of panic amid the drop of hash rate in the BTC network due to the blackout in a few Chinese counties that concentrate high mining power.

As a consequence, and having come to grips that no fundamental news warranted to act as a ‘meaty’ price disruptor, we can conclude that the market’s behaviour was highly inefficient. This tends to result in the move being filled back as a function of the price discovery.

In a way, it can be seen as an artificially inflated move caused by factors hardly able to sustain the overstretched valuations. In fact, a factor that I find to be very deterministic to judge a move long-lasting/sustainable and that ties nicely into what an efficient market looks like is ‘price acceptance’.

So, as we shift into the right-hand side illustration, what peculiarity in the price action chart do you notice that is distinctively different? Generally, there is no one single candle that sticks out, certainly not the way the left shot shows. What this constant rhythm and relatively even-sized candle formation tells us is a market that behaves much more efficiently.

Why? Because every time we make a new phase of price discovery, the bids and offers keep balancing out at lower prices. This ‘price acceptance’ is what’s required to initially build a new area of equilibrium. The more time that price spends at this newly-discovered price while consuming and filling orders, the stronger the argument to sustain the directional move.

To sum up, today’s lesson can go a long way in helping you understand the future behaviour of any asset class. It all starts by asking yourself the right questions. This brief article intends to shed some light on the key components that you should be looking at to truly grasp if the movement seen is justified or out of whack. An inefficient market tends to be a weak one to hold its trend.

 

[IvanGlobalPrime]

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The Weekly FX Edge: Technical Outlook​

Welcome to The Weekly Edge report, a technically-oriented newsletter aimed to help traders better navigate the FX markets with the assistance of unique research and unbiased market analysis.

Top Level Summary​

The main theme in FX continues to be the weakness in the USD. Buyers’ hopes to see much of a recovery were inflicted a further blow by last week’s close. This still makes me largely bearish in the US Dollar. On the contrary, I am expecting dip buying interest in the Euro given the close it accomplished last week. The Canadian Dollar is also looking extraordinarily strong after an impressive absorption from a deep pullback last week. The Kiwi has joined that bullish party and the Aussie might too soon enough. This leaves the tight ranges in the CHF and JPY vulnerable to an ultimate breakout lower, especially on the latter, not as linked to the price action of the EUR as the CHF tends to be. Lastly, the GBP bulls are at risk of giving up near term.

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Video Analysis​

In the video below, I distil the technical outlook in the main Forex indices. These views tend to be relevant and actionable for the members of my mentor room the following week of price action. Humbly speaking, I am yet to find other traders that conduct the technical study of currency indices on an equally-weighted basis as taught in the Academy course.

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Forex Indices Break Down​

If you are interested in a deeper dive into my prop equally-weighted indices as a true teller of the performance of each G8 FX currency, then keep reading…

EUR Index – Dip buying eyed​

The steady downtrend was truncated last week after what’s commonly known as a bullish outside weekly candle. While the bearish momentum had already been faulting, as depicted via the SMT indicator, last week’s bullish price action solidifies the shift of trend as the EUR achieved a close above a major structural resistance area. It did so with a close on the upper 90% percentile, which essentially translates in robust buy-side pressure as sellers finally give up. With the structure and momentum bullish, the prospects to encounter solid dip-buying this week is there. Should this eventuate, there is quite some room until the next weekly resistance. This bullish profile would be invalidated should the index close back below the structural resistance.

CHF INDEX – In range mode​

By squeezing the chart far enough, you can probably understand why the Swissy bounced from the level it did. Not only it aligned with the late ’19 swing low, but it also coincided with a symmetrical projection target of 200% from the bracketed area broken earlier this year. The eruption of demand from the lows, however, has encounter sticky resistance at the previously penetrated 100% projection target, further re-affirming the relevance of this level as a key inflection point in the chart. Ever since, sideways action has been the norm with a resolution outside of the current tight box a pre-requisite for technicals to unravel and gain clarity. Until that happens, this is not a market offering a clear technical read to capitalize on in my view.

USD INDEX – Strongly bearish​

Last week marked yet another blow for the interest of sellers as the price closed below a critical level of support. If we go back to the range in dominance earlier in the year, the level USD sellers just cleared represents a key battle ground. Once this area is broken, it has a history of acting reliably well this year as a turning point for the market. What this suggests is that unless the level is re-taken on a weekly closing basis, the path of least resistance appears to be clearly skewed towards a retest of this year’s low. Both momentum and structure do agree.

JPY INDEX – Consolidation at trend lows​

A tight range for the last 2 months is what we’ve had to contend with. As in the case of the CHF, we are required to find a resolution outside of the box before clarity is re-gained. Judging by what’s unambiguously been the strongest trend this year, the odds continue to be stacked for a break lower in line with such steady pattern of Yen depreciation this year. Also, it’s worth pointing that as I reiterate many times, the previous 100% projection target, first tested and rejected, is now acting as backside resistance after being broken in late February. Never underestimate it.

GBP INDEX – Encountered sellers’ stronghold​

The odds for the near-term path to be skewed towards the downside are increasing. This is predicated on the basis that not only a major resistance line got tested with a resounding failure as sell-side pressure overwhelmed buyers, but the retest of that point of origin where the supply imbalance was initiated has seen a second rejection off higher levels. This clearly communicates to me that buyers’ hands are weakening as it reinforces the sellers’ stronghold. I can foresee further follow through until the next support over 1% below last week’s close.

CAD INDEX – Uptrend resumes​

The heavy buy-side absorption seen last week was a precursor of what might be to come should buyers break the previous week’s high. Well, that’s happening only 24h into the new week. This aggressive buy-side action is re-setting in motion a targeting of the previous trend high. Not surprisingly, what marked the trend high (on a closing basis), was once again a symmetrical target. With the validation of a renewed buy-side campaign underway, any dips should be seen as buying opportunities this week.

AUD INDEX – Range breakout?​

In the big picture, the Aussie remains one of the darlings of FX. The fact that it found a lofty and lengthy consolidation not far from a multi-year trend high is a testament of that. This acceptance suggests that the risks are building up for an eventual break into higher ground. Should this even occur, an initial appreciation of about 1% more or less could be expected.

NZD INDEX – Resistance eyed​

There is very little in the way that may obstruct the NZD from further appreciation until it meets its next resistance line. This is where the next tug of war between buyers and sellers will happen. In light of the structure and the momentum that keep carrying the Kiwi higher, I can’t see how sellers can exert that much pressure to prevent an extension into higher ground. This view is reinforced by the failure to break any structural pivot points on the way down when the currency encountered sell side pressure a few weeks ago. Looks pretty rosy for the Kiwi.

 

[IvanGlobalPrime]

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FX Weekly Edge: USD In Trouble​

Welcome to The Weekly Edge report, a technically-oriented newsletter aimed to help traders better navigate the Forex markets with the assistance of unique research and unbiased market analysis.

Top Level Summary​

The main take away from this week’s analysis is the validation of bearish phases in both the USD and the JPY. This is inevitably building up the case for an eventual breakout in the most risk-friendly currencies the likes of the AUD or NZD. Interestingly, while such technical rhetoric should bode well for the CAD, a slowdown makes sense if one considers the level it hit. The EUR and the GBP remain within the confinements of ongoing range patterns while the CHF’s recent strength looks capped too.

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Video Analysis​

In the video below, I distil the technical outlook in the main Forex indices. These views tend to be relevant and actionable for the members of my mentor room the following week of price action. Humbly speaking, I am yet to find other traders that conduct the technical study of currency indices on an equally-weighted basis.

---

Forex Indices Break Down​

If you are interested in a deeper dive into my prop equally-weighted indices as a true teller of the performance of each G8 FX currency, then keep reading…

EUR Index – Doing what it does best, range-bound…​

Ever since the steady downtrend from Jan-March was truncated on the back of a bullish outside weekly candle, the index has ping-ponged between a level of resistance and one of support. This has left behind a market with a range structure and fading momentum. Last week’s doji-like candle solidifies the current messy affair price action-wise. This makes the Euro a currency best traded around the edges if thinking about the most bang for one’s buck. Without any discernable directional bias, you won’t go wrong looking elsewhere for opportunities.

CHF INDEX – Relentless dip buying but…​

It’s important to remember why why bounced from the area we did. The historical data sets in this chart will provide the answer. Not only it aligned with the late ’19 swing low, but it also coincided with a symmetrical projection target of 200% from a bracketed area broken. Fast forward, the Swissy has appreciated more than 2% with the most recent price action a clear statement of what dip-buying looks like when encapsulated within a weekly candle. Each and every setback has been consistently bought. Unfortunately, there doesn’t seem to be that much upside left for bulls until faced with a ridiculously strong resistance area as per early Jan structure low. Limited upside in my opinion.

USD INDEX – Lowest close in 3+ years…​

Yet another blow for the interest of buyers as the weekly price close represents the lowest February 2018. All elements framing my directional thesis are screaming sell-side as the predominant bias here. I think is just a matter of time until a fresh 2021 low is printed. Last week’s candle registered the most losses since November last year with a close completely absent of any dip buying. Conviction in the USD is very low. This in my book translates in the momentum inertia alone taking us lower. Once 2021 low is broken, watch for an acceleration.

JPY INDEX – Range truly left behind…​

A tight range for the last 2 months is now history. What this potentially means is that the market looks ripe to embark upon the next bearish phase with an initial target about 1.3% lower from the weekly open price. Shorting the Yen has been unambiguously the strongest trend to jump on this year, which only reinforces the notion on the odds continue to be stacked for a continuation lower to the next projected target.

GBP INDEX – Not a whole lot of clarity…​

I personally cannot assign any strong conviction to this week’s directional bias based on last week’s price action. As in the case of the Euro, the Sterling appears to also be navigating through its own contained range formation. This dynamics have become even more clear following 3 out of 4 weeks where the topside has been capped by what’s turned out to now constitute the mid point of a broad range. This clearly communicates to me the sellers’ stronghold at this vicinity, which must be reconciled with the overall bullish structure and momentum. A complicated puzzle to resolve near term until the trader is fed with more data points. Still, the GBP appears to be strong enough to outperform some of the weakest links such as the USD or the JPY.

CAD INDEX – Potential top location…​

The heavy buy-side absorption seen a few weeks ago eventually led to a resumption of the prevailing uptrend. This aggressive buy-side action seen ever since has now met its next target a the March ’20 peak. What this means is that we’ve arrived at a well defined localized destination where an acceleration of profit taking activity may start to considerably slow down CAD’s momentum. The currency has been on an exceptional run but if history is any indication, building up on recent gains is going to get increasingly harder.

AUD INDEX – Range to contend with…​

In the big picture, the Aussie remains one of the darlings of FX. Beside, the fact that it found a lofty and lengthy consolidation not far from a multi-year trend high is a testament that this may have been simply a much-needed pause ahead of the next bullish phase. This scenario, however, will only be validated upon acceptance outside of the range on a weekly basis. With the USD and JPY both breaking lower in earnest, it suggests that the risks are building up for an eventual break into higher ground. Should this even occur, an initial appreciation of about 1% may be in store. This calculation, as usual, is predicated on the use of symmetrical patterns.

NZD INDEX – Buyers are going for it…​

There is very little in the way that may obstruct the NZD from further appreciation if it blows through the overhead resistance. Until that happens, be aware that buyers are going to have to battle this one through with conviction. However, I am starting to notice that dip buying into this resistance has eventuated, which suggests the heavy offers lined up above may eventually be consumed. The last 2 weeks worth of price action are revealing as we had an initial rejection off resistance followed by a bullish candle adding further pressure. I can’t see how sellers can exert that much pressure to prevent an eventual extension into higher ground. This view is reinforced by the failure to break any structural pivot points on the way down when the currency encountered sell side pressure a few weeks ago.

 

[IvanGlobalPrime]

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How To Visually Identify Volatility Cycles​

This article is intended to assist traders in the understanding of volatility cycles. I introduce a simple technical tool, derived off Bollinger's work, to add yet another filtering mechanism to determine when are the most optimal times to enter in an active trend.

Did you know there is a variation of the Bollinger band indicator that can be very useful to identify the two main cycles of volatility any market goes through? This tool is a great visual aid to tell us if we are in an expansion or contraction phase in volatility.

The indicator I am referring to is the Bollinger band width or BBW line. It essentially looks at the distance between the upper and the lower Bollinger band indicator. This is represented through the orange line in the upper pane in the EUR/USD 4h chart below.



It’s quite simple to eye-ball the chart above and decipher by the orange line alone that one of the most obvious characteristics volatility features is that is cyclical. An easy way to illustrate the cyclical nature of volatility is by the constant peaks & troughs.

Volatility rises and falls. When volatility rises (from some kind of external shock like news or other non-discounted developments) it eventually peaks and moves lower. When volatility starts dropping, it continues to drop until the next trough is found.

These peaks & troughs are a very well known dynamics that as part of the proprietary strategy I teach in my mentor room, we factor in. More on the use of it as a filtering mechanism later, but first, let me explain the secondary indicator overlaid in a yellow area.

You will notice, on top of the BBW line, I add a moving average and two envelopes. This addition serves my strategy really well in order to get a sense of the average volatility seen in the past X periods. We’ll call this the BBW mean area (colored in yellow).

It’s up to the trader to experiment with the periods. This will depend on your trading timeframe and how reactive you’d like this measure to be. For instance, if you trade off the 4h with an interest to capture the average volatility over 1 month, the 100-period is an optimal one.

So, what’s the rule I implement that results in strengthening the robustness of my strategy by accounting for volatility cycles?

When the BBW line in orange is at or below the BBW mean area, it represents an ideal period to look for trades in anticipation of the next expansionary wave in volatility. This is potentially the period of maximum reward as we anticipate the next volatility spike.

Psst! In cryptos this concept works phenomenally well given the volatility cyclicality different Alts exhibit.

When the BBW line is above the mean area, subject to having previously seen a higher peak in the BBW line above the previous one, it communicates that volatility has recently been on an expansionary phase and the risk is that it will keep dropping.

If history is any indication, the next expansion in volatility is unlikely to occur unless volatility first stabilizes. How do we assess that this stabilization has occurred? As a rule of thumb, I want to see the BBW line returning back into the BBW mean area.

The current volatility cycle in the EUR/USD 4h chart offers a very fitting example to illustrate this point. The pair has been knocked down to revisit what’s known as the control line in the main chart, which advertises a potential discount within the technical bullish trend.



However, by observing the BBW line, it shows a major spike in volatility above the previous peak. Besides, the BBW line remains out of whack, well above the BBW mean area. What is the this really communicating in plain sight?

It heralds that it’s quite frankly unlikely that we are going to see a resumption of the uptrend with a renewed pickup in volatility any time soon. When I say ‘any time soon’, I mean until volatility stabilizes. Remember, we must always think in probabilities.

If you deploy a swing-type strategy like myself, what I just described above is huge. Why? Because a key component in our technical read of the markets is to time the entries. Would you prefer to be part of a trend when the BBW line implies volatility has peaked or troughed?

I am personally looking to get in trends on the latter conditions. I know that if my entries are when volatility is well above the BBW mean area, the chances are that I won’t get the explosion of volatility I am after to get the highest reward at the earliest possible time.

I find this BBW concept described adds yet another layer of refinement to my strategy. The main point is that the BBW indicator is a nice fit to help me visually deduce when an entry faces sub-optimal chances of working out based on the story around volatility cycles.

 

[IvanGlobalPrime]

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ETH/BTC: The Chart That Speaks A Thousand Words!

In this video, I’d like to demonstrate the sheer number of insights that one can pull out of any chart if analyzed through the right lenses and experience. A chart can and does communicate a stream of almost endless stories.

 

[IvanGlobalPrime]

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Characteristics Of Weak Hand Players

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Weak hands is a pejorative term in financial markets that refers to speculators that are frequently wrong about their bets. Traders that fall under this category have predictive behaviors due to their inexperience or inability to control emotions just to name a few.

Traders characterized as weak hands apply patterns and strategies that more savvy players tend to exploit to their advantage. How? For instance, weak hand players act as a source of a strong hands’ needed liquidity to fill their orders at optimal prices with reduced slippage.

Whenever you see an acceleration move that eventually leads to a false breakout, this is one of the typical patterns I am referring to. These false moves typically have ‘weak-hands’ involved, and is a great way to illustrate the actions of weaker hands from the strong.

To exemplify the above, let’s look at the chart below. RUNE or ThorChain vs Bitcoin. What do you notice? The red dots are predictable areas where weak hand buyers would be shaken out, which ironically is a pristine location to jump on the trend. False breakouts (liquidity grabs).



At the end of the day, aside from fully automated systems where the decision-making process is delegated to an algorithm, weak hand manual traders are humans with a tendency to be influenced by their primal brain, which exhibits common behavioral patterns.

This inevitably leads to making decisions off emotional impulses where irrationality prevails. Too often, it results in weak hand players buying or selling at the very worst time. In other words, at or new the lows of a bear market or at or near the end of a bullish market.

When this happens, it doesn’t take much of a setback for these traders to be put upside down, panic and eventually take the loss, or worse still, suffer a margin call. When sentiment is extremely bearish, all weak hands can see is the fear whereas strong hands see opportunity.

Another common characteristic of weak hand players is that they fail to hold to the asset tightly with conviction. Instead, they chase “action” by actively buying and selling with little patience if price doesn’t fairly soon in their favor. And when/if it does, they take profits quickly.

Unlike weak hands, the strong type can buy at different price intervals due to the sizeable capital allocation, risk control parameters, all well aligned within a plan of engagement. This plan can be based off fundamental valuations and/or technical analysis.

Besides, whenever strong hands experience a drawdown, they typically tend to have sufficient resources at their disposal to weather the storm and handle it due to the account size, use of options as opposed to tight stops, or active hedging strategies.

Weak hand players fail to read the market’s ebbs and flows. They are yet to learn powerful concepts such as discounted entries, liquidity grabs, balanced risk exposure, risk reward prospects, and a plethora of other factors that without it, it undermines positive outcomes.

Another common feature of weak-hand players is that they are not nearly as equipped in the intel domain vs what gets to be deployed by market makers and seasoned traders. The latter leverage off all type of technological advances as a source to enhance their market edge.

Strong hands can also be an unshakable force due to market manipulation. This is a known practice whereby parties can become strong hands because they have access to privilege information that allows them to corner a market and accumulate an asset through systematic buying over days, weeks, or months at the expense of the little retail traders that gets constantly whipsawed.

To summarize, we understand weak hands as traders led by emotions and easily shaken out of their position for various reasons, predominantly revolving around inexperience and/or inability to handle the psychological game. This makes them an easy pray to be hunted down by the stronger actors.

 

[IvanGlobalPrime]

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State Of Cryptos: High-Altitude Outlook

Top Level Summary​

Having let the charts communicate the story, the most clear-cut read I am getting is that BTC/USDT looks ripe for further losses in the coming week. This has become my baseline after an aggressive bearish candle compromising its structure. This results in having to reconcile where this leaves us in the Alts space as Bitcoin dominance is depressed in the 40% mark with a compelling case to soon see a reversal. Interestingly, should this inflection to a higher Bitcoin dominance eventuate, will this also come at the expense of a lower ETH? Charts like the total market cap including or excluding BTC are still painting a rosy picture. When I look at ETH/Alts, it also reveals an interesting narrative of further outperformance by Ethereum. Could this be an environment of ETH dominance as it takes a larger share of the pie?

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Video Analysis​

In the video below, I distil the technical outlook in the various crypto instruments that make up my macro thesis. These views tend to remain relevant and actionable for the upcoming week and is an essential part to calibrate my risks appropriately.

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What type of story the market is telling us?​

If you are interested in a summary of the video above, then keep reading…

BTC/USDT – Bearish structure validated​

• The sequence of lower highs and lower lows has finally been confirmed.
• The close below the previous higher low heralds more pain ahead.
• The weekly bearish candle carries the highest volume since Feb 22.
• Bull candles off the weekly have failed to meet the volume average since early Feb.
• A conservative target to aim for is ~ 42k, with 38-40k moderate or even 35k (100% proj target)

BTC Dominance – Potential inflection point reached​

• The first premise is that BTC.D tends to find the most meaningful turning points at or nearby round numbers (see circles outlined).
• We’ve seen a dramatic reduction from 60% to 40% in just 2 months (totally unsustainable).
• We just touched the 40% mark with the level coinciding with a 100% measured move (symmetrical projection).
• Since the break of 50%, the following 3 candles have exhibited increasing volatility.
• Top or bottom tend to be found when volatility spikes significantly. The last weekly candle starts to fit this logic.
• If history is any indication, after 50% gives in, run in Alts at or below 40% hardly lasts 1 month.
• We could still drop to 35%, which would still be just 5% below this predicted bottom.
• The chances of a bounce back to 50% before a break and hold below 35% are substantially higher in my opinion.

ETH/USDT – Bullish but overextended?​

• Relentless bull run streak into new all-time highs after 6 weekly bull candles ends.
• There is room for further setbacks towards the reliable 13ema (confluent with SR flip).
• Overall, one must remain very constructive in Ethereum even if pricing advertised out of whack.

ETH/BTC – Confluent resistance hit, caution warranted​

• Horizontal resistance dating back to May 2018 has been finally met.
• High in current bull run has also landed at the 200% symmetrical target.
• If history is any indication, 7 weeks of consecutive gains has been unsustainable.
• The price has reached extreme valuations near-term as depicted by a distance of 70% from the 13ema.

Market Cap – Up the stairs steadily​

• While BTC keeps struggling, the market cap remains in healthy conditions.
• Each and every support (structural or local) being respected.
• No reason to think we won’t continue higher exploring new highs.
• Lots of absorption on the latest weekly dip bodes well for the overall market cap.
• This run is obviously fueled by ETH and the Alts complex.

ETH/Alts – Big statement of intent by bulls​

• Ethereum ends as the real winner against the Alts complex after recently taking out a huge resistance with a backside retest now.
• The breakout occurred in higher than normal volume, which adds credence to the bullish rally we are seeing.
• A period of further ETH outpeformance against the broader Alts space is my base case based on this price action.

 

[IvanGlobalPrime]

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The FX Weekly Edge: Context Is King​

Top Level Summary​

The main takeaway by aggregating the performances of the G8 FX currencies is the ongoing amplitude of movement by the CAD. It’s also worth highlighting that the US Dollar continues to trade very fragile on the verge of a what may constitute a very important technical break. Should this occur, the next phase of USD weakness, lasting weeks if not months, may be upon us. Not yet validation though. The Yen is another currency that looks poised to extend further down. Other markets are quite choppy with the GBP another standout performer even if it’s now revisiting an area that has proven to act quite reliably for the interest of sellers. To get all the details, keep reading…

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Video Analysis​

In the video below, I distil the technical outlook in the main Forex indices. These views tend to be relevant and actionable for the members of my mentor room the following week of price action. Humbly speaking, I am yet to find other traders that conduct the technical study of currency indices on an equally-weighted basis.

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Forex Indices Break Down​

If you are interested in a deeper dive into my prop equally-weighted indices as a true teller of the performance of each G8 FX currency, then keep reading…

EUR Index – Eternal sideways action​

Price action in the Euro keeps validating the notion of a market going nowhere. The valuation has been well anchored within well defined parameters, gyrating up and down within the confinements of a 1% established range. Until the conditions evolve into a discernable directional bias, you won’t be blamed looking elsewhere to pick the most lively currencies to trade. The advantage of picking the EUR as a proposed long idea, nonetheless, originates from the stability it exhibits within this range.

CHF INDEX – Have we reached a top?​

On the back of the rebound away from the late ’19 swing low + symmetrical projection target, the CHF has made it all the way back towards the origin of a strong supply imbalance from late February. These are typically areas where the price tends to show a response. I’ve outlined in a magenta area what could signify a projected top. In this region, buyers are faced with the mentioned supply + a structural previous low that is undoubtedly going to become a strong resistance. This reinforces the credence of the area to act as a role reversal location. Besides, this rise remains very corrective in nature, well depicted by the velocity of the candles, the amplitude of moves, structure and momentum.

USD INDEX – Playing with fire at the lows​

Last week I reported how much of a blow was for the USD to accelerate so rapidly into its trend low. Well, it’s not looking any better, as a punchy bounce in the last weekly print was welcomed with a sizeable absorption as portrayed by the wick. The currency is really on the brink of breaking loose should the area of macro support be compromised. So, either this is the location of maximum opportunity to long the currency or the pain the currency may undergo might be quite substantial based on the importance of this support level. I sit on the latter camp. I think is just a matter of time until a fresh 2021 low is printed. Again, once 2021 low is broken, watch for an acceleration.

JPY INDEX – On course to further downside​

With the previous range left behind, the projected path of least resistance keeps playing out. The current ongoing bearish phase still has further to go until the first initial target. Shorting the Yen has been and continues to be a solid play. Notice, it has been, for the most part, the strongest trend to capitalize on this year, so this obviously draws more and more capital into the asset providing the best prospects of return.

GBP INDEX – Resistance hit, big momentum behind​

The short term dynamics in the GBP have certainly turned more alive. We’ve quickly transitioned back up to revisit a sticky resistance after a 1.5% acceleration. Remember, this resistance has proven to be a very tough nut to crack on the first pass through March/April. This time around, with renewed momentum and the structure still very much constructive, the GBP may indeed find a better outcome. Until that happens, treat GBP longs with a fair degree of caution as the prices currently delivered are not the best unless jumping on the momentum.

CAD INDEX – Relentless run that keeps on going…​

The aggressive buy-side action in the CAD is all the more surprising in the context of a Forex market, where for the most part, the main feature has been range-bound conditions in most FX indices. The CAD is the one out-shining the rest of the market by far. I speculated that a potential top may be forming around the current vicinity, but with such strong momentum, it clearly will take time to mature if it happens. In fact, the persistent rise obviously makes me question if the CAD is really on a trajectory to the next 100% proj target. If so, this means we could still witness an additional 0.8-1% of gains in the currency going forward. Long CAD is the gift that keeps on giving.

AUD INDEX – Sits at the range bottom​

If you are macro bullish in the Aussie, the current price advertised looks as attractive as it’s ever been this year. In the context of a prolonged bullish trend since the COVID-19 low, the Aussie currently sits at the very bottom of its range. I still think there is a valid scenario where this hefty and lengthy consolidation around this multi-year trend high is a precursor to an eventual break into higher ground. This scenario, however, will only be validated upon acceptance outside of the range on a weekly basis. Should the opposite occur, a depreciation of the AUD to the tune of about 1% may be in store. This calculation, as usual, is predicated on the use of symmetrical patterns.

NZD INDEX – Choppy within broad range​

After failing for a second time at the resistance outlined above, the conditions are such that we are likely to see further choppiness until a resolution beyond either extreme of the range occurs. At present, the Kiwi has landed at an area of previous demand after this very same location produced a decent bounce last week. Will this area continue to act as a springboard for price? Nonetheless, this is all happening right in the middle of a range, so fort the most part this is all pretty noisy and far from the technical clarity one wishes to find.