Volatility

In place of analysis today I thought i'd briefly explain the essential nature of volatility as i see it. There are two causes of volatility

1. Volatility produced by normal market dynamics i.e. consequences of regular speculative activity (compression and expansion)

2. External factors i.e. developments in the real world, news, war, economic data (like growth, unemployment etc) that updates the market.

If you look around there will be various other explanations floating around as possible sources of volatility. If you consider any of these alternative ideas you will find in the end it is either a consequence of normal market dynamics or an external event. These alternatives include

1. Market physics (things in motion stay in emotion) included in group 1 normal market dynamics.

2. Psychology and Sentiment included in group 2 external factors and how its digested by the market participants through their psychology.

3. Large volume. Says nothing about why there is large volume. Almost certainly in group 2 external factors.

4. Statistical Patterns. Reveals relationships between occurrences and environments doesn't suggest why such a relationship exists. The relationship causally is due to compression and expansion OR external factors and the regularity or predictability of how 'new' information is handled by the market.

5. Market Structure and liquidity. Order flow dynamics; looking at where traders line up to execute. Again included in group 1 normal market dynamics.

It might have occured to some people that the s-wave intrinsically tracks volatility produced through normal market behaviour and ignores the effects external factors might have on the situation. This is true and is my preference in terms of finding a safe foothold in the market. However, the idea I've always pushed is to align the s-wave with larger broader moves which, in the final analysis is caused by group 2 external factors that are delayed or stretched through time.

Good Trading.

Analysis

This week we're looking at price from a slightly perspective.

Gbpusd

1.2965 area for s-wave. Bullish trend, bullish momentum. No higher low.

Eurusd

Lower high expected from 1.0840 to 1.0900. Possible shorts here following a rejection and s-wave.

Usdjpy

No clear ideas besides the lower rising trendline at 149.50

Usdchf

No clear ideas. Expecting a higher low.

Audusd

Expecting a short this week. Multiple areas for activity. Highs at 0.6320. Lows at 0.6270. Bearish momentum, bearish trend. Waiting on s-wave.

Usdcad

Longs and shorts possible. Two key areas. The daily low close at 1.4268. The lower highs holding momentum at 1.4330

Good Trading.

Weekly Analysis 17th March

US Dollar weakness recently has established enough of a trend for us to look to trade its possible continuation this week. This holds true for many dollar pairs excluding the usd/cad and the aud/usd, which are currently holding in price but appear as though they will continue to weaken against the dollar this week.

To reiterate from my a previous post the 3 important factors to always consider

1. Recent volatility

2. Recent victory's (breakouts)

3. Recent highs and lows

Most of our analysis from this week emphasises momentum and the highs/lows that keep its definition. This is the 3rd point listed above. It is random which of the 3 factors will dominate your analysis for a particular week across a set of pairs. It might be fairly equally distributed across all 3 but often you will find one factor stands above the others. This is likely tied to the market environment. Large movements, big news weeks will push many pairs into volatility. After a period of quiet consolidation you might have a week littered with breakouts. There is a time when each factor dominates in analysis. This week we are in the aftermath of some decent movement where price has yet to pull back therefore most trades will be around momentum holding or breaking.

Good Trading.