A Tale of Two MoBs

One of the tools that we follow closely is the Make or Break projection lines in e-Signal. This tool can be used to give you powerful targets on any trading symbol based on the most recent swing high and swing low. The tools plots price and time targets that are support or resistance if they are achieved.
Sometimes, you can have MoB lines in both directions that are spaced far enough apart that both can hit. Let's take the example of the GBPUSD back in March. In this daily chart, I've drawn the MoB lines off of the swing high at A, which projects out as you can see, and the swing low at B:
GBPUSD MoBs in March
In this case, it is potentially possible that both lines could be hit. The ideal calculation is that the price will hit during the bar itself (not before or after); INSERT INTO `wp_posts` (`ID`, `post_author`, `post_date`, `post_date_gmt`, `post_content`, `post_title`, `post_category`, `post_excerpt`, `post_status`, `comment_status`, `ping_status`, `post_password`, `post_name`, `to_ping`, `pinged`, `post_modified`, `post_modified_gmt`, `post_content_filtered`, `post_parent`, `guid`, `menu_order`, `post_type`, `post_mime_type`, `comment_count`) VALUES with a real focus between the two black lines. Since these lines are spaced out, it would be possible, though certainly not necessary, that both could hit. Remember that the point of a MoB is a "potential" target if the market heads that way, not a likelihood that it will head that way.
As we moved into April, take a look at where price went:
GBPUSD smacked right into the MoB between the two black lines, as projected. And as the month continued, it used that line as specific resistance:
GBPUSD April 2
The question becomes, will that resistance point finally break, or will the trend resume? It is also important to note that the lower MoB was a thicker, making it a stronger projection. Here's the movement in May:
Right to the lower MoB...and...during the ideal time target between the black lines. Very interesting when you consider all of the news over the last month that a level projected in March could be hit so precisely.
The rest of the month through today was spent using that MoB as support:
So now that we have new swing highs and lows, where are the new MoB projecting going forward? This is a little more interesting of a story. Have a look:
GBPUSD MoB Projections May
This time, both of the projections play out against the same timeline. The LOWER projection is much smaller and shorter, and obviously easy to hit. The upper line in general could be hit and would represent a change in trend if it were over the longer haul. But it isn't likely possible (although it is theoretically possible) to hit both in their ideal time projections, which makes this a battle.
We also are on the verge of a 13-bar sell signal on the US Dollar Index, which would be a powerful reversal signal if it fires in the next week or so. That would definitely increase the odds of a change in trend and point to that upper line hitting. We will continue to monitor.
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Why The FX Day Starts at 5 pm EST

It is very important when trading Forex to understand the importance of the "start of the day" even though it is essentially a 24-hour market. In the equity and futures worlds, when you calculate key indicators such as the Pivot series and Market Profile (Value Areas); INSERT INTO `wp_posts` (`ID`, `post_author`, `post_date`, `post_date_gmt`, `post_content`, `post_title`, `post_category`, `post_excerpt`, `post_status`, `comment_status`, `ping_status`, `post_password`, `post_name`, `to_ping`, `pinged`, `post_modified`, `post_modified_gmt`, `post_content_filtered`, `post_parent`, `guid`, `menu_order`, `post_type`, `post_mime_type`, `comment_count`) VALUES you use the prior day's data from start to finish. In order to do the same in Forex, you have to establish what point is the end of the day and start of the next day so that you properly use the data from the trailing 24 hours.
Many charting platforms can be misleading because they allow people to set the timeframe axis of their chart up for their own timezone, and then they end up with calculations that are based on "midnight to midnight" in their zone. Many people also force their charts onto EST, which does not provide a good "midnight to midnight" day in Forex. If you do it that way, you're splitting the day in half.
The proper time for end of session/start of session is global rollover, which is 5 pm EST. Asia has not yet started, Europe is asleep, and the US banking day is over. This is the point of the lowest volume. It is also the point that banks in the intermarket system shut down to "settle" their trades from the prior 23 hours and 55 minutes or so. When you realize that technical evaluations and calculations need to be based on fixed factors such as a "day" of data, it becomes very important to recognize that this specific point is the start/end of a day. It also means that Forex can really be mapped into 5 clean daily bars as it opens at 5 pm EST on Sunday and closes at the same on Friday.
Tools that you use need to be able to make this adjustment to be valid. For example, we have an Average Daily Range tool that plots a range each day that is the six month average on each of our key Forex pairs. For those of us on the West Coast of the US, we need to be able to set that tool to start at 2 pm, which is 5 pm EST. By doing so, the tools starts drawing at that point and goes for 24 hours.
The chart below shows you today's GBPUSD with the Average Daily Range lines. The top line anchors to the high of the session since 5 pm EST (2 pm PST) because we're in the lower half of the day's range. The lower red line is the Average Daily Range target, which is often a key support point in the market. As you can see, during the "day" when you start this tool running at the right time, the GBPUSD moved exactly to that lower line and bounced:
Had you used a different start of day, one that has less technical meaning to the market, the tool wouldn't have worked.
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US Dollar Analysis

With the US Dollar Index now approaching the levels of April 2009, putting us at or near a 12-month high, it's time to get a feel for what may lie in store for the Dollar Index in the months to come. We came into the year predicted that the US Dollar would ultimately have a positive 2010, although we stated that our prediction wasn't meant to suggest that a sharp run-up would be what would happen. Less than five months into the year, we've definitely seen a sharp run-up. At the start of January, we predicted that the Dollar would hit the 82.00 level in 2010. We got there in March and were still there two weeks ago. Now we're at 86.00.
For those that are familiar with MoB (Make or Break) lines in e-Signal, you know that these lines use chart analysis to project potential time and price targets for a symbol. One point of confusion on these levels is that some people assume that the fact that a MoB level exists, the symbol must get there or the MoB was wrong. That's not actually the case. You can get MoB levels both below and above the market if you draw them off the most recent pivot low and high. That doesn't mean both will hit. You're basically getting a target scenario IF things keep moving in that direction.
But the power of the MoB is not just that it gives you a price target. It gives you a TIME target as well. In the chart below, which shows about 18 months of US Dollar daily data, the MoB blue and pink line is drawn from the high around 87.00 in April of 2009:
US Dollar MoB
First of all, the thickness of the line suggests that this is a bit stronger of a target than a lot of the MoB lines that we see. Second, note that even drawing that line back a year ago, the line doesn't start until almost the end of 2009. Also, note the two black vertical lines, which show us the most likely point in time for the level to be hit.
What we found so interesting about this chart is that the regression channel lines off of the lows from last year, which so clearly channeled this move up until we broke out more sharply the last two weeks, also push the US Dollar Index into the MoB during the key time target.
Now that you have a broad cup, a two or three month handle of consolidation would put us back into the regression channel and poised for the final move up.
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Getting Swept and Taking the Same Trade Again

Today we had a great example of what we call a "sweep" on an ES futures trade entry. In the futures market, you cannot fool around with your stops. You have to have them, and we suggest you keep them fairly tight. We use a max of 6-8 ticks on the ES, for example, as a stop. However, sometimes, you can spot a valid technical entry that triggers and stops so fast that really, all that happened was the market showed you that the area you were watching was valid for support and resistance. When that is the case, you can put the same trade with the same entry right back in.
We tend to ignore the futures and stock market in the middle of the session, which is the New York lunch period. It's represented by the red box in the chart below. However, coming back from lunch, sometimes a trade can be as easy to spot as the high or low of basing action for several hours. We targeted a short in the ES under 1163.50, the low just before lunch. Volume came back after lunch and the market headed down. Our stop was set for 6 ticks after entry. As you can see on this chart, the trade triggered short once, then stopped out almost immediately and just barely. This means that the market has identified that levels as being important, even though we triggered and got out for a 6 or 7 tick loss. So we put the trade right back in, and it triggered again. This time, it really worked, and we closed half at 1160.00 at A and the rest at 1156.50 at B for a net 20 tick winner overall:
ES M0 Trade
So we trade a 6 tick loser for a 20 tick winner, but you have to keep those stops or you'll get slaughtered in the futures market.
Also, if you are wondering where that final exit point came from, here is the same ES chart with our key Levels drawn. The red line that is a key Gann number came in at 1156, so we closed just above that level. It was also the end of a Seeker 9-bar setup, which is terminated by the red box drawn around the Seeker setup area:
Both of these combined to leading us toward a solid exit point that was near the low of the day.
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A Continuation about Average Daily Range

Yesterday in our Blog (found here); INSERT INTO `wp_posts` (`ID`, `post_author`, `post_date`, `post_date_gmt`, `post_content`, `post_title`, `post_category`, `post_excerpt`, `post_status`, `comment_status`, `ping_status`, `post_password`, `post_name`, `to_ping`, `pinged`, `post_modified`, `post_modified_gmt`, `post_content_filtered`, `post_parent`, `guid`, `menu_order`, `post_type`, `post_mime_type`, `comment_count`) VALUES we discussed a few uses for the Average Daily Range levels. In particular, we discussed the GBPUSD and EURUSD. Today, we have more examples of the use of the Average Daily Range Levels on those pairs, so let's review.
First, a recap of what Average Daily Range is: We use a 6-month trailing average, which means that we add up the ranges each trading session for the last six months and then divide by the number of days.
The EURUSD ADR is currently 138 pips. The GBPUSD is now 167 pips, up a pip from yesterday.
How did those levels get used in today's trading?
Once again, the EURUSD traded almost exactly 138 pips of range. You can see the Upper ADR (dashed green) and Lower ADR (dashed red) lines on the chart here. Since we're in the lower half of the day's range, the Upper ADR is anchored to the high of the session, and the Lower ADR projects the 138 pip mark:
So specifically, the EURUSD once again recognized the range and didn't break outside of it, just like yesterday.
Now, on to the GBPUSD. Again, the Upper ADR is anchored to the high of the session because we are in the lower half of the range. The Lower ADR is 168 pips lower. Once you get into the European and then North American session, we break below the Lower ADR at point A on the chart and make a move, just like yesterday. But today's lesson shows us another side of how important these areas are. Just like any other Support or Resistance Level, once it breaks, it becomes the opposite:
That Lower ADR was Support, but look at how it was used as Resistance at points B and C on the chart later. These numbers are very important in trading.
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Tradesight Stock Market Preview for 5/5/10

The SP broke decisively below the triangle formation losing 26 on the day. This is follow through to the 4/27 initial break. The short term trend is now down with 2 key levels just below at the 50dma and static trend line.
Naz was lower by 57 testing the 50dma and static trend line. The next meaningful support below those two levels is the January highs.
NAZ 100
Multi sector daily chart:
Multi Chart
The Dow/Gold ratio has plenty of room for gold to gain favor over stocks before hitting the recent lows around 8.75:
The XAU was top gun (-1.2%):
The BTK “B” wave bounce was rejected, set an alarm for a break under 1168.50:
The banking index was lower by 3%. Note that many of the regional banks were considerably weaker than the BKX on big volume.
The OSX is getting close to the lower boundary of the active pattern. A break in this sector will be confirmation that the broad market is in a price correction rather than a rolling time correction.
Oil Services
The SOX closed right at the 50dma and under the prior breakout level.
Consistent with most market breaks, selling was across the board and included all of the non-safety asset classes. Oil was sharply lower on the day.
Crude Oil
Gold was lower, not yet a safety asset class.

Even in Chaos, Average Daily Range Matters on GBP/USD

The markets had a wild session today, driven by a variety of news and global economic concerns. While US data this morning was good, concerns about the oil spill in the Gulf and a widening debt problem out of Europe led to a big push for strength in the USD. Despite all of that, one of our most basic tools helped guide us on trade management today in the GBP/USD, our favorite pair.
The tool is simply the Average Daily Range tool, which basically shows the six month range average on a pair. What is remarkable is how closely the market uses this point as a pause and potential reversal each day that it hits it. Currently, the GBP/USD trades an average of 162 pips per day (over the last six months). So, if you just take the GBP/USD trading in the current session and anchor the top of the range with the ADR High line, you'll see where the lower line ends up (162 pips lower):
GBP/USD Average Daily Range
Quite simply, this area, within a few pips, was about all that the market had the strength to cover. It's amazing how such a simply tool can help you qualify where exhaustion of a move might occur. How did that play out with our short trade today? Let's have a look at the chart with some additional key support and resistance levels:
GBP/USD short trade
In this case, our short trigger was under LBreak (a Gann Level) at 1.5227 (triggered at point A) with a 25 pip stop that never hit. Our first target where we cover half was S1 (point B); INSERT INTO `wp_posts` (`ID`, `post_author`, `post_date`, `post_date_gmt`, `post_content`, `post_title`, `post_category`, `post_excerpt`, `post_status`, `comment_status`, `ping_status`, `post_password`, `post_name`, `to_ping`, `pinged`, `post_modified`, `post_modified_gmt`, `post_content_filtered`, `post_parent`, `guid`, `menu_order`, `post_type`, `post_mime_type`, `comment_count`) VALUES and that hit fine. We proceeded much lower overnight, and then in the morning took off another quarter of the trade at C, which was the ADR line. In addition, our Seeker tool completed a reversal setup box at D, which represented the turning point off of the lows around the ADR. We move our stop over S2 and stopped the last quarter of the trade at E.
Note that understanding where the average daily range lines landed got us our best exit piece of the trade.
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Forex Value Areas on Holidays

There are many uses to calculating the Value Areas for futures contracts and Forex pairs. Depending on whether you start a session inside or outside of the Value Area, there are a variety of trade setups that can be derived from knowing where the Value Area High and Value Area Low of the session are located.
However, sometimes a lesson can be learned in just seeing how much a symbol uses a Value Area when there isn't much going on. We started this week of with Japan closed for the first three days and the UK closed for the first day. This means that trading activity and the number of participants would be low. While that can have different impacts on the various pairs, if you look at some of the other symbols, such as the NZDUSD, what would you expect?
My personal expectation would be that the NZDUSD wouldn't see a lot of action if banks in Japan and the UK are closed. It isn't like people decide to trade the NZDUSD instead.
So let's have a look at the NZDUSD with a variety of key support and resistance levels drawn from our open on Sunday. The light blue, or cyan, lines in particular are what we want to focus on here as they represent the Value Area High and Value Area Low. The area between these two are where 70% of the action occurred in the prior session. When you open inside the Value Area, it takes some volume and activity to break out of that range, and with so many of the global banks closed, we wouldn't expect to see that. So here's the chart:
NZDUSD Value Area
Note that the pair used the early part of the session finding support at the Value Area Low, and then later headed up and stalled out right at the Value Area high at point B. In fact, except for a brief spike at A, the NZDUSD spent the whole session exactly inside of the Value Area.
Even if that doesn't provide the specific trade call setup that we often use with the Value Area, it certainly demonstrates the validity of the numbers even in a dull session.
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