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Michael Noonan Edge Trader Plus Michael Noonan is the driving force behind Edge Trader Plus. He has been in the futures business for 30 years, functioning primarily in an individual capacity. He was the research analyst for the largest investment banker in the South, at one time, and he... More
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  • Fiat FRN - Approaching Resistance In Middle Of Trading Range 0 comments
    Feb 20, 2013 3:32 PM

    Wednesday 20 February 2013

    The best thing about reading developing market activity is that it leads you to a logical conclusion, and when things are not clear, that too, is
    a logical conclusion, saying: No edge, stay away. Because charts are
    the visual form of final decisions made by all participants, we are
    getting the best source for collective thinking about a market's
    direction. What we get to do is read what message the market is
    sending.

    It is always important to put the market into a context. Many traders
    are eager to "catch the next move," often based upon a myopic view
    of price behavior. Most who look at charts view the daily and intra
    day, looking for the next winner, often getting another loser. Here is a
    current daily:

    It would seem many are interpreting current market activity as bullish,
    especially with an Outside Key Reversal, [OKR] day. Looks strong.
    Looks can be deceiving. Perhaps a look from a different perspective will
    add to our level of information. The weekly chart puts a larger context
    of which one needs to be aware.

    DX D 20 Feb 13

    Why is knowing about the middle of a trading range, [TR], important?
    The middle of anything says balance, and for a trader it offers the
    least amount of market information, other than from balance comes
    imbalance, and it can go either way. 50-50 odds are no better than
    a coin toss. Are those the kind of odds any trader wants? Not likely,
    although many accept them.

    (click to enlarge)
    Within the broader perspective, we zoom in for a closer look at current weekly activity. The small range at the last swing high, November '12, is the market letting us know that demand ran out and supply entered. How do we know? If demand had remained strong, the range would
    have extended higher. What prevents a demand range from extending
    higher? Supply overcoming demand. Market logic.

    That becomes an important piece of price information, moving forward
    because we know markets are always testing and retesting support or
    resistance areas.

    Within the TR, we see two previous rallies that failed, and current
    price activity is back to retest that area, again. So where the first
    daily chart may have seemed bullish, to some extent, the higher,
    more controlling time frame is telling us price is at resistance.

    DX W2 20 feb 13

    Taking a second look of the same daily chart, we drew in a horizontal
    line showing where price failed on secondary retests of the earlier
    November high, and current price is back for another probe. Will it
    succeed or fail?

    We know from the weekly that price is somewhat in balance and can
    go either way. The daily tells us price is in a short-term rally but
    bumping up against previously failed areas. One thing we know for
    sure, money is not made in buying against resistance, and only novice
    traders buy at resistance, in the unproven belief that it will go higher.

    These charts were printed about mid-morning during the trading
    session, so we have no idea where the close will be, but it will provide
    additional information from which a more informed determination can be made. In a resistance area, the burden is on buyers to prove themselves.

    What we want to know from today's wide range bar is, are buyers
    going to fail again, or can they build up enough momentum to sustain
    their effort? Will this be an exhaustion move in an upside feint? There
    is initial resistance at the 81 area, and then 81.70. The market will let
    us know by the way in which price responds to each level. The point is
    to use developing market information to advantage and be in harmony with prevailing forces.

    DX D@ 20 Feb 13

    4

    Themes: Dollar, Forex
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