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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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  • Euro Dollar - Anatomy Of A Trade Over Three Time Frames. Let Market Information Be Your Best Guide. 0 comments
    Nov 5, 2009 12:49 PM

    Thursday  5 November 2009

     Not for the first time, and not the last time do we mention the importance on
    knowing the trend, particularly in the time frame you are trading.  This simple
    first step helps to put the market, and your chosen trade, into a context. 
    Here  is how we look at a market to determine if there is a trade potential,
    and in  which direction.

    Always be aware of the monthly chart for it is more controlling than the
    lesser time frames.  It is not a timing tool, but it keeps one mindful of the
    most important trend.  For the Euro$, the monthly trend is up, however,
    October closed just under mid-range of the bar, indicating sellers at the
    highs. 

    This needs to be qualified to fit the market signs.  While sellers at the high
    are apparent, the October bar, second from the end, also made a higher
    high, a higher low, and a higher close.   These are positive signs and to be
    expected in an uptrend.  That makes the poor monthly close just a red flag,
    a note of caution. Because the monthly time frame is more controlling, it is
    worth watching as the smaller time frames rally and retest the October high
    and see HOW the market responds. 

    The expectation, given the trend, is for higher.  The red flag observation
    prepares one to be more alert as to the quality of any rally from the weekly
    and daily time frames.

    We also referenced the previous poor closes from April and July of 2008 to
    give an idea of how much stronger higher time frames are when trend
    changes occur.

     EUZ M 5 Nov 09

    Switching to the weekly chart amplifies more clearly the message from the
    monthly.  The high was a small range bar, third from the end, and volume
    increased.  The relatively smaller bar on increased volume tells us that
    sellers were more active.  The high-end close says buyers are still in control. 
    The next week, instead of continuing higher, the weekly turned lower on a
    wider range bar and increased volume.  The purpose of mentioning
    increased sellers from last week, as the range was unable to extend higher,
    now becomes more relevant for the lower bar that followed.

    Initially, the wide range down on increased volume looks bearish...not
    trend changing, but a shot across the bow for the bulls.  Just as there was
    no upside follow-through for the high of three weeks ago, there was also
    no downside follow-through as a result of the negative week, second bar
    from the end.

    So far, the current week is back in a rally mode, in line with the trend.  The
    volume is as of Thursday morning, so it is not yet complete.  What we want
    to see is how far price can rally against the large down bar, to judge the
    quality and strength, and if there is any.

    We should note that the weekly chart is clearly in an uptrend, so the edge
    goes to buyers and the onus for change, if any, is on sellers.

    EUZ W 5 Nov 09 

    Once again, the detail is clearer from what was observed on the monthly
    and weekly charts.  On the Daily, the high was a small range, but the bar
    closed lower than the opening and lower than the previous day.  The next
    day's sell-off bar stands out as greater in impact, erasing the previous
    eight day's gains in a single bar.

    It is the daily activity which followed  that attracted attention because we
    noted the increased volume from 27 October on, for a five day period of
    time.  Volume increased, but price stopped going down.  Note how the bars
    from the end of October are overlapping, a sign of a struggle between
    buyers and sellers.  Then came the third bar from the end.  After all the
    increased volume on the way down, that then stopped, a probe lower failed
    to uncover more selling, and price closed above the lows of the last four
    trading days.  The volume on the probe increased, telling us that buyers
    stepped in and reasserted control.  [The opposite, in a smaller way to the
    high mentioned with increased volume.]

    Just when continued weakness seemed like a lock, the context of the trend
    from the higher time frames came into play and supported the smaller daily
    effort.  An awareness of the higher time frames help to keep a "bearish"
    stance in check.  Even the daily trend remains up, and that is confirmed by
    what is now a higher swing low, relative to the last swing low of 2 October.

    As noted on the chart, this is where things get interesting for the Euro. 
    Yesterday's bar, second from the end, rallied with ease of movement up,
    closed strongly, and volume was in keeping with recent activity.  The
    cogent question is, will the red flag from the monthly be controlling, or will
    the existing trend prevail, as it has been?

    So far, as we wrtite, late Thursday morning, price is moving sideways as it
    approaches the area we started with on the monthly chart.  The different
    time frames are inter-related, and this is how one can take advantage of
    the market-generated information. 

    Buy or Sell?

    That answer will come from reading the lower time frames as a trigger for
    entry, depending upon how one reads the present tense market activity. 
    Because of the trend, the edge remains with the bulls.  As to initiating a
    new trade, market activity is now in the middle of all three time frames
    considered, and it is in the middle where the level of knowledge is least...
    a flip of a coin.  As we look at the intra day charts, the picture is not any
    clearer, and that, in itself is a red flag. 

    Why?

     The trends are up in three time frames, a red flag has been noted, but
    present tense market activity is not exhibiting clear strength when it
    should be.  The vote would be for no trade, and wait, instead, for a retest
    of the failed probe lower from three days ago, or a failed retest rally
    against the October highs.  Others may see it differently, but we maintain
    specific requirements of present tense market activity, related to the past,
    and for now, a coin toss offers no edge.

    EUZ D 5 Nov 09

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