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OK.(LOL). I like to write when I can and particularly when I am waiting on certain market conditions. Hindsight is a wonderful teacher. I enjoy great cartoons, particularly when they can teach you much about the one who sends them. I, too, also appreciate sharing great bits of info which can be of benefit to others, particularly when nothing is asked in return. I also know that there are many comic books which have incredible value because of their fantastic and extremely valuable, rare content. Experience is a great teacher, and yes.. thankfully, hindsight is a great teacher too. It is 16 years of hindsight and experience which brings me to this great forum where I choose to share some info and insights which hopefully can help others. Yep, I am watching closely. ARE YOU?
A great technique that can be applied with the use of the CSS is when two currencies cross (or even try to cross) but remain within the boundaries of +0.2 and -0.2 (ranging), and the resulting pairs will attempt to make a breakout but then return back to the fold (mean reversion). The trades in the previously attached chart are actual trades, not hindsight, and were alerted to a large contingent proprietary group of chinese and vietnamese traders whom I mentor and have been the chief market analyst of for the last 3+ years, along with a few bank traders and Hedge fund managers in Tokyo, Hong Kong and other locations. A particular trade technique we use is known as the MST (Market Structure Trade). It is based on my previous experience of working as a professional trader with a top 5 Chicago Futures/Commodities firm where I grew to be their Top FX trader. While working with that firm, I had the great opportunity of befriending the Head of the Trade Desk (who later came to work for me in my firm) and learning much behind the scenes of how a trade desk works. I learned such practices as how the firm can see the aggregated stop levels of the traders of the company or how certain trades (or bundled trades) could be passed on to the counterparties and which they would keep inhouse. I learned where the desk looks to take the opposite side of the run and fading price moves based on stop levels which they could see from their software. I could see how the inside market (between the bid/ask of the spread) was tradeable to the desk, but not to the retail trader. I could see how the real market could be 7 wide while the inside market could be a false 2 wide and all that was needed was to slide the market 4 pips in either direction and the house makes money. I could see how the 0.1 and 0.01 traders were trading against themselves with the house making money on every transaction; and when and only when the market began trending would the house pass the bundled lots on to a credit counterparty.
I learned how the average retail trader uses the swing points as natural stops... because that is what the industry wants you to do. Why? BECAUSE STOPS ARE WHAT MAKES THE MARKETS MOVE. BuyStops, SellStops to get into a market.. Protective stops to close the position. A majority of stops are placed at the natural price zones, 00 && 50,.. and then there are the natural levels .15, .35, .62, .85. WD Gann knew these levels and so do the market makers. Stops are placed at swing highs, lows and fib levels. News Flash.. Market makers, banks, most hedge fund managers, PB's who trade credit spreads know these levels. They know the average, aggregated retail trade feed will consist of stops at these levels. Look at the incredible system Bob has provided here.. where are some of the proposed entry levels? On a run-away, trending market, MM's are losing because they are, by nature of practice and industry, on the opposite side of the trade. The difference is, they have deeper pockets to survive the runs.
Even now, there are aspects with the crims that most are not aware of with Empty4. Example.. I am aware of a top level FX Empty4 Crim who does the following:
When we make a pending order, then try to change that order.. there is a 1-3 second delay for that order to be adjusted. The first attempt to adjust the order is accepted normally with no issues.. however.. lets say you want to make another adjustment immediately. So you send the order to adjust.. problem is that the first order is still processing. This will lock up the pricing engine and Empty4 freezes the orders, and only accepts the first order adjustment. Meanwhile price moves, and a third order adjustment is sent, but not accepted. As you can see, this is major issue.. Rather than having the orders kept on a separate engine/server and adjustments made on that server, the update is instantly accepted, then when filled, is sent to the execution engine for immediate fill. On the internal feed data engine, limit orders become market orders which are then sent to the execution engine to be filled.
Also.. how fills are made when price "touches" the take profit level.
Currently, the following occurs.. Price move to take profit (TP) level.. and lets say it moves above the TP level by 2 pips, then quickly reverses.. Technically, the trade should be filled/closed at the TP level because price hit/traded at the TP level.
The current process is that the order instructions are sent to the bank (MM) for a fill at the TP level.. But, by the time the order is received by the bank and processed.. price slips back under the TP level, thus cancelling the order to be filled by the bank because when the order is received, price is not at the TP level, it is now lower. The order is not filled, price reverses.. and lets say it moves 100% in the opposite direction, thus causing trader to take a stop out and a loss. This is the current process which most Crims operate by.
The way it should work with a true ECN is if the TP level is hit, the trade will be closed. There is agreement with the banks and matching engine to close the trade. Reason: the order becomes a market order once the limit fill price has been hit. So, instead of a loss of position (using the above scenario), the trade is filled instantly at the next best price. It may not be exactly at the TP fill price, it could be improved by 1-2 pips or it can be filled under the TP level by 1-2 pips.
The stop levels are a natural occurrence that plays on the fear and greed of the average trader. Take any chart, I don't care if it is your futures chart, stock chart, Forex chart, Bond chart, Weather chart, even your own personal income/expense chart.. any data. Find support/resistance level that has been broken.. and sometime into the future, that level will be retested. There are certain basics to monitor such as trend lines, 2ma, etc.. but they get retested. Look at the chart I posted. You will see this phenom. I can choose to trade in the direction of the H4 or countertrade. Every time period for each pair has vibrations set to different levels based on the characteristics of that pair. As Bob has so generously pointed out, big money follows certain guidelines, such as the 2 period MA on Monthly. Look at how the markets move. They retest various levels of support / resistance, to take out weak hands, to take out weak stops. When a majority of stops are cleared, the market moves on.
There is an amazing aspect to back seat driving (Hindsight). Some can benefit from the one who is actually driving particularly when the benefit of the passengers is to be alerted to the future price points and future price action in advance. 16 years experience comes with a lot of baggage, both good and not so good.. but rather all positive to deliver a growing level of confidence to enable the driver (and passengers who want to learn to be a driver) to always have the opportunity to learn and improve.
Look at the first 15 minutes of the London and NY open (we use 3 am and 8 am edt). Watch the price action from the first 15 minutes. See how many times price comes back to the m15 range. We call this the OBB range.. Opening Bar Breakout. Market stays above this range.. then trade up.. Below this range.. trade down. Now combine that with Bob's incredible works here. If H4 is green.. trade up, if red.. trade down. Enter as Bob has designed using the 60ma, DP, 00/50 levels. Oh and by the way,.. that first m15 range, when it breaks out.. it will be retested. I have never seen it fail.Sometimes the retest is many times during the current session, other times it may be retested in the next session(s) in the future. But it is retested.
I have seen USDJPY stop levels that were 5+ years of age and the market moves to the exact pip on a huge spike (BOJ Intervention announcement) and then reversing. What makes it breakout? Stops above or below the breakout level. Where will the MM's be targeting? The breakout level. Where will the market return to? The breakout level. Are you watching? If the market remains in that m15 range.. no trading or you range trade. As I have indicated in many postings both here and other forums (this is my home), as a student of the "Dynamic Principles of Gann", I have the fortunate and blessed opportunity to add the remarkable talents of Bob and the incredible team here via their spot-on insights and tools to allow even someone like myself to the benefit of my clients to continue to learn and adapt to new methods, techniques and changing market conditions merged with the experience of hindsight.
Yep.. I am watching very closely.
Cheers and pips to all.