Flushed with the success of learning the importance of the support and resistance lines, and actually writing about these on Friday before the Zoom room started today, in early morning (10am Europe time) I noticed an interesting set up forming which had been created during the Sydney and Asian sessions.
If you look at the charts below, (Please take a photo and refer to it while reading on another device ) you can see there is a downward parallel channel formed on the 15 minute chart on the S&P 500.
As we can see the channel was respected by bull and bears alike, both trying and failing to break out of the channel (see arrows)
Eventually however a successful bull break out was achieved, and the confirmation candle 15 minutes later failed to break the resistance now formed by the bulls in the break out. This was a long (buy ) position I took and about 2 hours later I closed with a 2% take profit. THANKS VAHID for the knowledge to be able to take this trade!
Vahid has done a brilliant job explaining these, and I feel the green shoots of learning at least this fundamental set up.
Study this yourself and take a look at the charts outside normal zoom room times, and see if you can spot a set up like this to trade in Demo. While we are in Demo there is no harm in testing your progress by spotting a trading set up and taking it outside the zoom room and there is a very good reason for this I will explain below……
So the meeting starting as usual and Vahid got us to look at the news first.
Important news was being released “Level of a diffusion index based on surveyed purchasing manager”
Why Traders Care It’s a leading indicator of economic health – businesses react quickly to market conditions, and their purchasing managers hold perhaps the most current and relevant insight into the company’s view of the economy;
Despite this Vahid continued to demonstrate a trade set up for us with a butterfly pattern that had already formed (see chart below)
A Butterfly pattern had formed on the 1 min chart and support level broken once the bell to start the New York session sounded.
The Market had become strongly bullish early on (when I got my 2%) , but now the market was moving sideways.
Market opened breaking the support line of the butterfly set up in the 1 minute chart and a confirmation 1 minute candle failed to break the resistance.
Vahid would not normally have traded this as the news was going to be released in 15 minutes as we already know this makes trading very risky. We spoke about this during the Q and A session. (more below).
We took a short position and set the stop ‘loss but the market decided to reverse and shoot higher triggering within 5 minutes our stop loss, a loss of 2%. It may be the some traders were aware of the news shortly before the public release and we ended with our stop loss triggered.
Vahid then saw the resistance at the top of the pattern break (around the original sell trades stop loss area). He decided to take a long position. This quickly reverses and triggered once again our stop loss so now we were 4% down on the day.
The volatility was high with big moves occurring to both up and downside within a few minutes. The news released and the next move was a massive bull candle going to where we just took a buy position so we got the move up and down but our timing was off as we got stopped out.
During the Q and A session I asked Vahid about these morning trades where news is imminent. He confirmed that if he not had a room full of expectant and eager students wanting to learn his method, he would not have taken either trade leading up to the news broadcast.
While the opening of the New York session can be highly profitable over the month, stepping away from breaking news is always something Vahid would advocate when trading alone. He wanted to emphasize this as if we are to learn his methods and his teachings we need to understand that there will be morning opening trades that are PERFECT to trade, while on big news days it is simply not suitable to trade within an hour or so of that news. Lesson learned!
The chart in the post below also shows the butterfly pattern Vahid identified. It played out PERFECTLY before the market opened, but as we can see reversed back up after initially dropping as expected to give another 2% plus had we taken that trade before the market opened. . This is yet another reason not to be totally fixated on ONLY trading the New York Market open.
Next to the chart I have put key points to remember if we find a butterfly pattern that may turn bearish on completion. This pattern ticks all the boxes except one. See if you can see which one of the conditions it failed. This does not mean it will fail it just means that it may not be AS reliable as a pattern that ticks all the boxes for a set up.
Another “BAT” pattern was highlighted on the daily time frame, Vahid says the daily time frame is very useful to gain knowledge of the current sentiment in the market, to better focus our minds of where the likely trends may be.
Remember the trend is your friend!
More news tomorrow GUYS