Price Displacement

One oddity that I am encountering more and more frequently is something I call Price Displacement (PD). This particular price action (p/a) is similar to stop running moves but is definitely different in nature. I believe this phenomenon is a by-product of algorithmic trading programs where the program “jumps the gun” or starts a run that it later deems incorrect then attempts to correct itself, or gets corrected by other algos. Basically what happens is that there appears to be a break-out move that tends to be violent in nature. Price almost immediately moves to a consolidation zone where p/a moves in a channel that can be any form of horizontal, up sloping or down sloping consolidation, or even just violently reverse right back up. There appears to be two types, one is a move away then eventually back to the “proper” price zone and the other is one PD followed by an equal and opposite PD. Time frame seems to be irrelevant as I’ve seen this occur from 1-minute charts on up.

Even though I’ve seen it numerous times I haven’t documented it with any charts but have just been observing the price action (and cursing profusely when caught in one of these shake-out moves). I’ve started a new folder in the main chart area to dedicate to Price Displacement charts that I observe and will drop any relevant charts into that folder.

The worst aspect of PD is that I have yet to come up with a good way of determining the onset of PD. So far, I have only been able to positively identify PD in hindsight. Occasionally a standard RSI (14 on close) will signify a problem via lack of divergence but it really is a hit or miss affair.

Here are a couple of charts to visually show what I’m referring to. The first is Dixie just before she bottomed around $73.88 heading down into a falling wedge. This particular example is a little milder in form in that the p/a tends to just fall away and on the flip side gradually rises back up.chart

This other chart is also of the Dixie (just was handy, I’ll post plenty of pairs with the same phenomenon) that is of the more violent nature and also happens to include an opposite PD of equal proportion. This second chart is a 15-minute standard pennant pattern except that half way through the pattern the p/a violently dropped out of the pattern then briefly consolidated before shooting in the opposite direction an equal amount of the previous PD. Once again it briefly consolidated before dropping back into the “proper” pattern which it subsequently completed then dropped to the indicated target point.
chart

These are the sort of moves that not only make this job extremely challenging but make it aggravating beyond belief.

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Trade#9 Long AUD/USD

Not sure why this didn’t post. Operator error? Made it to the Dailyfx board just didn’t get here for some reason.

Why the change from bearish to bullish? Once price moved over 0710 it demolished the bearish view.

15:45pt 05/30 will go long 1 micro A/U.
No close stop, no limit.
Drop dead stop 0430
*****
Price over 0745 will add 1 micro A/U
Stop 0637, no limit.

Charts:
chart

chart

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Trade#8 update

Short and bitter on the update. The added positions were stopped out as the supposed 5th wave appears to be extending. Got hit at the stop levels for -45.2 and -46.2pips. That hurt. What I thought was the top, was in fact just the first wave of that fifth. The four-hour chart pattern is entering the picture, that’s the upper most down slanting trendline, and P/A just may shoot for that. Unfortunately, that is in the same area as the final stop out for the first position.

Shorts will be re-entered on a break of the orange up channel. One last try before stepping aside for a bit. If …IF…i’m correct this time, there should be a small pull-back that triangles out then a boost out the top which should be the top. If you can find that, take it. I will if I see it.

Here is the latest chart with a few note:
chart

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Trade#8 (from the Dailyfx board), not to be confused with Driver 8, is AUD/USD Short…..Entry Made and Update

Got the limit hit so it’s in for 1 unit Got a little positive slippage and entered at 0615(5). Another two will be added on the lower channel line break with stops on the added units to be placed over the recent high, say about 0627 if that one is the peak. The new stop will be determined by the breaking of the lower orange channel line. Once that is broken, use the latest peak as the stop level. Just add 10pips for a cushion. May as well drop the first unit stops down there too. If this was the top of this move then that should be plenty of space to let price action (P/A) move around. And if it wasn’t, then the lowered stop levels should keep the account loses to a minimal amount.

Just bear in mind that this pig has the potential to fly. As in upwards. Keep the loses short and let the winners run!

P.S. As I’m about to post this the two additional units fired off, in at 0580 and 0582(3).
Updated A/U chart:
chart

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Trade#8 (from the Dailyfx board), not to be confused with Driver 8, is AUD/USD Short

The rally is shaping up. It looks to be targeting the original breakdown area, which coincides with the .618% retracement level of the decline from 0710ish. If the pullback of the rally from 0480ish to 0580ish level stops about the 0530ish level, the 50% point, then two equal legs will be at 0620ish.

“Ish” is a very technical term for precise nuclear type work. Don’t let the precision fool you, I actually don’t know what the heck I’m doing!

Given this, unless something changes on the way up, an order is going in to short AUD/USD at $1.0615 (0617 is the line chart number while the bars come in at 0621) which should be just a tad bit early to give a little cushion. Stop point? Don’t have one. Drop dead stop level for now is over the peak at $1.0715 (EDIT 05/24 12:20 adjusted stop point for spread). A tad bit wide so only 1 unit to start this trade. Any clear breakdown of a lower trendline and stops get dropped to just over any lower high point. Also, another unit will be thrown short for a total of 2 units on that lower line break if it happens. A third is contemplated at the time the 2nd goes in but will play that when (if) the time comes.

What was the lower target again? If this is what I think it is, I’m not even going to limit this trade. Will play it by ear so no limit for now. Don’t forget the weekly picture – it could be huge.

The wicked AUD/USD chart (keep in mind that I’m so full of BS that this may not even be close):
chart

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Patiently waiting……NOT!

The rally is shaping up well. Keeping an eye on that 1.06ish level.

Here is the latest Dixie chart:
http://www.tafool.com/Charts/usd05241115m.gif
I view the pull-back on Dixie as ii of 3 with i having an extended 5th wave. “What the heck does that mean you donkey?” It means the retrace will be deep, or what’s known at the 4th of a lessor degree zone. Which, amazingly enough, encompasses the open gap! Fill the gap and Dixie is launching like a rocket. And that, of course, means the Aussie/Buck will plummet.

Good play is go long on Dixie gap fill and bail if it keeps dropping. 75.4 is invalidation point and says I am totally wrong.

(Dixie is the /DX, or USD continuous futures contract. The price is not 1-for-1 to the index.)

Any drop in the A/U has me worried that I’m missing out. Got to be patient.

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AUD/USD Short op coming soon

A/U is in the midst of a corrective rally. How far the rally goes is the million dollar question. One good possibility is the Weekly Trendline. What also intersects at this same price point (1.0600ish) is…..38% of wave II based on a line chart; 50% retrace of the recent down move, wave (I); and a 2.0* possible wave A up! And (not shown) are my favorite moving averages converging on the 4hr chart. That’s a lot to converge on one point and is the favored target to shoot for. The second point of entry is just a break below a trendline connecting the soon to be revealed low-to-low points.

The lower targets have not changed, however, a triangle is starting to emerge as a possibility on the 4hr chart and needs to be watched for support. There is a large potential for an upside breakout that won’t be negated until a drop below $1.0440. Two glaring problems to the downside call are the S&P500 chart and the USD. The S&P500 still has not hit my 1390±6point target and the Dixie has left behind a small gap at the 75.79 to 75.81 zone.(EDIT 05/24 10:00, ACK! Corrected 79 to 75)

S&P500 first. It’s now fallen back to the location that was suggested for the pullback to end, the rising channel line. The index has bounced marginally off that line. In fact, that is a key area to watch, any drop in the S&P below that area and the A/U trade will be good to go but, a continued rally in the S&P and the A/U trade will be busted.

The USD: Dixie may be marching North once again. The breakdown from “1” was met with a shallow retrace which is usually indicative of a very strong market and gives credence to the thought that the gap is indeed a breakaway gap and won’t be filled for some time to come. The latest chart showing the launch and gap point is here (EDIT 05/24 08:00: Corrected 79 to 75 on chart image)

Here is the 30-min A/U chart:(click to “embiggin”)
chart

This one is tough to call in advance as it could retrace all the way to the initial breakdown point of $1.0633ish. The other risky aspect is that there is no safe stop until all the way up at $1.0711….and that’s a long way up. Oh what to do? The way I want to play this is short at $1.0590 with a 50pip stop but the S&P has me holding off for better confirmation. I think there is about 24hours or so for this retrace to shape up a little better. Holding off will allow the retrace to pattern up and give a better idea of what’s going on. I would rather make a safer entry. But at least now you know what I’m looking at doing.

EUR/USD is in a beautiful corrective uptrend…..maybe that should be the play?

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More Frequent Postings

I’ve been posting on some other boards but have decided to post everything here from now on. Any posts I do elsewhere will just be links and short descriptions back to my page here. So, look for a least a few posts each week….heck, maybe even daily!

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Close AUD/USD short at will.

Closing the AUD/USD short. Will look to re-establish at a higher level. Once again, will have to edit this post later to add the charts. Closing at these levels will be good for about 180pips.

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AUD/USD short….ADD STOPS!!

Sorry about not adding the charts yet but I’ve got a small emergency going on here. Will add the charts that would have been posted once I get a chance.

 

In the meantime, this pig is nicely in the money and needs some stops desperately. Sooo, place one at $1.0671. $1.0715 might be the better spot to reduce stopout risk but I don’t want to give up too much profit. Put a Limit of $1.0430 too.

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