US Dollar Index Has Massive One Day Rally – August 27th 2015
If you were to overlay the daily chart of the dollar index over US equities the two would look very similar over the last week. That is really just a side note. The main point I want to talk about it how that move in the USD manifested itself in the currency market today. Both the Euro and the Pound took an absolute beating! Whenever you get that type of move the next day is really a wild card. Typically the market likes to go sideways which isn’t really a bad thing. Some of our best trades come in range bound markets. Either way trades are definitely limited as manipulation points will be limited today.
Before we get to the EUR/USD and the GBP/USD I do want to point out the large stop run on the Dollar index. Why? Well, I get the question all the time as to whether or not you can trade stop runs in other markets. I also get asked if you can trade stop runs on all different timeframes. Many times I have pointed out that the answer to both of those questions is yes. I personally trade stop runs in the equity market on a daily basis using the 1 and 2 minute chart. The Dollar index chart below is the daily time frame. Stop runs occur in all markets and can be seen on all time frames. The key is to learn the basics of market manipulation and then determine how you want to trade it. The vast majority choose to trade it exactly as we teach it in our forex bank trading course, while others choose to go into different markets. The bottom line is the options are open regardless of timeframe or market.
EUR/USD Gives Up More Gains
As I have mentioned since the beginning of the week the move down was the higher probability on the Euro and that was indeed the direction today. One type of market that we do not catch is the breakout type of market. When a market just picks a direction and never looks back you can be sure I did not catch that trade. I’m sure any get rich quick type retail trader that reads that is immediately put off. They see the type of move we had yesterday and they salivate. Ask yourself a question. How often does the market do that? 15% of the time and maybe as high as 20% of the time. Why do I want to try to catch a move that is going to be wrong 80% of the time?
The fact is most people reading this have tried a breakout trading strategy and that is the type of day trading strategy required to catch that move. Let me ask you this? Why are you still not trading that breakout strategy? The reason your not is because you lost money with it plain and simple. I trade probabilities and I look for singles. When you go into the market each day looking for a home run your going to get struck out more often than not. Aside from that when most people catch the start of a move like that, they hold it for 40-60 pips and get out. More often the size of the move is not capatilized on because the 10 times prior where the market came back and stopped them out has them too scared to let the trade run to maximize the reward to risk ratio. The bottom line is the odds are stacked against trying to catch and then maximize that type of move.
Ok enough about that, what am I looking for today with the EUR/USD? Today is going to be a slim day in regards to trade opportunities. The reason I say that is we have very limited levels to trade from. Whenever we get a move that is double the ADR I always remain open on direction and today will be the same for the Euro. To start the day we will have limited points to work from but we will more than likely see new levels develop through the day as we have huge gaps in between the current manipulation points.
Pound Gets taken To The Slaughterhouse
The Euro really summarizes my thoughts for the GBP/USD as well. The bottom line is when you get that type of move you usually have very limited points to work from the following day. If someone is short right now where are the stops? Where is the liquidity? Above the price I have no idea which is why I do not have an upper level. Below the price there is really one key level I would be willing to trade from if a valid trade were to setup. Like I mentioned with the Euro any new levels forming today will be of special interest. The reason for that is there is nothing above the price and therefore any short term high that get put in will attract a great deal of liquidity and therefore a stop run on the second test of that level will be key to watch. To summarize, I’m open on direction but any short would have to be from an intra-day manipulation point as nothing is condensing order above the price at the present.
Forex News For August 27th 2015
US Prelim GDP q/q 8:30 AM Eastern: Not a great deal to say about this news other than it is capable of spiking the market more than 15 pips. The move around any US data could be further exaggerated by the comments out of the Fed today which stated they will be paying attention to data for an indicator on an end of year rate hike.