Beware of the session crossover trap

Beware of the session crossover trap

For unwary forex traders there are many traps to fall into, and this is one of them as we see on the GBP/USD in the London forex trading session.

00:14

Overview of Cable and multiple time frames

00:14

The speaker confirms the screen is visible and explains their setup using multiple time frames on the trading platform, including 15-second, one-minute, five-minute, ten-minute, fifteen-minute, and daily charts. They note a recent steady upward movement in the last hour on the cable (GBP/USD) currency pair.

00:52

Importance of session crossover and London open volatility

00:52

The speaker emphasizes the significance of session crossover in trading, particularly around the London open. Entering a trade earlier in a session, such as during the European open, can yield profits, but traders should anticipate increased volatility, reversals, and volume spikes when transitioning into the London session. This pattern is consistent across many currency pairs due to London’s status as the largest and most liquid market. The example uses NinjaTrader’s real-time data to illustrate how volume and price action behave at the London open, highlighting that while patterns vary daily, common occurrences include trap moves, reversals, and fluctuating trends.

02:21

Classic price action patterns at London open

02:21

The video explains a classic price action scenario at the London open where volatility triggers sharply at 8:01. Initially, traders jump in short expecting a move down, but the market reverses, trapping those shorts as price moves up through a low volume node. This pattern of traps, congestion, and reversals happens regularly. Traders who were long and closed profits ahead of the open avoided losses, while those who entered shorts regret their position. The segment emphasizes the importance of timing entries near volatility crossover points to minimize risk.

03:22

Multiple time frame analysis for trend development

03:22

The speaker discusses the emotional challenges traders face such as stress and volatility, emphasizing the importance of patience before re-entering the market. They then shift focus to analyzing multiple time frames, specifically the 10-minute chart, which is considered a longer-term view relative to faster charts like 15-second or 1-minute charts. On the 10-minute chart for cable, there is a volume point of control that acts as a significant level where price tends to show congestion due to heavy trading activity. This volume point of control creates a resistance level above and a support platform below, leading to expected price congestion and particular behavior when price reaches this area.

04:55

Volume point of control explained with seesaw analogy

04:55

The segment explains the concept of the volume point of control as a market equilibrium similar to a seesaw balanced by equal weights. When this balance is disrupted by a change in market participants, price action begins to move and trends develop. The importance of trading across multiple time frames is emphasized, as it reveals different volume dynamics that impact price movement. Specifically, it discusses that on the 15-minute chart, the price is far from the volume point of control, and on the 30-minute chart, volume is decreasing, which could indicate easier progression for a bullish trend if sufficient volume supports it. Volume is highlighted as a key metric for identifying support and resistance levels.

06:27

Trend monitor indicator and volume confirming bullish trend

06:27

The discussion focuses on analyzing market trends using various tools such as volume profiles and trend monitors. Initially, the trend monitor shows a bullish trend on the minute chart despite some minor fluctuations. At the five-minute level, increased volume and buying activity confirm this bullish development, indicating growing support and an upward push in price.

07:20

The trend monitor is transitioning from bearish to bullish phases across different timeframes, moving from the 10-minute to potentially the daily chart if the reversal sustains. This tool helps traders maintain perspective on long-term trend changes versus short-term pullbacks, enabling better decision-making during minor reversals. Combined with volume price analysis, it provides a comprehensive view of trend strength and direction.

08:27

Volume price analysis for identifying primary vs secondary trends

08:27

Volume price analysis (VPA) is a methodology used not only to identify reversals, strong bonds, and selling anomalies but also to analyze the development of trends. It focuses on distinguishing whether a reversal is a minor pullback (secondary trend) or a major change from a primary trend, which is crucial for effective trading.

09:02

VPA helps traders differentiate between minor and major trend reversals, providing one of the purest applications of the technique. The critical challenge in trading is not entering the market but staying invested during fluctuations to maximize gains, highlighting the importance of understanding trend strength.

09:36

Entering trades is easy, but maintaining positions through pullbacks and volatility is difficult due to emotional reactions to potential losses. Many traders prematurely close positions, securing small profits but risking overall account decline due to frequent small losses.

10:05

Frequent small profits combined with small losses tend to erode a trader’s progress, leading to stagnant or declining account performance. The key to success lies in enduring phases of price action where profits temporarily disappear while avoiding premature exits.

10:36

Staying invested through congestion, pullbacks, and reversals requires tools like VPA and trend monitoring to identify primary versus secondary trends. Mastering this discipline is essential for account growth, as there is no shortcut to maintaining positions during challenging market phases.

11:06

Daily chart analysis showing market weakness and support levels

11:06

The speaker discusses the use of indicators like the trend monitor combined with volume price analysis to assess market trends. They highlight the importance of studying the daily chart to plan for the day ahead, noting that many traders spend significant time analyzing levels and price action from previous periods to inform their decisions.

11:35

Examining the daily chart reveals signs of market weakness despite initial moves higher. The speaker points out that higher volume under certain candles, especially with narrow price spreads, indicates struggling rallies and potential reversals. This analysis suggests the market is not strong in the longer term and may experience sideways congestion or weakness rather than a strong upward move.

12:29

The daily chart shows repeated signals of weakness with volume supporting failed rally attempts and subsequent reversals. Volume point of control and congestion areas suggest the market is having difficulty breaking through resistance levels. The likely direction is downward to a key volume support level just below 124, indicating where the market might pause or find support.

13:18

From a technical perspective, the daily timeframe indicates a probable move down to the volume point of control. This aligns with support seen on the accumulation distribution indicator, which measures support and resistance based on volume and price data, giving traders a clearer sense of where strong buying or selling interest exists.

13:44

The accumulation distribution indicator provides insight into the strength of support and resistance zones by showing the ‘thickness’ of levels. Wider levels represent stronger support or resistance, while thinner ones are weaker. Levels tested multiple times become stronger, and this dynamic helps traders anticipate where the market might find support if prices decline.

14:39

The speaker emphasizes the importance of regularly consulting the daily chart, even for intraday or scalping traders, to gain perspective on market direction and key support levels. They suggest using the daily chart alongside longer-term tools like weekly charts to better understand market trends and improve trading decisions.

15:14

Currency indices and strength/weakness driving Forex trends

15:14

The speaker explains how to interpret market direction by analyzing currency sentiment and indices. They highlight the importance of observing buying strength in one currency and selling weakness in another to identify strong trends. Using currency indices (CSIs) on various timeframes, they illustrate this with the example of the British pound showing strength while the US dollar is selling off, creating a strong trend opportunity.

16:12

Using the metaphor of two trains, the speaker describes how currency pairs moving in opposite directions generate strong trends, while those moving in the same direction tend to have weaker trends. They give examples like the pound/Aussie where both currencies are rising, resulting in a weaker trend, versus cable (pound/dollar), where the pound is rising and the dollar is falling, leading to a strong trend. They emphasize looking at daily charts to confirm these moves.

17:06

The discussion continues on identifying which currency drives a pair by analyzing multiple timeframes, from hourly to four-hour charts. The speaker notes the current weakness in the yen and dollar, alongside strength in the euro, suggesting potential trends in pairs like euro/dollar. They caution against pairs where both currencies show buying strength, such as euro/pound, because that does not produce strong trends. The segment ends with the speaker handing over to a colleague.

By Anna Coulling – creator of volume price analysis