How to judge risk on the trade with the CAD/JPY

How to judge risk on the trade with the CAD/JPY

The CAD/JPY delivered an excellent example of how to judge risk on the trade during the London forex session. It’s not simply a question of considering the pair across the timeframes, but being aware of all the relational aspects which are likely to impact the trade. The relational aspect of trading forex is one which is rarely understand by forex traders, but covered in detail in The Complete Forex Trading Program which you can find by clicking the link here https://quantumtradingeducation.com

00:10

Currency strength indicator overview

00:10

The video discusses a currency strength indicator displayed across multiple timeframes including 3, 5, 10, and 15 minutes, providing a quick visual of the strength of major currencies. The presenter notes that the market has just passed the London open at 8:00 AM UK time, about 13 minutes into the session. There is a noticeable surge in market activity, with the FTSE 100 showing an initial spike followed by a congestion phase. The pound is experiencing strong buying pressure, especially evident in the faster timeframes, though this is not yet reflected in the 15-minute chart.

01:10

Canadian dollar overbought and reversal tactics

01:10

The speaker discusses the Canadian dollar’s recent strong rise, noting it is heavily overbought. They address a common question about trading tactics—whether to follow trends or look for reversals—emphasizing that this is a personal decision. Trading a potential reversal, such as the Canadian dollar against the yen, involves risk management considerations, including wider stop-losses to accommodate market fluctuations. The payoff for trading reversals is entering a trend early once it begins, though the timing of such trends is uncertain.

02:42

Trend entry and stop-loss considerations

02:42

The speaker explains the differences between trading reversal setups and trend-following trades, emphasizing the importance of timing and stop-loss placement. For reversal trades, patience is required as the setup takes time to develop, necessitating a wider stop-loss to allow the position to breathe. In contrast, when trading currency crosses where a trend is already established, traders can enter with a tighter stop-loss since the momentum is already underway. However, this approach focuses on capturing shorter-term gains from an ongoing trend rather than anticipating a reversal.

04:08

Mean reversion in forex and trend vs reversal

04:08

The speaker explains that the currency market operates as a mean reversion market, where currencies oscillate between being overbought and oversold across different time frames. Traders must decide whether to trend trade or trade reversals based on currency strength and weakness. They highlight the importance of analyzing currency pairs moving together or in opposition; when two currencies move in the same direction, there is little trend potential due to the lack of differential strength driving the pair. Additionally, currencies that are flatlining or oscillating without strong movement, like the Australian dollar in the example, indicate low trend activity and require different trading considerations.

05:29

Currency strength signals and flatlining currencies

05:29

The speaker discusses monitoring currency strength signals, using charts as a reference. They highlight the current situation with the Canadian dollar and note that multiple currencies are exhibiting similar behaviors. The timing coincides with the European market opening at 7 o’clock.

06:00

European market open and volume spikes

06:00

The European cash markets begin with rising volume as East Asia’s session ends and Europe, including London, opens. This period features a strong rally followed by indecision marked by a doji candle. Trading around the volume-based control levels shows clear support and resistance zones identified through an accumulation distribution indicator, which highlights areas tested multiple times by the number and thickness of lines. The European open sees a strong market rally with good volume and a volatility trigger, although it does not result in congestion and continues into the next candle.

07:26

Following the initial rally, signs of weakness emerge with candles showing upper wicks accompanied by decent to increasing volume, indicating indecision in the market. Attention shifts toward the upcoming London open, a critical session crossover period known for causing congestion, volatility, or reversals. These effects are especially pronounced in local currencies such as the pound and euro but are observable across all markets, including US markets on Globex, reflecting the global influence of session transitions.

08:25

Risk and reward in trading strategies

08:25

The segment explains that related markets revolve around the concept of risk and return, emphasizing that trading is fundamentally about balancing these two factors. Whether employing reversal or trend trading strategies, the principle remains that higher risk should be compensated with higher reward, and lower risk yields smaller returns. The speaker also briefly addresses a question about whether to enter trades with pending orders or market orders.

09:29

Discretionary trading and multi-chart analysis

09:29

The speaker explains that identifying a potential trade involves more than a single chart or an automated signal; discretionary traders analyze multiple charts and timeframes to make informed decisions. They assess signals carefully, considering factors like support and resistance levels, and use this analysis to position stop losses and identify opportunities, such as reversal trades.

11:09

Assessing trade setups with sentiment and volume

11:09

The speaker discusses the process of analyzing charts and setups for potential entry points without fixed rules. Using the CSI and CAD/JPY pair as examples, they emphasize checking related factors such as oil prices and overall market sentiment. They highlight the importance of understanding sentiment pairs and volatility indicators like the VIX to anticipate possible movements, such as the yen being sold in a risk-on environment.

12:09

Further analysis includes considering volume profiles and the differences in trading sessions, stressing the need to compare similar market conditions (e.g., London open vs. European market). The speaker notes a strong rally signal with significant volume during the London open but questions whether this is sufficient to enter a position. They also reflect on the holding period for trades and revisit the CSI for additional context, indicating ongoing evaluation of market signals.

13:07

Patience in reversal trades and trend development

13:07

The speaker discusses the current state of the CAD/JPY currency pair, noting that while there is some yen buying activity, the pair has not yet developed a strong trend. They emphasize the importance of patience, as the yen may rise significantly, potentially placing the CAD/JPY at the top of the chart without a clear trend emerging. The decision to trade depends on interpreting various market factors, time frames, and individual risk tolerance. The speaker also mentions the difference between trading reversals, which require more patience, and jumping into existing trends, highlighting the Euro’s recent decline as an example in slower timeframes.

14:27

Strong dollar buying and currency pair analysis

14:27

The speaker discusses the strong buying of the US dollar, confirming this through currency indices on different timeframes, including the dollar index on a 5-minute chart and the CSI on a 15-minute chart. They highlight notable selling pressure on the euro, indicating a strong dollar environment. The analysis suggests that for certain currency pairs, such as the dollar cap, both currencies are rising strongly, making it less relevant to focus on one alone. The speaker prepares to demonstrate further insights by adjusting their display.

15:25

Choosing favorite trading setups and styles

15:25

The speaker discusses the importance of identifying favorite trading setups, especially when starting out. Traders should determine which chart patterns and factor combinations suit their style best. There are two main approaches: focusing on reversal trades, which involve looking at extensions, or another method that is implied but not fully detailed in this segment.

16:08

Volume patterns in trend and pullback trading

16:08

The speaker explains how chart patterns differ between range-bound consolidation phases and reversal trades. For reversal signals, candle patterns and volume are key indicators. In a downtrend with rising volume, a pullback with rising volume often signals a potential reversal. Conversely, during a secondary pullback, falling volume suggests the primary trend will likely continue.

17:29

A correction or pullback with falling volume confirms the continuation of the primary trend, as illustrated by a recent example involving the euro and ECB activity. The speaker emphasizes using volume point of control as support and resistance levels. They also discuss how charts convey their state—trending or consolidating—and traders must decide if the chart’s current state fits their preferred trading tactics, such as favoring reversal setups.

19:03

Chart states and decision making in trading

19:03

The discussion centers on understanding what the chart is doing through volume price analysis (VPA) and deciding if the chart setup is suitable for trading. The speaker explains that recognizing whether the chart is trending or consolidating guides the type of trading approach, such as trend trading or breakaway trading. Traders may try multiple setups and use faster time frames initially to gain experience. They emphasize the importance of viewing charts in multiple time frames and using volume to confirm if a setup is likely to succeed. The example trade mentioned is not considered a reversal trade due to multiple conflicting factors.

20:46

Market sentiment impact on yen pairs

20:46

The speaker discusses the current market conditions by analyzing the Volatility Index (VIX) and its implications. The VIX is falling, indicating a risk-on sentiment, which suggests that selling yen (shorting yen pairs) is not favorable at the moment. This sentiment is supported by the rising UK 100 (Footsie) index on a one-minute chart, as well as positive movements in US indices on Globex. Overall, shorting yen pairs would go against the prevailing market trend.

21:53

Risk-on sentiment and US market strength

21:53

The segment explains the three primary U.S. markets known as the ‘three sisters’: the Dow, Nasdaq, and S&P 500, represented here by the mini futures or E-mini futures. It highlights current market strength with rising indices and strong volume, indicating a risk-on sentiment. As a result, there is an expectation of yen selling driven by this positive market mood. Additionally, oil market factors are introduced as another element influencing the situation.

22:26

Bullish oil market influence on forex trades

22:26

The discussion focuses on the oil market, highlighting a bullish trend with strong buying activity and rising oil prices despite political and OPEC-related uncertainties. From an intraday and currency trading perspective, selling certain pairs is considered highly risky due to conflicting market factors and overall risk trends, illustrating challenges faced by forex traders in the current environment.

23:32

Relational market factors and trading challenges

23:32

The speaker explains that success in this business requires understanding the relational aspects of market behavior, focusing on risk-on and risk-off money flow, including its levels and flow. They emphasize using various indicators to assist decision-making, highlighting the trim monitor as a valuable tool that helps maximize profits by maintaining a longer-term view of trends.

24:05

Multiple timeframe analysis with volume point

24:05

The speaker explains the use of volume point of control across multiple time frames, highlighting how low volume nodes indicate potential swift market movements. They note a recent break away from the volume point of control with some selling, but overall strong volume support. The analysis includes observing declining volume areas as opportunities for price to move quickly, which is favorable for long positions in oil. The discussion also touches on similar volume patterns seen in different timeframes and revisits the concept of assessing currency strength across multiple timeframes.

25:30

Patience required for reversal trades

25:30

The speaker emphasizes the importance of patience in reversal trading, noting that it is not suitable for everyone. They highlight the ongoing bullish momentum in the CAD currency despite fluctuations and stress that successful trading requires waiting through these periods. The discussion then shifts to analyzing the currency array, specifically isolating the CAD across different time frames. This array helps visualize currency strength and identifies overbought and oversold conditions, with solid lines indicating significant signals similar to those on the currency strength indicator.

26:39

Oversold signals and risk assessment

26:39

The speaker explains how to analyze the euro currency on a ten-minute chart when it appears oversold. This involves examining the chart for potential trade opportunities by assessing relational aspects, volume across timeframes, and the presence of support and resistance levels. They emphasize evaluating potential problems, available headroom, and risk before deciding to enter a trade. Additionally, the choice between market and limit orders is discussed, highlighting personal preference, with the speaker favoring market orders more often.

27:41

Market vs limit orders and trading preferences

27:41

The speaker discusses different trading styles, emphasizing that there is no right or wrong way to trade. Traders who are not in front of screens all day often rely on limit orders, setting entry points above and below price channels to trigger trades. The choice between using market orders or limit orders depends on personal preference and trading circumstances. Market orders require quick, instinctive decisions and enable immediate market entry, while limit orders encourage a more thoughtful and analytical approach, allowing traders to carefully consider chart levels and stop-loss placements. Both methods have advantages and disadvantages, and the best approach varies according to individual personality and trading style.

By Anna Coulling – creator of volume price analysis