Learn how to search out the reversals using the currency strength indicator for NinjaTrader

Learn how to search out the reversals using the currency strength indicator for NinjaTrader

In this session, we focus on the currency strength indicator for NinjaTrader and learn how to search them out, and in this example using the EUR/CAD.

00:11

Introduction and microphone setup

00:11

The speaker adjusts their screen and microphone settings, ensuring the audience can hear clearly. They mention moving from one location to another for a change of scenery and note that they’ve been active since early morning around 6 o’clock, indicating a long day ahead.

00:47

Analyzing currency matrix and volatility

00:47

The speaker discusses Euro buying influenced partly by selling from Ozzy. They refer to a currency matrix with multiple timeframes—one, two, three, and five minutes—highlighting the faster timeframes and mentioning the London market open. The focus is on identifying volatility and potential traps in trading.

01:25

London open trap moves and reversals

01:25

The discussion focuses on market movements typically observed around the London open at eight o’clock. It explains that trap moves often develop in anticipation of this time, followed by a trigger event several minutes later. The speaker emphasizes the importance of watching for volatility and reversals, especially in conjunction with congestion patterns. An example is given where the Euro Australian Dollar currency pair shows a decline after previously being strong.

01:56

Euro strength and universal sentiment

01:56

The speaker analyzes recent currency trends, focusing on the Euro’s performance over different short timeframes (5, 10, and 15 minutes). They highlight that the Euro, particularly against the New Zealand dollar, is showing strong buying momentum. The discussion emphasizes the universal sentiment towards the Euro in fast timeframes, noting that broad market buying is confirmed when multiple Euro pairs move upward together. The speaker also mentions watching for signs of weakening if key Euro pairs start to fall below a midpoint level.

03:06

Currency pair trends and radar analogy

03:06

The discussion explains how certain indicators move from bullish to congestion and bearish territories, which can predict currency movements such as the euro and Aussie dollar. The behavior of these indicators is compared to a windscreen wiper or radar, showing a sweeping motion either upward or downward. This sweeping reflects the relative strength of currency pairs, with the LZ currently showing the strongest trend, followed by euro New Zealand. Additionally, the indicator provides insight into whether a currency pair is approaching an overbought condition.

04:05

Overbought and oversold signals explained

04:05

The speaker explains how the system indicates oversold and overbought states using color coding. A combination of darker blue with an ‘OB’ signal in brackets shows an oversold state, while a bright blue without brackets suggests a potential overbought state. These signals flicker quickly to convey multiple layers of market sentiment within the euro complex.

04:36

Currency rotation and trend baton concept

04:36

The speaker explains how to identify strong currency trends by observing whether multiple currencies move in the same direction, indicating strengthening or weakening sentiment. They describe the dynamic nature of currency trading, where strength rotates from one currency pair to another, similar to passing a baton in a relay race. This rotation results in buying pressure shifting between pairs, such as the Euro/New Zealand dollar and Euro/yen, which are currently showing upward movement. The ideal scenario is when multiple currencies rank highly together, signaling a strong trend phase. The speaker also mentions the potential for reversal trades when this trend phase ends.

06:06

Chart analysis and NinjaTrader advantages

06:06

The speaker discusses analyzing trading charts from a VP8 perspective, noting different time frames such as 15 seconds, one minute, and five minutes. They highlight the advantage of using NinjaTrader over MT4 and MT5 platforms, as NinjaTrader displays the local time directly on the chart, making it easier to track real-time market activity without lag. The discussion includes observing market activity at 7 o’clock in Europe, extended congestion phases in Far Eastern Asia overnight, and significant volume and volatility during these periods.

07:04

Support, resistance and volume levels

07:04

The video explains the concept of support platforms represented by blue and red dashed lines, which correspond to support and resistance levels similar to those in NinjaTrader and MetaTrader platforms. These lines vary in thickness to indicate strength, with thicker lines representing stronger levels. Each time a level is tested and holds, the thickness increases, visually conveying the strength or weakness of price-based levels through an algorithm that tracks repeated tests.

08:16

After a price breakaway, clusters of support platforms appear, including volume-based support and resistance levels shown via the volume point of control and histogram on the chart’s right side. The video discusses how price moves quickly through low-volume areas, confirming the concept that volume-based support and resistance act similarly to price-based levels. The volume histogram is analyzed across multiple time frames—current, faster, and slower—to identify significant volume areas that influence price movement.

09:17

Volume impact on price movement

09:17

The speaker explains the importance of identifying areas of low and high volume in the market. Low volume nodes are regions where the market can move quickly with less effort, while high volume areas consist of dense layers of orders and traders trapped in positions, acting as strong support or resistance. An analogy is made comparing high volume zones to a crowded shopping mall versus low volume zones to a mall with few shoppers, emphasizing how volume influences price movement.

10:15

Volume-price relationship and London open

10:15

The segment discusses analyzing the volume and price relationship on the chart, highlighting significant volume increases around the London market open. Despite high volume and efforts to rally, the price movement appears weak and indecisive. The trend remains bullish overall, supported by a trend monitor tool that helps maintain confidence during congestion phases in the market.

11:11

Trading psychology: fear and patience

11:11

The speaker discusses a common trading challenge where traders often close positions prematurely when profits turn into losses, leading to many small losses and wins that cause the account to stagnate or decline due to commissions. The hardest part is enduring market congestion and waiting for a trend to develop, despite the market’s design to induce fear and trigger premature exits. This fear is contrasted with greed, as traders want to make money but must practice patience. The speaker also references using a currency strength indicator on a slower timeframe to observe market weakness signs.

12:37

Volume histogram and trade ease

12:37

The market is experiencing weakness but is trading around the volume point of control, indicating expected congestion. Analyzing the 10-minute timeframe histogram shows volume falling away, which suggests a favorable environment for long trades as there is little volume resistance to impede upward movement. The 15-second timeframe, while more fast-paced, follows the same principles with a clearly established support level that was previously resistance. The volume continues to decrease as the price moves into a low volume area, implying the market should easily continue higher.

13:57

The trend monitor indicates a direct shift from bearish (red) to bullish (blue) without a transitional phase, showing increasing strength in the upward trend. Currency strength indicators for Euro and Aussie dollars on the 10- and 15-minute charts confirm that both buying and selling pressures are balanced and strong, supporting the potential for a robust long trade setup.

14:32

Currency strength indicator insights

14:32

The euro is experiencing a strong upward trend with a steady incline, indicating robust buying strength, while the Australian dollar is weak due to selling pressure. This combination supports the currency pair’s upward movement. On faster timeframes, the euro appears to be flattening and entering an overbought state, while the Australian dollar is oversold. From a scalping perspective, this suggests a potential pause or slowdown in the euro’s rise despite continued strength on longer timeframes.

15:35

Scalping vs trend trading strategies

15:35

The speaker discusses trading strategies, contrasting trend trading with reversal trading. Trend trading involves joining an ongoing move with tighter stop-losses, likened to jumping on a moving train. In contrast, reversal trading requires more patience. The current market setup shows the Euro, Aussie, and Canadian currencies moving differently, with the Canadian dollar selling off strongly. This suggests potential opportunities, but it’s emphasized that the Euro may not necessarily reverse as expected.

16:32

Congestion phase and risk management

16:32

The speaker explains that currency movements, such as the Canadian or Aussie dollar, do not always move smoothly from one extreme to another. Instead, they often fluctuate within a congestion phase, causing prices to flip-flop for a period. This behavior requires traders to widen their stop-losses to accommodate the uncertainty and time involved in these phases. Ultimately, currencies tend to revert to the mean, as no currency remains overbought or oversold indefinitely within any timeframe.

17:26

Mean reversion in Forex markets and summary

17:26

The speaker describes a dynamic market environment characterized by frequent shifts between overbought and oversold states. This market exemplifies a continuous search for strength and weakness across different timeframes, from seconds to months. Traders observe price levels where currency pairs experience directional flows that then reverse, highlighting the ongoing ebb and flow fundamental to trading strategies.

By Anna Coulling – creator of volume price analysis