Risk sentiment and currency flows explained

Risk sentiment and currency flows explained

Forex trading success is about understanding the relational aspects of markets – of risk on and risk off and how this is reflected in risk and safe haven assets.

00:13

New Zealand yen volume and price analysis

00:13

The speaker begins by adjusting the screen layout to focus on the content, specifically highlighting the New Zealand yen currency pair on a three-minute chart. They emphasize the clarity of certain trades on this chart, suggesting these opportunities are unmistakable and easy to identify.

00:56

European session open and volume spikes

00:56

The segment analyzes volume and price action during the seven o’clock hour, marking the start of the European session. It highlights a significant surge in volume and volatility, particularly leading up to the London open at 8 o’clock. The speaker points out a pattern where despite heavy volume, price candles close with narrow bodies and lower wicks, indicating strong buying by major market participants and market makers. This buying activity occurs during a congestion phase starting around five o’clock, suggesting accumulation before a potential price move.

02:29

Accumulation distribution and trading levels

02:29

The speaker explains the use of the accumulation distribution indicator on NinjaTrader, highlighting levels that have been tested multiple times, indicating strong support or resistance zones. Two key levels together form a significant platform or barrier that can act either as resistance or support depending on price movement. This setup creates a clear trading opportunity, especially for scalpers, with a tight range of about 5 to 10 pips for placing stop-loss orders, providing good protection based on volume analysis and price levels.

03:28

VIX and sentiment impact on yen pairs

03:28

The speaker discusses a straightforward trade setup characterized by volume point of control and congestion indicating sideways movement. They emphasize the importance of monitoring the VIX index for sentiment analysis, recommending sources like Investing.com. The VIX chart shows a slight increase after an initial gap down, signaling a reduction in risk-on sentiment that was strong earlier in the trading session.

04:25

An intraday uptick in the VIX corresponds with emerging buying interest in the yen currency complex, particularly New Zealand yen which has been rising strongly. The speaker highlights the yen as a key counter currency that reflects sentiment shifts. A currency array focusing on yen pairs shows early signs of a potential reversal as the VIX ticks higher.

05:25

As the VIX continues to tick up, indicators show flattening trend lines suggesting a possible reversal in the yen complex. However, the Swiss yen is not showing strong movement because the Swiss franc, yen, and dollar are closely intertwined and collectively trending lower. This interrelationship dampens trend development in these currency pairs.

06:21

The speaker notes that several currencies including the Aussie, New Zealand, Canadian, and Euro are moving in similar directions, resulting in congestion rather than strong trends. They suggest focusing on yen crosses like Aussie yen or euro yen to identify emerging trends. The VIX is gradually rising intraday but not sharply, reflecting short-term sentiment shifts relevant to scalpers and swing traders.

07:18

While intraday VIX movements provide valuable insights for short-term traders, longer-term investors focus more on daily VIX trends. The daily VIX decline supports rising long-term risk sentiment despite short-term fluctuations. The speaker underscores the importance of combining VIX data with other market information such as bond yields and risk assets to form a comprehensive market view before returning to analyze charts.

07:56

Two-bar reversals and volume context

07:56

The speaker explains the concept of a two-bar reversal pattern in price action across different timeframes, starting with a 20-minute chart showing a rally followed by a collapse, forming a narrow candle with a large upper wick and significant volume. The volume is influenced by the London trading session, so comparisons across sessions must be cautious. The pattern is also visible on the 15-minute chart, indicating some weakness and a potential reversal. The speaker emphasizes overlaying price and volume analysis with sentiment data, referencing U.S. indices like YM and NQ on five-minute charts, accessible via platforms like NinjaTrader or investing.com.

09:29

US indices and technical support levels

09:29

The segment discusses the relationship between major market indices like the Nasdaq, Dow, Nasdaq 100, and S&P 500 futures, emphasizing the importance of integrating this information for trading decisions. It highlights how technical analysis of these indices, particularly the S&P 500 and its link to the VIX, can reveal potential support levels and price action pauses. Forex traders, although often unaware of these connections, can benefit from considering these technical levels to better assess risk and decide whether to enter or avoid short trades in currency markets.

11:13

Daily chart insights for longer-term trades

11:13

The speaker discusses waiting for a reversal and continuation in longer-term upside momentum, using the daily chart to analyze key support and resistance levels. The chart shows a strong ceiling of resistance at 66, which has been tested multiple times and acts as a significant barrier. This analysis is relevant for both longer-term traders and intraday trading concepts. If the market breaks above 66, it could present a good longer-term trading opportunity, though this is not a trading recommendation.

12:45

The focus shifts to the Aussie Yen chart, highlighting a two-bar reversal pattern known as a bearish engulfing, which is a common but not infallible indicator of potential market reversals. The speaker notes the presence of similar candlestick patterns like bullish engulfing and down thrusts (hammers) across various timeframes, emphasizing their role in providing context and helping traders anticipate market moves.

13:53

When considering short trades, the speaker advises careful assessment of stop loss placement and risk versus reward. Using a specific chart example, they explain that a 20-pip potential move might not justify the risk if the stop loss requires 10 to 15 pips. The chart also shows areas with low volume where the market can move quickly, followed by zones with high volume and strong support where price is likely to congest, influencing trade decisions.

15:15

The principle of evaluating risk and reward based on chart volume and support/resistance holds across all timeframes. The speaker emphasizes using the chart to determine whether the potential reward justifies the risk for any trade. The segment concludes with a mention of shifting market sentiment, as observed on the currency array, indicating a possible easing off in market momentum.

15:55

Currency array and yen buying sentiment

15:55

The VIX index is currently not falling but showing a slight rally, indicating some bullish sentiment. This is reflected in the yen being bought, as seen on various timeframes from 5 to 15 minutes. Similarly, the Swiss franc is also being bought and rising alongside the dollar, demonstrating a risk-on environment. Meanwhile, the New Zealand dollar appears to be rolling over on the 15-minute chart, reaching extreme lows.

17:04

The British pound is selling off strongly after reaching a peak, with a steep downward line indicating strong selling pressure. The presenter emphasizes the importance of observing currencies that show strong opposite movements—one rising and one falling—to identify trading opportunities. Deciding the entry point depends on individual strategy, whether to enter near the top or elsewhere.

17:33

Patience, stop-loss, and trading psychology

17:33

The speaker explains the strategy of trading reversals by entering early at market tops or bottoms. This approach requires patience and setting wider stop-losses to accommodate market buffering and congestion, as currency pairs rarely reverse perfectly. They highlight that while entering early offers greater potential rewards, joining a trend after it has started means accepting lower rewards but tighter stop-losses. Various currency pairs like Pound Yen, Pound Dollar, and Pound Swiss are currently trending, and traders must decide which approach suits their risk tolerance and style.

19:25

The importance of starting trading education with psychology is emphasized. Understanding one’s strengths, weaknesses, and personal comfort zones helps develop an effective tactical trading plan. This self-awareness increases the likelihood of success and prevents forcing unsuitable strategies. The program includes an extensive psychology module with multiple resources and a detailed self-analysis report, designed to help traders gain a comprehensive understanding of themselves and tailor their approach accordingly.

By Anna Coulling – creator of volume price analysis