The most dangerous thing to do in trading!

The most dangerous thing to do in trading!

Trading with an opinion is one of the most dangerous things to do in trading, and in this video we explain why. Instead trade what you see on the chart and not what you think!

00:01

Introduction and trading disclaimer

00:01

The presenter welcomes viewers from various parts of the world, acknowledging different time zones. They emphasize the importance of the disclaimer on screen, reminding everyone that trading involves significant risks and to never use money they cannot afford to lose.

00:28

Volume price analysis basics

00:28

The speaker introduces volume price analysis (VPA) as a method to interpret charts by examining price action alongside volume to validate market moves. They emphasize the complexity and potential manipulation in trading, highlighting the importance of VPA in gaining an advantage. The concept extends beyond basic principles, hinting at an expanded approach to understanding market behavior.

01:33

Multi-time frame analysis importance

01:33

This segment explains the importance of analyzing support and resistance candle patterns across multiple time frames when trading. It highlights the need to understand how price action on a preferred shorter time frame, such as a five-minute chart, may differ from trends on slower time frames, which can indicate whether a move is a pullback or a correction. Trading against the flow in a slower time frame is possible but carries higher risk, requiring tight stop losses and shorter trade durations. To reinforce these concepts, a companion book with over 200 annotated examples has been published alongside the main Volume Price Analysis (VPA) book.

03:19

Companion book on VPA examples

03:19

The speaker explains that the examples in the book are drawn from stocks, indices, and commodities, with a version also available for the forex market. They emphasize that technical analysis based on price pattern analysis (BPA) is only one part of trading considerations. For those already in the forex trading program, it’s noted that trading decisions involve more than just technical analysis.

03:55

Related markets and fundamental news

03:55

The speaker explains the importance of understanding the overall market environment, especially in forex trading. They emphasize analyzing fundamental news alongside related markets—the forex, bond, equity, and commodities markets—which are interconnected and influence each other. Observing correlations between currencies and other market instruments is crucial, as movements in one market often precede changes in another. The speaker highlights that traders should consider the market as a whole rather than focusing solely on a single chart. They also mention a significant event from the day related to fundamental news that has impacted the markets.

05:07

Jackson Hole symposium overview

05:07

The Jackson Hole Symposium is a key event for central banks, serving as a crucial gathering where major monetary policy decisions and statements are anticipated. This year, the symposium is held virtually due to the pandemic. Market participants are particularly focused on Federal Reserve Chair Jay Powell’s remarks, as his announcements often reflect the stance of multiple central banks. Understanding inflation is critical, as it influences market behavior and central bank actions, affecting various trading markets including forex.

06:17

Central banks inflation target explained

06:17

The segment explains the role of central banks in managing inflation, focusing on their 2% inflation target, which is somewhat arbitrary but widely accepted as ideal. Central banks aim for a ‘Goldilocks’ economy—neither too hot nor too cold—but often struggle to achieve this balance due to unpredictable events like the pandemic or market crashes. The speaker notes that central banks are now willing to be more flexible with the 2% target, allowing inflation to run higher than before. This shift marks a significant change from past policies that prioritized keeping inflation very low to protect savings and control costs, highlighting that banks are now actively trying to encourage inflation.

08:04

Market reaction to Fed announcement

08:04

The speaker explains that excessive money printing leads to inflation and devaluation of currency, referencing Zimbabwe as an example. The market reaction to a recent symposium has been volatile, with the YM index initially rising, then falling, and finally entering consolidation before a slight decline. Concurrently, market indicators such as the VIX increased, the dollar fluctuated, and gold remained a stable asset that investors tend to favor during uncertain times.

09:14

Gold and TIPS inflation protection

09:14

The video discusses the recent rush into gold driven by fears of inflation and the Federal Reserve’s policies. Despite expectations, gold prices fell, which is explained by the Fed’s more flexible approach to its 2% inflation target, suggesting inflation might rise beyond that level. This uncertainty mirrors Japan’s long-term low inflation despite quantitative easing, indicating markets are unsure if inflation will become a persistent problem.

10:21

The speaker introduces TIPS (Treasury Inflation-Protected Securities), bonds designed to protect against inflation, and highlights an ETF tracking TIPS as a useful market sentiment indicator. There is a noted correlation between TIPS and gold prices; when TIPS rise, gold tends to rise as well. Currently, both have moved sideways after a pullback, reflecting market uncertainty about central banks’ effectiveness in controlling inflation.

12:02

Gold’s value is explained not only by inflation expectations but also by the broader financial system’s instability. The destruction of monetary value through paper money and bonds contributes to gold’s appeal as a safe asset. The segment concludes by noting the ongoing market reactions amid recent events like the beginning of the Jackson Hole symposium.

12:37

Know your central bank and policies

12:37

The speaker emphasizes the importance for traders and investors to understand their central bank, including the key personalities and committee members, especially when trading currencies like the Canadian dollar or British pound. Knowing who holds voting rights on committees such as the Federal Reserve is crucial, as the statements from voting members have a greater impact on the market compared to non-voting members. Understanding the central bank’s monetary policy is essential across various asset classes including equities, commodities, and currencies.

14:07

Volatility indicator and market phases

14:07

The discussion focuses on how to interpret extreme price action following significant market events or announcements. The speaker introduces a volatility indicator developed to detect when price moves outside its average true range, signaling heightened market volatility.

14:38

The volatility indicator triggers multiple times during sharp price movements, such as during Powell’s speech and subsequent market reactions. Typically, after such spikes, prices tend to retrace and consolidate within the range of the large candle formed during the initial volatility.

15:12

After periods of high volatility, the market usually enters a congestion phase characterized by sideways movement as it stabilizes and traders await clearer directional signals. In the YM market example, the price moved sideways following the initial volatility spike.

15:47

Trading opportunities during congestion phases may exist on faster time frames like tick or Renko charts, while slower charts such as the 10-minute require waiting for a decisive move away from key volume levels, particularly the volume point of control, which acts as a balance or fulcrum point on the chart.

16:21

Support and resistance levels importance

16:21

The speaker discusses the importance of using different chart types and time frames, such as three-minute, five-minute, Renko, and ten-minute charts, to analyze market movements for cable. They emphasize the critical role of marking key support and resistance levels on charts, especially during volatile periods. Specific indicators have been developed to highlight these levels because support and resistance remain significant even when price action is erratic. The example references dramatic price swings seen on the ten-minute chart, showing how price interacts with important levels like the R4 pivot point, moving averages, or Fibonacci levels.

18:15

After a volatile move, the price entered a congestion phase between key pivot points (S1 and R3), without reaching extreme levels like S4. The market tends not to stay in congestion indefinitely and eventually moves directionally. A small reversal occurred, with price fluctuating between R1 and S1 levels. Given the time of day, a return to congestion is likely. To manage volatility effectively, combining time-based charts with non-time-based charts, such as Renko or tick charts, can smooth price action and clarify market trends.

19:20

Renko charts and accumulation distribution

19:20

The speaker explains the concept of Renko bricks, emphasizing that they represent price breaks rather than traditional candlestick wicks. The bricks are set to a value of 2.9 pips, meaning each brick forms after the market moves by that amount. They also introduce the accumulation distribution indicator, which measures the strength of support and resistance levels by the thickness of its lines. A recent price move was analyzed showing how the price ran up from the S3 level with some sideways movement. The Renko chart is combined with additional trend indicators, such as the trend dot and trend monitor, which closely follow the market movements.

20:26

The usage of the trend indicators is described as straightforward, starting with an analysis of price action structure on the chart. The chart shows congestion following a period of volatility, with no clear breakout attempts. This congestion and price pullbacks are reflected in frequent changes in the trend indicators, illustrating how the market fluctuated within certain price regions.

20:57

Trend indicators and breakout trading

20:57

The speaker explains how to identify a significant break in price or volume using trend dots that turn consistently bright blue, indicating a potential half-decent break. They recommend comparing this signal with the time chart to confirm whether volume supports the candlestick movement, which in this case it did.

21:32

The discussion highlights that the price has moved away from a strong resistance region, emphasizing the importance of stop-loss placement in breakaway trading. The speaker notes that knowing key chart levels helps determine where to place stop-losses, suggesting options such as just below the S2 support level for a tighter stop.

22:04

The speaker elaborates on stop-loss placement, suggesting it can be set very close to a support line, allowing the trade to run with the Renko chart. They explain that trends often pause and enter congestion phases before potentially breaking out or reversing, with typical price action involving congestion rather than dramatic V-shaped reversals.

22:42

Price targets and multi-time frame levels

22:42

The speaker explains the importance of price levels in trading, emphasizing that these levels serve multiple purposes: they help traders understand price structure, set stop losses, and identify price targets where price action is likely to pause or reverse. Using different time frames, such as the three-minute and five-minute charts, traders can anticipate the next logical stopping points if price breaks through a level. The example includes a volume point of control zone and a key camarilla level (R4 at 3270), which is highlighted as particularly significant. Despite market volatility and emotional reactions, these levels provide objective guidance for trading decisions once the market stabilizes.

24:32

Summary and trading advice

24:32

The speaker explains the approach of analyzing a chart carefully and making trading decisions based on the chart’s information, using the cable as a clear example.

By Anna Coulling – creator of volume price analysis