Trading the pound as London forex market opens

Trading the pound as London forex market opens

In this portion of the webinar from the London forex trading session we focus on trading the pound.

00:00

Introduction and trading disclaimer

00:00

The webinar begins with a warm welcome and a reminder about the risks involved in trading, emphasizing the importance of only using money one can afford to lose. The host mentions a brief break the previous week and notes that this session is part of a new series. The focus will be on analyzing the forex market, with insights shared by the host and David.

01:02

Volume price analysis methodology

01:02

The segment introduces volume price analysis as a technical methodology that combines price action with volume to determine the authenticity of chart patterns, distinguishing genuine moves from potential traps. It emphasizes integrating this technical perspective with fundamental news and related market developments to gain a comprehensive understanding.

01:36

Currency relationships and market sentiment

01:36

The discussion explains the close relationship between certain currency pairs and other market dynamics, using the Aussie Yen as an example which acts as a risk proxy. When market sentiment is negative, these currencies tend to fall, and vice versa. Understanding these inter-market relationships can significantly improve trading performance. The speaker emphasizes that most traders typically focus on one chart and one timeframe, but to truly advance, traders need to incorporate multiple factors and broader market insights. This approach is the foundation for the forex program they have developed to enhance trading knowledge and skills.

02:42

The webinar also introduced specialized forex market indicators designed to analyze individual currency movements and market flows. These indicators help traders understand whether currencies like the British Pound or Euro are being bought or sold, allowing a detailed breakdown of currency market dynamics before synthesizing this information for better trading decisions.

03:14

Session focus and currency pair trading nuances

03:14

The discussion focuses on the British pound’s recent selling activity and explores where this selling pressure is strongest, whether against the dollar, Aussie, or yen. The speaker explains that the current trading session in London makes the British pound and euro particularly important, with certain currency pairs like cable (GBP/USD) and euro/pound potentially seeing more activity. Understanding these market nuances and using charting platforms like Ninja Trader can significantly aid traders in developing their skills.

04:18

Brexit and vaccine impact on British pound

04:18

The speaker discusses the recent strong decline in the British pound, largely attributed to Brexit-related uncertainties. They explain that although they have predicted Brexit’s impact for some time, the currency’s movement has been less dramatic than expected. The recent parliamentary announcement and upcoming bill regarding the UK’s divorce deal with the EU are key factors influencing the pound’s volatility.

06:04

In addition to Brexit, negative news about the Oxford-AstraZeneca COVID-19 vaccine has further impacted the British pound. A trial participant became very ill, causing a temporary halt in the vaccine’s development. This setback is concerning for markets eager for a vaccine to restore normality, and it adds to the challenges facing the British currency.

06:32

Oil price effect on Canadian dollar

06:32

The speaker discusses the recent general market sell-off, highlighting its bearish impact on oil prices. They note that their previously predicted bearish target for oil has already been reached. The focus then shifts to the currency markets, particularly the Canadian dollar, which is closely linked to oil prices. The Canadian dollar has experienced significant selling pressure and is very oversold, reflecting the decline in oil prices. This relationship is important for aspiring forex traders to understand as part of their learning journey.

07:42

Currency strength indicator overview

07:42

The presenter explains the currency strength indicator (CSI), which separates individual currencies to show where money is flowing. The current state reflects strong buying of the Japanese yen, a safe-haven currency during market downturns, although it can also be sold in positive sentiment. The Swiss franc has also been bought but is experiencing a sell-off. In contrast, the Australian dollar is facing a significant sell-off due to market sentiment and a diplomatic spat between Australia and China, impacting the Aussie currency.

08:44

The discussion highlights the importance of understanding background factors behind currency movements, beyond just price action and volume. Individual currencies are very overextended, exemplified by the pound. The presenter stresses that markets can remain overextended longer than traders can remain solvent. Using the currency strength matrix, the pound/yen pair is identified as the weakest. The indicator values help determine the strength of moves in currency pairs, refining analysis for better trading decisions.

09:50

The presenter describes the development of a refined indicator that quantifies the strength of currency moves with numerical values. Values in triple digits indicate phenomenal moves and suggest an impending technical correction, which may be fast and volatile. Traders should analyze charts and momentum to decide if counter-trend trades are viable. The use of multiple time frames aids in this analysis. The current overextensions and session crossovers, such as the London open, signal potential trading opportunities.

11:32

The currency strength indicator shows overextensions with the pound and Canadian dollar at the bottom, and the New Zealand dollar and Japanese yen rising. Slight positivity in futures markets, including the Nasdaq, supports this. These conditions suggest opportunities for correction or reversal trades on faster time frames. Additionally, a currency array indicator measures trend strength and signals overbought or oversold conditions, providing more confidence for potential trades.

12:43

The presenter reviews multiple short-term charts of cable (GBP/USD), including 3-minute, 5-minute, Renko, and 10-minute charts with a Camarilla indicator. Emphasizing the importance of volume-price analysis, they stress the need to identify and visualize key support and resistance levels on charts. This helps traders understand crucial price points and enhances decision-making.

14:00

Camarilla indicator and support/resistance levels

14:00

The discussion begins with an introduction to various trading indicators, focusing on the Camarilla indicator, which is based on price and operates hierarchically across different time frames up to but not including the hourly chart. The indicator values remain valid for one week. The example of the British pound (Cable) on the MT5 platform illustrates price action during a period of congestion followed by a volatility-triggered break lower, highlighting how the Camarilla levels correspond to market movements.

15:18

A volatility indicator triggers when price moves outside the average true range, often followed by a retrace into the candle’s spread that can lead to congestion, reversal, or continuation of the trend. Two such volatility triggers are analyzed, showing validation at significant Camarilla levels. The S3 level is emphasized as a key potential reversal point, distinct from the more commonly discussed S4 level, with reversals potentially targeting the R3 level.

16:22

The use of the CSI (Commodity Selection Index) alongside price action and volume is important for confirming potential reversals, especially around key market opens like the London open. Despite narrow spreads and high volume causing price stagnation, a move lower from the S1 level has paused, suggesting a possible reversal. This counter-trend opportunity is noted as a technical reversal amidst generally negative sentiment toward the British pound.

17:29

For intraday or faster time frame traders, understanding price action, volume, chart structure, and support/resistance is crucial. The Renko chart for Cable shows a recent move lower followed by congestion and a break. All support and resistance indicators discussed are dynamic and update with price action, unlike the static weekly Camarilla levels. The current pause around the S3 level during the London session is observed, and the hourly chart values are mentioned as important for ongoing analysis.

19:05

Using daily, weekly, monthly support/resistance values

19:05

The speaker explains the concept of weekly values in price action analysis, specifically for the British pound, noting that when these levels are surpassed, traders can refer to daily values which refresh every 24 hours, or look at weekly charts valid until the end of the month. The discussion extends to daily, weekly, and monthly values as tools for identifying support and resistance. Using a three-minute chart, the speaker highlights the importance of the volume point of control, an indicator reflecting the fair value in market profile terms. This fair value indicates a pause or congestion in price movement, with uncertainty about whether the price will reverse or continue lower. The speaker hints at further analysis to come, especially considering recent significant market developments.

20:50

Price action, trend continuation and trading strategies

20:50

The speaker discusses the strong downward trend in the cable currency pair, addressing traders who may have missed the price action or been distracted. They emphasize strategies for joining an ongoing trend. The focus then shifts to the euro, highlighting its importance ahead of the upcoming ECB meeting. The speaker invites viewers to submit questions in the chat for live answers.

By Anna Coulling – creator of volume price analysis