Wyckoff’s second law in action on the GBP/NZD currency pair

Wyckoff’s second law in action on the GBP/NZD currency pair

Wyckoff’s second law is one that brings in the concept of time. In other words the longer a phase of price action has been building and particularly in congestion, then the greater should be the result once the trend develops. So in congestion phases, if these last for some time, then expect the consequent trend to be significant.

00:00

Introduction and disclaimer

00:00

The webinar begins with a brief apology for the delayed start due to technical setup. The host emphasizes the risks involved in trading and advises viewers to never invest money they cannot afford to lose. The audience is acknowledged as diverse, including users of quantum indicators, participants in the forex program, readers of related books, and others. The session aims to provide valuable insights regardless of participants’ background.

01:01

Volume Price Analysis explained

01:01

The segment introduces an analysis approach to the forex market, focusing on volume price analysis (VPA), which combines price action and volume to validate market moves. It emphasizes the importance of anticipating market direction amid uncertainty. The approach integrates technical chart reading with fundamental factors, such as news releases and related markets like commodities, to gain a comprehensive understanding of forex market dynamics.

02:05

Cross-market analysis and sentiment

02:05

The speaker explains how bonds, equities, and currencies are interconnected and how cross-market analysis is essential for understanding market sentiment, which drives price action in currency pairs. They highlight the current market fragility and volatility due to the pandemic, with markets either very quiet or volatile as traders await the upcoming FOMC meeting. They also mention the development of specific indicators to help interpret forex market movements and identify trading opportunities.

03:18

The speaker describes specialized indicators, such as the currency strength indicator, which help traders track money flows into risk or safe-haven currencies and provide early signals for trading opportunities. These tools offer quick insights into whether certain currencies like the British pound are being bought or sold, helping traders focus on specific currency pairs. The process involves analyzing currency flows, then examining chart levels and applying volume price analysis principles, including price action, volume, and candlestick patterns.

04:57

Focus on FOMC and market anticipation

04:57

The discussion focuses on the market situation ahead of the Federal Open Market Committee (FOMC) meeting scheduled for the evening. Despite the meeting being a two-day event, market activity remains subdued as traders await the Fed’s announcement. It is highlighted that no interest rate increases are expected, following a recent Fed statement during the ongoing meeting.

06:02

US economy and fiscal cliff concerns

06:02

The US lending and support program for companies has been extended to the end of the year, signaling concerns about the US economy’s state. Market sentiment is influenced primarily by the Federal Reserve and ongoing virus developments, though vaccine news has quieted somewhat. The market remains cautious as it awaits further clarity amid these factors.

07:09

The concept of the ‘fiscal cliff’ is introduced, referring to a combination of financial factors that could trigger a sudden and severe economic decline. This situation highlights the risk of slipping into a depression despite recent V-shaped recovery signs following the virus impact.

07:48

The virus continues to surge in the US, with no clear containment in sight. Company earnings reports are mostly poor, particularly in the airline industry, which is facing near collapse. Major aerospace companies like Boeing and Airbus are expected to report disappointing results, underscoring the challenging economic environment.

08:24

US election year volatility outlook

08:24

The speaker discusses the upcoming election year, highlighting the uncertainty and expected volatility in the months leading up to November. They describe the current period as calm but tense, like the calm before a storm. Additionally, the focus is on the US dollar and its performance in relation to the Federal Reserve’s actions.

08:59

US Dollar and Dixie Index details

08:59

The speaker explains the choice of using MT5 over MT4 due to broker access to the US Dollar Index (Dixie), which is based on futures contracts and heavily weighted by the euro. They recommend using investing.com as a valuable resource for market data, including commodities, bond yields, and indices, emphasizing its accessibility and comprehensive coverage.

10:21

Investing.com offers various regional versions, including UK and US, which provide customized market data such as futures, volatility, and indices. The speaker discusses how they use the UK version for forex volatility and the US site for S&P futures. They also mention the removal of Nasdaq futures but compensate by tracking it separately.

11:26

The platform allows customization of tabs to monitor indices, sentiment indicators like the VIX, commodities such as oil and gold, and bond yields, particularly the 10-year yield which signals market fear. The speaker also references forex indices developed as part of their quantum package, including US, pound, and euro indices designed to better reflect forex market conditions.

12:28

Focusing on the Dixie index, the key support level is identified around 93.40, a strong historical level dating back to 2018. Despite recent rapid declines in the US dollar, this level has held multiple times. To find meaningful support levels, slower time frames are examined, and the hourly chart shows repeated attempts by the dollar to rally but falling back to this key support.

13:40

The dollar continues to test its support level without breaking it, leading to uncertainty about its future direction. The speaker advises trading based on chart signals during such volatile and extraordinary times. Meanwhile, the British pound had a significant move, particularly against the dollar, creating an asymmetric trade where one currency drives the move more than the other.

14:47

Ideal currency trades involve balanced buying and selling forces, but this is not always the case, especially with the dollar at a critical support level awaiting Fed decisions. Strong moves, like the recent British pound rally against the dollar (Cable), often trigger significant moves in cross pairs such as the pound-New Zealand dollar, which might not typically attract much trader attention.

15:55

Currency pair analysis and breakout examples

15:55

The speaker discusses the downtrend and subsequent strong consolidation of a market instrument, illustrating Wyckoff’s second law which states that longer consolidation phases lead to stronger breakouts. Key volume-supported breakout candles are highlighted, showing strong buying under consecutive hammer candles and a critical support level at 1.9. Despite the dollar’s stagnation, other currencies showed significant moves, with the strongest being in a cross pair.

17:05

The analysis continues with a focus on volume price analysis and flow levels, particularly regarding the Pound-New Zealand pair. The price paused at a key resistance level known as the Camarilla R4 on the hourly chart, identified at 9429, which will be crucial for future upward movement. The price has retraced since yesterday’s move. The speaker emphasizes the importance of using multiple time frames because key levels on slower time frames trump those on faster ones, especially in the context of recent Federal Reserve decisions.

18:18

The discussion touches on the broader economic challenges including the impact of the Federal Reserve, ongoing virus concerns, and the fiscal cliff, noting that these factors create a difficult economic environment. The speaker then hands over to David for a deeper chart analysis and invites viewers to submit questions for live responses.

By Anna Coulling – creator of volume price analysis