10 August 2010


Let's go through FOMC EUR/USD, play by play. First things first, there was a channel and you could have placed a position either side. One could figure this was dangerous given the uncertainty.

So one could have taken a position as near as possible to 2:15 but not too near as the volatility always happens just before. One may have found in the past the direction near 2:15 is the direction it will go. This was true in this case.

The problem was what happened at 2:14-2:15. The market moved downwards. Look at the 1 minute chart. That I find computationally interesting. I have seen time and time again the very initial reaction is important for the medium term direction (let's define medium term in this fast case as the session +).

A possible reason for this were big sales to willing buyers stacking the sell orders momentarily. But as always there seem to be market information in this as well. In all events it was a stop hunt whether intended or not for those who had positioned themselves close.

Now you either did not have a stop, positioned yourself even earlier, had a stop at the channel, or were stopped out. If you were in the categories who were in, you got lucky. Assuming you went with EUR going up, but logically the Fed were not going to hit liquidity, the longer term consequences are another matter. However one might have felt this was going to go up and up and one might have waited for a possible reaction back.

However those multiple tests of support on 1 min suggested it was not going to reverse. So one might have taken another *buy* position, and exited very luckily when it hit its ceiling, with a relatively long spike. The rationale for this is the structure to the left on the chart providing resistance, which is where the spike hit. Remember what was in this blog, go to the left and look for structure to provide support or resistance.

One might conjecture for a fast move like this close structure is most important. Getting through that usually needs real fundamental backing. In all events it would have provided a good rationale for exiting. And remember with FOMC, either the instrument sharply reverses soon, or else all momentum is spent and it is just going to range for a while, like a very quick Elliott Wave.

The information I was trying to get from all this was: if there is a way of seeing whether the instrument will reverse in these conditions and to me it seemed like it is possible to garner information by eye. This is a much overlooked way of dealing with forex - simply use your brain to deduce structure, direction and momentum, it works in fast conditions, but as soon as conditions slow you need to reference earlier structure with RSI etc. (except they are not as accurate as the brain). But this was a condition where the reference was right beside you (that big candle).

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