Don’t Let the InterBanks Suck Your Blood by Making False Support/Resistance Breakouts

Category: Forex Market Analysis and Signals | Wednesday, June 18th, 2008

Hello my friends :)

I hope you could receive my last two days reports and act according to them.

Tip of the Day:

The title of today’s report may have made you surprised but most of you know what I mean. We are all personal traders and the amount we buy or sell individually, doesn’t have any significant impact on the market direction. We simply follow the signals and trends. Our action doesn’t let any of the other traders lose any money unless they act against the trend. So if everybody follows the trend and market he/she will not lose and everybody can collect his/her profit.

But devil bank traders have some different methods sometimes. They make money for the banks by causing the others to lose money. How?

They make false support and resistance breakouts during the slowest time. Lets say the price is right under a strong resistance and has already shown good bearish signals and wants to go down. Most of the traders have already taken their short positions and have placed their stop loss orders above the resistance. Naturally, the stop loss order of a short position is a buy order, isn’t it?

On the other side of the market, there is a devil banker who also knows that the price wants to go down. He wants to take a short position for his bank but as the bank will pay him more money if he makes more, he wants to do something that makes more money. So what does he do?

He knows that personal traders have taken and are taking short positions and this is obvious because the price is going down slowly. Instead of selling short, he buys long. They have a lot of money in their hands and so he places a huge or several big buy orders one after each other. As they do this when the market is slow and there is a small number of traders in the market, his buy orders will have the maximum impact in the price and causes the price to jump up. This sudden movement triggers stop losses that are all buy orders and this will provide more fuel for the price to go higher. The other traders think that the resistance is broken up and so they take a long position and again this will cause the price to go even higher.

But this is a false breakup, because before this the price has been going up for a long time and is already exhausted. Soon the price stops going up and starts following its natural bias. The banker is waiting for this opportunity to close his long positions and take short positions with a bigger amount of money. He does it and the price goes down suddenly. Then he places his stop loss orders and goes home. The market follows this direction because it is what it wanted to do before. Other traders take short positions and this takes the price much lower.

So what is the result? Rich becomes richer and a lot of poor personal traders lose money because of triggering their stop loss orders or because of taking long positions after the false resistance breakout.

Although the banker could still make money without pushing up the price falsely, their excessive greed for making more money causes them to make the others to lose money.

Last Friday, exactly 5 minutes before the market closing time was the last time I saw a false breakout in GBP-JPY.

So what should you do to avoid being trapped in this vortex?

1- Avoid placing tight stop losses.
2- If the price is testing a support or resistance line, let it succeed or fail and then take your position. Being late is better than being wrong.
3- Do not trade during the slow time or when the market is choppy.
4- Do not trade during the last hours of the market on Friday. If you already have a position, move your stop loss to a proper place but do not take any new position.

Forex trading is like sailing. You should be able to distinguish the best sailing time.

Fundamentals: Philadelphia Fed at 10:00 AM

Ok! Lets check the currency pairs.

EUR-USD:

12:47am GMT

Please also have an eye on the yesterday charts. I will not show you the weekly chart today because it doesn’t show any significant changes. The current candlestick just has lost its red body because the price has been going up since yesterday as predicted. So the price is going up to retest the 161.80% level in the weekly chart (Please see the yesterday charts).

Yesterday candlestick in the daily chart failed to breakup the the Bollinger Middle Band but today’s candlestick is forming above the middle band. It seems the Bulls are encouraged to buy and the price is following the uptrend and shows no hesitation to go up. The RSI has formed a higher low in the daily chart which reflects the Bullish power of the market.

I didn’t expect the RSI to break down its support but it did. But it changed its direction very soon and now it is retesting the broken support that acts as a resistance. The price has formed a higher low.

The one hour is strongly Bullish.

Yesterday at this time I told you that you should wait because the price was going down. I warned those who had a short position to be careful to close and take their profit on time because short position was (and still is) against the 4hrs and daily chart. As you saw the price went down and I hope those who were short could make some money and then took a long position. Those who had a long position according to the 4hrs chart were lucky enough to make money and they can still keep their position. I suggest them to move their stop loss higher to keep more profit.

GBP-JPY:

1:55 am GMT

The weekly chart is strongly bullish:

In the daily chart, the RSI is so close to its smaller support line. It is going down to retest the support. According to the history of the market, it is highly possible that it breaks down the smaller support and goes down to retest the bigger support line. So do not take any long position if you don’t have any already. If you have a long position, you’d better to close it or move your stop loss higher.

The 4hrs admits that the price is going down. It has formed something like a defective head and shoulders. You can take a short position (if you don’t have any short position already) if the price breaks down the head and shoulders support line. The RSI is retesting its support hardly. It is highly possible that it breaks down the support. The RSI breakdown happens sooner than the price breakdown. So get ready to take the short position.

One hour chart shows more details and gives more confidence about the incoming support breakdown. Let’s see.



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1 Comment:
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Comment by lanre lagos
2008-06-21 01:19:55

a gem and our gem great to have you back. i will be reading all your post this weekend, happy to welcome you back.

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