Options Barrier : EURUSD

When I wrote my previous post about ‘Trading the pullback’ was unaware that the ‘supply area’ was just below a major 731 million options barrier (the red line).

Options Barrier EURUSD

Note: I’ve marked the option level slightly too low in the above graphic (1.4450 rather the correct 1.450)

Also I mentioned the EURUSD might be pulling back to go higher, look how it pulled back again for another ‘liquidity fix.’

options

I don’t thoroughly understand options trading fully, only that that option expiries for the New York ‘cut’ are generally publicised on numerous FX websites. Also these option levels can act like magnets to price. I get mine from Talking Forex (costs about £20 a month). Forex Live website also posts them (but not always.

Trading The Pullback

I see this pattern over and over and over again. And it doesn’t just work with supply (bearish) but with demand (bullish) situations.

Always trade the pullback into supply or demand. Why? You don’t really know its a supply or demand area until you see a reaction to it!

supplyEUR

This little reversal could have bagged you 20 pips on the $EURUSD, and 20 pips isn’t a bad little move. But bear in mind this is a contra trade on the 15 minute chart, considering the trend, determined by the long term guppy is upward and (arguably) price is pulling back and probably going to go higher.

Your stop would be a tight stop above the grey ‘supply’ area.

I will be posting more about supply and demand, and in this example I’m using an indicator. Now an indicator doesn’t highlight supply and demand properly but it does ‘simulate’ it quite well. What do I mean by that? Well a ‘supply and demand’ indicator will highlight pivot highs and lows, but these are not actual S&D areas, but pullbacks into S&D areas, which is why the kinda work.

Ideally you should manually identify areas of supply and demand on the chart

Tracking The Dollar Index ($DXY)

If you trade or bet on any currency with *USD in its name, its very worthwhile to track for the Dollar Index, and especially note small pockets of supply and demand.

dollarindex

Here in the above image, I’m using an indicator, but leading FX sites, Google and Yahoo finance also offer Dollar Index charts, if your broker doesn’t

GBPUSD Demand Levels

These are the little ‘ledges’ of demand it helps to pay attention to if like me, you think that you ought to be in a trade, before price moves. This little level on GBPUSD appeared at just below value (where the liquidity is).

GBPUSDledge

Trading (IMVHO) is all about levels and not chasing momentum up, down and all over the chart. The rate of return of passive buyers and sellers, always better than aggressive traders.

A recurring theme of this blog will probably be, assessing where ‘value’ lies. Really you should attempt to buy at below value and sell above it and vice versa . Makes sense?

Bearing in mind that the markets assessment of value is constantly changing due to news events and the fundamental macroeconomic situation.

EURAUD Short Squeeze?

For months we have been singing the praises of the Dollar and the infallibility of its rise against any and all challengers. The unfortunate side-effect of that kind of thinking is that a majority of investors begin to agree and join in on the fun which then creates an environment that is ripe for a short squeeze. Once the squeeze begins, it is difficult to determine when it will end as it could last hours, days, or even weeks if it has been beaten down for long enough. This is the predicament we find ourselves in now as the USD appears as if it is trying to fight back.

euraud

Currencies that participated in yesterday’s squeeze were the EUR and the AUD, which rallied back from an interest rate cut. Due to the EUR being demoralized so much over the last few months; it even squeezed higher against the AUD, despite the face-ripping rally the AUD experienced against others. The EUR/AUD even continued following an established trend line that started in late January amongst all the activity.

In addition to the established trend line, the EUR/AUD also more recently retraced 61.8% of the squeeze which brought it right back to the trend line and sets it up to potentially complete an ABCD pattern that could extend it up to 1.50. This pattern could potentially get blown away by Australian Retail Sales scheduled for release this evening, but then again, it could help it as well. Consensus is calling for a 0.3% increase which would better last month’s disappointing 0.1% rise, but considering the actions of the Reserve Bank of Australia earlier this week, another disappointment may be in the cards.