An Ugly Trade: USD/CAD Swing Trade Analysis

The reality of trading is that there are not so many trades that would go exactly how you planned them.

If somebody tells you that market always does what he predicts and that there are no ugly situations, then I would not really trust such a guy…

Today, I am going to show you one pretty ugly trade which I had on USD/CAD.

This trade did not go as I planned it! At least not at first…

I would also like to show you how important is to stick to your strategy no matter what!

USD/CAD Swing short

The trade I am going to talk about is a swing short on USD/CAD.

I published this level in my Member’s area a couple months in advance and since then we have been waiting for the price to hit it.

The short entry was based on Volume Accumulation Setup and it was at 1.3282. Standard SL was at 1.3321 and Take Profit at 1.3243.

I trade all my swing trades using the Alternative SL. This means that I do not close my swing trades unless a Daily candle closes past my Standard SL. This method also uses a hard Catastrophic SL (if price touches it, then I am out immediately).

*You can learn more about the Alternative SL here: Alternative SL

Below is a Daily chart of the USD/CAD where you can see what the level was based on and how it went.

As you can see from the picture, the trade went pretty ugly. It did not react to my short level (at first) and even the standard SL got hit!

In a situation like this it is very important to stick to your plan no matter what!

Let me now show you a detailed look how this trade went. I will demonstrate on a 30 Minute chart:

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Detailed look (30 Minute chart)

1. Before my short was hit, there was a strong buying activity showing aggressive buyers. It is not really a good feeling to go short against such force, right? But you gotta stick to the rules, so I went short as planned.

2. Then there was a rotation around my short level. I know that many people don’t like when the price does not react immediately to their level. But I don’t mind. In my experience, markets need their time. In fact I was happy that the strong buying stopped and I did not take an immediate Stop Loss.

3. This is when it all went sour! There was a crazy strong pin bar showing aggressive buyers (formed during macro news).

4. Next ugly thing after the pin bar was another strong buying activity. After this the price actually hit the standard SL! At that moment it seemed like almost 100% certainty that this trade would be a loser.

Despite all this I held my position according to the rules. Daily candle still did not close above the standard SL! You gotta stick to the rules 🙂

5. The first positive thing was when this strong rejection of higher prices occurred. Sellers are back! Hooray!

6. When the price went below two strong lows (highlighted in red) I knew we were heading for the Take Profit!

Finally, after 11 days!

What I wanted to show you with this is how important it is to stick to your rules, no matter what happens. Pro traders don’t change their rules in the spur of the moment or based on their emotions.

Next time some trade looks ugly and you want to break your rules, remember this trade, okay?

BONUS: VWAP as Take Profit

There is one more little thing I wanted to share with you here.

If you look at the Daily chart again, then you can see how the Take Profit nicely aligns with 1st Deviation of Yearly VWAP.

This 1st Deviation indicates a possible price reversal there (Trend VWAP setup I teach in the VWAP Video Course).

That’s what I call a good place to quit a short trade!

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Intraday longs along the way!

By the way, I grabbed two nice intraday trades during this swing trade.

Funny thing is that despite I was short with my swing trade, those intraday trades were longs!

Below are the two intraday longs. The second one was actually at the swing trade Take Profit!

Both longs were also published in advance for members of my Trading course.

USD/CAD; 30 Minute chart:

I hope you guys found this interesting! Feel free to leave a comment below and let me know what you think!

Happy trading!

-Dale

How To Plan Long-Term Investments With Volume Profile

One of the best things about Volume Profile is its versatility. You can use it across timeframes, and of course on all possible trading instruments. In this article, I’m going to walk through how to use the Volume Profile to find and plan trades that are basically long-term investments rather than the usual intraday or swing trades. To give you some idea what I have in mind – stop losses for such trades are in hundreds of pips, with a take profit stretching over 1,000! These very long-term setups many take months or years develop and trigger. Following your entry, you can be in the trade for another few months. Crazy, right? Well, it sounds crazy only if you look at it from the point of view of an intraday or swing trader. Imagine yourself being, for example, a stock investor. This kind of trading is much closer to that style than it is our typical day trade or swing trading setups.

The great thing about those trades is that you can plan them way ahead and then just set a limit order and all but forget about it. After you do your analysis and set your limit order, you don’t need to spend time thinking or managing this trade another minute. This type of trade is ideal for people who like investing but don’t really want to sit in front of the computer analyzing charts every day.

Let me now show you how to plan this type of trade. I will demonstrate on a current investment opportunity I see on the EUR/USD.

EUR/USD Long Term Position Trading

I made this analysis with a Monthly chart (1 candle = 1 month). This chart shows you the past 14 years.

The first thing that caught my eye was the price bouncing off one support zone three times. I marked those three strong reactions in blue color. Those three strong reactions were back in the years 2008, 2010, and 2012. Because of those extremely strong reactions to this area I consider it a strong support zone. As you can see the price finally went past this strong support at the end of 2014. When such a strong support gets breached, it becomes a strong resistance zone. Even though the price hasn’t returned to this area since the end of 2014, it remains a really strong resistance zone. This support becoming resistance is the first step and the first confirmation of this type of trade setup.

The second confirmation of this level is a significant volume cluster that got created within a strong trend. I call this a Strong Initiation Setup. I usually trade this setup as an intraday or swing trading setup, but it works very nicely for an investment trade setup like this one. The idea behind the Initiation Setup is that the strong sellers that were pushing the price lower, were adding to their short positions at the volume cluster and then continuing the aggressive selling activity. When the price returns to this volume cluster, those sellers will likely be defending their positions, and they will start the aggressive selling activity again. This should push the price lower again.

The two reasons above would be enough for me to consider this a good level to trade from. Additionally, I spotted one more confirmation of this strong resistance zone, which is the 161.8% Fibonacci extension. To make myself clear – I personally don’t give Fibs much value in my analysis or decision making (as they are somewhat discretionary) but having another confirmation is a good thing. Still, I would never base a trade solely on a Fibonacci extension level. In this case, I used the high and the low of the significant sideways price action channel formed between 2015 and 2017. We can consider this channel as a sort of temporary equilibrium place which the market saw as fair value for the EUR/USD over the last 2+ years. The high and low in this area is quite strong orientation point. When I used the Fibonacci extension in this area I noticed that a very significant extension of 161.8 % is basically in the resistance zone I identified earlier (exactly at 1.2561). Bingo!

How To Enter The Market

So, those are three pretty solid confirmations of our resistance zone. Let’s now have a look at how to trade it.

Let’s start with the Profit Target placement. In this case, I would suggest placing the PT at the place where strong volumes were accumulated right before the uptrend started in 2017. This is pretty strong support zone, and I think it would be quite risky not to take your profit slightly before the price reaches this zone. I think 1.0700 is a logical place to quit this short trade with around +1,700 pips of profit. The distance is really far, and it will most likely take many months for the price to get there. If you personally prefer a tighter take profit, you can look to take profit (or part of it) at 1.1700 which is also a very strong support zone (reason being is the volume cluster along with the 100 % Fibonacci).

A good place for a Stop Loss is around (or just a little bit above ) the 200 % Fibonacci extension at 1.3086. Apart from the Fibonacci, you can see that the high volume area basically ends there. If the price goes past the heavy volume zone, it won’t work as resistance any longer. As such, should that level break it is best to have your stop loss in that area.

 

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Second Trade Setup Scenario

If my first scenario doesn’t work and the trade ends in a Stop Loss, the game won’t be over yet. At least not for me. Here is what I will do:

If I take a Stop-Loss, then I will wait for the price to get back to the place where I originally went short and I will go long. Reason? Support becomes resistance (and vice versa), remember? 🙂 Such a strong level is usually not left without a significant reaction and for that reason, if my first attempt fails, I won’t be discouraged but I will wait and enter a reversal position.

The Profit target for the reversal position will most likely be around 1.3600 because it is a strong volume area. It is basically the Volume Accumulation setup there (= strong resistance). The Stop Loss could be little below the 100 % Fibonacci and below the heavy volumes. This is around 1.1600. Those volumes and the 100 % Fibonacci would be the last barrier which would be likely to stop price. If that fails there would be no reason to remain in the long position anymore.

So this is my investment idea for the EUR/USD. As you can see it isn’t really that complicated. Especially if you do this kind of analysis from time to time you will get better, faster, and more confident in doing it. Planning such a trade could realistically take you 10-20 minutes. After that, you can just set a limit order and check your trade once a week or even less!

Money Management & Risk Per Trade

I would like to stress one very important thing. You need to calculate the volume of your trading position before you enter the market. Having, for example, a 500 or a 1,000 pip SL requires you to adjust your position so you don’t risk more than your money management plan will allow. I would keep your risk per trade between 2 % and 5 % of your total account balance. With that being said, this is only a guideline and you must adjust your risk per trade based on your own risk tolerance.

Happy trading

-Dale

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Market Profile: Long-Term Swing Trading Analysis

Hello guys,

This training article is going to break down how I analyze the markets from a long-term point of view. My swing trade levels are always based on the exact analysis we are going to cover here. Let’s have a look at how I set up for a trade, step by step.

Trade Analysis Requirements

For this analysis, you will need cumulative Market Profile (or yearly) that will show you the long-term volume histogram. For that, you can use Market Profile from TradingView (PRO subscription). You will also need to use daily profiles or short-term cumulative profiles (also from TradingView) to place the levels more precisely. As for the timeframe, I use mainly daily candles with the cumulative (yearly) profile and the 30-minute chart for the daily or short-term cumulative profiles.

Note: Daily profiles with 30-minute candles are just for putting my swing levels more precisely. They are not that significant in the bigger picture. What matters most in this kind of analysis is a yearly profile on the Daily chart.

This is what your workspace should like. The left chart shows the 30-minute chart with the daily market profile. The chart on the right (the main chart) shows Daily candles with the cumulative profile for the last year (click the picture to enlarge).

Cumulative Market Profile Shape

The first thing to do when analyzing the market from a long-term point of view is to look at the shape of the long-term cumulative profile (in this case yearly). If you are not familiar with the basic shapes the profile can have, and how to trade those, please read this article: Market Profile 2 – different profiles and their application. All the examples in this article are made on daily profiles, but the logic stays the same regardless of the time frame you use.

The reason for doing this step in the first place is to see the bigger picture. When you know what the yearly profile looks like, then you can trade with the bigger picture in view. You also know what strategy you want to use and what areas you should be looking to trade from.

As an example, let’s look at a daily chart of the CHF/JPY. The cumulative profile of the current year is “D” shaped. For this reason, I immediately know that I want to look for both short and long swing levels to trade. Those levels should be at the extremes of this “D” shape, and the maximum potential for those trades should be a retest of the POC. I marked two potential swing trade levels in the chart below. One is a short from around 117.40; the other is a long from around 108.70.

 

Point Of Control (POC)

For me, the POC is the most significant information that Market Profile can give us. This is because the POC is the price point where the most volume was traded. In this case, it is a price point where the most volume throughout the year was placed. If you think about it, it really is a very significant piece of information. For example, if you have a “D” shaped profile, the POC often becomes a magnet as this is where the market was in balance. With that knowledge, you can expect that the market will have a tendency to return to this balance area.

Significant Price Action Areas

The most significant areas from a price action point of view are:

1. Sideways price action area

2. Aggressive initiation area

3. Strong rejection area

You probably know those from my Market Profile Webinar. I use those areas to make a picture of what is going on in the given market and to create my own trading levels. Let’s have a look into these in a little more detail.

  1. Sideways price action area – Is significant because heavy volumes are typically placed in these areas. Because heavy volumes mean big institutions, these areas indicate where institutions accumulate and build their positions.
  2. Aggressive initiation area – Is an area where price runs very quickly, aggressively, and without pullbacks. It usually follows areas of sideways price action. Large institutions (smart money) finish building up their positions and after that, the price is allowed to run. The direction of this aggressive initiation area shows which side of the market is in control, whether the buyers or the sellers.
  3. Strong rejection area – Clearly illustrates strong and aggressive buyers or sellers in a given area.

Creating Swing Trade Levels

At this step, I already know how the institutional volumes were distributed throughout the year, and I know where most of them were accumulated (POC). I also know where the most significant areas on the chart are from a Price Action point of view. The only thing that is left to do, is to create the trading levels using all this information.

At first, I create my levels using the yearly profile and the Daily price chart. Those levels can lack some precision so I look into the 30-minute chart and daily profiles. This allows me to more accurately identify where the volume is located.

Let’s have a look at the CHF/JPY  example:

Because of the analysis above, I now know that I want to get long somewhere around the 108.70 area. There are 4 main reasons for this trade:

  1. The yearly profile is D shaped.
  2. This level is at an extreme of the D profile.
  3. There is a volume cluster visible on the yearly profile indicating institutional activity.
  4. There was a strong rejection of lower prices in this area.

If I zoom into the 30-minute chart, I see there was sideways volume accumulation followed by aggressive buying initiation. This allows me to mark the level much more precisely as compared to doing so from the Daily Chart. Now my long level makes sense from both the higher and lower timeframe. Here is a picture of the chart.

That’s it

So, guys, this is how I use Market Profile to swing trade high probability turning points. I suggest you try it on your own and then feel free to contact us with any questions you might have!

Happy trading!

-Dale

P.S. Here is a video that covers this whole process. Also, one extra swing level is mentioned there.

P.P.S. If you want to become a member of my Pro Forex Course and get access to the Propitiatory Market Profile Course, Daily Levels Video, Swing Trading Levels, Auto Trading EA, Member Forum, and Personal Support you are very welcome to join here: Trader Dale’s Pro Forex Course