eu short call from fx chat and a little education

8 ต.ค. 2022

i haven't posted an "idea" in a while; they're tedious a bit of a time waster often, but they're good to do; i'll have a little fun with this one but will have to leave it somewhat incomplete because... time; incomplete or not, this still ended up being a bit lengthy

STARTING THE WEEK WITH A VP (VOLUME PROFILE) POC ANALYSIS

since the beginning of the week, i had been calling short for eu (EURUSD) while the price action from the end of the previous week was bullish; i based my bearish sentiment on the previous weekly POC being naked with two other naked daily POCs below the weekly open; (if you don't know POC, learn about volume profiles; "POC" stands for point of control; it's the price range or single price where the highest volume of trading occurred during a fixed time period; naked POCs are POCs where the price has not returned yet; the market almost always revisits a POC after it's formed, so a naked POC is a very good price of interest

in the beginning of the week, i shared my bearish outlook and posted a more elaborate chart in fx chat with a weekly volume profile and five daily volume profiles and a weekly anchored vwap

in fx chat, among all the shitposting and arguing last week as usual, another chat member requested a chart from me, so i made this simplified chart for a short call on eu (EURUSD)

at this point, this eu short call was a simple obvious call based on simple pa as highlighted; it requires barely any thought; basic levels of consciousness and vision are probably sufficient to make the call

there are two yellow highlighted rectangular zones

each zone contains regions of pa consolidations where (market) movers were building short positions; how do we know they were building shorts? they moved the price down after the consolidation to capitalize on their positions; because the price move was down, they were profiting on short positions (yes, they can make liquidity in a sense, @name_redacted, by moving the price with market orders, which results in a chain reaction of other market participants joining in the new trend, with many participants in fear of missing out on the price movement; i'm glad i was the one to enlighten you to the term "FOMO" @name_redacted)

the lower yellow highlighted rectangular zone covers three separate regions of pa; on the right-hand side, it shows a short consolidation (short in sense of short position, not short amount of time) as it shows sideways price ranging followed by a downward move, just like the upper yellow highlighted consolidation; i extended the lower yellow highlighted zone to the left to see what the market did in that price range recently

the middle region of the lower yellow highlighted zone includes 6 bars (on this H1 chart) with pa continuing a solid downtrend

in the left-hand side of the lower yellow highlighted zone, there was a relatively brief period of pa during an uptrend

so in this price range (the lower yellow zone), the longs (buyers) were weak compared to much stronger shorts (sellers)

on the very far right, with the most recent pa, the blue highlighted rectangular area covers the pa after i posted my short call and is consistent with my speculation


POLYSEMY, CONSOLIDATION, ACCUMULATION, AND DISTRIBUTION

because this "idea" includes consolidations and because there was a discussion of nontrivial length in chat this week about accumulation and consolidation, i'll take the liberty of writing about the important concept in linguistics called polysemy, which refers to the property of a word that has more than one (semantic) meaning (or sense); it is prudent to always remember that most words in our natural languages have more than one definition (or sense); context often makes it clear which definition is intended but not always; we learn this simple fact about language when we're very young; as we get older, often many people either forget or ignore or exploit this property of natural language, and the result is often confusion, disagreement, manipulation, or time wasting discussions; it's always best to agree (in some certain sort of way) on the exact definitions of key terms before carrying on a discussion, debate, or analysis, even with simple words that traders use often, like accumulation and distribution and consolidation

i used to teach courses for those preparing for the LSAT exam, the Law School Admission Test, and deductive logic is a significant part of that exam, which is based on strict, precise definitions of simple words that we are all used to and use every day: and, or, and if; these words are polysemous in natural language; each word has more than one definition and the diffferent definitions are not logical consistent, so misinterpreting them can be even disastrous or at least cause confusion, heated arguments, and even delusions as a result of false beliefs

sideways, consolidation, ranging, chop, crab, rotation (to list a few) are all virtually synonyms for a period of market activity where the price ranges within relatively smaller price range with horizontal support and resistance; these are common terms that most people use for this particular market behavior in the context of technical analysis; this is not polysemy; this is an example of multiple words that share one common definition

sometimes, some people call this sideways market structure (or market behavior, however you want to look at or call it) accumulation because (so i've been told) buy and sell orders are being accumulated (whatever that means...); i think this is usually in the context of market structure theory, where it makes some sense, as the market is accumulating trades ("buy and sell orders" as some say) in a sideways, horizontal support/resistance range

more often, however, in technical analysis, the word accumulation is used in the sense of buying that often results in upward price action, or as in accumulating an asset (or any trading instrument), such as gold or Rolls Royce stock in building a position or holding in a portfolio (see investopedia definition of accumulation)

sometimes, when the sideways price action breaks and begins to trend up or down, those who use the word accumulation for the sideways market structure may use the word distribution to refer to whatever trend started, whether it's an uptrend or downtrend; they will call that pa trend distribution

more often, in technical analysis, distribution is used in the sense of selling that often results in downward price action, or as in distributing an asset (or any trading instrument) to other traders

so one take away from what may seem like a long pedantic trip of details (if you are even still reading) is that you may be talking with someone who seems like they are making no sense whatsoever when they say things like "accumulation is always followed by distribution" or "distributions can be either uptrends or downtrends" or "consolidation is always accumulation"

at least, remember those simple words that traders use so often accumulation and distribution, have multiple definitions that are not consistent with each other

there are common (and very useful) TA indicators named with those words like the ADL (Accumulation/Distribution Line); you need to know which definition is used in titles of those indicators, or you'll be lost in the sauce

and... i'll just mention that there are even several other different and common definitions in finance for the the "A" and "D" words too; i'll leave it at that

i hope you profited from a EURUSD short last week