Some of you eager beavers have to start wrapping your mind around the concept of markets moving in volatility cycles. Just like it is a common observation in natural systems (i.e. water, sound, electromagnetic) imagine a sinusoid wave that oscillates in repeating cycles. A few days ago I wrote an indicator that visualizes the idea very nicely – I call it ATRIP as it’s a hacked version of average true range:
What is important to understand is that these cycles are a natural aspect of all basic market types – bull, bear, and even sideways. In sideways markets they allow us to scalp or swing trade – an apt definition of the activity obviously. In trending markets low volatility cycles allow us to assess the tape/configuration and get positioned when high probability odds arise. Obviously the cycles don’t come and go like clockwork but there are ways to leverage them. For instance we are currently in a high cycle on the spoos and we are dropping. Once we start slowing down again it may be time to look for support zones but not before that.
The repeating cycles are prevalent across all market verticals, you will find them on the futures, on stock symbols, on Forex, bonds, everywhere. For some reason however I have rarely seen anyone address them in a constructive fashion (not saying nobody has but I have not found much) which is why I am spending some time on this. Once you grasp this concept you will never look at the market with the same eyes again. And it will probably affect your trading decisions as well – for the better!
Talking about possible support zones – on the E-Mini we’re looking at 1944 as the next possible bounce zone – assuming we actually drop much further that is. I’m not seeing a lot of mojo on the Zero today – at least not right now.
And if you add fair value then you get near the 1956 mark on the cash index – that’s where we find the 25-day SMA, which has been carrying prices higher before the recent correction.
EUR/USD – very interesting configuration here. This looks like a floor attempt and if we breach today’s highs I want to be long with a stop below today’s lows.
More goodies below the fold – please meet me in the lair:
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