With daily ATR’s falling on average 15% across most of the majors and the crosses, along with several inside days, the price action chop fest has begun as the markets digest the Himalayan sell-offs we have witnessed over the last few months. This was intimated by how the intraday Ichimoku Clouds have gotten very finnicky, like college students on triple espressos waiting to take their final exams.
Taking a look at the chart below, we can see how the Clouds or ‘Kumo’ have started the flipping contrast. Notice how the white portion of the cloud goes from top to bottom to top mexican jumping bean style all over the charts for the last several days.
This is simply from the price action being directionless or zombie like bouncing from pillar to post looking for fresh meat. When I see this kind of chart formation, I have generally a few options if I want to make money trading (and who doesn’t?);
1) drill down to smaller time frames (i.e. 1 or 5min charts)*we only suggest doing this if you’ve had practice/success at these levels and are choosing pairs with smaller spreads
2) super-size the time frames up to the larger parameters, aka the 4hr or daily charts. This will create a pseudo-smoothing method and help one to see the larger ranges in play and play for rejections off the Bollinger Bands or 20EMA’s with correlating flat Momentum readings (12 period)
3) the last option is to stay out which has been my more enjoyable method besides the 1min time frames. Sometimes, there just are not too many ladies for me to dance with on the dance floor. When that happens, I usually re-evaluate whether I am in the right environment or or whether I want to dance at all. I do Tango dancing so if there are no ladies around, then i’m generally not dancing. There will always be another Tango Milonga to go to and there will always be another trade in the markets.Remember the markets have a close relative called Las Vegas, and you want to make sure you are not always playing hands just because you have time and money to play. In the same fashion, you want to pick your games, tables and times to play where you are most likely to succeed. Based upon the current price action, this trader suggests smaller targets, trading pairs with tighter spreads, perhaps using Bollinger Bands and pivots if you are looking for a rejection play, and being more selective.
The charts below give an examples such plays using the Bollinger Bands on the 1hr charts.