Price Action Lesson in Cocoa and USDCAD. Good opportunities in Copper and SPX

Price Action Lesson in Cocoa and USDCAD. Good opportunities in Copper and SPX

Let's begin with getting back to two opportunities we've discussed recently. I am talking about Cocoa and Canadian Dollar futures (USDCAD if you are a Forex trader).

At first glance, there is nothing in common between those two. There are no major correlations or causalities. But while there aren't actionable fundamental relations, price action patterns are the same everywhere.

Down was the direction suggested here for the Cocoa, and last week we talked about looking for long signals in CAD. Both were good suggestions but that is not what is most important here. See the next picture.

Cocoa and Canadian Dollar price action lesson

It is showing a similar situation in both Cocoa and CAD. It begins with the setup (described in the previous blog posts). Next is a short-lived range. Then, a few bars after the setup is considered finished, the outside bar comes.

Outside bars (that cover the full range of the previous bar) usually appear in 15% of the time. As per The Talking Chart book, in most of these cases outside bars do not give us an indication of the direction to come. This means that after an outside bar we can expect with 50% the market to continue in the same direction and 50% to reverse.

While this is true, that doesn't mean those are completely useless to us. Because in some cases, like the one presented in Cocoa and USDCAD, the outside bars can start the movement.

Why is this happening? 

Look again at the chart. In both cases, the outside bars are doing something very distinguishable. Before they become outside they first break some important level (see the red and green horizontal lines). What those breakouts do (probably, in trading nothing is certain) is to make the crowd think that the move will continue. Traders are rushing to catch the resuming trend, and then the market reverses and an outside bar is created.

Learn those situations because they appear quite often. The key is the sequence: setup, range, outside bar.

ORANGE JUICE

This is not a market recommended for trading because it is a very thin one. However, it can be a good learning experience. Check the price action pattern from the free mini-course (click here to learn). Here is the chart, but this time I'll let you do that on your own.

Orange Juice mini price action course pattern

COPPER

This week I find Copper as the most interesting. Latest COT data shows a short-term bullish pattern, so let's look at the chart.

Copper analysis

What a nice drop! The market really crashed down on Thursday. But what bothers me is why the accumulation is that strong? Look at the On Balance Volume (green line on the chart). As you can see this fall in prices was not registered as a distribution by OBV. Such divergence between the chart and the indicator is bullish.

To this, we can add the seasonal pattern (the blue line). The seasonal chart, depending on how many years you include in the calculation, is showing that October can be expected to be either choppy or bullish. I've included the one that shows bullishness and it is indicating a bottom right here, right now.

All this makes me think that at least a short-term rise is coming. Of course to avoid unpleasant memories (traders have a lot of those :) ) I would prefer to wait for a higher short-term low where to look for a price action signal.

US STOCK MARKET

SPX analysis

Well, the chart says it all. S&P500 is approaching a seasonal and cyclical bottom. There is a strong accumulation. I'll be looking to be long after a good price action signal.
 

Now, let's find your missing piece!

Vassil Banov,
Founder of Piece of Trading


Trades mentioned here are either taken or will be taken by the author if the right conditions appear. They are NOT recommendations nor any of this constitute investment advice. Please read the Risk Disclaimer
Seasonal indicators courtesy of Larry Williams, ireallytrade.com. Charts made with TradeStation®. tradestation.com

TAGS: S&P500, SPY, SPX, COT, Commitments of Traders, Copper, Cocoa, Canadian Dollar, Cycles, Fundamental Analysis, Seasonality, Price Action Trading, Talking Chart

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