Wednesday

AUD intraday: counter intuitive traps


As per the chart below, at 12:30 price moved up to a level which had previous failed to move higher.

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Following the failed attempt of price to move higher; imagine what many traders were thinking when over the course of the next hour, price stalled as per the purple circled area?



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When price spent an hour “no longer going up” sellers were enticed to initiate short positions. And once all of the available selling interest is in the market, buying pressure remains.
As buying pressure caused prices to rise, a number of short sellers attempted to exit at the same time. This was likely a large number of sellers creating an imbalance between those trying to exit verses traders who wanted to take the other side of their trades.
Depending on where a trader’s “get-me-out” order was in the queue, numerous traders would have missed out on the price they wanted, instead being filled a distance away from their initial stop loss. This is referred to as slippage, and is caused by an imbalance in demand and supply, at a single moment in time.
What kept me from changing my view and joining the short sellers?
1. Knowing the market moves frequently as a result of traders being trapped (understanding market mechanics) means I’m always looking for this
2. Through experience, I have observed how markets are counter intuitive and consequently recognise the typical traps traders fall for and I seek to positon myself on the opposite side
3. The overall direction of the market is up as per the moving averages. Taking into consideration points one and two means those who fight a directional skew fuel it’s continuation.
4. During the purple circled area, notice how price moved about as far as the previous day’s high agreement area (blue circle). Leaning on the volume profile is like having an additional duck that’s lining up in the trader’s favour.

What the day's trading looked like (includes the post news trading also)

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