16

The Inside Day

The Inside Day can sometimes be a signal of a potentially large move about to occur.

Inside days can offer us two potential best trade setups:

1. Reversal trade (False Break)

  • ·One side of the inside day will often fire breakout traders into the market and then reverse (false break).
  • ·Trapping these breakout traders, then reversing back to the opposite side of the inside day, where stop loss orders and breakout orders may be sitting at the extreme.
EURUSD inside day
XAUUSD inside day
USDCAD inside day

2. Trend trade

  • ·Continuation trade in a strong trend
  • ·The market will coil to the sides and in most cases is a continuation signal in an already strongly trending market.
  • ·Occasionally we'll see a three day reversal setup that culminates in an inside day that explodes into a trend reversal in the opposite direction the next day.
EURUSD inside day
USDJPY inside day

3. Double Inside Day

XAUUSD double inside day
EURUSD inside day

Major News on the schedule: CPI on Tuesday, FOMC the next day. I would avoid trading this market in the US session where the Major Red News is scheduled. I'm demonstrating how the market will consolidate "inside" and trap traders in a tight range before a potentially explosive news event.

Second Day Trade — News Catalyst

  • ·This is an opportunity that exists the day after FOMC or another MAJOR Explosive News Catalyst, typically from the New York session.
  • ·It can occur on other news releases but FOMC is the most consistent opportunity.
  • ·I consider this a "Day 2" trade in a 3-day cycle.

Continuation Trend Trade — Asian Session

  • ·SETUP DAY = Breakout of Weekly High or Low
  • ·The market will have had either a "range expansion" breakout of a "rectangle" weekly high-low.
  • ·This setup usually follows a very explosive one-directional day that closes at the extreme.

Thesis: This trade was an explosive breakout that closed at the high of the day as a breakout. Momentum should continue through the next day with strength immediately.

Example: 15 minute SETUP DAY is a BREAKOUT.

5 minute entry: High strong momentum trade that should move strongly and quickly.

If it doesn't move strong and fast almost immediately upon entering the trade, I'll consider closing it immediately.

SETUP DAY — Failed breakout of a weekly/daily high or low

Must have a PEAK FORMATION:

  • ·Continuation in line with the Peak Formation — they've put in a peak formation reversal on the news release and gone to consolidation into the close of the New York session (5:00 PM New York time).
  • ·Setup Day uses my 15 minute charts.
  • ·Entry is on a 5 minute chart with close back inside the 20 EMA in line with our trade direction.
  • ·Max stop loss: 15(-20) pips currencies, 20(-25) pips gold.

Example: 15 minute Setup Day is a Peak Formation REVERSAL SETUP.

The market has a peak formation that culminates in a reversal and pullback inside the previous day's high (False Break). Then it enters a 25-pip box consolidation into the close. There's a "High Bull" line, "Major Resistance" at the top of the consolidation.

Thesis: Looking for an Asian session HOS short. Peak formation False Break — LONGS are trapped. Sell off for a move to the low of the week (peak formation high through the failed HOD). Day 2 trade back to the LOW. Now on the backside of the move.

5 minute entry

Another Example: USDJPY

Weekly high FALSE BREAK Reversal on FED into close.

15 minute SETUP DAY:
5 minute entry:

Reversal Trade

  • ·Traded to a weekly high or low into consolidation at the end of the New York session and has entered consolidation.
  • ·Reversal in the Asian session. Typically traders will get trapped above or below after "three levels of rise or fall," at the end of the session in a 25-pip sideways box.
15 minute SETUP DAY
5 minute entry