The 3 Components to a Market Move

With Last week's Rate Decision and the release of Non-Farm Payroll numbers, we were all no doubt interested in taking advantage of the increased volume in the markets. With that increased volume came some pretty big price swings.

In our opinion, there are three key components that usually take place leading up to a big move in the Forex Markets and Indicies. While they can vary a bit in how they look, we think you'll be able to spot them yourself with a bit of digging into the charts. The following examples touch on each of these components, and you'll notice a combination of all of them in each one.

THE "UNCATCHABLE MOVE"

On high-volume news days, these can happen in an instant, but under somewhat normal trading conditions they almost seem like the trend and are usually somewhat difficult to enter into on a simple pullback. By the time you finally manage to get in, low and behold the market completely reverses on you. You'll usually experience these on your entry timeframe, but they can be easy to spot at turns on higher timeframes - They usually are a wick spiking up right before the candle & market overall reverses their direction.

INFAMOUSLY KNOWN AS "THE WORST POSSIBLE PLACE YOU COULD HAVE ENTERED YOUR TRADE."

THE CATALYST

Looking at the market in terms of the Three-Market-Phases (Contraction, Expansion, and Trend), we know the market is always on the hunt for liquidity, or being pushed by liquidity. A "Catalyst," for our purposes, refers to price hitting a notable level, then having an effect due to that target being reached. As Traders, we would expect when a notable level is hit, that there will be an effect on price and we want a piece of that action. When looking for a catalyst, we usually recommend doing so on a higher timeframe.

"WHY DOES THE MARKET TURN WHERE IT DOES?"

In this example, We can see that price hit a Yellow Liquidity Line. The market is either being drawn to Liquidity or moving away from it. In the event it hits a pocket of Liquidity, you need to ask yourself, "Why would it go any further?"

You'll also notice shortly after this level was hit, we had a previously mentioned component play out - The "Uncatchable Move." This was taken from a Daily chart, but you can probably imagine what a 15M chart looked like on that wick headed long before completely changing course.

PRICE SETTLING

On our YouTube channel, we often get asked how you can know when price settles. Following the previously mentioned components of an uncatchable move and a catalyst, and after enough liquidity is built up through the Expansion/ Master Pattern cycle is the answer to the question of when price is likely to take off in trend.

The 5 Minute chart on US30 during the Rate Decision was a textbook example of all things Master Pattern. We had established value, followed by an expansion phase picking up liquidity and funneling out the range. From there, our uncatchable move slipped through the window undetected and likely convinced a lot of folks that long trades were their new best friend. Finally, you can see the clear pullback and settling action off that originally setup value line from the very beginning and the subsequent trend that followed. We call this a multi-leg expansion (seven legs to be exact in this case).

Luckily, we had a nice Catalyst as well for this move on our 4HR chart with ATS, but generally prominent highs and lows will have a similar effect for those not using our software.

We encourage you to delve into your own charts and see if you can spot some of these components for yourself. Thanks for taking the time to get to the bottom!

-Shane G.