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okay folks welcome back this teaching is
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going to specifically deal with how to
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find explosive price moves before they
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happen all right the points of focus in
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this
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module commitment of
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Traders weekly range
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contraction and daily range
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contraction okay so we're taking a look
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at a commitment of Traders report in the
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form of a line graph or net Traders
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position
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chart and that is going to
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be
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this little graph down here okay this is
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not something that I've created or made
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up this is a longstanding staple in
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technical analysis Larry Williams
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popularized this from his uh work with
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the commitment Traders or cftc
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reportable
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report and the commercials this red line
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you see commercial speculators I'm only
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interested in tracking this red line
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okay and by following this on a longer
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term time frame it'll help give warning
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signs when there's a potential impending
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reversal which when it's a reversal they
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sometimes can be explosive in
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nature but the cftc weekly nit Traders
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position is the data that creates this
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graph and what we do is we monitor
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12-month commercial extremes that means
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the highest they've been in the last 12
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months or the lowest they've been in the
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last 12
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months and we look for the levels where
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they reflect net Extremes in other words
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they will qualify support and resistance
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on a higher time frame
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chart okay so let's take a closer look
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on how we can use this information first
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we have to draw in our zero line here so
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the zero line delineates anything above
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the zero line the Traders that would be
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depicted with their respective colors
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like the blue speculators they're
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usually you know Street money they have
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no idea what's going on and the large
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speculators are the green okay they're
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going to be diametrically opposed to the
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commercials Now does not mean that
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they're wrong it just means that they
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are the ones that are Trend following in
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nature you can see as the market dropped
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lower on the
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Euro the green line depicts that the
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large speculators were selling short so
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below this zero line
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they are
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sellers above it denotes buying so we
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can see the commercials were buying all
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through this decline now right away
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you're probably saying well you know how
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how's this
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useful we want to look at Trend and we
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also want look at key levels that the
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commercial support this low here they
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had the largest position of Longs one at
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the time and the market created a
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low and we went sideways and then
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dropped down one more time we had an
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increase of buying by the commercials
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and I'll show you what these reference
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points are here with this horizontal
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line and I'll add our
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first area of buying interest by the
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commercials and the second one here see
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they're ramping up this big jump up in
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the red line and another one over here
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where they're above the zero line and
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we're at that same level so they are
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above the zer line and we're at that old
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level where it's bounced before so this
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could be a key support level now notice
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that they are giving you Insight that
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you otherwise wouldn't glean if you look
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at just simple classic support and
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resistance theories again it takes you
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back to the question which support which
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resistance so from a higher time frame
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standpoint this is one of the things I
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like to teach because it gives you a
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context behind support and resistance
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levels that in my opinion are
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key now with this understanding in okay
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we know that they have been bullish all
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this time long period of time for like
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two years they were buying buying buying
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buying building up large positions and
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then we had a rally up notice that this
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reaction off here was below these two
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equal
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lows not surprisingly this move up has
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taken us above these two relatively
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equal highs and we are potentially in an
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area where we could come back down a
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little bit lower and that takes me to
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the area of business on the commercials
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now because look where they're at we're
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below the zero line so they may be
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indicating a longer term shift
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in the direction on the Euro we could
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see it come down a little bit lower so
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this is a warning flag if you will to
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monitor what the euro is most likely
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going to do at least from the long-term
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standpoint the commercial Traders folks
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that are long-term hedgers they're
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already hedging in some bearishness on
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the euro dollar so I use this
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information to kind of like build the
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idea around potential future explosive
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price
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moves okay next we're going to talk
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about the weekly range
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contraction all right as you can see
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here when we use the Open high low and
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Clos bar okay this is a graphic
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depiction it's very easy to see at least
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for me it is when we're using power
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three if we're bullish we're going to be
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looking at the open price and then drop
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down buying anywhere between the opening
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price or just a little bit above it's
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still okay but mainly looking for a move
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below the opening price that's what
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we're looking for power three bullish
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and when we're bearish we're looking for
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the opening price and then a move up to
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sell or fade that rally and then ride it
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lower for a down close now that's
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assuming that we know there's going to
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be a large range day or a directional
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bias that lends well to this
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technique power three capitalizes on
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range expansion so we had to know the
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likelihood of this phenomenon happening
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otherwise we're going to do it wrong so
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now if the opposite of range expansion
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is contraction how can we find that well
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the Candlestick chart helps highlight
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this so if we look at a Candlestick like
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this say this is a typical large range
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day okay which would look like something
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like uh this open high low close here it
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could be very close to that in terms of
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the body portion between the open and
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the close so we have the open down here
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and the close up here if this is a
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bullish
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candle if this was the uh body of say
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for instance a Tuesday and then say
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Wednesday we had this type of body we
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have a smaller bodied candle which means
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that we could see a large rains day on
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Thursday or Friday it's a it's more or
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less a uh a precursor if you will
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because smaller bodies precede larger
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bodies so if we're always looking for
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action in The Marketplace and it's
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already moving you're chasing price so
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you want to anticipate when price is
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going to have an explosive or large
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range or big move or series of big moves
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and it's going to happen by studying the
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bodies if the bodies are getting smaller
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okay if we see that it's going to be a
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directional move in magnitude that's
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larger than it has been in recent days
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or Rec
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weeks again depicting the top of the
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body on here and contrasting it with
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this one here so that's the difference
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between of what I'm looking
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for okay so the weekly range
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contraction we're going to be looking
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for candles that begin to
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compress ranges that have smaller bodies
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or key that's the ones that we're
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looking for and we're wanting to trade
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when they form
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big ranges come after small ranges
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form and we ignore the Wicks we're
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focusing only on the bodies of the
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candles okay so let's take a couple
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examples
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here as you can see here at this swing
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low we've had large body candle large
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body candle and then look how small the
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body gets here then we have a turning
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point in here price has been moving up
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up we went sideways and now look what
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happens the bodies between open and the
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close they get very very small disregard
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the Wicks okay try to block that out
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focus only on the open and close
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relationship when that gets small what's
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about to happen is you're going to see
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an expansion and this is when
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anticipating power three like the open
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here small down move buying holding for
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the close near the end of the day at the
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top of
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range similar scenario here which we can
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see again small bodies form after that
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large one okay we know there's going to
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be a large range coming so we want to be
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focusing on what what's the trend it's
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been bullish so we can be looking for
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open decline buy it look for expansion
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on the upside next same scenario open
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down movement buy it hold for the close
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Okay similarly we can see at this swing
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High we have a small little body in here
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again disregard the Wix again small
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bodied candle in here disregarding the
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wix and large moves after each one of
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these we're seeing large this is the
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weekly chart okay so there's a lot of
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Pips in
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there another opportunity here you can
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barely even see a body in this very very
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indicative of a large range move and we
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see a series of three weeks that come by
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way of bullishness over 300 and some
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Pips available from that one then we
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have a small range again so what's going
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to happen we're looking for range
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expansion the candle forms and now at
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the time of this recording we have a
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very small body candle again so weekly
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range has been compressing so we're
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looking for a large weekly range
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next okay now obviously as I said with
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the weekly range everything is the same
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for a daily range contraction so without
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repeating myself I have it here for your
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notes but let's take a look at a couple
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examples from the daily perspective
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okay we can see up in here after the
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swing High we have a very small body
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candle disregard the wick we don't care
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about that we're looking at the body of
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the candle very small little
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compression if we are seeing the range
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compression and contract smaller and
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Tighter we know there's going to be a
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large expansion so the next move if it's
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directionally determined higher or lower
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we can use power three Concept in that
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light here we see it's bearish open
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rally sell the high hold for the close
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so we have several days of down movement
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look at the large ranges that just
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follows right after that small range
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body next opportunity comes in here
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price trades down at an old low price
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ises a big range down and then we have a
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small range day here okay so it's an
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inside day relative to the body okay
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this is my insight on inside days I
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don't care about the Wicks okay uh most
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trading team teaching circles authors
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gurus whatever they would never classify
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this as an inside day because we have
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this long Wicked portion of the candle
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that went below the previous day so that
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would negate this being called a inside
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day but from the standpoint that I'm
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teaching range expansion and contraction
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this is in fact an inside day okay so
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that means there's going to be a large
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range expansion or a series of movement
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that's directional after this day
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forms we see that here several up Clos
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days okay and creates a swing
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high range gets small here so we know
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that there's going to be another series
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of
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movement we have down closed
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candles right in here we have small
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ranges relative to what's happened
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recently okay so there's a rule of thumb
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I use I want to see what's happened if
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it's a daily chart I want to see what's
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happened in the last 5 to seven days
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okay I look back about 5 to seven days
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for range contraction and expansion
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so that filter for volatility on the
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daily chart you want to look at about 5
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days which is typical trading week but
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then I also use seven days because it
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may have to look back into the previous
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week as well and that gives me this
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whole Criterion here and we can see that
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there's a
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large range day in the last seven days
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here so that means these are relatively
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small in comparison so we know there's
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going to be an expansion due large range
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day large range day
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and then we go smaller okay looking back
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we have a large range day here so these
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are relatively small so we know what's
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coming large range days Big Range
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day okay down here at an old low we
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trade below that low and now look what
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happens we have small
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ranges barely any range here at all big
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expansion on the upside and then we go
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into a small range here big ranges
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come and then right in here after a
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swing High small little body okay again
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disregard the Wicks they'll trip you up
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that's all stop running on both sides of
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the marketplace they're taking all the
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Traders out and going right back into
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the middle and then the big move takes
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place down explosive price action on the
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cell side reaching for an old low
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rejection and now at the time of this
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recording last Friday we have a small
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range body again so we know there's
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going to be expansion due coming in the
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next couple days so we would look for
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large range days form so as a Trader we
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want to see movement and by having a
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study of when that movement is expected
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not just where to buy where to sell you
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have to have an expectation for
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magnitude and velocity how much can the
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move be seen before it happens is there
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going to be excitement and an is it
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going to be animated if you will and
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what I do is I look for when things are
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getting quiet that means the the Traders
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are going to get bored with it and when
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they're not paying attention to it it
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takes off and then everybody else in the
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retail world will chase it once it's
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expanding I want to be in before the Big
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Move happens because I'm most likely
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going to be in while it's expanding up
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long or expanding lower and being
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bearish I hope you enjoyed this
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presentation if you'd like to find more
00:15:18
you can visit my website at thein circet
00:15:20
trader.com
