I would like to share with you an interesting way to interpret a price movement. So if you are tired of using some questionable support and resistance lines, moving averages, etc. - this method will be right for you, because it shows you the anatomy of a market.
As you may know the market makers are using various derivatives to hedge their positions. Like currency futures or options, swaps, forwards. Guess what! We can use that!
So here I will show you how I use information about FX Options to trade spot.
On the daily chart you can see EUR/USD. The green zones are representing a potential resistant and the gray ones a potential support. In between there is a balance line, which is just arithmetical average. I draw those zones once a month and they stay for entire month unchanged. The data for them is results of options trading, which everyone can download from Chicago Exchange website.
So I go to Chicago Exchange website, download some data and draw it on the chart! And here we have a price corridor.
The reason why the price shouldn’t go above or below those zones is that in this case the market makers will start losing big money and they defiantly don’t like that. However sometimes it happens, so there are some tricks I use to predict that.
This method of market interpretation is based on facts, on real data, on reals results and not on some mysterious historical or hypothetical performance. I think, its way better than some moving averages.
However this method cannot be used alone but you can easy implement it to any strategy you want. It is perfect for swing trading on daily or H4 chart. Having those zones on a chart make you see a skeleton of the price.
Soon I will post some detailed analysis of EUR/USD for June and maybe also for other currency pairs, if you like.
So subscribe to this topic, we will further discuss this method as well as other methods based on fx-derivatives.