STAGNATIONS

STAGNATION'S
As mentioned above, the market can only move in three ways; up, down, or
sideways. However, what most traders call a “sideways” movement isn’t
really sideways from the perspective of a scalper. What most people call
“sideways” is in fact a series of up and down movement that for a scalper is in
fact a series of petit up and down trends.
Only the scalper ever witnesses what can be considered a true sideways
movement – no change of price at all during a 60 second period. Such periods
of no change of price happen occasionally and on a chart it simply looks like a
flat line, like a minus sign ( - ). More commonly you’ll see things that look
like plus signs ( + ), or what looks like the capital letter “T” ( T ) or an upside
down “T” ( _|_ ), or even a lower-case letter “T” ( t ). To people who are
familiar with “candlestick” terminology these are “doji”. What these mean is
that during the 60 seconds of the formation of that candle that the price didn’t
change at all (for the minus signs) or that the price moved up or down (or both
for the lower-case letter “T”) but returned to the original price. Regardless of
which of these candles formed they all pretty much mean the same thing –
during that minute the market was undecided whether to go up or down.
It’s a common trader saying, “when prices move up the bulls are winning, but
when the prices move down the bears are winning.” The market is always at a
“tug of war” – the bulls try to force the market up and the bears try to force
the market down. When the price remains at more or less the same level it’s
because the force from both sides is about the same thus no body is winning
the tug of war. This is why you get consolidation patters. (Sometimes you
also get a sideways movement before a Fundamental Announcement while
everyone is waiting for the news to be released.) Sideways movement is also
regarded as indecision in the market.
Take a look at the following chart.
There are a few specific things that I want for you to see on this one chart.
The first thing I want for you to notice is the series of capital letter Ts (there
are 5 in a row of them) that happened at 12:00. That signifies stagnation in
the market that is much like a consolidation. You already know that whenever
you have a consolidation that sooner or later will inevitably be a break out. If
you weren’t already in the market by now (there was an opportunity to get in a
few minutes earlier) then you could have gotten in after it resumed
upwards. From our consolidation it went up about 13 pips, so you could have
easily captured at least 5 pips from that move. So what you’ve just learned is
that a consolidation (or for scalping I’ll call it “Stagnation”) can lead to a
potential trading opportunity for entry. You see another example of this
between 12:20 and 12:40.
Another thing I want for you to pay attention to is the wave that happened
between 11:30 and 11:50. Notice that as it reached the top that it started
stagnating (it also ended up breaking the petit trendline that isn’t drawn but
you should be able to imagine it). Often (even in much larger time frames) as
a trend is ending it appears to “lose steam”, forming a rounded appearance. If
you didn’t already exit your trade (hoping that it might have continued up
after the stagnation) then at the first sign that it started moving down from the
stagnation zone then you for sure would have rushed to exit your trade. Now
look at the top of the next wave that happened between 12:10 and
12:20. Again you see another stagnation there at the top. So what you’ve just
learned is that a stagnation can signal a top (or a bottom in a down trend) and
you’ll potentially want to exit your trade to take your profits.
Now here is a question for you. Look at the right side of the chart. See the
top there that happened 12:45? What do you do now? Well the answer is it
depends on what happens next. After the market has moved up (or down) in a
petit trend you’ll see a little stagnation. This is quite common and you have to
wait to see what happens next. If the market continues it’s trend then
obviously you allow your trade to continue, but if the market shows the
slightest sign that it is potentially reversing then you either exit the trade or
seriously tighten your stop (depending on circumstances). The following
chart shows you what happened next.
Notice it went down the following minute. At that point you want to take
even a small profit (even a few pips is better than zero pips or even a
loss). Sure enough in this case you would have been right to do so, but if it
would have quickly turned around you could have re-entered (if things looked
right).
So to summarize, a stagnation (a short one or a longer one) often shows that a
petit trend has lost steam and may potentially end, turning around (good to
exit an existing trade or to potentially enter a new one). Stagnation also often
precedes a market movement much like a consolidation often precedes a
market movement.