A classic trap move at the London open for the GBP currency future on the 30-minute timeframe and such traps are ones all forex traders need to be aware of, namely the crossover period from one market to another. In this case, it was the transition from the Asia Pac session into Eurex and then London which triggered this trap but these also occur at other pinch points in the 24-hour trading session.
As we can see on the chart a breakaway from the VPOC at 1.3677 starts late in the Asia Pac session and develops into the European open with rising volume. Then comes London with a rise in volume on the widespread down candle but note the volatility indicator is triggered, both signals confirming the presence of the market makers and as a consequence of the volatility signal we can expect either congestion or a reversal to follow, both of which are equally damaging to traders jumping in short at this point. One reason volatility is such a powerful weapon is that it triggers the fear of missing out or FOMO. It is a reaction to a fast-moving target and the opportunity to score a quick kill and is part of our evolutionary biology and would have been appropriate for our hunter-gatherer ancestors. For traders, such a reaction is catastrophic and often leads to being trapped on the wrong side of the market and time spent regretting the decision.
Meantime cable looks set to return to test the volume point of control (VPOC) in the 1.3680 area (the yellow hatched line) in this timeframe which is exactly what subsequently happened.
By Anna Coulling
Charts from Tradestation and indicators from Quantum Trading
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