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jperl

Trading with Market Statistics X. Position Trading

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The most likely problem is the approximation used to compute the VWAP as well as the histogram. Ideally, the VWAP should be computed from data for every trade. In practice this is not done. As a good approximation, the VWAP is computed from the price of every bar and its volume. The error in this approximation gets larger the larger the time frame of the chart. As the time frame of the chart gets smaller, the error diminishes. So if you compare a 30 min, with a 5 min and 1 min chart you should see the VWAP converging to the "correct" value.

 

1) DO you mean then the 1 min VWAP should be the most correct one then?

2) What about the PVP?

 

Thanks, again Jerry you are my hero. Since your threads I have been trading futures again combined with market internals very successfully.

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Sorry, I forgot one more question. What is VPOC, VWTPO, VOC? I just switch using Ninjatrader and it has an indicator avaiable that displays these 3 and TPOs. I was wondering which one could be Volume Profile.

 

Thanks, Jerry.

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Jerry, thanks for your wonderful thread. i have been using market statistics and I am learning everyday since I started reading your thread. I have a few problems though that I was wondering if you can answer me.

I use Zenfire with Ninjatrader and there are two VWAP indicators that have been programmed and are avaiable for everybody. My problem is when I change the interval on the chart from let's say 30 min to 5 min, or 1 min that the VWAP changes value and as far as I undestand that should not be the case right? The second thing is that my PVP changes as well when I change the interval. So I just wanted to confirm with you that this should not be the case and I got a problem then and cannot trade with this tools right?

 

Thanks, M.

 

As Jerry says the inconsistencies come from averaging the volume in a bar to an average price for that bar. It's a data sampling issue if you like (a bar is a sample).

 

A further observation, with the VWAP the difference is not to significant. After a day there may be a tick or two difference between a 1 min chart and a 10 min chart. With the PVP the issue can be much greater. If you look at how the PVP is calculated you can see that it will jump when there is a new peak. You may get a new peak when there is not one due to averaging or you might not get a new peak when there should be one due to averaging. Keeping an eye on the volume profile might alert you to this possibilities (two peaks of similar magnitude).

 

If you are bothered about accuracy use a small time frame chart and transfer the lines to your trading chart. I always have a 1 tick chart scrunched up in the background to know precise values. Sadly when I tried this with NT it choked as this can be processor intensive.

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Sorry, I forgot one more question. What is VPOC, VWTPO, VOC? I just switch using Ninjatrader and it has an indicator avaiable that displays these 3 and TPOs. I was wondering which one could be Volume Profile.

 

Thanks, Jerry.

 

Well, since you are a Ninjatrader user, you will find discussions of these on the Ninjatrader forums here:

 

Calculate Value Area of volume at price - NinjaTrader Support Forum

 

and

 

 

here:

 

Enthios live index futures trading

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If you are bothered about accuracy use a small time frame chart and transfer the lines to your trading chart. I always have a 1 tick chart scrunched up in the background to know precise values. Sadly when I tried this with NT it choked as this can be processor intensive.

With 1R (1 tick range) chart you get almost the same precision calculated from much less data points than if you use 1 tick chart.

 

I have observed that running computation on time charts or larger range charts is generally less precise than using CVB or tick charts. The reason is obvious. Bars on CVB and tick charts form in relation to activity, while in time bars the activity within the bar is much less likely to be evenly distributed.

So if one wants to calculate developing value areas from less data points but still with high level of precision, he should use CVB (or tick) charts.

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With 1R (1 tick range) chart you get almost the same precision calculated from much less data points than if you use 1 tick chart.

 

I have observed that running computation on time charts or larger range charts is generally less precise than using CVB or tick charts. The reason is obvious. Bars on CVB and tick charts form in relation to activity, while in time bars the activity within the bar is much less likely to be evenly distributed.

So if one wants to calculate developing value areas from less data points but still with high level of precision, he should use CVB (or tick) charts.

 

What do you mean with CVB charts?

 

Thanks

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Position Trading is generally described as a trade which you enter and expect to hold for a considerable period of time during the day. Such a trade can be entered at any time after the open. My personal preference for a position trade is at the beginning of the trading day using market statistics from the previous day as my guide for determining entry, profit target, stoploss and scale in points if necessary. The direction of the trade is based on interpretation given in the last 9 "Trading with Market Statistics" threads but using the previous days statistics as the starting point. Position trading is thus no different than any other type of trading that I have previously described.

 

Here is the idea:

 

a)Set up a chart with yesterdays volume histogram, PVP, VWAP and SD's on it. Leave sufficient room to the right of yesterdays close so that at the open you can continue to add to the statistical data as todays market begins to unfold. In effect you are continuing to update yesterdays volume distribution as more data is added to the chart.

 

b)Before the open, decide on your trading plan. Pick a direction for the trade, an entry point, profit target and stoploss based on what you see in the volume distribution function. It will help to reread the previous threads to determine what you should be looking for.

 

c)When the market opens, execute the plan.

 

In the following video on trading the ER2 (Emini Russell 2000), you will see that the previous days volume distribution ended the day in a symmetric state with the VWAP = PVP. I then concluded that I should look for a countertrend trade back toward the VWAP as described in [thread=2285]"Trading with Market Statistics Part VIII"[/thread].

 

Watch the video to see what I did on September 06, 2007.

 

ER2PostionTradeSep06

 

This trade was a good position trade which would have been even better if I had traded more than one contract. After having climbed up to the 2nd SD above the VWAP, the price action continued on down below the VWAP to the 1st SD and then evenutally to the 2nd SD, a very typical signature of a symmetric distribution.

 

I have several questions here:

 

1) You said that you setup a chart with yesterdays Volume Distribution function and PVP, SDs. So when today the market opens is the data added to yesterday's function (sorry english is not my first language, if the answer is already in your post). If this is not possible with Ninjatrader, can I just use yesterdays PVP, VWAP and SDs static points and extend these point as S/R lines as you showed in your chart?

 

2) So just to be sure if I understood it right. For position trading the rules are:

 

  • When yesterday's VWAP = yesterday's PVP = no skew, I look for countertrend trades towards the yesterday's VWAP at yesterday's Standard Deviations. Or also I can breakout trades as previously posted in a thread.
  • today's price open above y. VWAP and y. VWAP > y. PVP: take long trades or
  • today's price action is below y. VWAP and y. VWAP < PVP: take short trades

 

3) If you do add today's data to yesterday's distribution when do you switch over to use only today's volume distribution function.

 

Thanks, M.

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1) You said that you setup a chart with yesterdays Volume Distribution function and PVP, SDs. So when today the market opens is the data added to yesterday's function (sorry english is not my first language, if the answer is already in your post). If this is not possible with Ninjatrader, can I just use yesterdays PVP, VWAP and SDs static points and extend these point as S/R lines as you showed in your chart?

 

If the question is "Can you", the answer is yes. If the question is "should you", the answer is no. Yesterdays VWAP and SD's will change dynamically as you add more data for today. Using yesterdays data as a static VWAP isn't going to help you much.

2) So just to be sure if I understood it right. For position trading the rules are:

 

  • When yesterday's VWAP = yesterday's PVP = no skew, I look for countertrend trades towards the yesterday's VWAP at yesterday's Standard Deviations. Or also I can breakout trades as previously posted in a thread.
  • today's price open above y. VWAP and y. VWAP > y. PVP: take long trades or
  • today's price action is below y. VWAP and y. VWAP < PVP: take short trades

  • You have it about right. These are however not rules. Simply one way of interpreting the data.

3) If you do add today's data to yesterday's distribution when do you switch over to use only today's volume distribution function

That's your choice. You don't have to switch. If you are trading against yesterdays data + todays, you are looking for market moves of 1 SD within that data set. If you are trading against todays data only, you are looking for market moves against todays data set. You choose.

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If the question is "Can you", the answer is yes. If the question is "should you", the answer is no. Yesterdays VWAP and SD's will change dynamically as you add more data for today. Using yesterdays data as a static VWAP isn't going to help you much.

 

  • You have it about right. These are however not rules. Simply one way of interpreting the data.

 

That's your choice. You don't have to switch. If you are trading against yesterdays data + todays, you are looking for market moves of 1 SD within that data set. If you are trading against todays data only, you are looking for market moves against todays data set. You choose.

 

Thank you Jerry.

In your video, did VWAP etc chantge at all? Or were they static?

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Thank you Jerry.

In your video, did VWAP etc chantge at all? Or were they static?

 

I think you will find they are dynamic lines from a 2 day sample (yesterday with todays being added to the sample). The horizontal lines might be a little confusing (suggesting static) but they actually are 'projections' of the unfolding VWAP/SDs. You will see they (the horizontal lines) have moved at the end of the video from where they started at the beginning of the day. They correspond to the current values of a 2 day VWAP/SD set. Jerry also mentions moving the target up as the VWAP develops. I seem to have been overly verbose:)

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I am sure Jerry will correct me if I am wrong but yesterdays static VWAP SD's etc. can act as HuP's? They certainly appear to.

 

I think I may well be mistaken. Reviewing Market Statistics XI maybe Jerry would not classify previous days static lines as HuP's. Having said that they often do appear to hold up price. Of course early in the day they will be close to the dynamic ones until new data is added to the set.

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That's your choice. You don't have to switch. If you are trading against yesterdays data + todays, you are looking for market moves of 1 SD within that data set. If you are trading against todays data only, you are looking for market moves against todays data set. You choose.

 

Hi Jerry,

 

Presumably you can use any of the principles described in earlier threads with a two day data set?

 

Presumably you can use even larger data sets (5 days for example) provided you are comfortable with the risk?

 

Finally do you have favourite data set periods and favourite trades? I must admit that originally I was attracted towards the scalp type trades but now find the larger data sets interesting. Maybe it's because volatility died down somewhat.

 

I'm still impressed with how elegant and flexible what you have presented is.

 

Edit: One other thing occurs to me your statement above seems to imply that you only ever consider one set at a time? Is that set in stone? I must admit that I like to see things 'aligned' though can lead to indecision when they are not.

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Presumably you can use any of the principles described in earlier threads with a two day data set?

Yes of course

 

Presumably you can use even larger data sets (5 days for example) provided you are comfortable with the risk?

Yes. The longer the time frame the larger the SD and therefore the greater the risk.

 

Finally do you have favourite data set periods and favourite trades?

I trade the Russell 2000 index futures almost exclusively. I will always have yesterdays data set up and todays.

 

 

One other thing occurs to me your statement above seems to imply that you only ever consider one set at a time? Is that set in stone? I must admit that I like to see things 'aligned' though can lead to indecision when they are not.

 

The question of how many HUPS to put on your trading data set is subjective. Too many and you can get confused; too few and you may miss important ones. If I'm trading just today, I will always have yesterdays data set HUPS on my chart( which will continue to change dynamically as todays data gets added to it). But I may also include additional VWAP data from 1 week, 1 month, 1 year ago if they happen to be nearby the price action.

Hope that helps.

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Blowfish or Jperl,

 

I was wondering if any could help me out with which type of Profile I should choose in order to replicate Jperl's approach to markets correctly. I use Ninjatrader and there are various Profile indicators based on Volume, TPOs etc.

 

Here are the ones I can choose from that a programmer wrote in the NT Forum:

 

VOC - Volume at Close. Only maps volume at the close tick per bar.

VTPO - Volume Time Price Opertunity. Evenly distributes Volume accross the ticks per bar. (TPO is realy just another phrase for POC in this context).

VWTPO - Volume Weighted. Distributes The Volume accross the ticks of a bar on a weighted basis (larger bars get less volume per tick, vs. smaller bars with the same volume.

TPO - only price is used.

 

Thanks for the help.

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Blowfish or Jperl,

 

I was wondering if any could help me out with which type of Profile I should choose in order to replicate Jperl's approach to markets correctly. I use Ninjatrader and there are various Profile indicators based on Volume, TPOs etc.

 

Here are the ones I can choose from that a programmer wrote in the NT Forum:

 

VOC - Volume at Close. Only maps volume at the close tick per bar.

VTPO - Volume Time Price Opertunity. Evenly distributes Volume accross the ticks per bar. (TPO is realy just another phrase for POC in this context).

VWTPO - Volume Weighted. Distributes The Volume accross the ticks of a bar on a weighted basis (larger bars get less volume per tick, vs. smaller bars with the same volume.

TPO - only price is used.

 

Thanks for the help.

 

I am not familiar with these indicators having said that the second (despite sounding like misnomer) behaves like Ensign (if it does what it says on the can).

 

If you look closely at Jerrys videos you can see the volume averaged across each bar at its close.....the profile for the range of the bar increases.

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The question of how many HUPS to put on your trading data set is subjective. Too many and you can get confused; too few and you may miss important ones. If I'm trading just today, I will always have yesterdays data set HUPS on my chart( which will continue to change dynamically as todays data gets added to it). But I may also include additional VWAP data from 1 week, 1 month, 1 year ago if they happen to be nearby the price action.

Hope that helps.

 

Yes it does. Just interested in your own personal preference :).

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Yes it does. Just interested in your own personal preference :).

 

Actually can I recant that? :). Let me describe a senario and possible way of approaching it and ask for your comments.

 

Lets say a weekly dataset has a positive skew and that price has moved up from the VWAP some way towards the SD1 (1/3rd or middway, whatever). We might anticipate that price would continue to SD1 the minimum expected movement.

 

Lets Imagine the daily profile (our chosen trading set) develops a downward skew. We might choose to skip a VWAP trade against the context of the larger dataset perhaps favouring a breakout (in accord with the larger dataset) or for waiting for the daily data set to flip.

 

Nothing really revolutionary just a way of considering the context of the bigger picture (data set). In the HUP section you described how they (HUPs) might hold up price but it seems to me they can provide more information too.

 

Of course you have to be careful not to information overload and to remain clear what you are actually trading. From previous posts I doubt that you would use the data like that but would still be interested in your comments.

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Hi Jerry,

 

Today I traded HD ( home depot) on a 1 minute chart and got 1 trade out of it. I am fully aware that the market can and will do whatever it wants. That being said HD was in an up trend all day but it was skewed to the negative.I took a text book "Jerry" short at 37.74 from the 1st SD to the VWAP at 12:36 to 12:53, covered, made a profit. It then went balistic because of the Beige book report. Before the report the slope of the VWAP was rising toward the PVP but still negatively skewed with price action way above the PVP and after the report it finally crossed over. My question to you is, if I see that the VWAP slope is converging towards the PVP, and price action is way above, could I enter a long trade at obvious HUP areas or would I be breaking any rules?

 

I am using ENSIGN and was wondering if I have the correct parameters on my price histogram:

 

range% 70

 

minutes: 1

 

restart: 930

 

boxsize: 1

 

initial: 0

 

Your help or anyone out there would be appreciated

 

Thanks,

 

 

Trade Pro

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Actually can I recant that? :). Let me describe a senario and possible way of approaching it and ask for your comments.

 

Lets say a weekly dataset has a positive skew and that price has moved up from the VWAP some way towards the SD1 (1/3rd or middway, whatever). We might anticipate that price would continue to SD1 the minimum expected movement.

 

Lets Imagine the daily profile (our chosen trading set) develops a downward skew. We might choose to skip a VWAP trade against the context of the larger dataset perhaps favouring a breakout (in accord with the larger dataset) or for waiting for the daily data set to flip.

 

Nothing really revolutionary just a way of considering the context of the bigger picture (data set). In the HUP section you described how they (HUPs) might hold up price but it seems to me they can provide more information too.

 

Of course you have to be careful not to information overload and to remain clear what you are actually trading. From previous posts I doubt that you would use the data like that but would still be interested in your comments.

 

Your question comes down to the situation of what do you do when one data set shows a positive skew and another shows a negative skew; which way do you take the trade.?

 

This situation occurs all the time. The answer is not unique. It depends on what type of trade you are looking to enter. If you are trading against the weekly data with positive skew, it may take a whole week for you to see a positive long trade. If you are trading against the daily data with negative skew then you may want to go short keeping in mind that the longer time bias is long.

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Hi Jerry, thanks for your reply. My question was not really meant to be a general 'what to do' question, more a request for a comment on the general principle. The general principle being using a larger data set as 'context' for a smaller dataset trade. Context could mean a directional bias or possibly a filter.

 

As you say there are many way's to interpret two data sets, the question is more along the lines of is there any advantage doing so? I think so, on the flip side one has added complexity to deal with.

 

As an example (again not asking for a comment on this specific case), if the weekly is moving from VWAP to SD1 (which will likely take some number of days) one might want to concentrate on daily trades in the same direction (these will be smaller, quicker trades) they could be VWAP, SD1, or even break outs as long as they are in the direction of the weekly movement (or context if you like). This particular example is similar to the traditional concept of going with the greater trend.

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Hi Jerry, thanks for your reply. My question was not really meant to be a general 'what to do' question, more a request for a comment on the general principle. The general principle being using a larger data set as 'context' for a smaller dataset trade. Context could mean a directional bias or possibly a filter.

 

As you say there are many way's to interpret two data sets, the question is more along the lines of is there any advantage doing so? I think so, on the flip side one has added complexity to deal with.

 

As an example (again not asking for a comment on this specific case), if the weekly is moving from VWAP to SD1 (which will likely take some number of days) one might want to concentrate on daily trades in the same direction (these will be smaller, quicker trades) they could be VWAP, SD1, or even break outs as long as they are in the direction of the weekly movement (or context if you like). This particular example is similar to the traditional concept of going with the greater trend.

 

Blowfish your concept of using the longer data set to decide on trade direction for the shorter data set would work fine. In fact it should work fine for just about any type of technical analysis one uses: eg. long time moveing average with short time moving average, long time regression analysis with short time, long time stochs with short time stochs. The key as you state is trading the short time in the direction of the long time trend. The only problem I have with it is you will miss about half the good trades.

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I could see no reason why it would not be valid. As you say hardly a new concept. I guess the question is (and it is as much a rhetorical question as one directed at you :)) is whether it causes one to miss more bad trades than good trades. It might be useful to give confidence in some of the riskier trades (break out springs to mind) if it is in the direction of the larger data set.

 

Another thought occurs to me (again nothing new) and that is using a trade setup in a smaller data set as a 'trigger' for a larger data set trade. Similar sort of deal really the main difference is the focus of the trade is on the larger data set.

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    • USDJPY Remains Biased To The Downside   USDJPY faces further price weakness despite its price hesitation on Tuesday. On the upside, resistance comes in at 109.00 level. Above this level will turn attention to the 109.50 level. Further out, we expect a possible move towards the 110.00 level on a break of that area, A cut through here will open the door for more gain towards the 110.50. On the downside, support lies at the 108.00 level where a break will target the 107.50 level. Below that level will turn focus to the 107.00 level and then lower towards the 106.50 level. On the whole, USDJPY faces further downside threats.        
    • Sterling Advances Barely Hours To UK Elections As Latest Poll Predicts Conservatives Win In just two days from now, a major event that will set the trend for the currency market for the year 2020, the UK elections will be held. In the face of a Brexit extension, UK prime minister had pushed for an earlier election in the hopes of having a majority conservatives win in the parliament which will make the Brexit deal pass through easily. As the clock ticks, with barely less than 48 hours to this epochal event, the newest poll by Survation conducted for ITV’s good morning Britain show predicts a Boris Johnson win by 14 pts. ahead of Jeremy Corbyn‘s Labour party. The Brexit deal seemed to give the conservatives an edge as it accounted for 32% of the vote decision while NHS gave Labour party a slight edge. On the overall, a majority vote of 42% was predicted for the conservatives while Labour had 28%. Market Reaction as the Clock Ticks Optimism looms in the market as the prediction of a conservatives win will ease Britain’s exit from Europe by January 31 deadline. The EUR/GBP pair continued to fall till the early hours of today breaking the 0.8411 trend line targeting the 0.8149 resistance level. GBP/USD pair rebounded to consolidate briefly targeting 1.3381 resistance levels. Technical analysis within a 4-hour MACD shows that both pairs may likely touch down. CAD edged slightly higher advanced by USMCA news but yet to consolidate gains. The USD against a basket of five major currencies held steady awaiting FOMC’s minutes due out tomorrow. Against a basket of currencies, NZD’s dominance is the highest. Sterling also gained momentum firmed up by approaching UK elections. The safe-haven, the Japanese yen, and Swiss franc remain pressured as major events that will shape the market for 2020 are been anticipated. On the Asia side, significant market activity wasn’t recorded as most currency pairs held steady within a day’s range. In the Asian stock market, not so much activity was recorded being weakened by recently released Chinese PMI numbers. Most of the indexes closed a little lower while US stocks rose swiftly after Friday’s release of US non-farm payroll reports. The outcome of the December 15 deadline set by the US for the signing of a preliminary trade pact will determine the week’s direction and even further into the year 2020. Also due out later in the week is UK GDP figures and ZEW released out of Germany.
    • Date : 11th December 2019. FOMC Preview – 11th December 2019. FOMC Preview No policy changes or surprises are expected with today’s announcement (19:00 GMT) and Chair Powell’s press conference 30 minutes later. It will be interesting to see if, as expected, the voting is unanimous this time round. The FOMC members have expressed significant differences of opinion during 2019 as three rate cuts were implemented.  The apparent paradox of low unemployment and low inflation, the new “norm”. The two-digit unemployment rate (U-3) in November edged down to 3.53% from 3.56% in October, and a 3.52% cycle-low in September, all below the 3.58% prior cycle-low in April and a 4.00% rate at the beginning of the year. Current readings remain much lower than the 4.2% long-run unemployment rate projection noted in the September SEP, it is expected that this estimate will be trimmed today. Headline CPI rose 0.4% in October while the core index rose by 0.2%, for respective y/y gains of 1.8% and 2.3%, versus September figures of 1.7% and 2.4%. Today the November headline is expected to fall again to 0.2% and the core remains flat at 0.2% too. The Fed’s favoured inflation gauge, the PCE chain price measure, rose 1.3% y/y in October and expectations are for an uptick to 1.4% in November. The core PCE chain price measure rose 1.6% y/y in November, versus 1.7% in September, and expectations are for the pace to hold at 1.6% in November. The FOMC’s latest median estimates for 2019 inflation are 1.5% for the headline and 1.8% for the core. Hence, the focus will be on the Fed’s new quarterly forecasts, with expectations raised and likely to be mostly bullish results with a bump up in the median growth projection and a drop in the median dot to reflect a steady stance through 2020. However, the individual dots are likely to show both, forecasts for cuts and hikes. Chair Powell is expected to reiterate the US economy and policy are in a “good place,” (a phrase he has used a number of times lately) and could sound a little more upbeat after the strong jobs report. But, he will continue to warn of downside risks. The FOMC isn’t likely to announce any new measures on reserve management operations (QE?) or a repo facility. All steady into 2020 and beyond. USDIndex remains biased to the down side but has support around 97.40 and the 200-day moving average. A breach of this key support zone brings in 97.00 and the October low of 96.85. A break over 97.80 (the confluence of the 20 and 50-day moving averages) and 98.00 would be required before a re-test of the recent high at 98.50 could be considered. Always trade with strict risk management. Your capital is the single most important aspect of your trading business. Please note that times displayed based on local time zone and are from time of writing this report. Click HERE to access the full HotForex Economic calendar. Want to learn to trade and analyse the markets? Join our webinars and get analysis and trading ideas combined with better understanding on how markets work. Click HERE to register for FREE! Click HERE to READ more Market news. Stuart Cowell Head Market Analyst HotForex Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in FX and CFDs products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.
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