This pattern repeats itself time and time again, so pay attention! The pattern that I keep repeating in avalanche situations is trying to buy falling daggers. FOMO at its finest. Price always exceeds my expectations and the very first pullback (point 1) is short lived, so if I catch a long this should only be for a very quick scalp.
Fear kills more dreams than failure ever will.
The retracement at point 2 is where I believe traders cover their losing positions, hedge or go short. This is a better point to have some balls and short the market instead of hoping it will retrace higher, from my experience more than half of the time it will not retrace higher in these market conditions, as this is wishful thinking time and time again. Like I said it is better to have some balls and sell at point 2, especially when it is a key psychological round number as well.
Point 3 is the money shot, as the better approach would be to wait for a swing low to form as this will usually exceed the initial swing low at point 1. This is the point I need to wait for before going long, whilst avoiding FOMO and trying to catch falling knifes.
A point to note is that this Brexit drama all happened at 4:43PM UK time, nearly at London market close – so I would not expect erratic continuation moves, as volatility tends to contract once the initial move has exhausted, a bit like dropping a tennis ball to the floor and watching it bounce. You can get a real sense of the volatility by observing the 1 minute chart.
It is also worth noting that this was Wednesday – triple swap day (expensive! for people caught long). The price remained suppressed until rollover, afterwards it had a little bit of relief. The next morning the price could not get to 1.27000 level, 5 pips shy, it then made a double top – then the morning price action drove the price down breaking the overnight lows to make a new swing low.
Momentum vs Volatility/Volume
Volatility/Volume is caused by sudden changes in the market. Market opens, closes, news, breaking news, speeches etc. The higher the volume/volatility in the market, the faster the market moves. Its like smashing your car with some nitro or taking a lot of pre workout.
Momentum is not seen, its felt. Momentum is the name given to the market movement. When the market is moving fast, you say, oh its in momentum. When a cheetah runs, you say oh look that cheetahs in momentum.