Saturday 30 May 2009
Euro Jitters
All this while, with the focus on recession in the US, Euro area troubles had not received much attention. However, Euro problems seem to have made a big bang appearance with Germany announcing an up to 6% negative growth in its GDP this year on the back of a 3.8% negative real GDP growth in the first quarter of this year. The 16 nation Euro economy itself contracted 2.5% in the first quarter as compared to the last quarter of 2008. The Euro zone is Germany’s largest export market and a contraction in the Euro zone seems to have triggered a German slowdown.
Leading the slowdown, industrial orders in the Euro zone dropped 26.9% on a year on year basis, with March orders falling 0.8%. Led by a slowing demand, German exports fell 9.7% in the first quarter of this year and company investment slowed by 7.9%. Orders of Airbus slumped 97% in the first quarter of this year and BMW’s sales fell 23% in April 2009, compared to the same period in the previous year. The steep fall in demand is forcing companies to slash output and jobs. BMW proposes to cut labor costs by 250 million Euros on the back of falling demand. The rapid decline in the European economy is the fastest in the last 13 years and the 3.8% drop in the German GDP is the steepest since 1970. Not only have German exports suffered, but as a part of the negative spiral, German imports contracted by 5.4% in the first quarter of 2009 as compared to the last quarter of 2008. It may be noted that the German economy grew by 1.8% in 2008, though only half the pace achieved in 2007.
However, a closer look at the data suggests that the recession may be bottoming out in the Euro zone as the March fall in industrial orders is limited to 0.8% compared to a 26.9% annual drop, which translates to over 2% a month. This suggests that the pace of decline may be slowing and the recession may be at its inflexion point. Another indicator supporting this is a 0.5% rise in consumer spending in the first quarter of this year. Consumer surveys also suggest that German consumer sentiment is steady. The GfK research group put its German consumer climate index at 2.5 points for June, unchanged for the levels for April and May. Another index also suggested that German companies were more confident about the economic scenario than they were in the last six months. The Ifo index that gauges business confidence of 7000 companies, was up at 84.2 in May from 83.7 in April, suggesting that the worst may be over.
The announcement of a marked slowdown in the German GDP as well reports that toxic assets held by German banks could blow up, led the Euro to pare its value against both the dollar and the yen. As per estimates of the German regulator, toxic assets held by the nation’s bank are to the tune of 200 billion Euros. The decline in the Euro was also triggered by Japanese investors turning their focus from the US economy to the Euro economy and booking some profits on their Euro holdings.
Leading the slowdown, industrial orders in the Euro zone dropped 26.9% on a year on year basis, with March orders falling 0.8%. Led by a slowing demand, German exports fell 9.7% in the first quarter of this year and company investment slowed by 7.9%. Orders of Airbus slumped 97% in the first quarter of this year and BMW’s sales fell 23% in April 2009, compared to the same period in the previous year. The steep fall in demand is forcing companies to slash output and jobs. BMW proposes to cut labor costs by 250 million Euros on the back of falling demand. The rapid decline in the European economy is the fastest in the last 13 years and the 3.8% drop in the German GDP is the steepest since 1970. Not only have German exports suffered, but as a part of the negative spiral, German imports contracted by 5.4% in the first quarter of 2009 as compared to the last quarter of 2008. It may be noted that the German economy grew by 1.8% in 2008, though only half the pace achieved in 2007.
However, a closer look at the data suggests that the recession may be bottoming out in the Euro zone as the March fall in industrial orders is limited to 0.8% compared to a 26.9% annual drop, which translates to over 2% a month. This suggests that the pace of decline may be slowing and the recession may be at its inflexion point. Another indicator supporting this is a 0.5% rise in consumer spending in the first quarter of this year. Consumer surveys also suggest that German consumer sentiment is steady. The GfK research group put its German consumer climate index at 2.5 points for June, unchanged for the levels for April and May. Another index also suggested that German companies were more confident about the economic scenario than they were in the last six months. The Ifo index that gauges business confidence of 7000 companies, was up at 84.2 in May from 83.7 in April, suggesting that the worst may be over.
The announcement of a marked slowdown in the German GDP as well reports that toxic assets held by German banks could blow up, led the Euro to pare its value against both the dollar and the yen. As per estimates of the German regulator, toxic assets held by the nation’s bank are to the tune of 200 billion Euros. The decline in the Euro was also triggered by Japanese investors turning their focus from the US economy to the Euro economy and booking some profits on their Euro holdings.
Remaining open...not always easy
I always liked this quote attributed to John Maynard Keynes: “The market can stay irrational longer than you can stay solvent.” We know it’s true. The problem is that practical application of this is not always easy unless one has a very long investment time frame—and very deep pockets. In other words, without that elusive gift of hindsight how can we correctly judge whether a market is being irrational?
If you’ve been reading this morning missive for a while you likely realize that John Ross and I have been very much leaning toward the idea of an irrational move in markets, as we haven’t yet been convinced the underlying evidence for such a move is in place. But deep down we know markets discount a lot of stuff we don’t see as there are a lot of smart people making bets on better information than is available to others. So despite what we may believe or want to believe, too much belief pushes one deeply into the territory of falling in love with your own story; and for a trader that is a very dangerous place to reside.
Technicians, or chartists, will exclaim they don’t fall in love with their story because they don’t consider fundamentals; they let the charts play out the script. There is much truth to that, but we’ve known chartists who not only fall in love with their story, but seem 100% certain they know exactly when and where the story will end; that is even more frightening to us—crystal ball land!
So is there a point to this ramble? If there is, it goes back to what Jesse Livermore is credited saying: “There is nothing new on Wall Street.” That says it all. There are a lot of great sages and adages out there that have told us how to do this, problem is we ignore their wise advice (guilty as charged I am).
Having missed the British pound move entirely…
… having been stuck on my fundamental story on the UK economy, I thought it might be a good time to review some wise advice from some proven brilliant traders as introduced to us in Jack Schwagers great book, “Trading Wizards”:
Bruce Kovner
Do not overtrade and use proper position size.
The market usually leads because there are people who know more than you do.
I assume that the price for a market on any given day is the correct price.
Do not personalize the markets.
Michael Marcus
Patience…stay with a position until the trend changes…be patient enough to wait for a clearly defined situation
Always use stops
Always pick a point you will get out before you get in
The best trades have three things going for them
First – the fundamentals suggest that there is an imbalance of supply and demand
Second – the chart must show that the market is moving in the direction that the fundamentals suggest
Third – when the news comes out, the market should act in a way that reflects the right psychological tone.
Ed Seykota
Longevity is the key to success.
In order of importance to me are: 1) the long-term trend, 2) the current chart pattern, and 3) picking a good spot to buy or sell.
Common patterns transcend individual market behavior
Trading rules:
Cut losses
Ride winners
Keep bets small
Follow the rules without question
Know when to break the rules
Everybody gets what they want out of the market
That is about the best you can do…I think.
A lot of talk about the US bonds and dollar lately:
..and if I remembered what Mr. Marcus had say a while back, my trading account would like me a lot more than it does today:
Three things going for them…
Fundamentals suggest supply and demand imbalance: At least for bonds we see the massive supply on the market; and if we think of the initial fear move into bonds, it was part and parcel to an unusual demand imbalance for the dollar i.e. one has to buy dollars in order to own bonds.
Chart pattern: Both are moving in the direction of the current fundamental view—global healing and risk taking on a perceived bottom in the recession.
News reaction: Both seem to clearly be showing the right tone relative to the news; “green shoots” sparked by Chinese stimulus and zooming emerging stock markets define the risk trade, and the continued fear of monetization of debt by the Fed has led to a surge down in the price of both.
Harry Truman once said: “The only thing new in the world is the history we don’t know.”
I think we can apply that to trading: “The only thing new in the world is re-learning the key market adages shared with us by the truly great traders that have gone before us.”
Take care and have a great weekend.
If you’ve been reading this morning missive for a while you likely realize that John Ross and I have been very much leaning toward the idea of an irrational move in markets, as we haven’t yet been convinced the underlying evidence for such a move is in place. But deep down we know markets discount a lot of stuff we don’t see as there are a lot of smart people making bets on better information than is available to others. So despite what we may believe or want to believe, too much belief pushes one deeply into the territory of falling in love with your own story; and for a trader that is a very dangerous place to reside.
Technicians, or chartists, will exclaim they don’t fall in love with their story because they don’t consider fundamentals; they let the charts play out the script. There is much truth to that, but we’ve known chartists who not only fall in love with their story, but seem 100% certain they know exactly when and where the story will end; that is even more frightening to us—crystal ball land!
So is there a point to this ramble? If there is, it goes back to what Jesse Livermore is credited saying: “There is nothing new on Wall Street.” That says it all. There are a lot of great sages and adages out there that have told us how to do this, problem is we ignore their wise advice (guilty as charged I am).
Having missed the British pound move entirely…
… having been stuck on my fundamental story on the UK economy, I thought it might be a good time to review some wise advice from some proven brilliant traders as introduced to us in Jack Schwagers great book, “Trading Wizards”:
Bruce Kovner
Do not overtrade and use proper position size.
The market usually leads because there are people who know more than you do.
I assume that the price for a market on any given day is the correct price.
Do not personalize the markets.
Michael Marcus
Patience…stay with a position until the trend changes…be patient enough to wait for a clearly defined situation
Always use stops
Always pick a point you will get out before you get in
The best trades have three things going for them
First – the fundamentals suggest that there is an imbalance of supply and demand
Second – the chart must show that the market is moving in the direction that the fundamentals suggest
Third – when the news comes out, the market should act in a way that reflects the right psychological tone.
Ed Seykota
Longevity is the key to success.
In order of importance to me are: 1) the long-term trend, 2) the current chart pattern, and 3) picking a good spot to buy or sell.
Common patterns transcend individual market behavior
Trading rules:
Cut losses
Ride winners
Keep bets small
Follow the rules without question
Know when to break the rules
Everybody gets what they want out of the market
That is about the best you can do…I think.
A lot of talk about the US bonds and dollar lately:
..and if I remembered what Mr. Marcus had say a while back, my trading account would like me a lot more than it does today:
Three things going for them…
Fundamentals suggest supply and demand imbalance: At least for bonds we see the massive supply on the market; and if we think of the initial fear move into bonds, it was part and parcel to an unusual demand imbalance for the dollar i.e. one has to buy dollars in order to own bonds.
Chart pattern: Both are moving in the direction of the current fundamental view—global healing and risk taking on a perceived bottom in the recession.
News reaction: Both seem to clearly be showing the right tone relative to the news; “green shoots” sparked by Chinese stimulus and zooming emerging stock markets define the risk trade, and the continued fear of monetization of debt by the Fed has led to a surge down in the price of both.
Harry Truman once said: “The only thing new in the world is the history we don’t know.”
I think we can apply that to trading: “The only thing new in the world is re-learning the key market adages shared with us by the truly great traders that have gone before us.”
Take care and have a great weekend.
Thursday 28 May 2009
Cowabunga System Daily Update
Main Trend
Current Trend
The trend remained up the entire day.
Today I only looked for long trades.
News events to watch for today :
* 10:00am EST- US Existing Home Sales
Today's Surf
12:30am EST- There was a moving average crossover for a long trade. RSI was greater than 50, MACD was negative and gaining value, but stochastics were not trending up. This cancelled out the signal and I did not enter.
2:45am EST- There was a moving average crossover for a long trade. RSI was greater than 50, stochastics were trending up and MACD was negative and gaining value. This was a valid entry.
The entry was at the close of the candle at 1.5980 with a stop at the most recent low at 1.5924. Since I was 20 pips away from the nearest 50 or 00 level, I decided to put my initial target at 1.6000.
Entry: Long at 1.5980 Stop: 1.5924 Target: 1.6000
3:30am EST- My target was hit. Price did not make a clean break so I took my final profit. I managed to exit at 1.5995.
8:45am EST- There was a moving average crossover for a long trade. RSI was greater than 50, stochastics were trending up and MACD was negative and gaining value. This was a valid entry.
The entry was at the close of the candle at 1.6017 with a stop at the most recent low at 1.5947. Since I was 33 pips away from the nearest 50 or 00 level, I decided to put my initial target at 1.6050.
Entry: Long at 1.6017 Stop: 1.5947 Target: 1.6050
9:45am EST- My target wasn't hit by this time. News was coming out at 10:00am EST, so I went ahead and closed my trade at 1.6024.
10:45am EST- There was a moving average crossover for a long trade. RSI was greater than 50, stochastics were trending up and MACD went from negative to positive. This was a valid entry.
The entry was at the close of the candle at 1.6032 with a stop at the most recent low at 1.5983. Since I was 18 pips away from the nearest 50 or 00 level, I decided to put my initial target at 1.6050.
Entry: Long at 1.6032 Stop: 1.5983 Target: 1.6050
11:30am EST- My target was hit! Price made a clean break so I moved my stop to 1.6050 and set my next target for 1.6100.
11:45am EST- Unfortunately I got stopped out at 1.6050.
Trade Result: +15 +7 +18= +40 pips (NOT INCLUDING SPREAD) R-Multiple: 0.26; 0.10; 0.36
News events to watch for tomorrow:
* 6:00am EST- UK CBI Realized Sales
* 8:30am EST- US Core Durable Goods Orders m/m; Unemployment Claims
* 10:00am EST- US New Home Sales
Current Trend
The trend remained up the entire day.
Today I only looked for long trades.
News events to watch for today :
* 10:00am EST- US Existing Home Sales
Today's Surf
12:30am EST- There was a moving average crossover for a long trade. RSI was greater than 50, MACD was negative and gaining value, but stochastics were not trending up. This cancelled out the signal and I did not enter.
2:45am EST- There was a moving average crossover for a long trade. RSI was greater than 50, stochastics were trending up and MACD was negative and gaining value. This was a valid entry.
The entry was at the close of the candle at 1.5980 with a stop at the most recent low at 1.5924. Since I was 20 pips away from the nearest 50 or 00 level, I decided to put my initial target at 1.6000.
Entry: Long at 1.5980 Stop: 1.5924 Target: 1.6000
3:30am EST- My target was hit. Price did not make a clean break so I took my final profit. I managed to exit at 1.5995.
8:45am EST- There was a moving average crossover for a long trade. RSI was greater than 50, stochastics were trending up and MACD was negative and gaining value. This was a valid entry.
The entry was at the close of the candle at 1.6017 with a stop at the most recent low at 1.5947. Since I was 33 pips away from the nearest 50 or 00 level, I decided to put my initial target at 1.6050.
Entry: Long at 1.6017 Stop: 1.5947 Target: 1.6050
9:45am EST- My target wasn't hit by this time. News was coming out at 10:00am EST, so I went ahead and closed my trade at 1.6024.
10:45am EST- There was a moving average crossover for a long trade. RSI was greater than 50, stochastics were trending up and MACD went from negative to positive. This was a valid entry.
The entry was at the close of the candle at 1.6032 with a stop at the most recent low at 1.5983. Since I was 18 pips away from the nearest 50 or 00 level, I decided to put my initial target at 1.6050.
Entry: Long at 1.6032 Stop: 1.5983 Target: 1.6050
11:30am EST- My target was hit! Price made a clean break so I moved my stop to 1.6050 and set my next target for 1.6100.
11:45am EST- Unfortunately I got stopped out at 1.6050.
Trade Result: +15 +7 +18= +40 pips (NOT INCLUDING SPREAD) R-Multiple: 0.26; 0.10; 0.36
News events to watch for tomorrow:
* 6:00am EST- UK CBI Realized Sales
* 8:30am EST- US Core Durable Goods Orders m/m; Unemployment Claims
* 10:00am EST- US New Home Sales
USD/CAD - Close Open Orders
It looks like I missed out on move lower as USDCAD made its way down lower without a pullback to my entry orders. With the pair currently consolidating around 1.1100 - 1.1150, I have decided to close my open orders and look for another opportunity to short lower.
Close open orders to short at 1.1365. No trade.
I will continue to watch USDCAD for further shorting opportunities as it looks like weak US Dollar sentiment will continue in the short term. Stay tuned!
Good morning Forex friends! I've been away for quite some time, but now I'm back, refreshed, and ready to trade! Last week was all about US Dollar selling. Will we see a retracement and return to that sentiment?
It was all about US Dollar selling last week on rumors of a US credit rating downgrade. Money was pouring out of the Greenback and into stocks, commodities, and commodity currencies. This week has started out with a bit of pull back from that trend, and using the one hour chart, I have pinpoint areas where I like to short if that retracement continues.
There is an area of previous support that was broken around 1.1365, which happens to line up with the 61% Fibonacci area drawn on the chart. If the pair retraces to this area, I'd like to short as this may be an area of resistance. Also, it lines up with my bias that money will continue to flow out of the US Dollar and into currencies with no quantitative easing policies in place like the Canadian Dollar. Also, the "Loonie" moves in correlation with oil as much of Canada's exports is based on raw materials. Here's what I am going to do:
Short USD/CAD at 1.1365, stop at 1.1415, pt1 at 1.1315, pt2 at 1.1265
Remember to never risk more than 1% of a trading account on any single trade. Adjust position sizes accordingly.
Stay tuned!
Close open orders to short at 1.1365. No trade.
I will continue to watch USDCAD for further shorting opportunities as it looks like weak US Dollar sentiment will continue in the short term. Stay tuned!
Good morning Forex friends! I've been away for quite some time, but now I'm back, refreshed, and ready to trade! Last week was all about US Dollar selling. Will we see a retracement and return to that sentiment?
It was all about US Dollar selling last week on rumors of a US credit rating downgrade. Money was pouring out of the Greenback and into stocks, commodities, and commodity currencies. This week has started out with a bit of pull back from that trend, and using the one hour chart, I have pinpoint areas where I like to short if that retracement continues.
There is an area of previous support that was broken around 1.1365, which happens to line up with the 61% Fibonacci area drawn on the chart. If the pair retraces to this area, I'd like to short as this may be an area of resistance. Also, it lines up with my bias that money will continue to flow out of the US Dollar and into currencies with no quantitative easing policies in place like the Canadian Dollar. Also, the "Loonie" moves in correlation with oil as much of Canada's exports is based on raw materials. Here's what I am going to do:
Short USD/CAD at 1.1365, stop at 1.1415, pt1 at 1.1315, pt2 at 1.1265
Remember to never risk more than 1% of a trading account on any single trade. Adjust position sizes accordingly.
Stay tuned!
Is the US's Credit Rating in Jeopardy?
Credit is the life blood of the American economy. For those who previously could not afford fast cars, big houses, and some bling-bling, credit gives them a chance at the American dream. This credit is made possible through consumer loans, mortgages, and credit cards.
On a larger scale, credit and debt takes the form of treasury bonds and bills. Since US is the largest economy in the world, its bonds are considered "risk-free". This perception is quantified through the use of a credit rating system. The US sovereign credit rating currently stands at the highest possible level at Aaa and AAA. This credit rating has been given by Moody's Investors and Standard & Poor, respectively.
The current economic crisis faced by the US has pushed economists to question this long standing belief. Should the US's credit rating be downgraded?
Last week, the S&P downgraded the outlook on the UK economy, changing it from "stable" to "negative". This downgrade resulted from the UK government's rising debt level, which is reportedly inching closer to 100% of its GDP. A high debt burden naturally corresponds to a higher risk of default or inability to pay off debt. Also last week, Moody's lowered Japan's credit rating two notches to AA, after a prior downgrade from S&P and Fitch's. Japan's poor financial condition and economic outlook rendered it unlikely to pay off its debt, which has reached 170% of its GDP.
One reason why some focus has been shifted to the US is because, like the UK, the US has been incurring large debt. The US government's $787 billion economic stimulus package and $700 billion bank bailout fund pushed the estimate for this year's deficit to a record $1.8 trillion, equal to about 13% of the nation's GDP. Estimates of the deficit continue to skyrocket to more than $2 trillion for 2010, which is a nearly 30% increase in just a few months.
The Obama administration dismissed the possibility of a credit downgrade, saying that the government will continue to do whatever it takes to boost the economy. This belief is shared by many investors, analysts and economists from prestigious firms like JP Morgan Asset Management and Deutsche Bank. Many believe that a credit downgrade will not happen until 2011 at the earliest. In fact, Moody's has said that they are okay with the US's AAA rating.
But what if the US credit rating is downgraded?
A credit downgrade implies that the debt issuer (US government) would be more likely to default on their loans. Therefore, there will be pressure for the US to increase their interest rates in order for investors to be compensated for "extra" risk that they are bearing. In addition, yields on US debt would also rise and existing securities would devalue to match the new higher yields. An increase in the interest rates would undermine the government's stimulus package and the Fed's monetary and quantitative easing measures. Cost of credit will rise for both the government and the private sector, making it harder and more costly for businesses and consumers to borrow money. One of the effects of such event would be slower economic activity.
Furthermore, a credit downgrade will have a large impact on the US's biggest creditors - foreign investors. With large investments in US debts, foreign investors may want to diversify their portfolio and sell off "junk" assets. Investors like China, who have over $1 trillion in US treasuries, may sell part of their holdings and proceed to move their funds to other "safer" assets. Recall that China's officials have already grumbled over the safety of their US investments.
What does this mean for the currency markets?
The effects of a US credit rating downgrade could be pretty big for the currency markets. The perceived value of the US Dollar is already on the decline as the Fed prints money day and night through its quantitative easing measures. If we do see a credit rating downgrade, this will spark less demand for US debt, and as a result, less demand for US Dollars as foreign investors need to buy Greenbacks to get into US assets. Also, investors with large holdings in US assets could sell out of their position, which of course will likely lead to more selling of the Greenback. This could lead to a huge outflow of money from the US Dollar and into other currencies as we are seeing in recent price action. Money has been flowing into gold, oil, and commodity currencies (Australian Dollar and Canadian Dollars), and that flow could get stronger with this event.
While the likelihood of a US credit rating downgrade may be far off as some "experts and analysts" say, the possibility of such a significant event is something to watch out and be ready for. Whether you are a short term or long term trader, the market reaction after a US credit rating downgrade could have a huge positive, or negative, affect in your bottom line. Stay frosty my friends!
On a larger scale, credit and debt takes the form of treasury bonds and bills. Since US is the largest economy in the world, its bonds are considered "risk-free". This perception is quantified through the use of a credit rating system. The US sovereign credit rating currently stands at the highest possible level at Aaa and AAA. This credit rating has been given by Moody's Investors and Standard & Poor, respectively.
The current economic crisis faced by the US has pushed economists to question this long standing belief. Should the US's credit rating be downgraded?
Last week, the S&P downgraded the outlook on the UK economy, changing it from "stable" to "negative". This downgrade resulted from the UK government's rising debt level, which is reportedly inching closer to 100% of its GDP. A high debt burden naturally corresponds to a higher risk of default or inability to pay off debt. Also last week, Moody's lowered Japan's credit rating two notches to AA, after a prior downgrade from S&P and Fitch's. Japan's poor financial condition and economic outlook rendered it unlikely to pay off its debt, which has reached 170% of its GDP.
One reason why some focus has been shifted to the US is because, like the UK, the US has been incurring large debt. The US government's $787 billion economic stimulus package and $700 billion bank bailout fund pushed the estimate for this year's deficit to a record $1.8 trillion, equal to about 13% of the nation's GDP. Estimates of the deficit continue to skyrocket to more than $2 trillion for 2010, which is a nearly 30% increase in just a few months.
The Obama administration dismissed the possibility of a credit downgrade, saying that the government will continue to do whatever it takes to boost the economy. This belief is shared by many investors, analysts and economists from prestigious firms like JP Morgan Asset Management and Deutsche Bank. Many believe that a credit downgrade will not happen until 2011 at the earliest. In fact, Moody's has said that they are okay with the US's AAA rating.
But what if the US credit rating is downgraded?
A credit downgrade implies that the debt issuer (US government) would be more likely to default on their loans. Therefore, there will be pressure for the US to increase their interest rates in order for investors to be compensated for "extra" risk that they are bearing. In addition, yields on US debt would also rise and existing securities would devalue to match the new higher yields. An increase in the interest rates would undermine the government's stimulus package and the Fed's monetary and quantitative easing measures. Cost of credit will rise for both the government and the private sector, making it harder and more costly for businesses and consumers to borrow money. One of the effects of such event would be slower economic activity.
Furthermore, a credit downgrade will have a large impact on the US's biggest creditors - foreign investors. With large investments in US debts, foreign investors may want to diversify their portfolio and sell off "junk" assets. Investors like China, who have over $1 trillion in US treasuries, may sell part of their holdings and proceed to move their funds to other "safer" assets. Recall that China's officials have already grumbled over the safety of their US investments.
What does this mean for the currency markets?
The effects of a US credit rating downgrade could be pretty big for the currency markets. The perceived value of the US Dollar is already on the decline as the Fed prints money day and night through its quantitative easing measures. If we do see a credit rating downgrade, this will spark less demand for US debt, and as a result, less demand for US Dollars as foreign investors need to buy Greenbacks to get into US assets. Also, investors with large holdings in US assets could sell out of their position, which of course will likely lead to more selling of the Greenback. This could lead to a huge outflow of money from the US Dollar and into other currencies as we are seeing in recent price action. Money has been flowing into gold, oil, and commodity currencies (Australian Dollar and Canadian Dollars), and that flow could get stronger with this event.
While the likelihood of a US credit rating downgrade may be far off as some "experts and analysts" say, the possibility of such a significant event is something to watch out and be ready for. Whether you are a short term or long term trader, the market reaction after a US credit rating downgrade could have a huge positive, or negative, affect in your bottom line. Stay frosty my friends!
Pick of the Day: USD/JPY
USDJPY has been on a down trend as money flows out of the Greenback against the majors over the past few weeks. The Greenback has bounced back this week, but is this another opportunity to jump in the downtrend?
Technically, the pair is retracing higher in a downtrend, giving me an opportunity to short at a better price. Stochastics are indicating that the pair is overbought and I have used the Fibonacci tool to find possible points of resistance to enter.
Fundamentally, the major themes weighing down on the Greenback include speculation of US credit rating downgrade, huge deficit, and quantitative easing policies. Also, US housing data may continue to weigh down on the US Dollar as today's S&P/Case-Shiller continued to show a fall in housing prices. Tomorrow's US housing data may continue to look weak and bring a round of risk aversion....we'll just have to wait and see.
For today, here's how I'd like to play USDJPY on my short bias views:
Short USDJPY at 95.60, stop at 96.20, pt1 at 95.00, pt2 at 94.40
Remember to never risk more than 1% of a trading account on any single trade. Adjust position sizes accordingly.
Technically, the pair is retracing higher in a downtrend, giving me an opportunity to short at a better price. Stochastics are indicating that the pair is overbought and I have used the Fibonacci tool to find possible points of resistance to enter.
Fundamentally, the major themes weighing down on the Greenback include speculation of US credit rating downgrade, huge deficit, and quantitative easing policies. Also, US housing data may continue to weigh down on the US Dollar as today's S&P/Case-Shiller continued to show a fall in housing prices. Tomorrow's US housing data may continue to look weak and bring a round of risk aversion....we'll just have to wait and see.
For today, here's how I'd like to play USDJPY on my short bias views:
Short USDJPY at 95.60, stop at 96.20, pt1 at 95.00, pt2 at 94.40
Remember to never risk more than 1% of a trading account on any single trade. Adjust position sizes accordingly.
Market Pulse & The Funnel Mindset
One of the things I have always relied on in my forex trading is my background in futures trading. I started trading futures loooong before I even know about forex pairs. I traded currencies for years on the CME and eventually -- at the prodding of a few good friends -- decided to try my hand on this "new" market call the foreign exchange.
Along with me came my knowledge of the importance of time and price action and charting analysis...and what I call my "market pulse" which is defined as the markets that move the markets. I think there are a few key commodities markets that make the world go round:
U.S. Dollar Index
crude oil
Dow Jones
gold
Continuous Commodity Index
Fed Funds
Does this mean that along with your forex trading you must now be a futures trader too? You can ofcouse choose to be if you want to...but what I am recommending you do is actually learn to see how those six markets I've listed effect your forex trading.
Think of it this way: If forex trading reflects the currencies of two countries and if a nation's currency is reflective of their economy...we must at very least have an idea of what can effect the economy of each country. I believe most traders already know this and that's because I see the way the markets react to
News and data is but one aspect of what can effect a nation's economy.
Consider the "market pulse" to be another part of that puzzle. The U.S. Dollar is the most important and the easiest to define. Each major pair trades against the dollar so it's part of our job to understand where it's heading because that's going to effect the pair's movement.
Think about it: What do the... EUR/USD ... USD/JPY ... GBP/USD ... USD/CHF ... USD/CAD ... AUD/USD ... NZD/USD all have in common?
The U.S. Dollar!
In the next update I will share a video of the "funnel mindset or approach" that I discussed in my first book back in 2004. I explain how and which markets to focus on.
In the meanwhile, here's where the dollar is today:
Along with me came my knowledge of the importance of time and price action and charting analysis...and what I call my "market pulse" which is defined as the markets that move the markets. I think there are a few key commodities markets that make the world go round:
U.S. Dollar Index
crude oil
Dow Jones
gold
Continuous Commodity Index
Fed Funds
Does this mean that along with your forex trading you must now be a futures trader too? You can ofcouse choose to be if you want to...but what I am recommending you do is actually learn to see how those six markets I've listed effect your forex trading.
Think of it this way: If forex trading reflects the currencies of two countries and if a nation's currency is reflective of their economy...we must at very least have an idea of what can effect the economy of each country. I believe most traders already know this and that's because I see the way the markets react to
News and data is but one aspect of what can effect a nation's economy.
Consider the "market pulse" to be another part of that puzzle. The U.S. Dollar is the most important and the easiest to define. Each major pair trades against the dollar so it's part of our job to understand where it's heading because that's going to effect the pair's movement.
Think about it: What do the... EUR/USD ... USD/JPY ... GBP/USD ... USD/CHF ... USD/CAD ... AUD/USD ... NZD/USD all have in common?
The U.S. Dollar!
In the next update I will share a video of the "funnel mindset or approach" that I discussed in my first book back in 2004. I explain how and which markets to focus on.
In the meanwhile, here's where the dollar is today:
Thursday 14 May 2009
Dollar Up on Consumer Retraction
Retail sales fell 0.4% in April after their 1.3% dip in March, dashing hopes of any foreseeable economic recovery. This sent the stock markets plunging, led by a fall in retail stocks and investors turned risk averse again and ran to the safety of the dollar. The result was an appreciation in the US dollar and the Yen also seems to have made some gains from the unexpected risk aversion.
Retail sales had increased in January and February this year after a continuous fall between July and December 2008. While, the month of March experienced negative growth in retail sales, April was expected to be better. US retail sales are a key indicator of US economic health as 70% of the nation’s gross domestic product (GDP) is comprised of consumer spending. While, retail sales fell in April, the pace of decline was lower than that of the previous month and this could be interpreted to be an indicator of recovery. However, this may be a premature assumption to make and only time will tell if these were indeed signs of recovery. What was also disturbing was the trend of inventories. As per the Commerce Department, inventories fell 1% in March. This was a fall for seven consecutive months. What is expected to hurt this trend further is dampened consumer spending. With consumer spending refusing to grow, and continuing to shrink, inventories would need to be pared further. This would imply that production orders would be postponed and lack of production activity would dent GDP growth. With the recession having put nearly 5.7 million Americans out of work, this trend does not bode well, as increase in consumption is highly dependent upon an increase in employment.
The stock markets pared earlier gains on this news, with the Dow Jones shedding 2.2% and the S&P 500 stock index falling 2.7%. Surprisingly, the technology dominated NASDAQ lost the most and was down 3%. Stocks of major retailers tumbled, with that of Liz Claiborne falling 20% and that of Macy’s 6.6%. The S&P Retail Index fell 2.1%.
The unexpected fall in retail sales that resulted in stock markets moving down, seems to have led investors to rethink if stocks had moved up too fast. An exit from stocks also seems to be pushing up the dollar, with the onset of risk aversion. While, the dollar gained against the Euro, it was down against the Yen. This seems to indicate that the Yen may be making a comeback as a hedge currency in times of uncertainty. If the Yen were to continue the trend of rising against the US dollar due to risk aversion, this may be indicative of a disturbing trend. The continuation of this trend effectively indicates that the currency markets are saying that in bad times, they now prefer the Yen a safer haven than the US dollar, as the future of the US economy is looking grim and they are not willing to bet on it for the long term safety of their money.
Retail sales had increased in January and February this year after a continuous fall between July and December 2008. While, the month of March experienced negative growth in retail sales, April was expected to be better. US retail sales are a key indicator of US economic health as 70% of the nation’s gross domestic product (GDP) is comprised of consumer spending. While, retail sales fell in April, the pace of decline was lower than that of the previous month and this could be interpreted to be an indicator of recovery. However, this may be a premature assumption to make and only time will tell if these were indeed signs of recovery. What was also disturbing was the trend of inventories. As per the Commerce Department, inventories fell 1% in March. This was a fall for seven consecutive months. What is expected to hurt this trend further is dampened consumer spending. With consumer spending refusing to grow, and continuing to shrink, inventories would need to be pared further. This would imply that production orders would be postponed and lack of production activity would dent GDP growth. With the recession having put nearly 5.7 million Americans out of work, this trend does not bode well, as increase in consumption is highly dependent upon an increase in employment.
The stock markets pared earlier gains on this news, with the Dow Jones shedding 2.2% and the S&P 500 stock index falling 2.7%. Surprisingly, the technology dominated NASDAQ lost the most and was down 3%. Stocks of major retailers tumbled, with that of Liz Claiborne falling 20% and that of Macy’s 6.6%. The S&P Retail Index fell 2.1%.
The unexpected fall in retail sales that resulted in stock markets moving down, seems to have led investors to rethink if stocks had moved up too fast. An exit from stocks also seems to be pushing up the dollar, with the onset of risk aversion. While, the dollar gained against the Euro, it was down against the Yen. This seems to indicate that the Yen may be making a comeback as a hedge currency in times of uncertainty. If the Yen were to continue the trend of rising against the US dollar due to risk aversion, this may be indicative of a disturbing trend. The continuation of this trend effectively indicates that the currency markets are saying that in bad times, they now prefer the Yen a safer haven than the US dollar, as the future of the US economy is looking grim and they are not willing to bet on it for the long term safety of their money.
Cowabunga System Daily Update
Main Trend
Current Trend= The trend remained down the entire day.
Today I only looked for short trades.
News events to watch for today :
* 8:30am EST- US PPI m/m
Today's Surf
3:15am EST- There was a moving average crossover for a short trade. RSI was less than 50, stochastics were trending down and MACD was positive and losing value. This was a valid entry. The entry was at the close of the candle at 1.5124 with a stop at the most recent high at 1.5170. Since I was 24 pips away from the nearest 50 or 00 level, I decided to put my initial target at 1.5100.
Entry: Short at 1.5124
Stop: 1.5170
Target: 1.5100
6:15am EST- My target was hit. Price didn't make a clean break so I took my final profit. I exited at 1.5105.
Trade Result: +19 pips (NOT INCLUDING SPREAD) R-Multiple: 0.41
News events to watch for tomorrow :
* 8:30am EST- US Core CPI m/m; Empire State Manufacturing Index
* 9:00am EST- US TIC Long-Term Purchases
Current Trend= The trend remained down the entire day.
Today I only looked for short trades.
News events to watch for today :
* 8:30am EST- US PPI m/m
Today's Surf
3:15am EST- There was a moving average crossover for a short trade. RSI was less than 50, stochastics were trending down and MACD was positive and losing value. This was a valid entry. The entry was at the close of the candle at 1.5124 with a stop at the most recent high at 1.5170. Since I was 24 pips away from the nearest 50 or 00 level, I decided to put my initial target at 1.5100.
Entry: Short at 1.5124
Stop: 1.5170
Target: 1.5100
6:15am EST- My target was hit. Price didn't make a clean break so I took my final profit. I exited at 1.5105.
Trade Result: +19 pips (NOT INCLUDING SPREAD) R-Multiple: 0.41
News events to watch for tomorrow :
* 8:30am EST- US Core CPI m/m; Empire State Manufacturing Index
* 9:00am EST- US TIC Long-Term Purchases
Poking at a little thing
Key Reports (WSJ):
8:30 a.m. Initial Jobless Claims For May 9 Week: Expected: +10K. Previous: -34K.
8:30 a.m. Mar Producer Price Index: Expected: +0.3%. Previous: -1.2%.
8:30 a.m. Mar Producer Price Index,ex-food & energy: Expected: +0.2%. Previous: 0%.
10:00 a.m. DJ-BTMU Business Barometer For May 2: Previous: -0.8%.
10:30 a.m. May 8 EIA Natl Gas Inventories, in billion cubic feet
Quotable
"Very little of the great cruelty shown by men can really be attributed to cruel instinct. Most of it comes from thoughtlessness or inherited habit. The roots of cruelty, therefore, are not so much strong as widespread. But the time must come when inhumanity protected by custom and thoughtlessness will succumb before humanity championed by thought. Let us work that this time may come."
Albert Schweitzer
FX Trading - Poking at a little thing called demand, again.
Let me quick say that stocks and the US dollar have turned this week. Sure, I may have been a few days early in expecting the move; but in watching the reaction to the news so far this week, risk-appetite has a few extra days (at least) to go hungry. As it pangs, we'll find out whether a resumption of investor confidence and growing risk-appetite is in order ... or whether potential renewed economic and/or financial concern surfaces to significantly pressure risk-bound investments.
Ever since the beginning of bailout and stimulus efforts, the goal became: resurrect demand. It was almost an obvious plan of attack, since that's what bolstered emerging markets, powered cheap-goods China, empowered consumption-happy Americans, emboldened risk-blind investors and virtually pumped the global economy along.
It was when demand hit the brakes that this whole system came unwound. [See Richard Bookstaber's A Demon of Our Own Design where he discusses 'tight coupling' if you want a more academic account of how and why most everything came unraveled at once.]
The demand for natural resources - a very popularized topic during the inflationary boom time - was among the first indications that the global economy was shifting. Metals, energy and other materials used in manufacturing and construction took the hit. Specifically, when crude oil plummeted from record highs at nearly $150/barrel to roughly $45/barrel in less than six months, well ... let's call it an 'oil price shock.'
Crude would eventually push a few bucks lower. Since then it rallied to just over $60/barrel as of this week. But $60/barrel is a critical level, alone offering resistance to climbing oil prices.
The thing is, though, a chart of crude oil and a chart of the S&P 500 look a lot alike:
Crude oil has followed the S&P 500 on the same dominant risk-appetite theme that had its grip around the markets for many, many months now. The potential for recovery drove stocks higher; rising stocks drove confidence higher; rising confidence garnered further risk-taking in the form of rising commodity prices. In other words, potential recovery implied potential demand. Demand (along with supply) drives commodity prices.
I saw a headline yesterday, I think it was, talking about OPEC and their decision to increase the supply of crude oil ... thinking they've now done enough to stem falling oil prices.
Then this morning: IEA predicts sharp fall in oil demand. For 2009, the International Energy Agency expects the sharpest decline in oil demand since 1981.
It's news like this, absent less-bad-than-expected optimism that's dominated the last two months, and softening prices that are going to have investors reconsidering the potential for recovery. Whether you think the answer to the economic crisis lies in demand stimulation or not, it seems obvious that prosperity won't ensue until something major happens.
That may mean substantial demand growth. Or it may mean something more, structural rather than cyclical, if you will. Maybe China holds the key to door number one; or maybe they're trying their hardest to pick the lock. But it's going to take more than China to unlock door number two, in case door number one is welded shut. [I also noticed Chinese exports fell 23% in April, compared to only 17% in March. That's not exactly zoom-zoom to me.]
What's bad for crude is good for dollars:
Crude is an inflation hedge of sorts. And the degree to which deflation will shock the crowd, we think it will be seen in oil prices quickly. And of course, creeping deflation despite its insidious impact on the overleveraged, tends to be good for the world reserve currency at the moment.
8:30 a.m. Initial Jobless Claims For May 9 Week: Expected: +10K. Previous: -34K.
8:30 a.m. Mar Producer Price Index: Expected: +0.3%. Previous: -1.2%.
8:30 a.m. Mar Producer Price Index,ex-food & energy: Expected: +0.2%. Previous: 0%.
10:00 a.m. DJ-BTMU Business Barometer For May 2: Previous: -0.8%.
10:30 a.m. May 8 EIA Natl Gas Inventories, in billion cubic feet
Quotable
"Very little of the great cruelty shown by men can really be attributed to cruel instinct. Most of it comes from thoughtlessness or inherited habit. The roots of cruelty, therefore, are not so much strong as widespread. But the time must come when inhumanity protected by custom and thoughtlessness will succumb before humanity championed by thought. Let us work that this time may come."
Albert Schweitzer
FX Trading - Poking at a little thing called demand, again.
Let me quick say that stocks and the US dollar have turned this week. Sure, I may have been a few days early in expecting the move; but in watching the reaction to the news so far this week, risk-appetite has a few extra days (at least) to go hungry. As it pangs, we'll find out whether a resumption of investor confidence and growing risk-appetite is in order ... or whether potential renewed economic and/or financial concern surfaces to significantly pressure risk-bound investments.
Ever since the beginning of bailout and stimulus efforts, the goal became: resurrect demand. It was almost an obvious plan of attack, since that's what bolstered emerging markets, powered cheap-goods China, empowered consumption-happy Americans, emboldened risk-blind investors and virtually pumped the global economy along.
It was when demand hit the brakes that this whole system came unwound. [See Richard Bookstaber's A Demon of Our Own Design where he discusses 'tight coupling' if you want a more academic account of how and why most everything came unraveled at once.]
The demand for natural resources - a very popularized topic during the inflationary boom time - was among the first indications that the global economy was shifting. Metals, energy and other materials used in manufacturing and construction took the hit. Specifically, when crude oil plummeted from record highs at nearly $150/barrel to roughly $45/barrel in less than six months, well ... let's call it an 'oil price shock.'
Crude would eventually push a few bucks lower. Since then it rallied to just over $60/barrel as of this week. But $60/barrel is a critical level, alone offering resistance to climbing oil prices.
The thing is, though, a chart of crude oil and a chart of the S&P 500 look a lot alike:
Crude oil has followed the S&P 500 on the same dominant risk-appetite theme that had its grip around the markets for many, many months now. The potential for recovery drove stocks higher; rising stocks drove confidence higher; rising confidence garnered further risk-taking in the form of rising commodity prices. In other words, potential recovery implied potential demand. Demand (along with supply) drives commodity prices.
I saw a headline yesterday, I think it was, talking about OPEC and their decision to increase the supply of crude oil ... thinking they've now done enough to stem falling oil prices.
Then this morning: IEA predicts sharp fall in oil demand. For 2009, the International Energy Agency expects the sharpest decline in oil demand since 1981.
It's news like this, absent less-bad-than-expected optimism that's dominated the last two months, and softening prices that are going to have investors reconsidering the potential for recovery. Whether you think the answer to the economic crisis lies in demand stimulation or not, it seems obvious that prosperity won't ensue until something major happens.
That may mean substantial demand growth. Or it may mean something more, structural rather than cyclical, if you will. Maybe China holds the key to door number one; or maybe they're trying their hardest to pick the lock. But it's going to take more than China to unlock door number two, in case door number one is welded shut. [I also noticed Chinese exports fell 23% in April, compared to only 17% in March. That's not exactly zoom-zoom to me.]
What's bad for crude is good for dollars:
Crude is an inflation hedge of sorts. And the degree to which deflation will shock the crowd, we think it will be seen in oil prices quickly. And of course, creeping deflation despite its insidious impact on the overleveraged, tends to be good for the world reserve currency at the moment.
Wednesday 13 May 2009
Trading - Seems Obvious
GBPUSD hourly: also testing yesterday's highs as UK data out today exceeded expectations.
Focus will turn to US trade data out later this morning to see if euro and pound can keep trucking higher. Rising oil prices are seen as the primary driver of a larger deficit than seen in the prior month. While the import side of the equation makes a difference, little is expected from the export side. Should the US trade data lack any surprises, we could see the European currencies drag the others higher on a confirmed breakout of yesterday's highs.
But of course, you've got to keep your eye on stocks ...
As the market starts weighing the nine-week rally, precisely whether the fundamentals can justify the price action (which I find hard to believe they can), currencies will hang in the balance.
What happens in the nearer-term, I think, will be at least a consolidation of the S&P's 30%-plus gains since March. Whether that consolidation process began yesterday ... or whether it doesn't begin till investors stop expecting it ... remains to be seen. But considering key technical levels are coming into play, now would seem a logical stopping point.
[P.S. Yesterday, our members of Currency Strategist were able to close out and profit nicely on an options recommendation we made to play for Australian dollar strength. This is one of the ways to invest in the nearer-term price action while waiting for the longer-term trends to play out. You can read more about Currency Strategist if you're interested in our clear-cut trading recommendations.]
Over the longer-term, we believe unemployment and its impact on income and spending will be an inconvenience in the hopeful path toward full recovery. It could be this realization that really changes the perspective of global market players ... at which case the dependence on the US will again take center stage.
The overall definition and understanding of "recovery" will be crucial going forward. So far less-dramatic contraction constitutes signs of recovery. But what happens when investors start expecting more than "less-bad"? What happens when they start expecting circa-2006 type growth? Based on the overall appetite for spending and the renewed necessity of paying down debt, recovery isn't going to bring back the bubblicious trends we came to [irresponsibly] believe characterized economic prosperity.
Monday 11 May 2009
Cross-Eyeing: EUR/JPY
Good afternoon Forex peeps! After touching 130.00 and rallying higher on continued rising risk tolerance last week, EUR/JPY started this week on a pull back of profit taking. This may be a chance to jump in the trend high on a nice and easy technical setup. Check it!
Usually, I have the 4 hour chart up, but I zoomed down to the 1 hour timeframe to give a clearer picture on what's going on. The pair has been on a fast rally since hitting 125.00 a few weeks ago, and testing 130.00 last week. We can clearly see a retracement down into the Fibonacci retracement area drawn on the chart. Stochastics are indicating oversold conditions on the 1 hour chart, and are indicating near oversold conditions on the 4 hour chart. I'd like to wait to see if the pair hits the 61% Fibonacci level before jumping back in long.
Fundamentally, the ECB cut interest rates last week and introduced quantitative easing actions for the first time. This week German and Eurozone CPI could push the markets one way or another. Inflation is forecasted to be much weaker than the targeted 2.0% and could spark further stimulus actions from the ECB. We will also see Q1 GDP on Friday. No major news expected on the calendar for Japan, so look for global risk tolerance to continue to influence price action in the Japanese Yen.
So, my trade idea is based mostly on technicals as the trend has been higher on this pair. Also, sentiment has been focused on that the economy may be getting "less worse." Regardless of how bad it is out there, as long as it is no longer falling off a cliff, investors seem to want to buy in on that alone.
I will go long at the 61% Fibonacci area and target previous highs. Here's what I am going to do:
Long EUR/JPY at 131.80, stop at 130.80, pt1 at 132.80, pt2 at 135.00
Remember to never risk more than 1% of a trading account on any single trade. Adjust position sizes accordingly.
Stay tuned!
Sunday 10 May 2009
EUR/USD - Close Trade
Close Trade: 2009-05-08 14:55
Good afternoon! After waiting a few days of waiting, my short position was triggered as EUR/USD rallied after today's US employment data. Unfortunately, 1.35 did not hold for very long as the US Dollar continued higher to above 1.36. As the trading week closes, I have decided to close out this trade and take the small hit going into the weekend.
Close trade at market (1.3624).
Total: -124 pips/ -0.62% loss
For a bit, my trade was looking good as there was a brief sell off after 1.35 was hit. I should have taken profit then given the weak jobs data, but I thought I could squeeze out a bit more pips. Unfortunately, given the fact that it was a better number than last month, risk tolerance grew fast as money flowed out of the safety of the US Dollar and into higher yielding currencies.
So, that's it for the week. It looks like risk tolerance is here to stay as the worst seems to be behind us....at least for now. I'll look to jump in the trend next week, until then - have a great weekend!
Greetings everyone and welcome back to another wonderful week of Forex trading! As I stated in my last post, I am going to revisit my short bias on EUR/USD this week, especially as we are see a bit of divergence on the charts.
I have the four hour chart up, and I have highlighted where the pair is showing regular bearish divergence as price action creates higher "highs", while stochastics is giving us lower "highs". Divergence tends to be a very early indicator, and with stochastics not quite back into overbought territory, I'll wait to see if the pair hit 1.35 before jumping in. I like that level as it seems it has been an area of interest in the recent past. In the most recent visit to that area, sellers won out the battle and the pair dropped back to 1.30 and lower.
Fundamentally, there's a lot going on this week in the economic calendar. Most notable includes the ECB interest rate decision, US stress bank test results, and US employment data. Swine flu concerns are also still on the table of potential market movers.
Again, I am still in the camp that we haven't seen the worst parts of the economic recession, but apparently the markets are moving on "things are getting less worse" type data. This may or not continue to be the case as we continue to get new data this week. Also, my friend Jack Crooks gives some startling data and thoughts on the Eurozone over at Currency Currents which supports my bearish euro stance. Check it out!
So, I look to short EUR/USD on divergence and potential resistance at the psychological area around 1.35. My stop will be 200 pips, just a bit more than the average daily range of around 170 pips. My targets will be 1.33, 1.31, and beyond. Here's what I am going to do:
Short EUR/USD at 1.3500, stop at 1.3700, pt1 at 1.3300, pt2 at 1.3000
Remember to never risk more than 1% of any trading account on any single trade. Adjust position sizes accordingly.
Good afternoon! After waiting a few days of waiting, my short position was triggered as EUR/USD rallied after today's US employment data. Unfortunately, 1.35 did not hold for very long as the US Dollar continued higher to above 1.36. As the trading week closes, I have decided to close out this trade and take the small hit going into the weekend.
Close trade at market (1.3624).
Total: -124 pips/ -0.62% loss
For a bit, my trade was looking good as there was a brief sell off after 1.35 was hit. I should have taken profit then given the weak jobs data, but I thought I could squeeze out a bit more pips. Unfortunately, given the fact that it was a better number than last month, risk tolerance grew fast as money flowed out of the safety of the US Dollar and into higher yielding currencies.
So, that's it for the week. It looks like risk tolerance is here to stay as the worst seems to be behind us....at least for now. I'll look to jump in the trend next week, until then - have a great weekend!
Greetings everyone and welcome back to another wonderful week of Forex trading! As I stated in my last post, I am going to revisit my short bias on EUR/USD this week, especially as we are see a bit of divergence on the charts.
I have the four hour chart up, and I have highlighted where the pair is showing regular bearish divergence as price action creates higher "highs", while stochastics is giving us lower "highs". Divergence tends to be a very early indicator, and with stochastics not quite back into overbought territory, I'll wait to see if the pair hit 1.35 before jumping in. I like that level as it seems it has been an area of interest in the recent past. In the most recent visit to that area, sellers won out the battle and the pair dropped back to 1.30 and lower.
Fundamentally, there's a lot going on this week in the economic calendar. Most notable includes the ECB interest rate decision, US stress bank test results, and US employment data. Swine flu concerns are also still on the table of potential market movers.
Again, I am still in the camp that we haven't seen the worst parts of the economic recession, but apparently the markets are moving on "things are getting less worse" type data. This may or not continue to be the case as we continue to get new data this week. Also, my friend Jack Crooks gives some startling data and thoughts on the Eurozone over at Currency Currents which supports my bearish euro stance. Check it out!
So, I look to short EUR/USD on divergence and potential resistance at the psychological area around 1.35. My stop will be 200 pips, just a bit more than the average daily range of around 170 pips. My targets will be 1.33, 1.31, and beyond. Here's what I am going to do:
Short EUR/USD at 1.3500, stop at 1.3700, pt1 at 1.3300, pt2 at 1.3000
Remember to never risk more than 1% of any trading account on any single trade. Adjust position sizes accordingly.
My GBP/USD Swing Entry
I was hoping to have a nice article explaining the difference between reversals and corrections posted here before I left on my mini-vacation to Dallas. Alas, fun came first but better late than never.
The idea of knowing how to measure a correction versus a reversal sounds easy in theory but without some understanding of the underlying trend of the time frame you are watching and without tool to measure this with it can be very difficult and thus has been relegated to trendlines (lagging) and guess-work (ineffective).
If you don't already know it, I use the Wave which is the 34EMA on the high, low, and close. I shared the plug in I use on MT4 to create this on your own charts, I call it "GRaB" which stands for "green red and blue".
So that brings me to yesterday's trade. I updated my Twitter yesterday which I believe is called "tweeting". My tweet was:
"Cable bouncing off 34EMA high (top line of Wave) for swing trade. Psych level support at 1.5000 - low was 1.4995."
There was also a chart that accompanied that update. You can check it all out here.
I received a lot of emails which actually caught me by surprise since my swing trades are discussed with some regularity but then I thought, well why not share the process for this type of set up. I am going to share my MT4 chart set up here. I actually use the IBFX-MT4 version and I love the trading tools they make available for free on their site as opposed to having to search the MQL codebase.
The tools I use are the Daily Pivots, CPR, and the PRS. You can read about them at their site.
So here's a short of what I call the "quad view". Go ahead and click on the link to see the full size since it's larger than will fit here.
View image
These are all 240 minute charts since that was the time frame that I set the swing up on. I also have my GRaB plug in action on the lower left chart and the OsMA and CCI on the lower right chart.
The 240 time frame was perfect for the swing because the Wave clock angle was what I call "12 to 2" which means it was in an uptrending market cycle. In an uptrend it's my job to identify pullbacks that I could look to set up buys from in order to follow the trend...which is up. The entry may be contrarian because I am buying into short term weakness but it's a trend following trade. The only time I was buy the dips is in a uptrend. (Conversely, I look to sell the rips in an downtrend.)
This chart was the heart of the set up: A pullback to the support of the top line of my Wave. This is a conservative entry as compared to Fibonacci or other psychologicla levels that could have triggered a buy higher than this correction.
Another terrific cue was the candlestick pattern alert I got from teh IBFX-CPR. Now, let me mention that candlesticks are rarely going to be the sole reason I enter a trade. I think they are excellent confirmation and most candlestick patterns are best used in a trending market.
The Bullish Engulfing pattern set up three candles back which (for me) is confirmation of my pullback that occurred six candles back. So the candlestick was simply a secondary (and nice!) confirmation.
Let's add some more depth here and remember these are all support and resistance tools. The Wave offered support, the Bullish Engulfing pattern is support and finally take a look at the next chart...
More support! This time with the daily pivot's S2 level which coincided with my Wave support. This is simple as good as uptrend corrections get.
To get more set ups like these follow me at Twitter. You can also get the same plugs ins and platform I used by downloading my GRaB plug in and the other custom trading tools.
The idea of knowing how to measure a correction versus a reversal sounds easy in theory but without some understanding of the underlying trend of the time frame you are watching and without tool to measure this with it can be very difficult and thus has been relegated to trendlines (lagging) and guess-work (ineffective).
If you don't already know it, I use the Wave which is the 34EMA on the high, low, and close. I shared the plug in I use on MT4 to create this on your own charts, I call it "GRaB" which stands for "green red and blue".
So that brings me to yesterday's trade. I updated my Twitter yesterday which I believe is called "tweeting". My tweet was:
"Cable bouncing off 34EMA high (top line of Wave) for swing trade. Psych level support at 1.5000 - low was 1.4995."
There was also a chart that accompanied that update. You can check it all out here.
I received a lot of emails which actually caught me by surprise since my swing trades are discussed with some regularity but then I thought, well why not share the process for this type of set up. I am going to share my MT4 chart set up here. I actually use the IBFX-MT4 version and I love the trading tools they make available for free on their site as opposed to having to search the MQL codebase.
The tools I use are the Daily Pivots, CPR, and the PRS. You can read about them at their site.
So here's a short of what I call the "quad view". Go ahead and click on the link to see the full size since it's larger than will fit here.
View image
These are all 240 minute charts since that was the time frame that I set the swing up on. I also have my GRaB plug in action on the lower left chart and the OsMA and CCI on the lower right chart.
The 240 time frame was perfect for the swing because the Wave clock angle was what I call "12 to 2" which means it was in an uptrending market cycle. In an uptrend it's my job to identify pullbacks that I could look to set up buys from in order to follow the trend...which is up. The entry may be contrarian because I am buying into short term weakness but it's a trend following trade. The only time I was buy the dips is in a uptrend. (Conversely, I look to sell the rips in an downtrend.)
This chart was the heart of the set up: A pullback to the support of the top line of my Wave. This is a conservative entry as compared to Fibonacci or other psychologicla levels that could have triggered a buy higher than this correction.
Another terrific cue was the candlestick pattern alert I got from teh IBFX-CPR. Now, let me mention that candlesticks are rarely going to be the sole reason I enter a trade. I think they are excellent confirmation and most candlestick patterns are best used in a trending market.
The Bullish Engulfing pattern set up three candles back which (for me) is confirmation of my pullback that occurred six candles back. So the candlestick was simply a secondary (and nice!) confirmation.
Let's add some more depth here and remember these are all support and resistance tools. The Wave offered support, the Bullish Engulfing pattern is support and finally take a look at the next chart...
More support! This time with the daily pivot's S2 level which coincided with my Wave support. This is simple as good as uptrend corrections get.
To get more set ups like these follow me at Twitter. You can also get the same plugs ins and platform I used by downloading my GRaB plug in and the other custom trading tools.
Forget that Perfect Trade
When you're risking your own money, do you feel the need to find that secret information that nobody yet knows or find the perfect trade setup?
Some traders are so obsessed with trying to find the perfect trade that they end up not trading enough to come out profitable. Trading is not the line of work you want to be if you're a perfectionist. You can plan a trade systematically only to end up losing money because an unforeseen event invalidates the trade setup you so thought was sooo perfect and your trade slaps you in the face and goes against you.
While you don't want to become a careless and impulsive trader, you don't want to be an extreme perfectionist either. Remember there's no such thing as a guaranteed profit.
Instead of being perfect, try being average. For all the "A" students out there, I know this sounds blasphemous since I'm basically suggesting you strive for a "C" grade. But give it a try.
Rather than look for the "perfect" setup, just find a profitable setup. Yes, you might make less profit per trade, but you'll feel better. Compare how it feels to strive for perfect standards versus average standards. You may find that you prefer average standards since you're more relaxed. Since you'll be putting on more trades, your profits will improve.
Trading is all about probabilities. You must make many trades to get the law of averages to work in your favor. As long as the setups are solid, and you're using sound money management and risk control, you'll make enough trades to come out ahead. You'll be able to get the losing trades "off your back" and focus on winning trades.
If you're an uptight perfectionist, you'll always be on edge and will hardly be able to execute any trades. This will be your downfall because you won't be able to pull the trigger on trades that are "less than perfect" but are profitable.
Dare to be average and see what happens. A student who makes straight "A's" may be smarter but the "C" student sitting behind him just might be richer.
Some traders are so obsessed with trying to find the perfect trade that they end up not trading enough to come out profitable. Trading is not the line of work you want to be if you're a perfectionist. You can plan a trade systematically only to end up losing money because an unforeseen event invalidates the trade setup you so thought was sooo perfect and your trade slaps you in the face and goes against you.
While you don't want to become a careless and impulsive trader, you don't want to be an extreme perfectionist either. Remember there's no such thing as a guaranteed profit.
Instead of being perfect, try being average. For all the "A" students out there, I know this sounds blasphemous since I'm basically suggesting you strive for a "C" grade. But give it a try.
Rather than look for the "perfect" setup, just find a profitable setup. Yes, you might make less profit per trade, but you'll feel better. Compare how it feels to strive for perfect standards versus average standards. You may find that you prefer average standards since you're more relaxed. Since you'll be putting on more trades, your profits will improve.
Trading is all about probabilities. You must make many trades to get the law of averages to work in your favor. As long as the setups are solid, and you're using sound money management and risk control, you'll make enough trades to come out ahead. You'll be able to get the losing trades "off your back" and focus on winning trades.
If you're an uptight perfectionist, you'll always be on edge and will hardly be able to execute any trades. This will be your downfall because you won't be able to pull the trigger on trades that are "less than perfect" but are profitable.
Dare to be average and see what happens. A student who makes straight "A's" may be smarter but the "C" student sitting behind him just might be richer.
Keeping a Trading Journal
Hey everyone,
You've probably heard by now that it is absolutely essential to keep a trading journal. Without one, and without taking the time to review it, you could very well end up repeating the same mistakes over and over, rather than progressing. Contrary to the cliché, practice does not make perfect. You have to make sure you're practicing good habits, not bad ones. Keeping a journal will also tend to slow you down between trades (which is a good thing for most people).
But how do you start?
Nothing fancy is really needed... you can do this easily in a paper notebook, and often this is the quickest & easiest way to get started. But the important thing is that you start.
You want to keep track of your entry price, exit price, total profit or loss (in pips), timeframe, currency pair, long or short, the thoughts behind your entry, your reasons for exit, as well as jotting any emotions you experience during the trade, and how you feel about it afterwards looking back with the 20/20 clarity of hindsight. The reason for all of the above is eventually you will see patterns emerge, just like in trading. You want to do more of what consistently wins for you, and avoid the things which don't.
Get yourself a glue stick - you can right-click on a chart in MT4 and print it out (I suggest changing the background to white first). Stick the chart in there right with your notes, and go ahead and mark it up.
Then, in addition, measure the total move (start to finish), and take your total profit as a percentage of that move. If you captured 75-100%, you get an A. 50-75% is a B, 25-50% is a C, and 0-25% earns you a D. If the trade was a loss, you get an F. Have a column for both the percentage, and the letter grade. Averaging your grades over time will easily show you if you are making progress.
Two more columns and we're all done. Take a look at your entry. If you were 1 candle too early, you get a T-1. For 2 candles too early, T-2, and so forth. If you got in a candle too late, you get a T+1, and so forth. Same thing for your exits. Again, you will see clear patterns emerge over time. Some people tend to be too jumpy and early, others tend to be unsure and wait for too many confirmations, and therefore end up being late and chasing. Knowing which you are will help you know how to compensate.
Hope this helps!
You've probably heard by now that it is absolutely essential to keep a trading journal. Without one, and without taking the time to review it, you could very well end up repeating the same mistakes over and over, rather than progressing. Contrary to the cliché, practice does not make perfect. You have to make sure you're practicing good habits, not bad ones. Keeping a journal will also tend to slow you down between trades (which is a good thing for most people).
But how do you start?
Nothing fancy is really needed... you can do this easily in a paper notebook, and often this is the quickest & easiest way to get started. But the important thing is that you start.
You want to keep track of your entry price, exit price, total profit or loss (in pips), timeframe, currency pair, long or short, the thoughts behind your entry, your reasons for exit, as well as jotting any emotions you experience during the trade, and how you feel about it afterwards looking back with the 20/20 clarity of hindsight. The reason for all of the above is eventually you will see patterns emerge, just like in trading. You want to do more of what consistently wins for you, and avoid the things which don't.
Get yourself a glue stick - you can right-click on a chart in MT4 and print it out (I suggest changing the background to white first). Stick the chart in there right with your notes, and go ahead and mark it up.
Then, in addition, measure the total move (start to finish), and take your total profit as a percentage of that move. If you captured 75-100%, you get an A. 50-75% is a B, 25-50% is a C, and 0-25% earns you a D. If the trade was a loss, you get an F. Have a column for both the percentage, and the letter grade. Averaging your grades over time will easily show you if you are making progress.
Two more columns and we're all done. Take a look at your entry. If you were 1 candle too early, you get a T-1. For 2 candles too early, T-2, and so forth. If you got in a candle too late, you get a T+1, and so forth. Same thing for your exits. Again, you will see clear patterns emerge over time. Some people tend to be too jumpy and early, others tend to be unsure and wait for too many confirmations, and therefore end up being late and chasing. Knowing which you are will help you know how to compensate.
Hope this helps!
Cowabunga System Daily
Tuesday, 04/21/09
Current Trend= The trend remained down the entire day.
Today I only looked for short trades.
News events to watch for today :
* 4:30am EST- UK CPI y/y
Today's Surf
2:30am EST- There was a moving average crossover for a short trade. RSI was less than 50, stochastics were trending down and MACD went from positive to negative. This was a valid entry. The entry was at the close of the candle at 1.4519 with a stop at the most recent high at 1.4573. Since I was 19 pips away from the nearest 50 or 00 level, I decided to put my initial target at 1.4500.
Entry: Short at 1.4519
Stop: 1.4573
Target: 1.4500
2:45am EST- My target was hit. Price made a clean break so I moved my stop to 1.4500 and set my next target for 1.4350.
3:00am EST- Unfortunately I was stopped out at 1.4500.
6:45am EST- There was a moving average crossover for a short trade. RSI was less than 50, stochastics were trending down and MACD went from positive to negative. This was a valid entry. The entry was at the close of the candle at 1.4537 with a stop at the most recent high at 1.4605. Since I was 19 pips away from the nearest 50 or 00 level, I decided to put my initial target at 1.4500.
Entry: Short at 1.4537
Stop: 1.4605
Target: 1.4500
9:30am EST- Unfortunately I was stopped out.
Current Trend= The trend remained down the entire day.
Today I only looked for short trades.
News events to watch for today :
* 4:30am EST- UK CPI y/y
Today's Surf
2:30am EST- There was a moving average crossover for a short trade. RSI was less than 50, stochastics were trending down and MACD went from positive to negative. This was a valid entry. The entry was at the close of the candle at 1.4519 with a stop at the most recent high at 1.4573. Since I was 19 pips away from the nearest 50 or 00 level, I decided to put my initial target at 1.4500.
Entry: Short at 1.4519
Stop: 1.4573
Target: 1.4500
2:45am EST- My target was hit. Price made a clean break so I moved my stop to 1.4500 and set my next target for 1.4350.
3:00am EST- Unfortunately I was stopped out at 1.4500.
6:45am EST- There was a moving average crossover for a short trade. RSI was less than 50, stochastics were trending down and MACD went from positive to negative. This was a valid entry. The entry was at the close of the candle at 1.4537 with a stop at the most recent high at 1.4605. Since I was 19 pips away from the nearest 50 or 00 level, I decided to put my initial target at 1.4500.
Entry: Short at 1.4537
Stop: 1.4605
Target: 1.4500
9:30am EST- Unfortunately I was stopped out.
Friday 8 May 2009
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