The Trend is my Friend

February 28, 2006

My profit so far this week is $883.  I have felt very comfortable with the flow of the market and when I look at the charts, everything just seems to make sense.  A big reason for this is because of my reluctance to trade a fade or go against the trend.  My trades have been with the trend therefore I’ve been trading the faster time frames.  It’s amazing how much easier a trade can start in your favor by simply trading with the trend.   Even so, my week has not gone without mistakes.

My biggest mistake is exiting positions too early.   I had a short position in the USD/JPY open overnight and through the GDP announcement this morning.  Shortly thereafter, I closed it out for a slight profit.  Afterwards, the pair declined over 40 pips.  The trade was going just fine before I decided to micro-manage it.  I must try to curb this bad habit. 

Interest Rate Comments from Morgan Stanley Chief Economist

February 28, 2006

"As always, central banks are in ultimate control of the liquidity spigot. And policy ‘normalization’ is now the over-arching objective for the Federal Reserve, the European Central Bank, and the Bank of Japan. For different reasons, each of these monetary authorities had to run policies of extraordinary stimulus in recent years — the Fed in response to the post-bubble shakeout of 2000-01, the ECB in response to Europe’s fierce structural headwinds, and the BOJ in response to nearly a decade of corrosive deflation. With those risks perceived as now subsiding, all three central banks are seeking to end their extraordinary accommodation and put their policies on a more neutral setting. The Fed has obviously made the most progress in doing so, whereas the increasingly tough-talking BOJ has yet to act. The ECB is somewhere in-between. But there can be no mistaking the endgame that is now coming into focus: To the extent that a powerful upsurge in the global liquidity cycle has been fueled by extraordinary monetary accommodation, those days are coming to an end."

Stephen Roach

Rob Booker Analysis Tuesday

February 28, 2006

From fxcmtr.com:

1 Hour Chart

I really like this one.  The trade would come on a close below the redline.  The profit target is all the way down at 1.3020, or perhaps 1.3060 for more conservative traders.  I would like to just use a 30 pip trailing stop on the trade.

Rob Booker 

 

 

 

Waiting for a Yen pullback?

February 27, 2006

I’m waiting on a Yen pullback.  The price has been hanging around the S2 pivot point all day.  Depending on where the pair is during the Asian open, I may be shorting this pair if it pulls back a little more.   Remember that this pair is trending on the 240-minute and momentum indicators aren’t worth a bit.  Right now I’m watching the Directional Movement Index, pivot points, and trendlines.  The pair will have to pull back quite a bit for my continued interest, at least to the high 116′s.

The chart below shows the S2 pivot point at 116.08, .09 below the price (bottom red dotted line).  The pivot point for today was 116.807 (thin solid black line)

Pivot Points 

 

 

 

 

 

 

 

 

 

 

 

Staying with the Trend

February 27, 2006

I have started the week on a positive note and sit at +$1000.  I have been watching the DMI indicator to confirm that a trend is still in place before buying or selling a pullback.  Though I have done this successfully today, I have a hard time holding on to these trades and have not followed my own advice on where I’ve been placing my limits..  Once I can net about $300-$400 on the trade, I’ve been exiting.  Now this might look good on paper right now but the simple fact is that I don’t do this when a trade is going against me which means that my risk/reward is poor.  I set a stop but never a stop that triggers when I’m only down about $300-$400.  My stops are usually a minimum of about 30 pips so this would net me a loss of $900.  One bad trade and I’m back to square one.

Call this rationalizing but I feel like exiting now with a smaller profit may be sufficient due to the lack of liquidity in the market until either the Asian or European sessions. 

I’ll continue to work on holding on to my positions longer when the pair is going in my direction.  I should learn my lesson after exiting my USD/JPY position last week right before the big 100 pip move down.  I could see using my exit strategy if I was trading the 15, 30, or 60 minute charts but I’m usually trading the 240-minute (my favorite period.)

Rob Booker Analysis Today

February 27, 2006

This information is already stale but good for those of you who want exposure to Rob Booker’s style. 

GBP/USD 1 Hour Chart 

Friday, the pair broke below the redline, and created a really nice short trade.  Here’s what I would consider now: a short trade on a break below the low of Friday, with a target of EITHER of the blue lines shown below.  The lowest blue line is the more aggressive target.  One way to handle this is to initiate the position immediately on a break below Friday’s low, then move the stop loss to break even when the pair hits the FIRST blue line below.  Then use the lowest blue line as the profit target.

Rob Booker
 

 

 

Don’t Move Your Stops

February 27, 2006

Here is a quick lesson from Sam Shenker about moving stops which I’m sure we have all been guilty of.

As a trader one of the lessons I learned the hard way is to never move my stops against the position. One of the most common mistakes made by the novice traders is to move the stop against the position once the trade start going against him or her. As the trade keeps going against the trader and once again approaches the stop, what do most of traders do, they move the stop again, thus increasing an unrealized loss, but unrealized loss is still a loss and a real one at that. In order to become successful, a trader must learn that the initial stop most of the time is a correct stop, because if the stop is triggered it usually means that the trader is on the wrong side of the market and by moving the stop he or she only increases the loss. The reason why traders move stops is hope that the market turns around and goes in the direction of the trade, but hope has no place in the market, protective stops do. Remember:  NEVER MOVE THE STOP AGAINST THE POSITION, BECAUSE BY MOVING STOPS AGAINST YOUR POSITION YOU ONLY INCREASE THE SIZE OF YOUR LOSS.

Dollar Strength and EUR/USD Channel

February 27, 2006

I’ve been trading the EUR/USD since yesterday evening and caught the breakdown below 1.1855.  The USD has not been able to push below 1.1827 though and until then the price may remain in a 60 pip channel.  

EUR/USD Channel

 

 

 

 

 

 

 

I’m up a little more than $400 to start the week in realized gains but as of now am only in a short EUR/USD position that I entered on a pullback last night.   There haven’t been any major developments since the Asian trading session set most currency pairs in motion except for the USD/CAD which has broken down nearly 75 pips from yesterday evening.  I was actually long on a USD/CAD position yesterday and decided to get out after hearing that some favorable economic reports were expected from Canada this morning.  This demonstrates some good behavior on my part with an exit of the position with a $100 loss.  I didn’t see the pair doing what I would have expected from my technical analysis and wasn’t aware of the economic reports coming out of Canada when I entered the position.  What good would it have been to stay in the position?

Candlestick Studies for Next Week

February 25, 2006

I’m attaching a graphic of 8 currency pairs and their corresponding weekly candlestick patterns provided by Metastock software.  Going into next week, we see:

EUR/USD: Engulfing Bear
AUD/USD: Doji Star
EUR/JPY:  Engulfing Bear

Candlestick patterns 

 

 

 

Playing the Odds with a Bearish Engulfing

February 25, 2006

The graphic below is the weekly EUR/USD chart with corresponding candlestick patterns.  As you can see, going into next weeks trading, we are following an engulfing bear.  Care to play the odds that this week will see more bearish action? Since 1999, here are the pip profit/loss if going short for the week following an engulfing bear:

 +51, +266, +21, +124, -58, +132, +38, +8, +11, +46, -10, +136

Out of 12 weeks, only 2 of the weeks were losing and they were small losses of 58 pips and 10 pips.  The average profit was 83.3 pips over the other 10 weeks. 

Candlestick bearish engulfing 

 

 

 

 

 

 

 

 

We could very well see another bearish week if we played the odds.  I know I will be.

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