Booker Analysis for Upcoming Week

Rob Booker for AUD/USD (4-hour chart):

I am considering two trades on this pair:

1. On a break below the redline, I think we can get all the way to the 38% retracement at .7219.  A break of that level should take us as far as .7180.
2. I would really like to see a resumption of the uptrend that we were in before – and this would happen above .7350.  On a break above that level, even to .7365, I like a long trade, stop .7300, target at least .7500.  More on that if the trade opens.

 

 

 

 

 

How to Stay In a Trend for as long as you can

Hubert's Video Link:

How to stay in the trend as long as you can.
http://clicks.aweber.com/z/ct/?ADmsKuTM9I2jDxVOy_O1Qg

John's Video Link:
http://clicks.aweber.com/z/ct/?rMdlxunAprtspUN7VOfutQ

There’s a New Kid in Town

There's a new guest trader on fxcmtr.com.  His name is John Putnam and he comes from Putnam Financial. 

This is John's Trade Methodology:

FX Analytics (FXAN) is a blend of quantitative modeling, combined with advanced technical overlays. PFI's trade and forecast models are built around a balanced dollar index providing exceptional insight and liquidity into a large group of US based pairs. FXAN utilizes a mathematical model and scientific grade software to process a large dataset across a distributive grid of computers. This forecast is then triggered into actual trades through a series of overlays where algorithm efficiency, market dynamics and specific risks are modeled and factored in.

HIS ANALYSIS?

Trade Idea:

Long EUR/USD on a bullish candle reversal (1 hour or 2 hour bullish Harami) that fails to sustain a break below 1.2240

Stops below 1.2210

Target 1.2330

Dollar forecast for the next 24hrs: Bearish

Stronger EUR/USD, GBP USD & AUD/USD

Weaker USD/JPY, USD/CHF & USD/CAD

Market Dynamics:

Favored – Cyclical & Regression Models 

At Risk – Trend Models

PFI exited its long EUR/USD trade this morning for 221 pips. For all practical purposes I could have stayed with it given the model bias remains bearish on the dollar.  That said, with a major event risk on the horizon (NFP on Friday) I've decided to stand aside for the balance of the week.

Today's price action will probably look a lot like yesterdays and will remain choppy through the day. This makes the target of the trade idea (1.2330) a tough task in the short term and could push traders into Friday trying to achieve it; which I don't encourage.  1.2240 and 1.2210 are Bollinger Band and ma support levels (different time frames) with 1.2330 bringing in substantial Bollinger Band resistance.

Overall the dollar is finding some support at our lower channel; it would be unusual for the dollar to sustain a push deeper into this region after floating across the top for any length of time. If we don't see a substantial pull-back to a more neutral position tomorrow, I'd almost expect to see NFP come out stronger than expected or an overall muted reaction to poor numbers, which will leave the market in good shape for a technical reversal at the beginning of the week.

 

 

 

 

Newest Forex Volume Report Released

Open interest dropped across the board this week except in the Australian dollar.

Canadian Dollar
Big swing from NET LONG to NET SHORT

Swiss Franc
Very Bearish.  50,327 Short positions vs. 3,462 Long positions

British Pound
18,418 Short positions, 13,183 Long positions 

Japanese Yen
Decrease of 17,632 short positions.  Still Bearish 

USD Index 
Decrease of 7,196 long positions.  Still bullish with 11,114 Long positions and 4,491 Short positions 

Euro 
EURO remains Bullish with another decrease this week in Short positions (-10,149) 

New Zealand Dollar
Less Bullish than last week with decrease of 688 long positions and increase of 178 short positions 

Australian Dollar
Bearish.  Increase of 15,455 Short positions on increasing open interest. 

Crude Oil 
Less open interest than last week with an almost equal balance of long (128,840) to short (135,177) positions. 

Trading System signals

I still have two short GBP/USD and EUR/USD positions from last week that were opened due to signals that my Dooku trading system generated.  The market hasn’t been doing much since then yet I’m sitting on an unrealized profit of $500. 

Yesterday I stated that my trading system had a profit target of 225 pips and a stop loss of 75 pips.  Though these are the stops and limits I place on each trade, my trading system can generate reversal signals that prevent my profit target from ever being hit.   The most I can lose on any given trade is 75 pips.  Generally if the trade moves at least 50 pips in my direction, I’m usually guaranteed that I will profit from at least these 50 pips.  It’s when it moves above this when I have a chance of realizing the 225 pip profit target as long as my trading system doesn’t generate a reversal signal.  In backtesting, my maximum profit target was not hit as often as my maximum stop loss but forward testing should give me more insight on how this trading system will perform in the long run.

I’ve been busy trying to import 5 years worth of intraday data into Amibroker for backtesting.  I know I was talking up Amibroker like it was the greatest thing since sliced bread but 1 drawdown is the fact that they use flat files for historical data as opposed to an optimized database.  What this means is that as more and more data is added, the slower and slower it is to import.  I figured the import of 5 years of 1 minute data for 10 currency pairs will take about 2 days for a single cpu pc at 100% utilization.  Unfortunately I don’t have a dual-cpu or dual core system right now though I’m very tempted to buy one. 

Developing a systematic approach to trading

After days and days of backtesting, I think I have found a simple system that works for me.  I backtested it over the last 5-6 months on the EUR/USD 60-minute charts.  Of course I understand that there are no guarantees that this system will work well in the future too.  But it does feel really good to have designed a system that I can use going forward.  My goal over the next month or so is to trade religiously using this system and being the gambler I am do so using my live trading account.  It actually feels really great to have a system that is going to generate long, short, cover, and sell signals right on my charts.  Here are my backtested results:

 

 

 

 

 

Designing a Profitable System

Thanks to Greg for a great post.  Read this.

I believe anyone can design a profitable system, as long as one understands market principles, what goes up, must come down faster. Twice as long to go up and half as much time to come down. I believe that if I am short the market, I need to trail my stops tighter to lock in profit than when I am in a long position. As for as my original stop, all my systems risk the same amount — small. I use to believe that the 3% rule was nonsense with a $10k account. But in the S&P and currencies, I daytrade with less than 2%. I simply cannot get wiped out that way and my profits are at least twice as much the risk in the S&P when trading one contract.

How much am I going to make? I am asked that repeatedly. I can always tell how much experience a trader has by that question. It is not what you make that is important, but what one does not lose. After I have a profit of so many pips in a daytrade, the most important ingredient to my trading takes place, the break-even stop. I have not read any books giving much attention to this concept. What a stressless (for the most part) feeling it is after I am at break-even.

The best way to trade is to find something simple, that works most everywhere and then become very consistent in your approach. Develop your own system, test it, then stick with it. Other people’s systems may work well for them, but probably will not be compatible with your psychological make-up."

* * *
From Successful Anonymous Trader:

You simply cannot have any confidence if you do not have a method or way of identifying trades along with money management guidelines. You’re lost in the woods, so so speak. I was there for many years. What did I do? This may help a lot of you:

I threw out 99% of all the crap I learned about oscillators, divergences, Elliott Wave, cycles, timing, seasonals, Gann, pitchforks, volume, Fractals, RSI, stochastics, overbought/oversold (this is a good one–the stock indexes, currencies and cotton for example everyone said were overbought and topping in February and March this year). Look at what they did. Needless to say, I don’t pay any attention to this anymore either, etc., etc. The list goes on to infinity almost. I went back to the basics. I went back to simple chart patterns, (a simple moving average and trendline now and then for a visual aid.)

I came up with a low risk money management plan and put it together with trading with the trend and, presto, an effective and time tested trading plan. The plan is simple and has worked since trading began and will last me a lifetime. What a relief not to have to spend countless hours every night trying to find a ndw way to trade. I am sick and tired of that after 7-years.

I believe at becoming an expert at one market nd its behavior and then putting all your skills and energy to work in a concern(traded) manner. Get good at that market and trade the heck out of it. Increase your size over time and you’ll make more money with less effort. There are lots of professionals that do this. Look at some floor traders or locals that stay in the pit for many years trading one market exclusively.

One thing that I have learned this year, is that I am trying to cut back on the number of trades I take and be more selective and not trade in congestion as much as I did before. I miss some good trades out of congestion, but I save myself a lot of mental energy, buy myself some more free time during the day, and get better and more profitable trades.

My attitude is changing now to one or two good trades, and that is all I need to make my week ( a triple or a home run, so to speak). There are plenty of them during any given week.

Trading is fun. Once you have a method and money management in place, it allows you to concentrate on trading and not on searching and researching. That gets old and frustrating. Make it your goal to find a simple method for next year. One thing that you can hang your hat on will last you a lifetime. Trading is simple. Remember that it’s the Execution or Implementation of your trading plan that is the bigger challenge.

Most people make finding the method a big challenge. That is because there is so much junk thrown at traders. They feel like a child in a candy store and have to try every doodad in the place. When they are done, they are sick and never want to see another candy store (trading gizmo) again. They could have had the palin piece of milk chocolate at the front of the store (simple method price patterns) which would have done everything they desired and fulfilled all their needs.

I wish to all a great new year. I hope some will be able to end their journey in search of the holy grail or indicator that will turn their life around. Search for simplicity. You will be surprised what has been right under your nose all the time, right there in front of you on the chart or price bars. Pay attention to what they say they will will tell you everything. You need to listen and get to know them. It can be that simple.

Commodity Traders Club News (1997)

A Rob Booker Exclusive Treat

EUR/USD     March 10, 2006

Here is a great Head and Shoulders pattern.  They are super reliable, and fairly easy to trade.  Here is the chart.  We want to sell below the neckline, and go long above the trendline connecting the head to the right shoulder.

 

 

 

Stick to your Trading Plan

Here’s a post by Lloyd on his blog at http://tradingforaliving-assess.blogspot.com 

American trader and hypnotherapist Robert Krausz argues that 75% of trading depends on your psychology and claims that hypnosis can be used to control your emotional state to maximise your trading performance.

However, he stresses on the importance of having a trading plan at the first place!

Here are the 5 basic tasks necessary to become a winning trader and my personal takes:

1. Develop an analytical methodology
– For myself, I read fundamental news and run technical analysis

2. Extract a trading plan from this methodology
– I set up short-term swing trades (1-3 days), always try to pick good entry and exit prices

3. Formulate rules for this plan including money management
– Take profits while ahead, find the best place to get out on bad trades, not relying on stop loss

4. Back-test the plan over a long period
– Start trading small positions and allow mistakes

5. Finally, stick to the plan
– Having confidence and keep practicing till perfect

CFTC report for February 28th Released

As always, the "Forex Volume" reports can be viewed at http://www.forexproject.com/Forex_Volume/

Summary:

1.  CAD increase of 8,221 long positions (Sentiment:  Very Bullish)
2.  CHF increase of 23,807 short positions (Sentiment: Extremely Bearish)
3.  GBP decrease of 11,359 short positions (Sentiment: Bearish)
4.  JPY decrease of 33,735 short positions, increase of 14,628 long (Sentiment: Bearish)
5.  USD Index had no major changes (Sentiment: Extremely Bullish)
6.  EUR increase of 8,785 long positions (Sentiment: Bullish)
7.  NZD had no major changes (Sentiment: Bullish)
8.  AUD decrease of 3,474 long positions (Sentiment: Neutral)

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