Risk aversion liquidation of carry trades is making it difficult to find a bottom. Euro and gbp are getting hammered.
Be patient. Wednesday is triple swap day, so expect a retracement at some point before swap is paid.
Watch for market sentiment, and a possible short term bottom in the carry trade pairs. Global government intervention will have a temporary bullish affect, as will the U.S. elections. Now is the time to develop strategies for longer term positions, by exploiting whatever effects an Obama victory will experience.
In these extremely volatile markets, currency pairs are experiencing unusually large swings in price. The market is trying to recover from the shock of such extreme Risk Aversion sentiment. The yen pairs are trying to find a bottom now, so you will see flag formations forming on all pairs.
Too many trades in a spooky market will cause loss of your balance. Opportunities are coming every day, so be patient and just wait it out with limit orders sitting in strategic places where the price is likely to bounce. Find a high and a low of the recent ranges on any pair using the 4 hour and hourly chart. Buy near the bottom of a range and sell near the top. Stand aside when price is trading in the middle of the range, and wait for retraces to finish, then resume whatever she was doing. If the move is a strong move down, you would wait for a retrace and begin selling any move up, in anticipation for the resumption of that downmove.
Look for corrections against the recent trends in all pairs, IF confidence returns to the market.
Look for central banks that are most likely to cut rates soonest, and trade against their currency short term.
Dont look for long term trends yet. We had a massive move in the market, and it has run out of momentum. We will see consolidation with a range (channel) before a breakout occurs.
Notice how the price is retracing toward the breakout levels of the price on this 15 minute chart. This also is a repeatable pattern. Either scalp the retrace, or sell the retest at the broken support, now turned resistance.
No brainer
Easy money…
We want to buy where the market is buying on any currency pair. How do we know where this buying interest is sitting?
Let’s look at the hourly chart for eur/aud. I love this pair, she gives me lots of pips.
Zoom in with your mouse to see the full size chart. Look at each candle where it opened and where it closed. This hourly chart from October 16th, shows us buying interest was sitting at the double fib and the aqua colored 100 sma around the 1.9820/30 area where you can see price respecting the 100 sma and the double fib, until it got broken to the downside. It traded sideways for about 17 hourly candles before building enough momentum to breakout to the downside. During those 17 hours or so a buy order sitting just above that 100 sma was good for 50 to 100 pips each time the price got rejected at this cluster support.
Note that it took over 15 attempts to break said cluster support. This is a tradeable pattern on any pair. When you have a large sma or ema sitting on 2 fibs, there is going to be buying interest there also. In an extremely volatile market, like we have seen this month so far, and are likely to see for a while yet, dont try to capture every pip of a move in the price. Set your limit order to buy it just above the support, and set your stop loss at a reasonably safe distance below it. Target your TP toward what the market has been giving for your particular pair. In this pair, a 75 pip gain was pretty much a no brainer. Or a 50 pip target was even safer. If the order hit 15 times @ 50 pips each, then you made 750 pips profit on one pair in 15 hours time.
We had a breakout of that 100 sma and double fib, Now watch and see that breakout retrace and retest the support turned resistance.Notice how my buy order sitting at the yellow 50% fib got activated and is targeting the cluster support now turned resistance. as of the time of this writing, it +121 pips with a +10 pip stop loss. No risk. No brainer.
P.S. I closed that trade when the 1 candle mom on the 15 min chart showed a retrace was coming. Entry @ 1.9416 and took profit at 1.9631 for a nice +215 pips gain. i was away from the pc all day teaching, and came home to nice surprise….
EASY MONEY….
Picking tops and bottoms is risky as hell…
You can guess correctly and make a fortune. Or you can guess wrong and lose it all.
At the time of this article, all hell is breaking loose in the global markets. Fiat currencies are doomed to fail under the weight of their debt.
We are moving toward a future one world currency….
We are moving toward a one world government sometime in the future.
Governments are taking control of the banking system…..
Risk Aversion is rampant. The markets are spooky and volatile. Fear and confusion are the driving momentums behind market moves.
OK, how do we exploit this?
1. If risk aversion is strong, sell all jpy crosses, and watch the gbp and eur crosses for trends. Use the momentum indicators on the close and open of every 4 hour candle. This time frame will remove some the choppiness you might see on the short times. Look for agreement in all 4 moms, pointing together in the same direction. That means the move is strong. The moves show up in the hourly time frame and spread to the longer time frames over time. You can see momentum building, or you can see it waning. A waning momentum tells us to take profits, because the trend will run out of steam, and retrace in the contra direction until buying or selling interest is found.
2. We want to buy only where buying interest resides. We want to sell only where selling is dwelling.
We use fibs, moving averages, candlestick formations, elliot wave awareness, and previous swing highs or swing lows to place limit orders at strategic levels where price has reversed in the past. If a reversal of trend develops, it will occur at one of these levels. So we use an ambush techinique, with a very good risk to reward possibility. I will not give trade calls, but I will teach you how to spot your own trading signals, by chart analysis.
If you spend quality time looking for patterns in price action, you will begin to understand why a currency pair is doing what she is doing, and where she is telling you that she wants to go. Keep up with the news headlines, but the market is way ahead of the news networks, so trading the news releases is providing fodder for the Smart Money to play with. You should be placing your news release trades at support/resistance areas that are likely to be hit after the news release. Small lot sizes, and safe enough take profit targets, that will guarantee at least a portion of the move, and can self activate while you are away from the pc. Trading by logic and not by emotion. Let the trade finish… You will have only 2 possible results. With proper risk to reward management, you will have either a small, acceptable loss, or you will have had a very nice profit, while you were sleeping, or while you are out fishing and enjoying life.
We are experiencing an unprecented (in recent history, anyway) global meltdown, that is so scary, the world’s leaders are meeting to determine how to handle it.
Our strategy is to stand aside with cash and exploit the huge swings in currency market volatility, and capturing only no-brainer portions of each swing in any direction on any pair we are monitoring.
By not risking any long term positions, we are not committed to any direction, and even hold long and short positions on the same currency pair at the same time. Think outside the box.
Use tiny lot sizes at strategic reversal support/resistance levels with reasonable stop losses on the opposite side of your entry. Use a manual stop loss AND a trailing stop loss if you are to be away from the pc for any length of time. Capture only a safe portion of any large moves. Leaving a position open too long can result in loss of profits, and negative swap payments, in some cases.
Last week we made a bad entry with a market order (I know, I know! It was against my rules….) and got caught in a reversal on my long eur/aud position. I have been booking profits on long eur/aud during this uptrend.
We are using very small lot sizes from our risk capital. We do not use our long term retirement funds for this strategy. We have 2 open positions with break even stop losses for now. With the G-7 meeting this weekend, things could turn around quickly, as they have this week. We are prepared to sell this pair also this coming week.
Entry for position #1 2.0393 with a plus 30 pip stop loss. As of the time of this article we are up +321 pips. Worst case scenario is a +30 pips gain on this trade. Upside target is a retest of the highs for a double top (on the 4 hour chart) formation, with our take profit set below to capture a reasonably safe amount of this move up.
Entry for position #2 2.0481 is with a +10 pip stop loss. Notice how i added to a winning position, after a conservative lot size entry. Worst case scenario is a +10 pip trade. Same upside target, but with a 65 pip trailing stop loss included. If this position reverses on me, it will close itself after a greater than 65 pip drop. My broker closes at 4 p.m. edt on Fridays. I dont know what kind of gap will show up on Monday’s Asian session. It does not matter, because I am protected by my stop losses.
I hedged a losing entry earlier this week after a long entry position reversed south on me. I countered the long with a sell, and with a break even stop loss and an equal lot size. This stopped my bleeding for the moment at -260 pips or so. I knew risk aversion would return, so I let both positions run until a bottom was formed and the trend resumed upwards. I added an additional sell to gain some pips on the way down. I could afford this move because I was using good money management in a volatile market. I collected the profit on the second short position, and bought the pair again after the retracement/correction ran out of steam and bottomed. My original long began to recoup its losses and my scalp/cover position began to shrink. The break even stop activated on that short position, as my 2nd long position gained, and my losing long position lessened. After the difference in my winning long position and losing long position shifted into positive territory i closed both positions with a gain and a loss. The gain was larger than the loss and I ended that trade with +130 pips. If you know your charts, and use money management, you can trade out of a losing position, sometimes. I trusted my charts which were telling me that the pair would resume upwards at some time. I waited patiently and traded out of it.
This 4 hour chart shows the possible double top formation, or a lower high to be formed. We will know more when we see the new weekly/daily charts open on the Monday Asian session.
Easy money….
Sometimes not trading
is the best trade of all. Read on.
The GotForex Weekly Newsletter
Trading currency is risky. You can sustain the total loss of your trading capital.
In the midst of one of the most volatile periods in the forex market in the last 10 years, what are you doing right now to protect your capital? What are the top 10 ways you, every day, manage your risk? Your trading account doesn’t represent just the $500, or $1,000, or $100,000 that you have deposited. It represents possible future gains (or losses, of course). If you deplete all that capital on reckless trades, what will you have left to trade with?
It’s always better to sit on your trading capital than it is to use it recklessly.
Big moves in the currency markets are exciting, for sure. Everyone seems to love a trend and loves even more to talk about how they caught a big piece of it. But we all know what it feels like to take one too many trades, or to risk too much on a single position, or to try to pick a bottom (or top) in the market and then find ourselves losing a significant amount of money.
Are you currently riding losing positions? Here are some thoughts.
I can’t tell you whether you should open or close any specific trades. But as you think about your trades, consider the following questions:
How does your current loss compare with what you expected to lose, based on the testing of the system you are trading?
If your system is not tested, and you do not know what the expected rate or size of losses should be, what can you do right now to find that information?
Have you shown your account to someone that you trust, an experienced trader, who can help you look at your positions and talk about them?
If you feel ashamed of having lost a great deal of money, consider what you can do to face that embarrassment head-on: it is better to deal uncomfortably with a loss in the open than it is to privately blow your entire account. Any pride you feel that you are protecting by not talking openly about your mistakes will, in the end, be a very expensive investment.
Remember that everyone has experienced losses. Even significant ones. Warren Buffett’s company Berkshire Hathaway is named for the textile company he invested in that became a sinkhole for money and cost him a great deal of time, effort, and capital. Any successful trader you speak to will frankly discuss the worst trades they’ve made and what they learned. These experiences have been, in some cases, more instructive and meaningful than even their most profitable trades.
I take a lot of flack at times for suggesting that you are better off speaking openly about your trading mistakes with other people. I don’t say that because I delight in hearing about your mistakes. I do it because if there is any possible way that you can find your way out of the losing trades you’re in, isn’t it worth it to actively and openly try to find that solution?
Are you currently experiencing unusually large gains?
Here are some thoughts.
There is nothing quite like the joy of making a good trade. We like to be right. We enjoy the thought that we planned, executed, and closed a position successfully. Here are some thoughts if you’ve recently found yourself in this fortunate circumstance:
Well done! Congratulations on the profitable trading!
Remember that your profits are only “on paper” until you take them out of your account. A close friend of mine accomplished the nearly unbelievable feat of earning profits of over $60,000 in his trading account earlier this year. He sadly lost all but $3,000 of that money, in a margin call, in just a couple of weeks - as he let the entire account slip away by making trades that were far too big. Princess Leia once told Grand Moff Tarkin, “the tighter your grip, the more star systems will slip through your fingers.” Substitute “pips” for “star systems” and you have yourself the beginning of a good book about trading psychology.
It’s easy to fall prey to the worry that you did not hold onto your winning positions long enough. Be careful about being ungrateful for the winners that you do have. Don’t let what you didn’t get spoil what you did get.
Just because you’ve had some good trades does not mean that you have “figured it out.” There is no holy grail of trading. Every trading system has its weaknesses. Be careful not to concentrate so much on the good points as to not pay attention to what can go wrong.
Consider using part of your profits as a “Research and Development” budget. With your profits, you may have bought yourself some time to test, fine tune, or otherwise improve your trading skills. I’m not saying you should spend your money on education, or books - or spend any money at all. Perhaps the profits simply give you some breathing room to sit back and deeply think about what you did that got you to this point where you have experienced some success. Learn from your success!
Most of all, please don’t become so accustomed to this huge market movement that you expect these huge trends to come along every week of the year. We are experiencing volatility that is off the charts, that is higher than anything we’ve seen in a long time. Most of the time, the market does not move like this - so please do not start to expect that the GBP/JPY is going to move 1,000 pips every day for you.
Remember: We’re here for you.
You can call or chat with the IBFX offices anytime you have a question about your demo or live account, or even if you don’t have an active account with us right now at all.
Risk Aversion has trumped technicals since my last article. Panic selling of JPY pairs should be exploited.
we had 11 positions for wednesday morning’s Asian session, after a 500+ point drop in the Dow on Tuesday.
we were long usd/jpy @ 101.81 and got stopped out @ 100.00 for -181 pips
we sold the pair @ 101.32 and took profit @ 100.23 for a hedge position for +109 pips.
we were short gbp/usd @ 1.7459, stopped out at 1.7529 for -70 pips.
We closed our positions at the news conference of Gordon Brown, when the we saw retracements occuring.
Other positions:
short aud/jpy @ .7060 to .6846 for +214 pips
short chf/jpy @ 88.46 to 88.44 for +2 pips
short aud/jpy @ 71.40 to 68.60 for +280 pips
short nzd/jpy @62.92 to 61.25 for +167 pips
long eur/aud @ 192.07 to 199.27 for +720 pips
short aud/nzd @ 1.1336 to 1.1204 for +132 pips
short eur/jpy @ 137.21 to 136.56 for +65 pips
short gbp/jpy @ 176.54 to 175.64 for +90 pips
Net pip gain overnight was +1,528 pips exploiting the Risk Aversion
The monthly chart for eur/usd shows a rejection of the corrective wave 4 down around the blue 50% fib, at the 1.3884 area. The 1 candle momentum indicator showed us this retrace was coming long before it happened. You can see from from our previous articles on eur/usd, that we have been warning about the upcoming consolidation/retrace, and we closed our USD positions across the board, booking some very nice profits.
We have studied price action in relation to many different indicators, such as the MACD, RSI, CCI, ATP, ADX, etc. We have found them all to be lagging indicators. The Momentum indicator used at different values has given us a leading indicator that is predictive rather than reactive. We do not trade indicators, however, but rather candlestick formations, price action, and support/resistance.
New Forex traders need to learn to read and interpret what the charts are telling them. Learning to recognize reversal candlestick formations, and knowing where previous swing highs or swing lows are located, will greatly enhance your odds of being on the correct side of most price movements. Studying the longer time frames will remove the noise and the choppy price action. Monitor the direction and slope of the Momentum indicators at the candles’ open/close of each time frame you choose to study on any currency pair.
