Thursday, December 31, 2009

Happy New Year


As we come to the end of an interesting year in the markets I wish all of you a happy new year and much success in your trading in 2010.

Wednesday, December 30, 2009

Gann—28 Trading Rules

I’ve been reading a lot in Gann over the holidays, trying to make headway in understanding some of his obscure and bizarre ways of using numbers in his square of nine, etc. Regardless of what anyone thinks of that approach, the guy wrote some outstanding things about how to approach trading. I reread his 28 trading rules regularly. Here they are and we'd all do well to memorize and practice them in our trading.

1. Never risk more than 1/10th of your capital on one trade
2. Use stop losses
3. Never overtrade
4. Never let a profit run into a loss
5. Don’t buck the trend
6. When in doubt get out
7. Trade only in active markets
8. Do equal distribution of risks
9. Never limit your orders. Trade at the market
10. Don’t close out without a good reason
11. Accumulate a surplus. After a series of successful trades put some money into an account for emergencies
12. Never buy or sell just to get a scalping profit
13. Never average a loss. This is one of the worst mistakes a trader can make
14. Never get out just because you have lost patience or get in because you’re anxious from waiting
15. Avoid small profits and big losses
16. Never cancel a stop loss order after you placed it at the time you made the trade
17. Avoid getting into or out of the market too often
18. Be as willing to short as to buy. Let your object be to keep to the trend
19. Never buy because the price is low or sell because the price is high
20. Be careful about pyramiding at the wrong time. Wait until the asset is active and has crossed resistance levels before buying more and until it’s broken out of zone of distribution before selling more
21. Select the commodities that show strong uptrend to pyramid on the buying side and the ones that show definite downtrend to sell short
22. Never hedge. If you’re long one and it starts to go down, don’t sell something else short to hedge it. Take your losses and get out and wait for another opportunity
23. Never change your position in the market without a good reason
24. Avoid increasing your trading after a long period of success
25. Don’t guess at tops or bottoms. Let the market prove it. By following definite rules you can do this
26. Don’t follow another’s advice unless he knows more than you do
27. Reduce trading after the first loss. Never increase
28. Avoid getting in wrong and out wrong

USDCAD—didn’t get to Gehenna

Now wasn’t that sweet behavior for USDCAD, not wanting to quite dip to its uptrend line from November 2007. I have two long positions—one from 1.0394 and one from 1.0429. One’s up 122 and the other is up 156 pips as I write this at 9:48AM EST. Unfortunately, with the thin liquidity where moves can be exaggerated, it doesn’t mean the pair won’t drop again but obviously I’m profit stopped.

What I didn’t talk about yesterday was why I was buying at all. Why do I have any belief that the USD is turning up? If you’ve been following my little blog here since mid-October, you know I’ve been buying USDCAD when it dips. You could say, then, that I’m bullish. I try not to take those positions on trading—that is, I don’t log on each day saying “I’m bullish,” or “I’m bearish.” Rather, I try to stay aware to what the market is telling me. As Jesse Livermore allegedly said in Reminiscences of a Stock Operator , “My one steadfast prejudice is against being wrong.” Since I will be wrong sometimes, I look for entry points that let me get out without too much pain if I am wrong. While I’ve made the case in prior blogs that I believe this market is basing, I’m going into my long positions at points where I can find a reasonable stop.

I entered both these positions at points where I could have a reasonable stop. I’m now profit stopped and we’ll have to see what happens. The illiquid market could result in my trades being stopped but I can’t lose any money at this point so why should I worry? There are worst ways to go into the end of the year.

© Dianne Fecteau, 2009. No part of this material may be reproduced in any form, or referred to in any other publication, without the express written permission of the author.

My purpose in writing this blog is to show you how one trader, me, makes trading decisions and survives while trading Forex. One of the biggest problems I had when I first started trading was trying to apply the “rules” to actual trades. Another was the psychology—limiting losses and letting profits run. If you study my blog you’ll see how I deal with both those issues. So my writings are not trade recommendations but rather educational in purpose. You have to decide on your own approach to trading. Remember that trading is risky.

Tuesday, December 29, 2009

USDCAD—slouching towards Gehenna

OK, I know I said I wasn’t trading but I can’t help but peek at the markets, especially as I update my charts in preparation for the New Year.

Yesterday, I saw that USDCAD had dropped, taking out my final long at +10 pips. This isn’t unexpected as thin December markets can cause extreme moves. The last time I wrote about this pair (long ago on December 18), its downtrend line from August had repelled it a fifth time. It then proceeded to sink to its current level.

Will it continue to drop? Unanswerable, that, but more to the point, is it worth risking a buy? I’m always worrying about the downside so the real question is where I could place a stop. Unfortunately, there’s not a lot of support until you get to the 1.0272/66 October 19 and 20 lows. After that, of course, is the wretched low of 1.0208. At 1.0367, today’s low, one would have to be willing to risk anywhere from 100 to 160 pips (actually a bit more as I’m not going to put the stop right on the prior low.) That’s not awful, depending on one’s point of view but it might be a bit much for some traders.

Another way of finding a stop number is to look at the uptrend line from the 2007 low. It’s coming in at 1.0347. This isn’t too bad. So yes, I can risk a buy using just below that trend line as my stop point.

Another thing to note on the daily chart is how the pair is coiling inside a symmetrical triangle. After three months, I’d expect that this would resolve soon, either upwards or downwards. Something to look forward to, for sure.

Here’s the daily chart showing the move from November 2007:



© Dianne Fecteau, 2009. No part of this material may be reproduced in any form, or referred to in any other publication, without the express written permission of the author.

My purpose in writing this blog is to show you how one trader, me, makes trading decisions and survives while trading Forex. One of the biggest problems I had when I first started trading was trying to apply the “rules” to actual trades. Another was the psychology—limiting losses and letting profits run. If you study my blog you’ll see how I deal with both those issues. So my writings are not trade recommendations but rather educational in purpose. You have to decide on your own approach to trading. Remember that trading is risky.

Monday, December 28, 2009

A Gann Quote

I'm not trading this week because of illiquidity in the market due to the holiday season. What I am doing is cleaning my desk (awash in charts) and catching up on reading. I wanted to share this quote from Gann. It's in his Master Stock Market Trading Course and also other of his writings.

Many people believe it is wrong to buy at new high levels or sell at new low levels but it is most profitable...because when you do buy at new high levels or sell at new low levels you are going with the trend of the market and your chances of making profits are much better than any guesswork or buying and selling on hope or fear.

Thursday, December 24, 2009

Merry Christmas!


Best wishes for a safe and happy holiday season.

Trading Breakouts

Breakouts happen when price moves beyond support or resistance or violates a trend line. They’re an alert that something has changed—the balance of buyers and sellers has shifted or the trend is resuming or reversing. They limit the potential loss since stops can be placed just inside the breakout range.

Many breakouts fail. As Forex traders, it’s important to confirm the price movement before trading. You want evidence that the breakout is real.

Traders use various methods for confirmation. One is to wait for the close of the candle where the breakout takes place. Some traders wait for two candles to close. This is not fail-proof especially in a short-term chart.

Other traders wait for price to move a certain number of pips beyond the breakout. Using Average True Range (ATR), the average pips the pair moves in a given time period, can help determine that number. If the average is 10 pips in a fifteen-minute period, for example, the trader would enter when price exceeded that amount.

A look at the USDCHF 15-minute chart below shows the shortcoming of both methods. There are five total breakouts. In the first two, waiting for the close of one or two candles wouldn’t have assured a safe trade. Two candles closed above resistance in what looked like a vigorous upward breakout. Later, three candles closed below support. Using number of pips based on ATR would have resulted in the trader entering both trades since ATR was less than the breakout amount. In addition, the high volatility surrounding this pair would likely have resulted in slippage, increasing the loss amount.

Some traders mix time and price—e.g. the second candle that closes beyond the breakout has to close further away than the first one does. The combination increases the reliability. This approach would have kept the trader out of all breakouts except the last one in USDCHF.

Another method is to let price breakout and then return back to the breakout point before trading in the direction of the breakout. While the first four breakouts would have resulted in losses, those losses would have been small since the stop would be immediately inside the zone from which price broke out.

Perhaps most important is to stay aware of total price action and typical price behavior before trading a breakout. For example, breakouts tend to take place after a period of consolidation. What was price doing before the consolidation? In the case of USDCHF, price was trending down. That suggests the need for caution on the first upward breakout. The volatility around the breakout is also suspicious. It suggests a news event might be responsible. Breakouts can happen on news but they’re often reversed. After the large upward spike, the second break downward, within the hour, should have signaled that the pair was reacting rather than behaving normally. Finally, one can verify the breakout on a larger time frame. Breakouts on a 15-minute chart can be checked against the action on the hourly chart.
The five breakouts in USDCHF confirm how tricky breakout trading can be. But by the last breakout, the trader has hints price pressure is upward. The second candle is strongly bullish. It closes further away than the first one did. This breakout is still unfolding as I write this but it looks promising.

Take a look at a breakout that’s more straightforward. In the GBPUSD one-hour chart, the pair was in a strong uptrend before consolidating. Price broke out with a strong candle. The second candle retested resistance but its close was solidly above the first candle. The breakout in the direction of the prevailing trend offered reassurance that this breakout was meaningful.

Breakouts can be profitable which is why many trading systems are based on them. However traders must confirm the breakout and consider the overall price behavior.

© Dianne Fecteau, 2009.

Wednesday, December 23, 2009

Trading Systems

A trading system is a set of rules, usually based on technical indicators, that defines when a trader enters and exits trades. In addition to increasing profitability and limiting risk, a trading system removes emotion and subjectivity from trading decisions.

All traders should use a trading system. However, no one system works in all types of market conditions. As a result, the Forex trader needs two or three systems at their disposal and must know when to switch among them.

The main types of trading systems are trend-following, counter-trend or range, breakout or counter-breakout, and pattern recognition.

Trend following systems are the most common type of system that traders use. They can be very profitable because within a strong trend, moves are often large ones. Trend following systems buy high and sell higher as prices move upwards. One example of a trend following system is a moving average (MA) crossover approach. A trader would buy when a faster MA crosses above a slower MA. In this example on the three-hour Euro chart, you can see three buy points as the 20 EMA (in purple) crosses up above the 50 EMA (in red). You also have one sell point where the 20 EMA crossed below the 50 EMA. All these trades would have been profitable had you trailed your stop.

While trend following systems work well within a strong trend, they cause whipsaws when the market is moving sideways. Notice the circled area on the chart in November. Following the system would have resulted in four unprofitable trades.


In a market moving sideways, the trader needs to switch to a range or counter-trend system. Ranges can be horizontal, ascending, or descending, but they all have a definable top and bottom. There’s greater risk in this approach because you’re trying to pick tops and bottoms—in other words, you’re trying to buy-low and sell-high. Counter-trend systems often involve the use of such indicators as RSI, MACD, and the stochastic, looking for overbought and oversold conditions. They can also use divergences between price and indicators, or crossovers in Bollinger Bands.

Look at the Euro chart below. I’ve added Bollinger Bands to the same three-hour chart during the sideways period in November. Here you’d sell when price touched the upper band and buy when it touched the lower one. It looks simple enough. Remember, though, that counter trend trading carries significantly more risk. As a result, you should always look for other, confirming evidence. (Frankly, even with trend following systems I look for additional evidence for entries.) In this case, note the difference in candle behavior on the last trade that failed. Instead of the upper shadows that the prior candles displayed when they touched the top of the bands, you see stronger candles forming with no upper shadows.




Breakout systems trade breakouts from ranges. The philosophy is that prices don’t stay in a range forever—eventually they break out of them. Counter-breakout systems trade an assumption that many breakouts fail. One example of a breakout system is on the chart above where the last failure for the range trading system was actually a signal for a breakout system. In this case, the breakout was from the Bollinger Bands.

Pattern recognition systems can be the most challenging because there’s the need to recognize the pattern. They include such patterns as inside and outside bars, candlestick patterns, flags, triangles, head and shoulders, and others.

To be useful, trading systems need to have well-defined and simple rules. In addition, the trader must be aware of the market environment and use the appropriate system at the correct time. Determining whether a market is trending or in a sideways range often requires the use of an indicator such as ADX, which I’ll cover in a future article. As always, the trader should look for confirming evidence before entering a trade and should use stop losses to limit risk.

© Dianne Fecteau, 2009.

Tuesday, December 22, 2009

No trading today

I won't be trading for the rest of the week. I still have short trades in the Euro and EURJPY that are profitable as well as a long trade in the USDCAD that's profitable.

For the blog over the next few days, I'm scheduling the automated posting of some of my articles written for other sites. These will touch on trading systems, indicators, and trader psychology.

I caution everyone about erratic moves in the currency markets over the next several days because of thin liquidity. It's time to take a step back, relax, and get ready for next year.

Monday, December 21, 2009

USDCAD—still fighting resistance

This pair was the first to hint at coming dollar strength and I’ve blogged about many profitable, long trades since mid-October. However, it is languishing at best, unable to break through a downward resistance line from August. It touched this line again last week at 1.0747. This was the 5th touch. I wouldn’t expect much from it for the rest of the month unless thin liquidity results in some exaggerated moves. I’m still long from 1.0413 but my second long from 1.0527 profit stopped out at +20 pips on the recent dip.

Here’s the daily chart:



© Dianne Fecteau, 2009. No part of this material may be reproduced in any form, or referred to in any other publication, without the express written permission of the author.

My purpose in writing this blog is to show you how one trader, me, makes trading decisions and survives while trading Forex. One of the biggest problems I had when I first started trading was trying to apply the “rules” to actual trades. Another was the psychology—limiting losses and letting profits run. If you study my blog you’ll see how I deal with both those issues. So my writings are not trade recommendations but rather educational in purpose. You have to decide on your own approach to trading. Remember that trading is risky.

EURUSD—no significant bounce yet

EURUSD hasn’t yet managed to bounce from the 1.4261 low it reached on the 18th. I’m still short from 1.4585. The second short I took last Friday from 1.4385, profit stopped out at 1.4356 for +29 pips.

Action seems confined, in general, to a downward sloping rectangle. If I was trading this week (and I’m not), I could have shorted again at 1.4373. Candle behavior supported the idea of shorting with the upper shadows and the almost evening star pattern. Evening stars are three-candlestick patterns that take place after an uptrend. First, there’s a bullish candle. A star follows. The third candle is a bearish candle that closes deeply within the first candle’s body. In this case, it closed below the first candle’s body which is why I wrote, “almost.” The pattern is bearish.

Note the morning star to the left when price touched the bottom of the rectangle. It’s the reverse of the evening star. It occurs after a downtrend with the first candle a long, bearish one, the second candle a star, and the third candle closing deep within the first candle’s body. If the price approaches the bottom of the channel again, a bullish candle or pattern would justify taking a long position but use very tight stops. The pair also seems to be trying to find support at 1.4280.

Be careful trading this week. In fact, try to take the week off. Here’s the one-hour chart:



© Dianne Fecteau, 2009. No part of this material may be reproduced in any form, or referred to in any other publication, without the express written permission of the author.

My purpose in writing this blog is to show you how one trader, me, makes trading decisions and survives while trading Forex. One of the biggest problems I had when I first started trading was trying to apply the “rules” to actual trades. Another was the psychology—limiting losses and letting profits run. If you study my blog you’ll see how I deal with both those issues. So my writings are not trade recommendations but rather educational in purpose. You have to decide on your own approach to trading. Remember that trading is risky.

Choppy Price Action this Week

Expect price action to be choppy this week. Thin liquidity means moves will be exaggerated and may not be particularly meaningful.

Friday, December 18, 2009

EURUSD—Further drops?

The Euro has dropped sharply from a high of 1.5141 on December 3 to a low of 1.4304 today. For the last hour, it looks as though it may be trying to stabilize here but we’ll have to see. This would make sense since it’s a support zone. Next support is at 1.4192/4209 (late August, early September lows), 1.4141 (Fib confluence zone), 1.4008 (polarity), and 1.3728/48 (May, June lows). Resistance levels are 1.4412, 1.4590, and 1.4684.

I added another short at 1.4385 this morning. I’ve since moved my stop to +10 over breakeven. However, it’s not realistic to expect the pair to continue to just freefall. There must be a bounce in here somewhere. Here’s the 3-hour chart.



© Dianne Fecteau, 2009. No part of this material may be reproduced in any form, or referred to in any other publication, without the express written permission of the author.

My purpose in writing this blog is to show you how one trader, me, makes trading decisions and survives while trading Forex. One of the biggest problems I had when I first started trading was trying to apply the “rules” to actual trades. Another was the psychology—limiting losses and letting profits run. If you study my blog you’ll see how I deal with both those issues. So my writings are not trade recommendations but rather educational in purpose. You have to decide on your own approach to trading. Remember that trading is risky.

EURCHF—is the SNB finally crying uncle?

I haven’t traded this pair much this year for the simple reason that the Swiss National Bank has been intervening to prop it up since March. Each time it has approached 1.50, "Bam!", as Emeril would say. The central bank jumped in to prevent the Swiss franc from appreciating too much.

Since October 2008, the pair has been coiling in a symmetrical triangle but there has been mostly sideways movement recently. Finally, though, probably in response to a rapidly weakening Euro, the pair broke through the horizontal support line from May and the triangle. Has the SNB finally cried uncle? Perhaps. After all, as the British central bank found out in the 80s, central banks can’t prop up a currency that’s aching to fall.

So how significant is this break? First, I don’t have a lot of confidence in moves that take place in the low liquidity days surrounding holidays. The pair did drop as low as 1.4579 in early March of this year before the SNB started its intervention so I’m not certain it has given up. If it does intervene, the pair will jump quickly. Let’s see, low liquidity that can cause exaggerated moves and the still present danger of intervention. Those two things shout to set tight stops if a trader goes short. Fortunately, with this pair, that’s not difficult since its average range of movement is small and it is still near the breakout point of 1.50.

Symmetrical triangles are often continuation patterns and the trend was down when the pair entered into this triangle. Bulkowski, in his Encyclopedia of Chart Patterns, says that there needs to be at least two distinct touches each of the two lines and that the entire pattern needs to last at least three weeks. This one qualifies on those counts. There also shouldn’t be a lot of white space and I’m concerned that there’s a bit too much here but there has been intervention (which tends to fog signals). If this is a valid pattern and it is breaking downward, the price projection is the width of the widest part of the triangle added to the breakout if the direction is up or subtracted from if the breakout is down. In this case, a downward breakout would result in potentially hundreds and hundreds of pips of profit. Before you start breaking out the deposit slips, it’s good to point out that he also describes patterns that fail—it breaks in one direction, then reverses and goes in the other direction. As I said, if you decide to short, keep stops tight. Here’s the daily chart:



Bulkowski’s can be found at Amazon: Encyclopedia of Chart Patterns (Wiley Trading)

© Dianne Fecteau, 2009. No part of this material may be reproduced in any form, or referred to in any other publication, without the express written permission of the author.

My purpose in writing this blog is to show you how one trader, me, makes trading decisions and survives while trading Forex. One of the biggest problems I had when I first started trading was trying to apply the “rules” to actual trades. Another was the psychology—limiting losses and letting profits run. If you study my blog you’ll see how I deal with both those issues. So my writings are not trade recommendations but rather educational in purpose. You have to decide on your own approach to trading. Remember that trading is risky.

Thursday, December 17, 2009

EURJPY—back at support

As I wrote in my last post, I tend to stay in profitable trades, taking profits at various points. I’ve been in this one since December 7 when I went short at 133.03. This is a long time for me as my trading style is geared to short-term trading. In fact, I woke up this morning saying to myself, maybe I should just close that trade out—it has, after all, been hovering around 250 pips profit the last couple of days. However, when I logged in this morning the pair had dropped back to a support level and is currently, as of 8:21 AM EST, at 373 pips profit. What I will do is see how it plays out the rest of the week. I am paying interest on this since I’m short. On the other hand, taking partial past profits on this trade of +43, +180, +264, and +360, means that what’s left is a small position so the interest isn’t a big problem. “Haha,” some could say. “Wasn’t that stupid to take profits off at the +43 pips when so many more pips were ahead?” Well, in hindsight we’re all perfect traders. My answer is no. I did what I did because I wasn’t sure of the future when it was up 43 pips.

I’ve drawn horizontal lines on the daily chart, again in holiday green, that show support at 128.82, 126.89, and 124.37. It looks as though it might be trying to base at the 128.82 level as I write. If I wasn’t short would I try a long? Well, the beauty is that the stop can be fairly tight. However, there’s some negative sentiment against the Euro right now and the yen loves bad news (which means it strengthens) so one would have to be careful. Finally, although, I know I’m getting repetitious, thin liquidity means moves can be erratic. All good traders should be winding down their trading activities for the year and enjoying the holiday season.

Here’s the daily chart:



© Dianne Fecteau, 2009. No part of this material may be reproduced in any form, or referred to in any other publication, without the express written permission of the author.

My purpose in writing this blog is to show you how one trader, me, makes trading decisions and survives while trading Forex. One of the biggest problems I had when I first started trading was trying to apply the “rules” to actual trades. Another was the psychology—limiting losses and letting profits run. If you study my blog you’ll see how I deal with both those issues. So my writings are not trade recommendations but rather educational in purpose. You have to decide on your own approach to trading. Remember that trading is risky.

EURUSD—how low could it go?

I shorted EURUSD again yesterday morning at 1.4585 as it reached up and touched the bottom of the daily uptrend channel. The high was 1.4591 and it was just one of those lucky moments where I happened to sell near a top. They say people make their own luck. I was hovering over the Euro, looking for a rally and I knew that was the bottom of the channel so I decided it was about the best I was going to get. I sold. Guess I made my own luck. I took some profits off the table at 1.4492 (+ 93 pips) not because I was trading in the middle of the night, but because I left a buy order in place to do so. Now, the stop is above breakeven (+130) on the remainder of the trade, (which is currently up 230 pips), so I can forget it. Especially, since I’m trying to wind down for the holidays.

Questioning minds want to know….how low could it go? Support levels come in at the following levels:

1) 1.4337—polarity
2) 1.4192/1.4209—Double bottom (late August/Early September)
3) 1.4008—polarity
4) 1.3728/48—May, June lows (Bet this level would make the Euro bulls go, “Wow!” or maybe “Ow!”

There’s an old trader’s saying that says, “Don’t tell me what. Tell me when.” Alas, one doesn’t know when, although those using time or cycle analysis will sometimes predict. Without getting into all that, though, the value of knowing support levels is that you can be alert to price behavior at those points and look for confirming clues as to how you might trade. It’s also important to watch price behavior to look at when you might lighten shorts. I tend to leave profitable trades on but take partial profits as they go. Others might have a definite target in mind and close the trade at that point. The important thing is to have an approach.

As I pointed out several times in the last month or so, Euro was looking weaker. Then too, bad news came out of Eurozone over the last couple of days and this obviously had an impact as to why now. However, as I’ve also pointed out, Euro bulls are fiercely protective of their Euro and hate to give up on it. We’ll just have to see how this plays out. A definitive answer will most likely have to wait until after the holidays.

Here’s the daily chart with the support levels drawn in pretty holiday shades of green and red. For those new to reading the blog (Welcome!) my trade is the little triangle on the uptrend line.



© Dianne Fecteau, 2009. No part of this material may be reproduced in any form, or referred to in any other publication, without the express written permission of the author.

My purpose in writing this blog is to show you how one trader, me, makes trading decisions and survives while trading Forex. One of the biggest problems I had when I first started trading was trying to apply the “rules” to actual trades. Another was the psychology—limiting losses and letting profits run. If you study my blog you’ll see how I deal with both those issues. So my writings are not trade recommendations but rather educational in purpose. You have to decide on your own approach to trading. Remember that trading is risky.

GBPJPY—didn’t quite make it to resistance yesterday

The pair didn’t quite make it to the 147.50/90 resistance area yesterday (high was 146.94) before dropping sharply. However, the pair is coiling inside a symmetrical triangle on the three-hour chart so there are future opportunities for trading. Given the overall downtrend, I’d expect that this is a continuation triangle. As a result, the breakout, when it arrives, will be downward. However, as I’ve written before, pullbacks are common. In any case, it may also bounce off the upward sloping trend line of the triangle before breaking out. Examining price behavior at the time will offer more clues. However, my litany during this holiday season is to be careful when trading. Thin liquidity can result in rapid and exaggerated moves that can take out your stops and leave you reaching for spirits of an intoxicating kind.

Here’s the three-hour chart:



© Dianne Fecteau, 2009. No part of this material may be reproduced in any form, or referred to in any other publication, without the express written permission of the author.

My purpose in writing this blog is to show you how one trader, me, makes trading decisions and survives while trading Forex. One of the biggest problems I had when I first started trading was trying to apply the “rules” to actual trades. Another was the psychology—limiting losses and letting profits run. If you study my blog you’ll see how I deal with both those issues. So my writings are not trade recommendations but rather educational in purpose. You have to decide on your own approach to trading. Remember that trading is risky.

Wednesday, December 16, 2009

GBPJPY—May be getting to a nice sell point

I trade this pair but not usually in this blog because it’s a hip-hopping, hard-rockin’ Mama—in other words, too volatile for most traders. The pair can move so quickly that by the time I take the trade and write the words about why, the pair has already made a sizeable move. Still, since things are so-o-o-o-o-o slow this morning, with everyone waiting, I guess, for the collective wit and wisdom of the Fed to spew forth this afternoon with their rate decision, I thought I’d point out a potential trade I’m looking at.

Two downtrend lines are converging. One is the longer-term one from the July 23, 2008 high of 215.92. The other is the shorter-term downtrend line from August 9 of this year that had a high of 163.02. The shorter line is at 147.84; the longer is at 147.49. The 147.50/90 area has been a support zone recently and this enhances its potential as a resistance level. Given that the pair is in an overall downtrend, this could prove to be an attractive level at which to sell.

There’s also a descending triangle on the chart. According to Bulkowski in his book, Encyclopedia of Chart Patterns, prices should touch the horizontal base at least twice. I’ve placed three small arrows to show that it has touched three times. Prices should also touch the down sloping line twice and it has done this as well. There’s a little too much white space for my liking but, hey, you take what you can get, and while it may not be definitive, it’s something to note. Bulkowski’s book can be found at Amazon. Encyclopedia of Chart Patterns (Wiley Trading)

If the price does approach resistance, it will be important to examine price behavior at the time. In addition, I again warn about the decreasing liquidity.

Here’s the daily chart:



© Dianne Fecteau, 2009. No part of this material may be reproduced in any form, or referred to in any other publication, without the express written permission of the author.

My purpose in writing this blog is to show you how one trader, me, makes trading decisions and survives while trading Forex. One of the biggest problems I had when I first started trading was trying to apply the “rules” to actual trades. Another was the psychology—limiting losses and letting profits run. If you study my blog you’ll see how I deal with both those issues. So my writings are not trade recommendations but rather educational in purpose. You have to decide on your own approach to trading. Remember that trading is risky.

AUDUSD—No Humpty-Dumpty

The pair reached a low of .8956 in early morning trading. This compares to the early November low of .8916. The next supports are .8860/87 and then .8750/75. One can’t help but wonder if it’s going to head a bit lower.

It’s important to remember that the pair has been strongly bullish since the late 2008 low of .6007. If the trend is reversing, tbe pair won’t simply topple off the wall, Humpty-Dumpty style, in one great fall. Topping and bottoming are events. Detecting trend reversals is painful at best—all those shorts that stop out on bearish traders—and all around futile behavior at worst—the market can outlast you and all your best-laid plans.

What are the signs it’s weakening and a reversal might be in the cards?

1)Almost ten weeks of sideways behavior that looks as though it’s forming a broadening top
2)Break below the upward trend line on the weekly chart
3)Falling momentum on weekly and daily charts

Now those are all excellent signals. They’re also on weekly and daily charts. In shorter time periods there are going to be many ebbs and flows. Then, of course, you have the ongoing bullish sentiment which means some traders expect the pair to continue to rise, buoyed ever upward by the rotten, despicable state of the USD and glinting commodity prices. The availability heuristic is ever present.

A look at the three-hour chart shows the pair rising off support a bit since its early morning low. One could try a long trade here but I’d keep it very small. The justification is that the pair is near support which means the stop can be tight. In addition, the candle that’s currently forming looks bullish. One concern is the candles are throwing off some upper shadows. Resistance is at .9082, .9129 (short-term downward trend line), .9170, and the downward trend line at .9250.

I’m going to sit this one out. One reason is that I’m looking for rallies to short. Second, I’m winding down my trading for the year. Another reason is the thinning liquidity in the markets as we move closer to the holiday. It’s a good time to stay out if you can bring yourself to do so. You can’t do that, you say? You gotta trade? Then it’s a very good time to work on mental attitude—the best traders learn discipline.

Here’s the three-hour chart:



© Dianne Fecteau, 2009. No part of this material may be reproduced in any form, or referred to in any other publication, without the express written permission of the author.

My purpose in writing this blog is to show you how one trader, me, makes trading decisions and survives while trading Forex. One of the biggest problems I had when I first started trading was trying to apply the “rules” to actual trades. Another was the psychology—limiting losses and letting profits run. If you study my blog you’ll see how I deal with both those issues. So my writings are not trade recommendations but rather educational in purpose. You have to decide on your own approach to trading. Remember that trading is risky.

Tuesday, December 15, 2009

EURJPY—still short

It’s not a surprise that EURJPY is weak as well as the Euro. I’ve been short since last Tuesday at 133.03. To say the pair is finding it difficult to rally is to understate the situation. Notice the small candles of the recent attempt. However, it’s in a support zone of 128.86 to 130.40 so it could do so. There might be an opportunity for some support and resistance trades as well. Since I’m short I’ll stay that way for now. Here’s the 3-hour chart:


© Dianne Fecteau, 2009. No part of this material may be reproduced in any form, or referred to in any other publication, without the express written permission of the author.

My purpose in writing this blog is to show you how one trader, me, makes trading decisions and survives while trading Forex. One of the biggest problems I had when I first started trading was trying to apply the “rules” to actual trades. Another was the psychology—limiting losses and letting profits run. If you study my blog you’ll see how I deal with both those issues. So my writings are not trade recommendations but rather educational in purpose. You have to decide on your own approach to trading. Remember that trading is risky.

EURUSD—finally reversing?

I did buy this pair yesterday at the bottom of its bullish, upward daily channel it has maintained since mid-June. This was at 1.4633. The pair stopped out overnight at -1.4583 for a loss of -50 pips.

Is this a trend reversal? It could be. A daily close below the uptrend line would be helpful and it would confirm the overall weakness. As regular readers know, I use point and figure (P&F) charts in my trading. I want to short the Euro but I lack a good sell signal on my three-hour and daily P&F charts. The hourly P&F chart gave a sell signal last week and I did have a short at 1.4822 that I blogged about December 8 but it has since closed.

In any case, the pair looks weak. Each successive downward move (from November on the 3-hour chart) has been sharp and the rallies have been weak. There could be support at 1.4481, the early October low. The pair is trading at 1.4530 currently (at 7:30AM EST).

Best to wait for a rally to short rather than try and catch a falling knife or wait for a definitive close on the daily chart. Here’s the 3-hour chart:


© Dianne Fecteau, 2009. No part of this material may be reproduced in any form, or referred to in any other publication, without the express written permission of the author.

My purpose in writing this blog is to show you how one trader, me, makes trading decisions and survives while trading Forex. One of the biggest problems I had when I first started trading was trying to apply the “rules” to actual trades. Another was the psychology—limiting losses and letting profits run. If you study my blog you’ll see how I deal with both those issues. So my writings are not trade recommendations but rather educational in purpose. You have to decide on your own approach to trading. Remember that trading is risky.

Monday, December 14, 2009

EURUSD—Bottom of daily channel

EURUSD is has finally descended to the bottom of the daily channel. This could be a reasonable level to buy and I am doing so with a small position. I expect there will be some sort of a bounce. This level is also polarity—it has served as both support and resistance for price. If the pair should definitively close below this uptrend line….well, let’s just say that given the overall weakening, I’d be going short.

What’s remarkable on the daily chart to me is the descending level of RSI. I have blogged frequently in the last month that momentum has to drop for price to drop and it finally appears to be doing so.

Obviously, more study needs to be done on the shorter-term charts and I’ll post more, later. Here’s the daily chart.



© Dianne Fecteau, 2009. No part of this material may be reproduced in any form, or referred to in any other publication, without the express written permission of the author.

My purpose in writing this blog is to show you how one trader, me, makes trading decisions and survives while trading Forex. One of the biggest problems I had when I first started trading was trying to apply the “rules” to actual trades. Another was the psychology—limiting losses and letting profits run. If you study my blog you’ll see how I deal with both those issues. So my writings are not trade recommendations but rather educational in purpose. You have to decide on your own approach to trading. Remember that trading is risky.

AUDUSD—Weekly chart

On the weekly chart, AUDUSD now seems to be in a broadening formation. I consider these deadly after an uptrend and believe the pair topped at .9408. So, if it’s not going to go up it has to go down, right? Well, yes, but this pair has been strongly bullish and I wouldn’t expect it to just roll over and fall, precipitously. As I’ve said many times, topping and bottoming are events that play themselves out over days, weeks, and sometimes months. Caution is in order as it always must be when trading.

I’ve circled a potential double top on the weekly chart. It’s only potential because price hasn’t broken below the trough of .8945. I prefer to see double tops separated by one or more candles but this isn’t a requirement. Should it break that trough, and also break below the ascending line of the broadening pattern, it could result in a nice move down.

My short from .9152 doesn’t show on this chart because I use a different charting package for longer-term charts than is available in my broker’s platform. However, it’s really taking its time in dropping. Once again, watching the shorter-term charts makes sense. Here’s the weekly:



© Dianne Fecteau, 2009. No part of this material may be reproduced in any form, or referred to in any other publication, without the express written permission of the author.

My purpose in writing this blog is to show you how one trader, me, makes trading decisions and survives while trading Forex. One of the biggest problems I had when I first started trading was trying to apply the “rules” to actual trades. Another was the psychology—limiting losses and letting profits run. If you study my blog you’ll see how I deal with both those issues. So my writings are not trade recommendations but rather educational in purpose. You have to decide on your own approach to trading. Remember that trading is risky.

USDCAD—Coiling

It has been several days since I’ve blogged about this pair. Since mid-October, it appears to be basing, encouraging some bullishness about the pair (as I’ve been) or at least pausing in its downward trajectory if one remains bearish.

The pair is coiling in a triangle formation. Elliott Wave (EW) practitioners believe the breakout from the triangle is in the direction in which price entered it (down in this case). In coiling triangles, however, the breakout can be in either direction. The triangle displays, in a visual sense, the struggle between buyers and sellers as they vacillate and stall before finally resolving on a direction. It becomes more intense as time passes and this is why the triangle narrows. Ideally, a triangle resolves between ½ and ¾ of the distance from its start so this one is getting mature. Perhaps a resolution is at hand.

If it does successfully break out in the downward direction, the move will likely be a large one as the coiling has provided a chance for the pair to store up energy. However, initial breakouts can be false, setting up a bear trap, so the trader needs to be careful. Whether price breaks above or below, throwbacks (if above) and pullbacks (if below) are common.

I’ve blogged in prior posts about the nature of basing. It’s a process, not an event, so prices tend to rise and fall as the pair finds its bottom. Most of my calculations suggest the pair is basing and I’ve posted several trades that have resulted in my earning hundreds and hundreds of pips since October. However, it’s important to maintain neutrality—i.e. not get stuck in your beliefs. Watching price action on the short-term charts is the way to go.

I currently have two long positions, one from 1.0413 of which I’ve taken partial profits at various points, and one I added on a dip to 1.0527 and which is currently profit stopped at +20. The first one is currently up 227 pips and the second, 112 pips as of 7:40AM EST.



© Dianne Fecteau, 2009. No part of this material may be reproduced in any form, or referred to in any other publication, without the express written permission of the author.

My purpose in writing this blog is to show you how one trader, me, makes trading decisions and survives while trading Forex. One of the biggest problems I had when I first started trading was trying to apply the “rules” to actual trades. Another was the psychology—limiting losses and letting profits run. If you study my blog you’ll see how I deal with both those issues. So my writings are not trade recommendations but rather educational in purpose. You have to decide on your own approach to trading. Remember that trading is risky.

Friday, December 11, 2009

AUDUSD—Ranging

AUDUSD is stuck in a narrow range of .9116 to .9196. I’m still in my short from .9152. Is it worth staying in? Have things changed since I entered based on a general, overall weakening and the gravestone doji on the three-hour chart? Don’t forget that because the Australian dollar pays much more interest than the USD, I’m paying interest on this trade. The interest isn’t a big deal with small positions but the larger the position the more significant it becomes.

The answer is unclear. One thing I keep mentioning in the blog is that usually pairs don’t suddenly plummet down from a top. Topping and bottoming is a process that takes place over many hours and even days and weeks. During that period, the action can be whippy. If you look at the three-hour chart you see indecision in the form of the candles—they’re small or have significant upper and lower shadows, interspersed with some longer ones.

What hasn’t changed is that the pair is exhibiting weakness. It certainly isn’t in the robust climb that it has exhibited through much of the spring, summer, and fall. However, while the pair is heading for the bottom of the range after a day of hovering about in the upper third of the range, there’s support here that may hold. As of now, I’ve lightened my short at +20 pips and have moved the stop to breakeven. I’m winding down for the week so I may not get to do much more with any pair before Monday. If the pair should make it down to the trend line at .9050, it would be an interesting place to assess buying. A break above .9200 would hint at returning strength.

Remember, liquidity is shrinking as we approach the holidays. This can result in exaggerated moves that don’t make a lot of sense. Here’s the three-hour chart.



© Dianne Fecteau, 2009. No part of this material may be reproduced in any form, or referred to in any other publication, without the express written permission of the author.

My purpose in writing this blog is to show you how one trader, me, makes trading decisions and survives while trading Forex. One of the biggest problems I had when I first started trading was trying to apply the “rules” to actual trades. Another was the psychology—limiting losses and letting profits run. If you study my blog you’ll see how I deal with both those issues. So my writings are not trade recommendations but rather educational in purpose. You have to decide on your own approach to trading. Remember that trading is risky.

EURJPY—Bounce

I’ve been short EURJPY forever it seems (since Tuesday, the 8th, at 133.03 which gives you some sense of how time can be distorted when trading). However, for me to stay in a pair is unusual unless the pair is strongly trending. It never reached the bottom of the range and I should have probably closed it out but I’ve taken partial profits several times at +43, +180, +264, and +360, so I’m not too concerned about the small position left which is profit stopped at +120 pips.

It’s hovering in the middle third of its range. This range is from 126/127 on the bottom (with one dip down to 124.38) to 138/139. On the hourly chart, it looks as though it’s rebounding and is approaching the 50% retracement of its recent dip. It’s going to have to push through current resistance at 131.50/80. 132.50 and 133.23 are the next resistance levels. Support is at 129, then 127. I believe there will be another opportunity for a short at some point, although perhaps not today. Here’s the daily chart:


© Dianne Fecteau, 2009. No part of this material may be reproduced in any form, or referred to in any other publication, without the express written permission of the author.

My purpose in writing this blog is to show you how one trader, me, makes trading decisions and survives while trading Forex. One of the biggest problems I had when I first started trading was trying to apply the “rules” to actual trades. Another was the psychology—limiting losses and letting profits run. If you study my blog you’ll see how I deal with both those issues. So my writings are not trade recommendations but rather educational in purpose. You have to decide on your own approach to trading. Remember that trading is risky.

Thursday, December 10, 2009

EURUSD—another day of little action

It would have been a good morning to go holiday shopping. Nothing much is happening with currencies in general.

Looking at the daily Euro chart, I’d say there’s more probability of it breaking down than up although the latter isn’t impossible, of course. The first thing to notice is the broadening pattern at the top. Some traders believe that the more horizontal the tops (and these are), the more likely it is to see prices break downward. Notice, too, that the third peak didn’t quite reach the top line of the formation. This is also bearish, hinting that price will break downward. Before it does so, it could try one more run to the top of the pattern (1.5230).

Another thing to look at is RSI. Notice here that the level to which RSI has dropped is lower than it has done since April. I’ve drawn a red support line under RSI to illustrate this. In addition, buyer interest hasn’t pushed RSI above 63% since October. This is quite different from the forays into overbought readings that were taking place throughout the year.

Finally, Euro has broken and closed below the daily uptrend line from April.

From these hints on this daily chart, it looks as though the Euro is weakening. That said, though, there could be another bounce up as I mentioned above. If it’s going to drop further, I’d love to see a close below 1.4627, the November 3 swing low (I’ve placed a red arrow there). If it does rally, I’d short again near the top of the broadening pattern and/or on candle weakness. For a rally, note the potential double bottom that’s forming. It requires a close above 1.4860, to confirm this. A close above the prior high of 1.5144 would be super-encouraging to bulls.

Here’s the daily chart:



© Dianne Fecteau, 2009. No part of this material may be reproduced in any form, or referred to in any other publication, without the express written permission of the author.

My purpose in writing this blog is to show you how one trader, me, makes trading decisions and survives while trading Forex. One of the biggest problems I had when I first started trading was trying to apply the “rules” to actual trades. Another was the psychology—limiting losses and letting profits run. If you study my blog you’ll see how I deal with both those issues. So my writings are not trade recommendations but rather educational in purpose. You have to decide on your own approach to trading. Remember that trading is risky.

Another note on AUDUSD

I consider the doji invalid if there is a close above its high. So far, on the 1- and 3-hour charts, this hasn’t happened. However, I’m getting a bit annoyed with this pair. My trading experience tells me that when a pair, especially one that has been bullish, hangs about at resistance, it often is getting ready to break above it. If it does, my short may become a stop and reverse. We’ll have to see.

© Dianne Fecteau, 2009. No part of this material may be reproduced in any form, or referred to in any other publication, without the express written permission of the author.

AUDUSD—slight bounce

What was left from my long trade from two day’s ago profit stopped out at +5 pips in yesterday’s dip.

As I wrote yesterday, the pair looks a bit weaker than it did. After a few days of lower highs and lower lows, yesterday had a slight higher high and higher low. This may have been just a minor correction before another push upwards. It needs to break above .9406 to know for sure.

Both the three- and one-hour chart formed some interesting doji candles this morning. Doji candles can indicate trend reversals after an uptrend, even a small one such as what we saw overnight. For that to be the case, though, additional candles must confirm its signal, the market should be overbought, and the doji should be relatively rare on the chart. It’s important to remember that even if all three of these conditions exist, it doesn’t guarantee a trend reversal (there are no guarantees in trading, alas). It might only signal that the market is going to move sideways a bit.

On the three-hour chart, you can see a gravestone doji. After such a long bullish candle before it, I would have liked to see the third candle complete an evening star formation but it didn’t do so because it didn’t penetrate deeply enough into the bullish candle’s body. It should have looked like this:



Instead, as you can see, the third candle, while somewhat bearish was not very long. So far, no candle has confirmed the signal from the doji. However on the one-hour chart, there is what looks like the possibility of an evening star when the candle completes at 8:00AM.

Neither is the market overbought or oversold. What is interesting is that momentum seems sluggish as measured by RSI. It’s not shooting up on this small price rally so there doesn’t seem to be a lot of interest in the pair.

There aren’t numerous doji candles on the chart so one should take note of this one, however. One thing that reinforces it is that the market is at resistance. This means the stop can be tight, just above the doji high. I’d be a little careful with this since there’s an upper shadow that extended to .9188, several candles back but the stop can still be tight. Price is also at a fib confluence zone that I’ve indicated with the purple line. This reinforces resistance. Because of this, and given prior weakening signs I’ve written about, I decided to try a short position as you can see. Here’s the three-hour chart.


© Dianne Fecteau, 2009. No part of this material may be reproduced in any form, or referred to in any other publication, without the express written permission of the author.

My purpose in writing this blog is to show you how one trader, me, makes trading decisions and survives while trading Forex. One of the biggest problems I had when I first started trading was trying to apply the “rules” to actual trades. Another was the psychology—limiting losses and letting profits run. If you study my blog you’ll see how I deal with both those issues. So my writings are not trade recommendations but rather educational in purpose. You have to decide on your own approach to trading. Remember that trading is risky.

Wednesday, December 9, 2009

Euro—kind of a boring day

Not a lot of price movement, today. Euro has been trading in a rectangle since yesterday afternoon of 1.4668 to 1.4782, with most of that action confined to north of 1.4692. If you weren’t already in a trade, you could have been in and out today for small pips but that’s a hard way to make a living and not a lot of fun, either. I’m still short Euro from 1.4822.

The pair will likely drift down to the bottom of the range. There it will either show signs of a rally, break below, or stagnate. That’s so definitive, isn’t it? Alas, that’s honestly all there is to say for now and you can’t force a signal where one doesn’t exist. We’ll just have to wait and see.

Meanwhile, perusing some blogs and websites yesterday, I’m reminded yet again of how many ways there are out there for traders, especially new ones, to be separated from their money. Things such as “can’t fail” systems, automated signal providers, useless webinars, and on and on it goes. Remember the old saying? Those that can, do; those that can’t, teach. There are far too many “teachers” out there who want to charge for their products and services and who have no verifiable history of being able to make money in the market consistently. Don’t fall for this stuff. Everything you need to know is in books that are available for far less than the $99 to $9,999 price range and with blogs such as mine there is a lot of information available for free. Secrets of the ages or RSI, etc. It's all hooey.

AUDUSD—a tentative long

Yesterday I went long at .9041. I took some profits this morning at +50 and have moved my stop to breakeven +5.

As I’ve pointed out earlier this week, this pair is showing some weakness. However, given its strong, bullishness, I wouldn’t expect it to just roll over without a fight. After the low early yesterday morning, it looked as though it was trying to stabilize, Note, today, that it seems to have backed away from resistance at .9114. The candles developed upper shadows. This hints the market was rejecting higher prices. If you study that line on the hourly chart, I’ve placed arrows where price has touched it and retreated from it several times. It’s polarity. It’s also the .618 retracement of the recent move down. Let’s see if it holds as resistance again. If it does, a short might be in order. This means I may reverse when stopped at breakeven, or earlier, if other clues present themselves before then. However, remember we’ve had four down days so a bounce may be at hand.



© Dianne Fecteau, 2009. No part of this material may be reproduced in any form, or referred to in any other publication, without the express written permission of the author.

My purpose in writing this blog is to show you how one trader, me, makes trading decisions and survives while trading Forex. One of the biggest problems I had when I first started trading was trying to apply the “rules” to actual trades. Another was the psychology—limiting losses and letting profits run. If you study my blog you’ll see how I deal with both those issues. So my writings are not trade recommendations but rather educational in purpose. You have to decide on your own approach to trading. Remember that trading is risky.

EURJPY—putting this move in context

This pair has lost 579 pips since Friday. If you do short-term trading, there’s a tendency to look at any move over a couple of hundred pips as huge. It’s helpful to look at longer-term charts to put any given move in context.

On the weekly chart for EURJPY, you see that it has been in a trading range for several months, largely bound by 126/127 on the bottom (with one dip down to 124.38) and 138/139 on the top. It’s a honey of a range—there have been good opportunities to make money since April.

The declining price of the last few days has brought the pair down to the bottom of the range. One thing to keep in mind is that we’re at year-end. People are taking profits; there’s less liquidity. You want to be careful as this can lead to moves that are quick and sometimes exaggerated. Another issue is that the yen is strengthening which of course will drive down the yen crosses.

That said, nobody has a crystal ball as to whether this range will hold. If they say they do, they’re delusional or lying. As traders, though, we don’t need to know that. We need to look at the probabilities and the probability says that unless this pair closes below 127, the bottom of the range is a place to look for buying opportunities. If the pair did close below 127, it would hint that the rectangle was breaking up and you’d want to look for a rally to sell. In either case, you must use tight stops.

As of now, my short trade from 133.03 is at +314 pips profit. I took some more profits off at +360 pips earlier this morning. What’s left is obviously profit stopped and I’ll either continue to trail that stop or reverse. Here’s the weekly:


© Dianne Fecteau, 2009. No part of this material may be reproduced in any form, or referred to in any other publication, without the express written permission of the author.

My purpose in writing this blog is to show you how one trader, me, makes trading decisions and survives while trading Forex. One of the biggest problems I had when I first started trading was trying to apply the “rules” to actual trades. Another was the psychology—limiting losses and letting profits run. If you study my blog you’ll see how I deal with both those issues. So my writings are not trade recommendations but rather educational in purpose. You have to decide on your own approach to trading. Remember that trading is risky.

Tuesday, December 8, 2009

EURJPY—May be slowing down

I just took some more profits on my short trade at 133.01 (+264 pips) as the pair may be slowing its descent. The last three hours haven’t seen the pair reach new lows. I’ve left the remainder profit stopped at +100 so we’ll see what happens next. In order to see a bounce, one would expect RSI to leave the oversold reading of below 30 on the hourly chart. It’s not doing so yet.

© Dianne Fecteau, 2009. No part of this material may be reproduced in any form, or referred to in any other publication, without the express written permission of the author.

My purpose in writing this blog is to show you how one trader, me, makes trading decisions and survives while trading Forex. One of the biggest problems I had when I first started trading was trying to apply the “rules” to actual trades. Another was the psychology—limiting losses and letting profits run. If you study my blog you’ll see how I deal with both those issues. So my writings are not trade recommendations but rather educational in purpose. You have to decide on your own approach to trading. Remember that trading is risky.

USDCAD—What’s with this pair?

I’ve ignored this pair the last couple of days although I’m still long. About the best that can be said is that my trade from 1.0413 is still up (currently +163 pips) after faltering a bit yesterday. The pair is coiling inside a symmetrical triangle. While it coils, it should be building energy for a subsequent move, up or down. Often, symmetrical triangles are continuation patterns and if we’re talking Elliott Wave (EW), practitioners believe that price continues in the same direction. If one looks at the downtrend since March, one would believe the breakout will be downwards.

However, if USDCAD is basing, as I’ve believed since mid-October, then the breakout would be upwards. Regardless, right now there is nothing to do with this pair except watch it. Here’s the daily chart:



© Dianne Fecteau, 2009. No part of this material may be reproduced in any form, or referred to in any other publication, without the express written permission of the author.

My purpose in writing this blog is to show you how one trader, me, makes trading decisions and survives while trading Forex. One of the biggest problems I had when I first started trading was trying to apply the “rules” to actual trades. Another was the psychology—limiting losses and letting profits run. If you study my blog you’ll see how I deal with both those issues. So my writings are not trade recommendations but rather educational in purpose. You have to decide on your own approach to trading. Remember that trading is risky.

EURUSD—Daily and 1-hour chart

Perhaps this decline will show some strength, after all. On the daily chart, price is dropping down through its generally bullish upward channel and has crossed below an interim upward trend line that began in August. RSI is accompanying the decline. On the daily chart, RSI is at its lowest level since April.

Why did I sell in the middle of the channel? One reason was the breach of the trend line as mentioned. Another reason was RSI behavior on the 1-hour chart. It couldn’t seem to rally above a certain point and I considered that bearish, given its strength in recent months. A third reason was that the pair was top heavy as I had pointed out. In addition, when price rallied to the support that was now resistance, upper shadows appeared on the candles. This is a hint that the market is rejecting higher prices, particularly when it occurs at resistance. Finally, I had already been short (a trade I did not blog about and will not count toward monthly pips here) and had recently been profit stopped. I wanted to get back in on the slight rally. That’s not always smart but I could justify the trade based the factors above. Always be able to spell out your reasons for a trade. If you can do this, it’s a good trade even if it doesn’t make money.

The pair sat overnight and is still sluggish, showing only +64 pips so far. I’m going to move the stop to breakeven, take off a small portion of the trade at +64, and watch short-term price action carefully.

Here are the charts:




© Dianne Fecteau, 2009. No part of this material may be reproduced in any form, or referred to in any other publication, without the express written permission of the author.

My purpose in writing this blog is to show you how one trader, me, makes trading decisions and survives while trading Forex. One of the biggest problems I had when I first started trading was trying to apply the “rules” to actual trades. Another was the psychology—limiting losses and letting profits run. If you study my blog you’ll see how I deal with both those issues. So my writings are not trade recommendations but rather educational in purpose. You have to decide on your own approach to trading. Remember that trading is risky.

EURJPY—at least this pair has moved

EURUSD has been dead in the water over night but EURJPY isn’t disappointing.

As you can see on the daily chart, it has been in a slightly, contracting range since April. As a result, it has offered many good trades, simply by going short at resistance and long at support. This time it didn’t make it to resistance. The orange line I have drawn across the chart was significant to me based on various Fib calculations and other ratios. I was off slightly on the timing, entering a bit late at 133.03 but the trade is currently 189 pips in profit. I took some off the table at 132.60 (+43) and I just took at bit more off at +180 pips.

Keep an eye on this pair as it may bounce again from support in which case it would be a long. I’ll post about it here if it approaches that point. Obviously, price behavior is everything and one can’t trade only because a pair reaches support. There is some support on the hourly at 131.08. Here’s the daily chart:


© Dianne Fecteau, 2009. No part of this material may be reproduced in any form, or referred to in any other publication, without the express written permission of the author.

My purpose in writing this blog is to show you how one trader, me, makes trading decisions and survives while trading Forex. One of the biggest problems I had when I first started trading was trying to apply the “rules” to actual trades. Another was the psychology—limiting losses and letting profits run. If you study my blog you’ll see how I deal with both those issues. So my writings are not trade recommendations but rather educational in purpose. You have to decide on your own approach to trading. Remember that trading is risky.

GBPCHF—out of trade

1.6785 was the magic resistance number as I wrote last week and price has declined since then. It took me out at my profit stop of 1.6618 (just barely nipped it before turning back up) In any case, I took a bit more off the table yesterday evening at +200 pips and the remainder was at + 50 pips (bought at 1.6568; took partial profits at 80 and 200 pips—see 12/4 blog posts).

© Dianne Fecteau, 2009. No part of this material may be reproduced in any form, or referred to in any other publication, without the express written permission of the author.

My purpose in writing this blog is to show you how one trader, me, makes trading decisions and survives while trading Forex. One of the biggest problems I had when I first started trading was trying to apply the “rules” to actual trades. Another was the psychology—limiting losses and letting profits run. If you study my blog you’ll see how I deal with both those issues. So my writings are not trade recommendations but rather educational in purpose. You have to decide on your own approach to trading. Remember that trading is risky.

Monday, December 7, 2009

EURUSD—Narrow range for now

Now that there’s been a bit of a drop, the pair is malingering, up, down, up, down, in a narrow 50-pip range for the last several hours, trying to find a direction. This is to say, traders are malingering, trying to figure out what next. Even if the pair begins to climb again, it needed this correction, if that turns out to be what it is.

Before believing that this is the beginning of a big plunge down, it’s helpful, I think, to look at a point and figure (P&F) chart of action on a 3-hour basis. Whereas in normal price charts, the passage of time causes change, in P&F charting, the chart doesn’t change unless price changes by some predetermined amount. This cleans up the picture of supply and demand and reduces “noise” on the chart. When looking at this chart, the column of X’s represents buying or demand; the column of 0’s represents selling or supply. The other reason I like these types of charts is that they tend to mute price extremes (which are also a form of noise in the market), if they’re constructed using close prices. For example, while the Euro reached a high of 1.5144 recently, this chart shows only that it exceeded 1.5080 since it didn’t close above that amount on a 3-hour basis. By varying the box size, you can make the charts more or less sensitive. You can also construct them on a high/low basis.

The chart shows that on a three-hour basis, price is still above the 45° trend line that began in March. Price would have to close below 1.46 for this trend line to be penetrated. A close below 1.4540 would break below the horizontal support line of this consolidation area. Until these lines are broken, it’s reasonable to assume the trend is still up. Here’s the chart:



Compare the P&F chart to a candlestick chart. My charting packages don’t go back to March on a 3-hour basis so obviously there is less history within which to place the current move into context. As a result, it looks as though the trend has changed since you have lower highs and lower lows, as well as a break of a trend line from a bullish channel. Note, too, there’s a bit of hidden divergence. This is usually negative and suggests the downtrend will continue.


Two more points about the Euro:

1) On the daily chart, the pair has fallen beneath the daily uptrend line from March (currently at 1.4814) and touched a low of 1.4757. However, it has not closed below the line and, until it does, we can’t really say it’s broken.
2) On the weekly chart, the 55 EMA is at 1.4757. As I’ve pointed out in the past, this EMA has served as support on several occasions and it’s the first time it has touched it since early November.

© Dianne Fecteau, 2009. No part of this material may be reproduced in any form, or referred to in any other publication, without the express written permission of the author.

My purpose in writing this blog is to show you how one trader, me, makes trading decisions and survives while trading Forex. One of the biggest problems I had when I first started trading was trying to apply the “rules” to actual trades. Another was the psychology—limiting losses and letting profits run. If you study my blog you’ll see how I deal with both those issues. So my writings are not trade recommendations but rather educational in purpose. You have to decide on your own approach to trading. Remember that trading is risky.

AUDUSD—Weekly Chart

I forgot to post the weekly chart in the last post. Note that in addition to the sideways price action for the last eight weeks, the pair has also broken it’s uptrend lines, both in price and RSI, on this chart.


© Dianne Fecteau, 2009. No part of this material may be reproduced in any form, or referred to in any other publication, without the express written permission of the author.

My purpose in writing this blog is to show you how one trader, me, makes trading decisions and survives while trading Forex. One of the biggest problems I had when I first started trading was trying to apply the “rules” to actual trades. Another was the psychology—limiting losses and letting profits run. If you study my blog you’ll see how I deal with both those issues. So my writings are not trade recommendations but rather educational in purpose. You have to decide on your own approach to trading. Remember that trading is risky.

AUDUSD—Sideways on the weekly chart

AUDUSD declined during the latter part of last week but it still has not made a definitive move. The pair has been moving sideways, from .8905 to .9408, for the last eight weeks. It’s currently near the low end of the range with a low this morning of .9053. It may be headed back to test that low again. That point could be a decision time. Is this a more serious correction or is it a good place to go long?

If someone attempted a long at .9053, the stop should logically be placed below .8947 (106 pips) or below the range low which is .8905 (148 pips). That might be a bit much for some people’s taste. If so, then there are two other choices. The first it to wait to see if it drops to the bottom of the range, going long around .8945. The other possibility is to wait for an upwards breakout, probably above .9172. This is much safer than trying to call a bottom. It would obviously also require other confirmation. If it begins to approach that point, I’ll post.

For shorts, a break below .9053 might be worth a try. Alternatively, one could wait for a rally to .9108 and, depending on price candles and RSI, try a short there. The pair has been top-heavy and it has broken and closed below its daily uptrend line. Here’s the 3-hour chart:


© Dianne Fecteau, 2009. No part of this material may be reproduced in any form, or referred to in any other publication, without the express written permission of the author.

My purpose in writing this blog is to show you how one trader, me, makes trading decisions and survives while trading Forex. One of the biggest problems I had when I first started trading was trying to apply the “rules” to actual trades. Another was the psychology—limiting losses and letting profits run. If you study my blog you’ll see how I deal with both those issues. So my writings are not trade recommendations but rather educational in purpose. You have to decide on your own approach to trading. Remember that trading is risky.

Friday, December 4, 2009

EURUSD—Will it find support?

One can begin making a case for at least lightening up on or covering shorts, if not taking a long, because of the following:

1)It just touched support, an up-trending line from August on the daily chart.
2)Price is still in an overall uptrend from March. Say what you want about how it’s top-heavy (and I have), say what you will about Elliott wave counts (and I do), but the fact is that this pair keeps on hanging on. Euro bulls are fierce! I love my husband and kitty cats the way Euro bulls love their Euro. It’s incomprehensible that this little setback in reaction to NFP is going to cause them to give up. Of course, when they fall, they fall big. It’s as though they use all their energy keeping the pair going, not letting it have normal rest and potty breaks, so they have nothing left at the end.
3)On the 5- and 15-minute chart there is bullish divergence (OK, I’m groping a bit here) but I bet traders are going long as I write.

What I don’t like is the oversold reading in RSI. It’s lower than any reading on the three-hour chart since October. Gulp. Conservatism would have one wait until the RSI pulls out of oversold on the hourly chart. The trend line will hold or it won’t. I can go long if RSI starts to recover on the hourly chart. That would be a closed candle, hopefully bullish, with RSI above 30.

There’s reasonably good support at 1.4800/30 if this up-trend line doesn’t hold. Next best support after that is at 1.4620/37.

Here’s an hourly chart:


© Dianne Fecteau, 2009. No part of this material may be reproduced in any form, or referred to in any other publication, without the express written permission of the author.

My purpose in writing this blog is to show you how one trader, me, makes trading decisions and survives while trading Forex. One of the biggest problems I had when I first started trading was trying to apply the “rules” to actual trades. Another was the psychology—limiting losses and letting profits run. If you study my blog you’ll see how I deal with both those issues. So my writings are not trade recommendations but rather educational in purpose. You have to decide on your own approach to trading. Remember that trading is risky.

USDCAD—Movin’ on up for now

Ooh-la-la, how did you like that zippity-doo-da dip down to 1.0435 this morning? Sure, sure, job news improved so let’s pound the dollar. Yes! Makes sense, if you have none, and those who shorted on the news now have fewer cents. In any case, yesterday I wrote that I was leaving the rest of the position at breakeven so my trade from 1.0413 is still on.

Had I been around I would have added to my long position but I wasn’t. Oh well, some get away.

© Dianne Fecteau, 2009. No part of this material may be reproduced in any form, or referred to in any other publication, without the express written permission of the author.

My purpose in writing this blog is to show you how one trader, me, makes trading decisions and survives while trading Forex. One of the biggest problems I had when I first started trading was trying to apply the “rules” to actual trades. Another was the psychology—limiting losses and letting profits run. If you study my blog you’ll see how I deal with both those issues. So my writings are not trade recommendations but rather educational in purpose. You have to decide on your own approach to trading. Remember that trading is risky.

GBPCHF—Still long

Obviously, I didn’t get profit stopped out of my long that is now up 183 pips (as of 9:52AM EST)and clearly, 1.67 didn’t hold as resistance. I took at bit more off the table at 170 pips. As I wrote earlier this morning, one had to watch price and RSI around that level before deciding what to do. The candle bodies became longer on shorter-term charts and RSI surged up into overbought. RSI is not yet overbought (although it’s close) on the three-hour chart. Now we have to see if 1.6785 will hold but as of now, it looks as though it might.

© Dianne Fecteau, 2009. No part of this material may be reproduced in any form, or referred to in any other publication, without the express written permission of the author.

My purpose in writing this blog is to show you how one trader, me, makes trading decisions and survives while trading Forex. One of the biggest problems I had when I first started trading was trying to apply the “rules” to actual trades. Another was the psychology—limiting losses and letting profits run. If you study my blog you’ll see how I deal with both those issues. So my writings are not trade recommendations but rather educational in purpose. You have to decide on your own approach to trading. Remember that trading is risky.

GBPCHF—Maybe another short coming up

The market is largely in the doldrums ahead of NFP today. As though that will make a big difference but everybody seems to be a tad nervous over what to do next so it’s as good an excuse as any..

GBPCHF is a pair I trade on and off and yesterday it looked as though it was ready to drift upwards again so I went long at 1.6568. The trade is up 80 pips this morning and I took partial profits. It looks as though it may be moving back to resistance at 1.6690 where it may prove to be another short. Depending on how you calculate your Fib levels (and I don’t always run mine off the extreme highs and lows), the 1.67 area is also .382 retracement from the November highs. This level is also polarity (it has served as prior support and resistance). If it does close above it, after the brouhaha that may take place around NFP, additional resistance is at 1.6785, 1.6990, and 1.7103. Support lies at 1.6530 and 1.6468.

Much will depend on price and RSI behavior as to whether it proves to be a good short. When I say price, I mean to look at such things as candle behavior. For example, if the candles start displaying upper shadows and small bodies, it can be a clue that the market is rejecting higher prices. This isn’t always true but at resistance, one can be a bit more confident. With RSI, it’s interesting to watch if the indicator moves into an overbought condition and is dropping out of that or if it fails to achieve 62.2 (the high prior to this).

You need to exercise great caution when trading around major news events such as NFP. I normally avoid trading because the markets can be volatile for no good reason. Here’s the three-hour chart:



© Dianne Fecteau, 2009. No part of this material may be reproduced in any form, or referred to in any other publication, without the express written permission of the author.

My purpose in writing this blog is to show you how one trader, me, makes trading decisions and survives while trading Forex. One of the biggest problems I had when I first started trading was trying to apply the “rules” to actual trades. Another was the psychology—limiting losses and letting profits run. If you study my blog you’ll see how I deal with both those issues. So my writings are not trade recommendations but rather educational in purpose. You have to decide on your own approach to trading. Remember that trading is risky.