Friday morning (10/2)

AUDUSD
I’ve certainly attended to Ozzie’s travels this week, from its low of .8587 at the beginning of the week to the high on Wednesday at .8860. As I write this at 4:40 AM EST it’s down to .8659. Quite possibly it’s headed lower yet. As I pointed out yesterday, an uptrend line I drew on the monthly chart from the lows earlier in the decade came in right about at the high. This old trend line, even though it was violated, could serve as resistance. I also wrote that a horizontal line drawn back to the early 80s showed this area as polarity.

I said if it got back to .8860 I’d watch price behavior and might short. The closest it got was .8833. I, however, was distracted by other tasks and didn’t get in until .8746. Shorting at this level meant my stop had to be wider than I normally prefer above the prior high. But I felt confident, after so much prior uncertainty, that the pair would drop further. Another thing—the average true range (ATR) on this pair is about 115 pips. That impacts where one can set one’s stop. In any case I have a better than breakeven stop on now. I can’t lose money.

How did I reach confidence? Certainly the aforementioned trend line and the history around the price level. Another reason is the ongoing divergence between price and RSI on the daily chart. One would think that if this was the start of a new upswing in the pair that it could have resolved the divergence by now.

A look at the 3-hour chart at the top of this post shows a few things:

1) The candles near the high showed upper wicks. Combined with resistance this signals at least uncertainty and possibly a weakening market.
2) After .8860, the market showed lower highs and lower lows. So now it’s going to head sideways again? This pair is like an unconditioned hiker. Every 20 feet up the mountain it has to stop and catch its breath; slug a drink of water.
3) Is that a possible head and shoulders (H&S)? This is speculative at this point (as if the whole business of trading isn’t, LOL). It could also drop and then rise again to form a less scrunchy, right shoulder. If this does prove to be an H&S its neckline is .8587. But we don’t know yet. We won’t know it until the neckline breaks. If it is the potential price objective is .8314. This is more than believable as it’s roughly support from earlier moves. It’s also a key level if you analyze past highs and lows in the pair’s history.
4) If we’re pattern hunting, there’s more. This could be a triangle. If it’s an Elliott wave triangle, one expects it to break upward. If it’s an ascending triangle, one would still expect it to break upward. In either case it could touch its bottom line again. By the way, the bottom line is not perfectly horizontal. If it was sloping downward a bit more it could be construed as an orthodox broadening pattern. If this happened, it’s deadly after an up trend.

I wrote yesterday that my preferred count in Elliott Wave (EW) speak is that this is a primary wave two correction. These can be dynamic and often retrace a good part of wave one. At .8860 (assuming this is the high) it retraced 89% of the first wave down. 89—a Fibonacci number. Isn’t that interesting!

So what is this pair up to? It’s at minor support now so it may bounce. It may drop further. Or it may not. Look, all this is in the future—“none of this has happened yet,” as the Boss sings on Livin’ in the Future on his Magic CD. There is nobody that can predict this. But if commodities drop, the related commodity currencies could have a nice fall.

One last note—assume for the moment the validity for the moment of the H&S interpretation. If it is then it needs to break the neckline at .8587. If it doesn’t it isn’t one or it’s a failed H&S. These can be very powerful signals as well. More important, that’s a level that I wrote yesterday I should have gone long.

GBPUSD

The original short trade is still on, currently showing 222 pips with a profit stop in place. Yesterday morning I took on another short which stopped at break even. I sold again and that short is now at 98 pips profit. I may close that one in a few moments. As I wrote yesterday, I’m watching short term charts. It did break the short term uptrend line I wrote about. But even if this is the beginning of a big drop in the pound, don’t expect it to give up without a fight.

Other Trades

I’m still long the USDCHF. The pair is lingering and maundering not quite at the top of its channel. I’m long the USDCAD from 1.0762 with the stop at profit. I’m short the EUR/JPY which is slightly in profit.

It’s been a good week—lots of opportunity in the market.

None of the above are trade recommendations. Remember that trading involves substantial risk.
© 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.

Thursday morning trades, canoodling with EW Theory, and other thoughts

GBPUSD

Yesterday's short trade is still on. I took a third off the table earlier and have my stop at plus 60 pips. I may move it again soon. I also took another short position earlier this morning and have the stop at breakeven. Note on the three hour chart below how RSI respected its Fib levels. The horizontal orange lines are why I said yesterday I wanted to short around 1.6150. I explained yesterday that I shorted under that because of price behavior. The thing to watch now, in my mind, is how the pair begins to behave as it nears the short uptrend line. Here’s the 3-hour chart but I’ll be watching shorter time frames.
USDCHF

My short was obviously taken out yesterday morning at profit. I entered long on the pullback where it continues to do well. But it’s nearing the top of that channel I’ve shown on prior charts so I need to assess this.

EURUSD

I got in and out of a quick short yesterday. I’m carefully analyzing the recent price activity. My “belief” is that the pair is headed down but you know how beliefs can blind you to what’s really happening? A good price analysis will tell the story.

AUDUSD

Yesterday I wrote that I was out of the Ozzie until I could form a clearer picture. I hypothesized that perhaps we could be in some sort of B wave (Elliott wave speak for corrective waves that are often choppy and difficult to decipher).

I’m not a big fan of the Elliott Wave Theory (EWT) for actual trading because it’s difficult to use it for trades by itself (although I know some people do and more power to them if it is profitable for them). I do, though, count waves. I do spend oodles of time canoodling with my Elliott Wave Principle book (Frost and Prechter).

Why does EWT appear so difficult? Why is it that there are so many interpretations? One reason is that while there are several rules—and these are inviolate—there are many more guidelines. These are just that—guidelines. The guidelines lead to arguments among EWT practitioners. Another reason is that many so-called EWT practitioners don’t seem to have memorized the rules and say things that simply aren’t true. A third reason, as I’ve mentioned before, is that the corrections are devilishly difficult to identify until well after the fact as to what they are and what they mean. While they’re in process they can lead to some strong arguments among practitioners.

Arguing over interpretations of anything on the charts is a valid activity. After all, if one person or theory held the absolute answer then that would be the fountain of youth, Eldorado, and the lost city of Atlantis rolled into one. Wouldn’t all who practiced that theory be lucky? But people that hold strongly to any given theory get extreme in their arguments, often using emotion where reason fails. So you hear such phrases as “I have this on absolute authority from a close relative of Elliott himself who verified it had never been written down and therefore I’m right and you’re not and you’re also stupid.”

Where I find EWT most useful is in gauging market psychology. It supplements my other analysis. I won’t necessarily act on a wave count that seems to be present if it goes against other factors I consider more important.

Briefly, since I don’t have the time to write a treatise on the topic, certain waves are technically strong and have real oomph. Others are not strong at all. Often, such as the B wave I mentioned as a possibility yesterday, they exhibit divergences, non-confirmations and the like.

Getting back to the AUDUSD, I studied charts dating back 30 years yesterday, in an attempt to clear up my confusion over what the pair was doing. I can make a case for three alternative wave counts based on the monthly chart. This is not helpful. One can’t trade this. But it’s a good exercise to write down the reasons for each. Briefly, though, my favored wave count is that we’re in a primary wave two correction (wave one being the steep drop from July, 2008). If this is true then it could retrace most or all of wave one. So it can’t exceed .9851. Since its high yesterday was .8860, this isn’t helpful, either. At least not to me, a small trader, who is not going to buy now, damn the torpedoes, and put a stop quite a distance away. I can make a good case for why I should have gone long at .8590 and stayed in. Had I done that I wouldn’t be doing all this work right now. I didn’t buy but should have doesn’t cut it in trading. Or anywhere else.

So I need to work on a smaller chart, right? Yes. But before leaving the monthly chart I drew an uptrend line from the lows earlier in the decade and it is coming in right about where the pair traded yesterday. Sometimes these old trend lines, once violated, serve as resistance. If I draw a horizontal line back in time to the early 80s on the monthly chart, I also see this is an interesting area known as polarity. Price has roughly used it for support and resistance.

Is it worth a short then? Well this would tie in with my belief we might be in a B wave correction. But there’s a bit of cognitive dissonance here. I’ve been calculating resistance ever since the secondary low in November, 2008. At each key resistance level I dutifully lightened or closed my longs, only to have to find a way to get back in. I’ve been trying to go long since the beginning of September and had some decent trades, e.g. one at 90 pips, but, for the last couple of weeks, have only found short setups where I’ve made small amounts of pips or taken small losses. (I’m not trashing 20 pip profits—they can add up—but one hopes for better than that, usually).

Here’s my opinion. It’s in an uptrend although it seems to be struggling with robust, sustained up moves. It’s at a resistance level that held once, yesterday. I may short it if it reaches .8860 again, depending on the behavior on the charts. Or I may go long if I can find behavior to support that position. That’s the best I can do at this point. Wait and see.

None of the above are trade recommendations. Remember that trading involves substantial risk.

© 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.

GBPUSD Entry

I wrote earlier this morning that I wanted to short the pound “hopefully around 1.6150.” I ended up entering at 1.6106 after seeing it briefly touch, then back away from, 1.6126. That was my clue that it might not reach 1.6150. Why that price? Based on some calculations using Fib ratios, I believed that was a vulnerable area. But the pair started stumbling on lower time frame charts—15- and 5-minute—and a doji formed on the hourly chart. So I held my nose and jumped in. Remember, I was struggling with the drop in the USD/CHF earlier as well and that pair tends to drop when GBP/USD goes up (not always but often). Also equity futures were bidding up earlier this morning so I thought perhaps the USD was going to take a beating today. These are the kinds of things that make it psychologically difficult to trade. Price on the pound chart was clearly speaking to me and yet my “beliefs” formed from other data were kicking in, making it difficult to take the trade. Regardless, I plunged in. My stop is now a profit stop and the pair is currently down 148 pips.

Let’s take a closer look at the doji on the hour chart below. It’s a honey. Not only does it form after an uptrend (as it must), but there aren’t a lot of them on the chart. The market is overbought so why is there such hesitation which is what the doji represents? It’s at an area I’ve identified as resistance. It’s also at 50% retracement. Finally, one could make an argument that it goes on to become part of a larger candlestick pattern, the evening star. Steve Nison in his book, Japanese Candlestick Charting Techniques (2001), wrote that the evening star consists of three candles. First, there’s a long white candle; then there’s a star (or doji); finally there’s a black real body that cuts deeply into the first white candle’s body. The third candle here doesn’t just cut deeply. It overwhelms the first candle so I’m not sure Nison would endorse this interpretation. Regardless, it was the right entry point. Here’s the 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.

Uncertainty

AUDUSD—standing aside for now

I’ve been a bit buffeted by the Ozzie during the last several days. I’ve been out at breakeven or tiny little profits in its sideways movements. I stopped out overnight at .8770 with a loss of 48 pips. This morning I took a closer look.

From the longer term charts—monthly, weekly, and daily—we’re still in an uptrend although the movement has been strongly sideways the last couple of weeks. Lately it’s been waffling with ranges, false or premature breakouts from ranges, negative divergences, etc. Now it looks as though it may be pushing up which is what I thought it would do in the first place.

Why, I ask myself, would a pair behave this way? I mean besides the obvious reason that nobody can make up their mind about what to do—is the sky falling or is it not? Maybe that is the reason but what else comes to mind? I think about what Frost and Prechter wrote in their book, Elliott Wave Principle (New Classics Library, 10th ed. 2005), about B waves on page 81:

B waves are phonies…sucker plays, bull traps, speculators’ paradise….[They’re] rarely technically strong, and are virtually always doomed to complete retracement by wave C. If the analyst can easily say to himself, “There’s something wrong with this market,” chances are it’s a B wave.

That’s what I’ve been thinking to myself—there’s something wrong with this market. Of course there may be something wrong with me and my analysis but I’m not going there right now.

OK. What do I have? A belief we’re in an uptrend although Dow Theory tells me it could be an intermediate correction. A market that seems unclear. What choice do I have? I can only stand aside. As Gann wrote, if you “don’t know what to do, there is but one thing to do. Get out and wait until you know there is a definite trend.” When I see something more clearly and have a good entry point, I’ll trade it.

USD/CHF

I’m out of this pair I bought at 1.0288 and have a short on from near the top of the channel at 1.0386. Remember that yesterday I wrote it could bump its head and scoot back to its lower trend line? Well it did. Look at the candles as it approached the top of the channel on the hourly chart:
Now it’s falling out of its channel. Is this a fake move prior to all the news today? (ADP, GDP, Corporate Profits, and CPI). Look at how RSI is dipping. Note the negative divergence. All this is not good. I am, after all, in an overall downtrend as I pointed out yesterday. I’m uncertain here, too, but will stay in the trade until I’m stopped out at profit. Hmm. There seems to be a theme of uncertainty this morning.

EURUSD

I stopped out overnight with 100 pips profit. Not bad, but what’s up with the Euro? I’m analyzing it now and will post later. Hopefully I won’t have to say I’m uncertain, LOL.

GBPUSD

Thank goodness I don’t have to say I’m uncertain! Alas, there’s no trade at the moment. I consider the market to be contracting and I’m waiting to sell, hopefully at or above 1.6150. I’ll post more, later.

None of the above is a trade recommendation. These are just my early morning thoughts. Remember that trading involves substantial risk.

© 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.

Observation, Generalization, Verification--Euro and other trades

I’m still short the Euro from the sell order that was triggered last Friday at 1.4712. I moved my stop to 100 pips profit if taken out. In addition, I this moment (10AM EST) took a third of my position off the table at 170 pips profit.

I wondered yesterday if I’d see another push up in the Euro. It hasn’t happened yet. One can see a few reasons for being short this pair. Some of them (from the three hour chart below) are:

1) It broke below an uptrend channel (on daily as well as the 3- hour)
2) There was prior divergence between the RSI and the upward movement in price
3) The 1.47 area was proving to be resistance
4) It broke below trough (1.4723) of a double top on the 3-hour chart
5) Long bearish candles were taking out small bullish candles

Some might argue a Head and Shoulder (H&S) pattern was forming on the three hour. If so, it’s a bit messy. More important is that it’s currently loitering just below the neckline. Until that’s definitively broken, there is no pattern. This is something new traders often forget. “Double top!” they’ll say, or “Head and Shoulders!” They correctly detect the beginnings of the pattern but don’t wait until it proves itself to be really that. Good observation of the possible but too much generalization and no verification. Trading is a matter of patience (forbearance, I wrote earlier this month).

But there is enough here to say, in short, a short. If it continues down and definitively breaks the upward channel on the weekly chart this could be the beginning of something big. Before one starts counting profits, though, note the three hour bullish divergence on the three hour chart. We’ll just have to continue watching. Here’s the three hour chart:

By the way, most will realize that as far as correlation goes this is a mirror of my long USD/CHF trade. I could have doubled up in either instead of trading them both. The important point, though, is that I realized this as I calculated position size for each trade.

Last week I wrote that I shorted the AUD/USD at .8738. It stopped yesterday at 20 pips profit. Talk about sideways movement. I shorted again at .8722. As soon as I finish writing this I’m going to analyze this again. This is how I spend my days as a trader. Analyzing and re-analyzing price movement from several different points of view. When I first started trading I heard many stories about how people would trade from the beach, grabbing 500 pips here or a thousand pips there. It hasn’t proven to be the reality for me. I have to work at this stuff.

The GBP/USD has had its fun with me, stopping me out yet again at break even. Talk about the need for more analysis. I’m also out of GBP/JPY.

None of the above is a trade recommendation. You have to develop your own ideas. I only hope to show some of the tools I use that can help you do so. Remember that trading involves substantial risk. Get written permission from Mommy before you attempt it but only if you and Mommy have a good financial cushion and are risking money you can afford to lose.

© 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.

Could the report of its demise...? (USD/CHF 9/29)

Anyone following my dance with the USD/CHF knows it stopped out Monday morning with the measly 20 pips profit. This can be frustrating. It may be a sign of what I’m really doing here which is trading against the trend. The pips just aren’t there; it’s a correction. It can also be the mark of a trend petering out—remember that bottoming (and topping) is a process and not a one day event (usually).

I say it could be contra-trend because although shorter time frames are showing an uptrend, the overall daily and weekly chart show a downtrend. However I was true to my word that I would buy if it touched its hourly uptrend line. That happened yesterday at 1.0288.

This pair is in an upward channel right now. The Elliott Wave theorists can refrain from bombarding me with how this is a correction. The cycle hunters can back off as well. I will disregard the skepticism about the USD; I will disregard the remarks of everyone from World Bank president Zoellick to Chinese central bank governor, Zhou Xiaochuan, to Uncle Tad (I mean the United Nations Conference on Trade and Development aka UNCTAD. I will also disregard optimism. I will not, to paraphrase Mark Twain, ask if the reports of the USD demise are greatly exaggerated. Well, I can ask it. But I'm not going to trade on it.

As a trader, I read the market. I ask, “Can I make a case for a trade here?” If I can, there’s greater probability the trade will make money. There’s still probability for loss. Once I calculate the loss (that’s before I calculate profit) I know if I can place my trade in such a way that the risk won’t give rise to a throbbing pain in my stomach and anxiety that will have me hovering above the key board.

In the short term, I believe I can trade this pair. Here’s the hourly chart I’m working from: The pair is now up 98 pips as of 6:48 AM EST and my profit stop is guaranteeing me 20 of them. I’m getting ready to move my stop to take a bit more because it’s possible that the pair will hit its head on the upward line of its channel, say “Ouch!” and scoot back to its trend line. At which point I would buy again with my super tight stop. On and on the story goes. At least until it doesn’t.

Now look at the daily chart. Here you see a pronounced downtrend. You also see how laughably small this little uptick is in the overall scheme of things. Selling rallies in a downtrend is always the “safer” way to trade. I may do so at some point in this rally (although I'm hard-pressed to call this a rally. It's more evocative of a sputter). But for now, I’m going to wait to see.

None of the above is a trade recommendation. Remember that trading involves substantial risk.

© 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.

Monday morning (9/28) trades

I’m still long the USD/CHF. It hit a high of 1.0375 in overnight trading but it’s back down at the moment so it’s at 45 pips profit. On the hourly chart it could be forming a bull flag as I circle on the chart below. But I wouldn’t get too excited about this trade just yet. If it returns to the trend line, I may buy again, depending on how momentum is reflected in the RSI. It if holds around 35 to 40 that would be positive for me. Connie Brown, in her book, Technical Analysis for Trading Professionals, taught me a lot about different ways to look at the RSI. I highly recommend her book to anyone remotely serious about trading.

The GBP/JPY trade that I shorted early Friday hit its profit target overnight of 140.73 (nice profit there of over 300 pips). I shorted it again at 142.14 when I woke up this morning based on Fib calculations. Here are the trades.

I’m also short the Euro from the sell order that was triggered last Friday at 1.4712 and have moved my stop to 20 pips profit if taken out. It’s at 78 pips as I write this. My analysis over the weekend still supports this short. If I see another push up in the Euro taking out this short I’ll sell again at the higher levels as long as my price analysis at that time holds. Always be in the moment with the markets. Even though I usually decide on a price in advance that I’ll take action on, I always take another quick look at market behavior at the moment I decide to trade.

Last Friday I also went long the pound at 1.5987. Long was obviously wrong. I also wrote that I had a tight stop on it. The pair reached a high of 1.6029 and I moved my stop to breakeven. It took it out not long after that so no real loss. This morning I shorted the pound at 1.59 and have already moved my stop to break even. I should have shorted when it took out my stop but this is not the time or place for self-flagellation.

None of the above is a trade recommendation of course. Remember that trading involves substantial risk.

© 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.

Monday morning in the Ozzie

Last week I wrote that I shorted the AUD/USD at .8738. I’m still short. After hitting a low this morning of .8587 it’s back up a bit. Currently I’m at 94 pips profit as I write this. I’ve moved my stop to keep 20 of those pips. I may move it closer depending on how the pair behaves in the next hour or so. It’s well back into the consolidation range I wrote about extensively in the past couple of weeks. 45°

Here’s my one-hour, three box point and figure (P&F) chart. Notice the simple triple top it broke on its ascent. It could head back to that level before it resumes its climb. That would make a nice profit target of .8480 to .8520. What’s important to remember is that the pair remains technically in an overall uptrend that began in March. If the pair violates the trend lines I’ll be happier being short in this pair (actually very happy). But until that happens, I’m thinking reaction in an uptrend. That doesn’t mean you can’t make money from going counter to the trend. It does mean you have to be alert and not get all gaga over the trade. Now that I think about it, never get all gaga over a trade.

As always, this isn't a trading recommendation in any way. Trading Forex, or anything I guess, involves substantial risk and is not for the faint of heart.

© 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.