AUDUSD broke .9000--hip, hip, hip, hooray

AUDUSD finally made it above .9000! Big cheers all around as it reached an overnight high of .9046. I had a tiny long that hit profit at .9004. Given all the huffing and puffing to get to this level, I’d expect it to fall back a bit, perhaps to the .8800 level or just below. At that point, my calculations indicate it could go higher—possibly .9160, up to .9480 then .9520. None of this is guaranteed, of course. It still hasn’t worked out its negative divergence on the daily chart. Divergence is all over the place these days and it’s not a great sign.

Here’s the hourly point and figure (P&F) chart which is remarkable only for the clear patterns it built on the way up—climb, consolidate, climb, consolidate. It needs to fall below at least the internal trend line before anyone gets too bearish.

Equity futures are bidding up this morning as of 7AM EST. Might be a bad day for the buck.

© 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.

EURUSD and EURJPY

EURUSD

My experience this week with the Euro has been decidedly mixed. Monday I was short. That stopped out with a loss of 25 pips. Yesterday I was long. That profit stopped overnight at 40 pips. Now the pair is hanging around its typical resistance level, wondering, I guess, which way to go.

Being whipsawed tells me that the market doesn’t know what to do at the moment. Nor do I. Bowing to Gann’s advice of staying out until I have a better sense of direction, you can bet that I will be tearing up those charts in the next hour or so.

EURJPY

I did short the EURJPY yesterday at 130.83. It’s up 103 pips as of now, 6:20 AM EST. Where might it go? Let’s look at the charts.

On the daily chart there are some interesting patterns. First, is the up channel from early in the year (its lines are drawn in black). When it fell out of that channel it entered some sort of corrective pattern or perhaps a consolidation. That’s confined between the purple lines. While the bottom purple line shows an up trend, the red line indicates a slight down trend since June (the red line). This shows it coiling in a triangle. Going along with the upward trending red line there is also divergence with the RSI.

What to make out of all this? In part it depends upon your personal approach to trading but the most conservative statement is that the market is pausing right now, storing up energy to make another move.

Why am I short? It broke below the triangle once. Now it looks as though it’s doing so again. It’s as thought it’s compelled to at least venture lower. Also, one can make the case for a double top although it’s not perfect. But if it is one, it broke below its neckline and is hanging out there.

Another thing is that divergence. Divergence has been all over the charts lately and it’s troubling. Why? If a price is trending up you expect to see any particular indicator you’re looking at also trending up. That’s known as confirming the price trend. When it doesn’t do so, that’s known as divergence. Divergence can be an early warning of a trend change. Note the words “can be.” It doesn’t mean it is a trend change. It means you have to watch prices more carefully than you might if everything was moving together. Divergence can last a long time. That’s why it’s not tradable in and of itself.

I don’t enter trades based only on one time frame. What really caused me to short was the daily in combination with the signals on the hourly. There it broke a short term uptrend line on both price and RSI and had a bearish candle.

Here’s the daily and hourly:

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.

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.

Friday thoughts and the Guppy

After struggling a bit with the chart yesterday I decided to stay short the Guppy trade. Mostly the reason was that when I looked at it from different time frames and different perspectives, e.g. changing compression on the charts, I still believed in my reasons for getting into it. The pair managed to overcome its initial shock at touching 149.61 and has gone slumming as low as 148.62 this morning. It’s now over a 100 pips profit. Obviously, I’ve now moved my stop to lock in at least 50 pips. But will I close out? It is Friday, after all, and I often close all positions at the end of the week.

Take a look at the three hour chart now. It’s finding some support at the 148.60 level. There’s also some positive divergence with price and RSI. Of course, divergence is all over many charts right now. It may climb back up a bit. I think there’s more downward potential. But it doesn’t really matter what I think. At this point I need to pull back, look at what has happened this week to date, and make some decisions. In any case, it is what they so quaintly call a “free trade.” I can only make money on it now despite what happens.
To be honest the week has been a little frustrating. This is because of the sideways movements that largely took place in the pairs I traded. You can make some steady profits in this kind of market (and take small losses if you manage your stops). But let’s face it. The really big profits come from trending moves—being in at the right time and staying with it. And not taking small profits. For me this usually means that if I get a free trade going I stay with it if my analysis shows there could be more to come. That doesn’t mean I won’t take partial profits at a point. I did so this morning with the Guppy at 118 pips. That is how I quiet the savage and greedy beast within that shouts, bellows, and roars to take profits, any profits. Three pips? Five? Oh my, it starts to get excited. 15? 20? Now it positively palpitates with anticipation. At 50 it starts the heavy ammo—old messages from the past having to do with each and every one of my many, many failures in trading. When that fails to move me it jumps to parental assaults on my self esteem.

For a couple of years it won. I tried everything—reading, courses, various mind/body techniques. All helped to some degree but what finally did it for me was simple awareness of the feeling. Letting myself feel it and moving on. Without touching the keyboard. Sounds simple but it was devilishly difficult. I’ll write some more about it in an upcoming post this weekend.

Nothing I write here in this blog is a trade recommendation. Do not act on it as though it were. I hope to only share some of my own decision making process and some thoughts on the psychology and philosophy of trading. Especially when it’s so easy to fall into the me David without a sling shot, they Goliath mindset. Well maybe the me David, they Goliath is reality. But there is always a sling shot.

© 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.

Will I get back in AUD/USD?

As I wrote in the last post, my profit target in the Ozzie was hit overnight. This morning the pair reached a high of .8729, a high not seen since the summer of 2008. Now I’m wondering how and when I can get back into the pair. I’ve posted the three hour chart below.

Remember that the consolidation range was.8543 to .8676. I pointed out in my post on Monday that false and premature breakouts are not uncommon with rectangles. One obvious strategy is to wait to see if the price goes back to .8676. I’d then go long with a tight stop. This approach requires watching the price action carefully at the time it approaches that price. Carefully, means I’d look for bullish signs before jumping in. Another entry point, assuming the breakout was premature, is to wait until it reaches the three-hour uptrend line which is also at the point of the 62 EMA. This is at .8587 now but of course that could change a bit by time price gets back to it.

There is bearish divergence between price and RSI right now. I need to watch that, too. Here’s the three hour chart:

As usual, I’ll just have to continue to study price action.

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.