GBPJPY—Friday doji

The Guppy dropped to a low of 130.67 on Friday, closing the day with a dragonfly doji. This can be a bullish signal as it means price had lower lows but price closed at the high of the day. Usually, though, it is more bullish if it occurs after a rise in price rather than a drop. Price has been dropping since the May 31 high of 135.14. One could view it as a hammer since there has been a drop in price. Price in the 130 area has served as support on several occasions and 130.29 was the low for May. The combination of the doji and being at support is enough to say that if price drops below 130, there may be further weakening. However, one could take a long position below 131with a stop below the doji. I will be watching momentum on the shorter time frames (4- and 1-hour) to see if I want to get into this trade.

If price manages to rally, resistance is close by at 132.77 (June high) and 132.95/133.03/133.25, the 20- and 10-weekly EMA and 100 daily SMA respectively. This is also near a round number. After that is 134.32 and 135.14, the high for May.

Here is the daily chart:

© Dianne Fecteau, 2011. 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.

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.

Is it really Friday?

First, a word cloud based on the text of the FOMC minutes from Wednesday. I hope you had a chance to read the lighthearted take on the minutes I posted a couple of posts ago. This word cloud tells me that their most frequently used words are federal, committee, economic, and markets. Why am I not surprised?

I’m still in the AUD/USD (currently at 78 pips) and USD/CHF (currently at 38 pips) trades from yesterday. The USD/JPY trade stopped out at 20 pips profit. GBP/JPY stopped out at a 40 pip loss and I’m currently short in this pair with my stop at breakeven. Since the AUD/USD and USD/CHF both have stops at a profit point and the GBP/JPY is at breakeven they are “free” trades. Traders love those things because once the stop is at or above breakeven you can't lose money or are profitable. But I’m in these trades thinking bigger things could happen. Whether they will or not is the question.

Today began looking like one of those days when the USD could continue to strengthen. Why? Equity futures are bidding down. Plus there’s lots of buzz and chatter out there about how the equity markets have seen their highs and a turning point is here. Of course some of those buzzing have been saying this for at least six weeks or so, some longer. Much in the area of market prediction is downright silly. That said, I do believe the market provides clues and markers for those alert to them. Seeing them requires awareness, something I’ll write about this weekend.

Ten days ago I did an Elliott wave count on the EUR/USD. I’ve updated it in the daily chart below. The trouble with Elliott Wave is that when you’re in a correction it’s difficult to reach agreement on what it is until after the fact. This makes it less than tradable in most cases. But I do believe it reflects a market psychology. I still believe we’re in wave C of a correction on the daily chart. Once the Euro reached past 1.4720 I put a sell order in at 1.4849. My thinking was that it would reach towards its September ’08 high of 1.4868. It climbed only to 1.4845 so it didn’t quite reach the order. Frankly, I’m a bit surprised. A sell order I put in place this morning at 1.4712 was just triggered. I’ll move my stop to breakeven (if possible—it can reverse quickly but it’s a tight stop so I won’t pay too stiff a price) as soon as it looks as though it’s going to continue down. I won’t be troubled if I’m taken out since there may be one last push up. In any case, the pair is looking a bit top heavy.

Besides that I went long the pound this morning at 1.5987. I don’t have time to include the chart right now but I have a tight stop on it.

None of the above are trade recommendations. Remember that trading involves substantial risk. My hope is that by posting this analysis on some of the trades I take, people can start to learn an approach for themselves. The biggest part of trading is handling emotions and this is something I'll be dealing with in future 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.

Thursday (9/24) trades

AUD/USD

I was stopped out of my Ozzie long yesterday. This morning, after studying the charts, I decided to short it. I know; I know. It sounds as though I’m waffling on this pair—mostly long but now short? What’s up with that?

Well here’s the thing. While the pair is in an overall uptrend, it’s waffling too. It had that lovely consolidation range (.8543 - .8676) from early September until last week when it broke out, pulled back, and broke out again. One premature or false breakout I’ll accept. Two and I begin to get suspicious. It’s back inside its range (a peek a moment ago showed .8627).

I decided to short because:

1) Two upper candle shadows reached .8788 and then fell back (This later became a double top because it broke below the lowest low between the two tops (in this case .8703) but I didn’t know that when I placed my short trade at .8738.) I was more concerned with the upper shadows that meant higher prices were being rejected.
2) The strong black candle that happened before the last little uptrend. This showed me selling pressure was coming in at that level so when price returned to that level I thought it might happen again.
3) The pair was stumbling at the same price it had stumbled at on the first breakout
4) There’s still negative divergence on the chart between price and RSI

Since then of course, there has been confirmation of the double top. A calculation of what the price objective could be based on that would be .8616. It reached that point so I lightened my short by a third to take some profit and moved my stop to a small profit stop. When it reached 100 pips profit I took another third off the table. If it definitively breaks the trend line from mid-September (it’s already broken the one from the beginning of the month), I suspect it will at least return to the bottom of its range. Maybe more. Last week I wrote that I believe the .8500 levels are significant and that the pair could have big moves in either direction it took itself to. I still believe that. Here’s the 3-hour chart (the little downward triangle is my short entry):

USD/CHF

When people pile on against the USD they really pile on. It’s been in a whale of a downtrend. I wrote last week that there had to be a dead cat bounce in there somewhere. This morning I took a long position which is currently up 75 pips but I’m not picking out any Prada’s with my profits just yet. The equity market needs to start dropping for me to feel comfortable this is going to run. Will it? Some people think so. Reasons I took the trade were:

1) The lower shadows showed the market was rejecting those lower prices
2) Positive divergence between price and RSI on the 3-hour chart
3) It took four candles to get to the low of the prior long white candle on the 3-hour chart
4) I was at a support point so I could go long with little risk

In addition, some other calculations I do suggest it might be bottoming. Bottoming is usually a process, though, and not an event. So this pair could stammer and stagger a while. Here’s the three hour chart:

OTHER TRADES

I went long USD/JPY this morning. I’m not going to go into all the reasons right now except that it’s obvious it was at support and I could enter with a small stop. I’ve moved my stop to a small profit. I also went long the GBP/JPY because it was at an obvious support. That trade has been slightly up or slightly down all day. I’m watching it. Remember it’s in an overall downtrend and it’s always safer to sell rallies. But we’ll see. As I’ve written before, one mustn’t get married to a point of view. That means I can reverse if I find evidence to do so.

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.

Out of the Guppie

Well, finally out of GBP/JPY at 90 pips profit. I have a small long in the AUD/USD but am staying out of trading until after the US rate decision this afternoon. Not that I expect any great news there but the markets are acting a bit squirrelly in my opinion. More to the point is that I'm traveling back to Florida this morning and can't give the trading the attention it deserves.

Ozzie and Guppy

You go, Ozzie! That’s what I feel like saying to this pair since it has broken out of its range yet again with a nice looking candle. But will it go? One encouraging sign is that it didn’t fall all the way back to the bottom of the consolidation range—it stopped well short of it which is bullish. The candles up since that point have been strong ones until the bearish piercing one that just completed. Note that it’s near the point where it fell back before some caution is warranted. It broke out overnight and in the early morning hours when I was sleeping so I didn’t take the trade on the breakout. What I’ll do now is see how it acts around this period before jumping in one way or the other. As I pointed out yesterday we’re still in an uptrend (since March) so the bias is to the long side. Here’s the three hour chart:

As far as the Guppy goes (GBP/JPY) it’s stuck in a small range as it tries to find its direction. In the chart below look at the beautiful symmetry of the moves and note that the second move up didn’t go as far as the length of the first one (I’ve marked the moves up with purple lines). I’m somewhat fanatical about proportion and symmetry because the market seems drawn to it as well. I’m still short in the pair (the tiny triangle marks where I took my short at 150.49). At this moment it’s at 135 pips profit. I still have my stop at a profit point of 80 pips at 149.69 and its high yesterday was 149.62 so that was a good stop. I may move it down a bit more since its high today so far has been 149.43. Whatever this pair now does, we know an important thing about it and that is that this narrow range of 148.06 (the low since I shorted it) to 150.49 is meaningful in some way. Otherwise it wouldn’t be hanging here. More to come. Note also how it rejects lower prices with long candle shadows in the past. It's not showing these here but that's not infallible. You have to combine things such as candles with support and resistance and other indicators before making decisions.

This is a frustrating week for me as a trader. Other committments keep demanding attention and I'm spending little time with the charts. But that's part of life and I'll be able to get back to it soon.

None of these are trade recommendations and trading involves substantial risk.

©Dianne L. Fecteau. No part of this can be excerpted without the author’s specific written permission.

Watching AUD/USD

The AUD/USD started weakening a bit at the end of last week after it broke up from its consolidation range earlier in the week. As of just a moment ago the buy price was .8622 so it’s back inside the range of .8543 to .8676. Remember that I wrote that breakouts from ranges, in particular, can be premature or false. There’s no way of telling right now what the real story is with this pair. Here’s the 3-hour chart showing weakness—it violated the 62 EMA it had been roughly using as an uptrend line plus the uptrend line I drew on the chart. It also violated the RSI uptrend line.
None of this weakness means the sky is falling. But it does indicate some uncertainly. So, I have to do what most traders need to do if they’re going to be successful. I have to wait until I get some more clues. Meanwhile I canceled the remaining buy order I had in place, was stopped out of the long I had from .8723, and bailed out of the filled buy order at .8678. So I’m flat. I bailed because I don’t like the weakness it’s showing and don’t have enough positive clues to wait it out as I did when I wrote about the GBP/JPY last week (a trade I’m still in by the way; I’ve set my profit stop at 80 pips)
Overall, it’s important to remember that we’re still in an uptrend and have been so since March. That’s six months. It could be just an intermediate uptrend (according to DOW theory) before a downtrend resumes. So this could be the resumption of the downtrend but I don’t have proof of that or even any overwhelming evidence that would let me assume it to be true.
What clues will I look for that will shape my opinion of the pair at this point?
First, I still believe the consolidation range is important. That means if it breaks upward again from that range I will take another long position. I may try a tiny long if it falls to the bottom of that range as well with an extremely tight stop. There’s also an uptrend line from the daily chart coming in at .8475 so that area is significant. But if it definitively closes below the bottom of the range and the uptrend line I would start to think the trend has changed and would be looking to sell on rallies.
For the time being I have to wait and see.

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.

Waiting it out

AUD/USD
Can the market move any slower? Well, yes, I guess it could. My long that I entered yesterday at .8570 has gone up as much as 70 pips but has now fallen back.

I closed half my position at 50 pips and have moved my stop to breakeven. It’s either going to make it up to the top of the range or it won’t. It’s like watching paint dry. But little has changed since my analysis so there’s no reason to do anything else but wait. This situation won’t last forever.

EURUSD

I was stopped out yesterday on the brief move to 1.4653. After looking at the price action on the 15 minute chart I decided to short again. I entered at 1.4632. What made me do so? Remember, I had lightened up on my short position yesterday because of overall bullish sentiment, a slight expansion on the hourly chart, and the fact of triple witching this week which traditionally has resulted in a positive week for the Euro.

Look at the candles on the 15 minute chart below. The upper shadows were long, suggesting that the higher price was being rejected. A gravestone doji formed. This was bearish. The price had rallied, yes, but was dragged down to the low of the 15 minute session. Steve Nison wrote in his book that “the gravestone doji represents the gravestone of the bulls that have died defending their territory.” (Japanese Candlestick Charting Techniques, 2001). There was also divergence between price and RSI. The small triangle represents my entry.

As with the Ozzie, price will not stay in this narrow range forever. Yesterday afternoon I plotted out my interpretation of the Elliott waves on a daily Euro chart which is below. I don’t consider Elliott Wave Theory (EWT) tradable in and of itself but I do believe one can gain insight into the market by looking at it from this viewpoint. The problem of course is that if you have five EWT analysts in a room you usually have six interpretations. One reason this is true is because of the nature of corrections—it’s often hard to see them until well after the fact.

My interpretation is that we’re in a correction known as a zigzag. This is a three wave correction (ABC). EWT involves rules (which are inviolate) and guidelines. The rules for a zigzag are simple and are found in Frost and Prechter’s book, Elliott Wave Principle. First, it always subdivides into 3 waves. I think wave C is forming now, making it the third wave. Second, wave B always subdivides into a ZZ, flat, triangle, or combination thereof. That’s pretty broad, guys, but what I’m labeling B conforms to this. Third, wave B never moves beyond start of wave A which it did not. Finally, wave C always subdivides into an impulse or diagonal. An impulse is five waves up which I’ve labeled with 1 being in March of this year at 1.3740. So, by this interpretation, we’re in the fifth wave up.

Now the question is where might it end? Ha! That’s always the question.

The guidelines for zigzags say wave C is often about the same length as A and usually ends beyond end of wave A. If this is true then we could expect it to end above 1.4720 which is where wave A ended in December of last year. Another guideline says that a line connecting waves A and C is often parallel to a line connecting the end of wave B and the start of wave A. If that’s true then again we’re looking at about 1.4720.
I could buy all this but I think even if it’s true that there is some serious sideways action going on in the Euro (in most pairs actually) and one can make a few pips while it works itself out.

Frost and Prechter also write about the Golden Section. The golden section has to do with how you divide a total length of something. It’s applied to wave theory in that the distance between the start of wave 1 and the bottom of wave 4 will be either .618 or .382 of the whole. You can decide which one by observing how wave five behaves. You need to know whether wave 5 “extends” or not. This is where EWT makes me grind my teeth and clench my jaw. If I have to wait until the end of wave 5 the first question is how will I know it has ended? But never mind that.

I’m going to make an assumption both ways and see what it gets me. If I decide that the distance from the bottom of wave 1 at 1.2456 to the bottom of wave 4 at about 1.38 is only .382 of the whole length, well you can see that the Euro could go up rather sharply to about 1.73. That would be interesting, for sure. If I make the opposite assumption—that .618 of the entire move had already occurred at around 1.38 then the entire move would end at 1.4663. This to me seems very reasonable especially combined with the wishy-washy way the pair has been behaving.

You could say this entire correction isn’t a zigzag at all but a flat. But I’m not going there. For one thing, I have a life to lead. Also, there are other pairs I want to look at.

Remember where I’m at right now. I entered at the top of this little range with a tight stop so the worst that can happen is that I’ll take a small loss. If I take that loss the market is telling me something important and I’ll have better information to base the next trade upon. I can also move to breakeven as it hits the lower part of the range so I’ll have no loss at all if taken out.

GBP/JPY

Yesterday I also want long GBP/JPY. I’ve moved my stop to 60 pips profit. This was a straightforward buy at support after a steep fall. It’s as simple as falling off a log, not that I’ve ever actually fallen off a log. It’s my favorite kind of trade—very small risk because you can set a tight stop and good upside potential. To be honest it’s probably time to start looking at shorting it but I’ll keep you posted. Ranging, sideways markets seem to be the rule right now.

EUR/GBP

Finally, I think the EUR/GBP is interesting. Take a look at my 3 hour, 3 box Point and Figure chart. It consolidated tightly and had a simple quadruple top before breaking out. The many small columns tell me there could be accumulation taking place. It now has drifted back near the breakout point. I’ll study this one further and keep you posted. None of the above is a trade recommendation. All my analysis may well be wrong, wrong, wrong. Trading carries a substantial degree of 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.