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.

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.