EURJPY: Back and forth; to and fro

EURJPY has dropped over 90 pips but quite honestly it looks to me as though it wants to claw its way back. Just get your bruising tumble over with is what I want to say to it—actually I did mutter that. I’ve set my stop to make 40 pips profit (back above the purple uptrend line).

There are two, for me, frustrating trading situations. First is when you get no trade signals. While it’s true that you can’t lose money not trading, you can’t make money not trading either. Those days happen, though. Pairs rise; pairs fall. But if I can’t get a good signal (by my definition) then there’s no trade.

The second situation is this one—you believe the signals you’re getting, you buy or sell at what Jessie Livermore called the line of least resistance, but the pair wanders aimlessly: in profit by 50 to 100 pips then stops you out at breakeven or at 20 or 30 pips. You try again. You get the same result.

Whether or not I find this to and fro frustrating is irrelevant. The reason I do find it frustrating is because I’ve formed an expectation that this pair is going to act a certain way, in this case, go down. That’s why I sold. But the market doesn’t care about my expectations. That statement, especially when I say it aloud, is like a plunge into an icy pool. It wakes me up. What I need to do is attend to the market’s clues. Supply and demand are keeping it within a small range. Meanwhile, it’s storing up energy and the move, when it finally does arrive, will be stronger as a result.

© 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.

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 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.

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.

A lighthearted look at the FOMC 9/23/09 statement

An acquaintance of mine, a currently high, formerly well-placed, government official, was kind enough to provide the following insider insights (his remarks are in the brackets) into the hidden meanings of the FOMC statement released yesterday. Of course I feel compelled to add that his interpretations and words are not necessarily meant to be representative of this blog writer's opinions. Enjoy.

Information received [We like Erin Burnett on CNBC.] since the Federal Open Market Committee met in August suggests that economic activity has picked up following its severe downturn [I didn’t hear a cat; I didn’t see a cat . . .What bounce?]. Conditions in financial markets have improved further [The DOW is up and who gives a hoot about volume anyway?], and activity [foreclosures] in the housing sector has increased. Household spending seems to be stabilizing, but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit [Now that the car has run out of gas, its speed seems to have stabilized]. Businesses are still cutting back on fixed investment and staffing, though at a slower pace [Firings have slowed now that there are fewer employees to fire]; they continue to make progress in bringing inventory stocks into better alignment with sales [We are confident that empty shelves will be filled if people ever start buying stuff again]. Although economic activity is likely to remain weak for a time [our lifetime], the Committee anticipates that policy actions [Whatever it is we are doing] to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces [Whatever it is that our friends are doing] will support a strengthening of economic growth and a gradual return to higher levels of resource utilization in a context of price stability [Whatever!].
With substantial resource slack likely to continue to dampen cost pressures and with longer-term inflation expectations stable, the Committee expects that inflation will remain subdued [at least below Carter Administration levels . . . we hope.] for some time.
In these circumstances, the Federal Reserve will continue to employ a wide range of tools [We will throw everything we have at it; maybe something will stick.] to promote economic recovery and to preserve price stability. The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent [maybe 0 percent and some kind of rebate . . . ] and continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period [We’ll be lucky to get past Thanksgiving.]. To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt. The Committee will gradually slow the pace of these purchases [We’re running out of paper.] in order to promote a smooth transition in markets and anticipates that they will be executed [Better them than us.] by the end of the first quarter of 2010. As previously announced, the Federal Reserve’s purchases of $300 billion of Treasury securities will be completed by the end of October 2009. The Committee will continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets [As the smoke clears, our worst case scenario is that there will be more smoke]. The Federal Reserve is monitoring the size and composition of its balance sheet [After much discussion, we voted 8 to 2 that size would be 8 ½ X 11 and that the composition would be words and numbers in columns.] and will make adjustments to its credit and liquidity programs as warranted [We don’t know what we mean by this. Hey, what would YOU do?].
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Donald L. Kohn; Jeffrey M. Lacker; Dennis P. Lockhart; Daniel K. Tarullo; Kevin M. Warsh; and Janet L. Yellen.

© 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.

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.

Other trades this week

To be honest, I usually am exhausted by the end of the week. TGIF and all that. I frequently lighten up or go flat. Often I don’t trade at all on Fridays.

But I wanted to touch on the other trades I was in this week.

On Tuesday I went out at 90 pips profit on the Ozzie. That was a mistake since I'd forgotten to move my profit target up as I moved my stop up. That was .8660 and I was looking for a place to go long again. It's high was .8775 for the week so I definitely, stupidly, missed out on more profit but since I would have kept moving my stop and target up, I wouldn't have gotten all of it. So it's not too big a disappointment. I put in two buy orders, one at the top of the range and one at an uptrend line. I also shorted the Ozzie at minor support of .8720 yesterday (gosh, was that only yesterday? It feels like such a long week with the sideways movements on the charts). Since that point it dropped back to the top of its range (As in home on the range? Mama? It’s me, your pogo sticking but not too high, wayward child) and triggered my buy order at .8678. It's ranging around this point so one position is slightly in profit and one is slightly underwater. Back to the charts for that one.

I also shorted the drearily dwindling USD/CHF at 1.0309 on its tiny rally yesterday. One would think there’d be at least a dead cat bounce soon, wouldn’t one? By gosh, the 1-, 5-, 15-, 30-minute and even one hour chart is showing an uptrend. It’s nasty little low yesterday at 1.0275 must have brought out the bottom fishers as well as those that love to buy lows whether or not there is any near term support under them. A quick look at the three-hour chart isn’t all that encouraging. The three white candles could be interpreted as something Steve Nison calls the Three White Soldiers (aka Three Advancing Soldiers). These can indicate more strength is coming if they appear after a period of stable prices or a low price area. (Japanese Candlestick Charting Techniques). Well the prices have been low but they haven’t been lingering there long. The three white candles could also be interpreted as what he calls the Three Methods. This is a long black candle followed by three small, often white real body candles that “hold within the first session’s high-low range.” (Ibid. p. 276) It’s bearish. Thank you, candlesticks, for those two equally interesting interpretations. But I don’t mean to sound sarcastic. I do use candles but as Steve himself would be the first to say, they can’t be used in isolation. Also, to be fair, the third candlestick shows some weakening with its upper shadow. And then there’s that bearish shooting star. This uptick doesn’t look sustainable right now but as I said earlier, there’s a dead cat bounce in here somewhere. My suspicion is it will retest those yesterday lows at least. Here's the three hour chart:

Finally, ta-da, the Euro. It’s currently up 110 pips from last week. Wow! For this we waited? The resistance it’s encountering is real so we’ll just have to wait and see for that one. I’m out of it for now.

None of these are trade recommendations. All 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.