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.

EUR/USD

Well here's the deal with this pair. It's been in an uptrend on the monthly, weekly, and daily charts (as well as on the 3 hour since early September after a consolidation period). With that kind of trending one wants to wait for a pullback to enter.

Had I been on top of things the last hour or so I might have gone long on the pullback on the hourly this morning to 1.4503 with the close at 1.4534. Especially since that was a nice little Fib retracement from the prior low at 1.4467. I wasn't. I didn't.

But there are some other interesting things going on in this pair. Look at the hourly chart above and notice the uptrend lines in both black and orange. Price dipped its teeny tiny toes below the orange line (baby, it's cold down there) and fell below the RSI orange uptrend line yesterday. (sorry, for the funky dates on my charts from Oanda. Today is the 10th but they show it as the 9th--this plays hell with any cycle work I'd be inclined to engage in, I can tell you. Or movements of the planets...oh well, let's save that topic).

The black uptrend line on price shows a divergence with the black downtrend line on RSI. So price going up and momentum is going down. Uh-oh.

The other chart shows a broadening formation on the hourly. I take these seriously. Taking something seriously doesn't mean I'd trade it in and of itself. But now I've got three rather bearish indicators on the EUR/USD hourly. If I look at the candle formations themselves I see a nice strong black candle three bars back and also some indecision with the candle shadows. But this is only the hourly so let's not get too, too carried away with the analysis or start hopping to conclusions. What I'd like to see next is another touch at the high of the broadening formation or a bit higher. Then I might try a short and I can use a fairly tight stop to get me out if price merrily continues past that point, assuming if it happens, that the trend is still very much in force.

Watch the price; watch the price; watch the price. Too many times we trade our expectations. "I'm bullish on the Euro; therefore it must continue up." Or "The Euro is over-valued given economic conditions in Eurozone; therefore it must go down." Uh-uh-uh. While expectations can help us make sense of situations in life--i.e. we can fill in a conversation if we miss a word or two or u cn rd a txt msg despite missing letters--it can cause traders to make stupid and foolish errors, i.e. "Me think bull so I'll ignore the bear signs," or "me big bear so even if it's going up the pair can't be bullish."

Don't trade your expectations.