Gold and AUD ready to retrace?
Dollar strength was the story today, pulling risk currencies and commodities off their highs, most notably AUDUSD and EURUSD, gold and oil. I have attached a daily chart of AUDUSD to make note of the beautiful double top accompanied by the negative divergence showing very prominently on the CCI indicator. Is this a signal after yesterday’s doji and today’s subsequent fall that more retrace is in the works? It will be more apparent once price revisits this very important trend line which has been in control since the March low, now seen at about 0.9100, the weekly pivot. I will be playing the shorts by selling the rallies as long as 0.9310 holds resistance. Typically with this CCI divergence I like to target the daily 50ema, but since it is quite a bit below the trendline, I will likely take profit nearing the trendline until and unless this trendline is actually broken. This is a contra trade since the trend is still very much up, so stops will be tight. Price may very well fall to this trendline and then reverse again to go higher. 0.9301 is 61.8% of today’s range, an excellent entry but the daily pivot at 0.9272 may also hold. Let’s see how Asia sets up. Good luck and good trading.
How’s your batting average?
I am not a baseball fan. I am a New Yorker. These two statements are mutually exclusive and cannot be uttered aloud on the streets of New York during these final moments of the post season play as the NY Yankees play the LA Angels tonight to secure their 40th World Series, far more times than any other baseball team, ever. They are pretty awesome. Even I have Yankee fever. I have likened forex traders to poker players before, but a forex trader can certainly also be compared to a baseball player, especially when it comes to the hitting, and maybe even more so. It is astounding the amount of statistics held on each of these hitters: percentage of hits for each time at bat, percentage of hits when against a lefty pitcher, percentage of hits against a righty pitcher, home runs per at bat, runs batted in, on base percentage… and on and on and on. So when Alex Rodriguez approaches home plate and he is sporting a .285 batting average it is fairly easy to guess that he may hit during this time at bat. Let’s compare how batting stats can be attributed to trading. Its all about probabilities and helping your confidence. I keep my weekly and monthly percentage of winning trades and my weekly and monthly profit ratio. But if you trade more than one strategy then it is important to track each strategy separately. You may be profiting 80% of the time using your intraday trend following strategy, and profiting 65% of the time using an intraday contra trading strategy. Similarly you may be profiting 71% of the time using a swing trading strategy. Or, if you trade more than just one session per day, you should track those separately also. For example, you may be 79% winning trades during the NY session and only 54% winning during Asia trading. Hey, this is fun, let’s not stop there! Do you trade more than one currency pair? Then you gotta track those separately too. You may find that you are 52% winning on the EURJPY trades but 86% on the EURUSD trades. How about percentage of trades reaching ultimate profit target vs. trades hitting break even or an early taking of profit. Do you trade NFP each month and how’s that working out for you? Certainly each week and month varies as we move through different cycles of the year. I thought I was already being thorough with my statistics on my trading but this baseball thing has got me thinking… I have some more work to do. In the meantime, GO YANKEES!
Weekly GBPUSD: a precarious position
A spectacular and somewhat surprising run up for the GBPUSD this week after weeks of weakness may have caught many traders off guard who were still holding short trades. The reason for this giant 400 pip move is still allusive, it may have simply been a hardy short squeeze to rattle the shorts, as there was not significant fundamental news that caused this move. But now that the weekly candle has closed, there are some important price levels to note for planning next week. Firstly, the psychologically important 1.6000 was left far behind in the tracks of this up move, this level may now hold support again. Remember how the GBPUSD remained for weeks and weeks inside the 1.6000-1.7000 range, price may again bounce about here for some time. Second, price did reach the 38.2% retracement from the low at 1.3600 to the high at 1.7000, at 1.5700. So there is potential now for a continuation in that up move. However, if you fib from 1.6750 to the recent low of 1.5700, price now is sitting pretty at the 61.8% retracement at 1.6380. So if this surprise up move was just a short squeeze, then this current price level would be perfect for the shorts to re-engage. The clue may just be the weekly CCI indicator included on the attached chart: it is curving up at the 50 line, a sign that the up move may indeed be real. Have I confused everyone?? Yes, yes, too many points here perhaps. For me, I will be looking for opportunities to go long now until that strategy stops working. For example, if price closes back below 1.6000 then I will likely return to a shorting strategy. Good luck and good trading.
Forget China, time to move to Australia
Something really unprecidented would have to happen to get me to pack up my lovely Manhattan apartment and move out of the United States. But it is no secret that the once super power of the 1950s to the 1990s is certainly on the decline while emerging market countries such as China, Brazil, India, and Russia are coming into their own. I enjoy listening to investor gurus such as Jim Rogers discuss his reasoning behind why he moved himself and his family from New York to Singapore in 2007 and how it was the best decision he ever made. I mean, as I am quite comfy sitting here and trading and enjoying an American life, aren’t my hard-earned pips in my USD account slowly losing value against most other major currencies? Yes. But the thought of moving to China or Brazil or Russia gives me a little shiver of uncertainty. This week we learned just how strong Australia is, being the first of the major Central Banks to emerge from interest rate holding and actually RAISE their rates .25% to 3.25%. Their Aussie dollar jumped in correspondence to this surprise move, ending the week above 0.9000. I suspect the AUD may again reach for parity with the USD soon and even overtake the not-so-mighty dollar. This would alas not be new territory, the AUD was stronger than the dollar in the 1980s. Australia also posted an improving jobless rate to 5.7%, compared to the US’s continuing worsening in unemployment, now at 9.8%. Times are turning quicker down under. What, not too interested in shrimps on the barby? How about Canada. Canada, too, posted its second consecutive month of improving employment data this week adding 31,000 jobs in September, bringing its unemployment down to 8.7%. They have yet to raise their interest rates but I suspect that they will quicker than the US does. What do these two nations have in common? Both the AUD and the CAN dollars are commodity currencies: Australia is closely tied to gold while Canada is tied to oil. While commodities like these will only continue to rise in value, it is the main reason why countries that export these products will continue to grow. Unfortunately, the US is the consumer, not the producer, and thus will likely remain in a weakening state. Oh how fun fundamental analysis is! Some US traders are moving their savings to Canada in order to take advantage of a stronger currency. Australia is a good bet too. It is not too late. Even better: you do not have to move to take advantage of the weakening US dollar. Check out Everbank, you can open a savings account in several emerging market currencies without hassle or airline tickets.
Trading naked
Ever hear about naked trading? It ain’t what it sounds like. “Naked” trading is the medthod of using candlestick price charts without all the indicators: no MACD, no or very few moving averages, no stochastics, just price — pure and simple. Price is king, and when you have the courage to take all the flim flam of indicators away you can actually see what is occurring to price much easier. Afterall, technical indicators are all lagging indicators, and while they can help the trader in different ways, if you can dumb down your charts to the bare minimums, life and trading can actually get easier, especially for beginners, because many tech indicators can confuse the situation. When I trade naked, eh hum, I still plot my trendlines. Trendlines are my most important thing to have on the charts, price is attracted and repelled by these lines, perfect for entries and exits. Trading naked really forces the trader to learn what the candlestick patterns are telling him, since there isn’t much else to look at. Attached is a 5minute USDJPY chart that I trading this evening during Asia open. USDJPY remains in a very strong down trend for months now, important to know the overall trend before drilling down to less than a 1 hour chart. As the Asia session got going, it is easy to see how price respected this minor supporting trendline for many candles, about an hour. I waited for a break of this line to enter a short trade on this pair. This was a very typical break, then retrace up, then break and break of the last low. Entry was at 89.40 and a stop placed above this line at 89.60. In just 30 minutes I was able to book 30 pips. I like to look for wicks to confirm hesitations in price. Here is a great site to hone your candlestick pattern skills at www.babypips.com. Good trading.
End of the month and quarter
The end of the month and the quarter today certainly provided the typical market volatility that often comes with such significant endings. Profit taking came in in a big way after lackluster ADP report and Chicago PMI data, giving strength to the dollar, especially once traders realized that the GDP data was a bit better than expected. Today I was lucky: I noticed that the GBPUSD pair had risen strongly in both the Asian and London sessions with no retracement, it is very rare to see one pair rise in all three sessions, so I figured this should be a nice short opportunity. But three equally compelling reasons supporting shorts were these: price on the hourly GBPUSD chart came to hesitate perfectly at the 200ema, which was also the weekly pivot point, which was also the 50% retracement of the recent down move from 1.6460 to 1.5750: all at 1.6120. Too perfect. I knew that there was quite a bit of econ news coming out in the next few minutes, but I made the decision to enter short at the close of the 8am hourly candle which closed as a doji. I decided to try for 100 pips initially. Sure enough, as ADP news came out, my short kicked into high gear. The GDP data being dollar positive also helped my trade, and the poorer than expected Chicago PMI is what was really got the overall markets into a selling mode. I figured that end of the quarter would be a take profit day most likely. It only took two hours before my +100 pips profit was hit. All in all, it was a good month of trading: +758 pips total, 77% winners, 2.6 profit factor. Again this month I only traded GBPJPY and GBPUSD. Time to check the monthly candles closing today to see how it looks going forward. Hmmmmm, red candles, and both pairs closed monthly below their 5emas. Down continuation is expected. Good trading!
Trade idea: AUDJPY breakout of range
After last week’s interesting price movements in GBP, oil, and the USD, we may be heading into some larger volatility price action as autumn gets under way. The USD has shown signs of strength last week especially after Wednesday’s Fed statement and the 160 point swing on the Dow. The GBPUSD has finally broken down through the 1.6000 level which held all summer long. I have certainly been shorting the GBP over the past couple weeks, and most eyes are eager now that 1.6000 broke to close the week. I like to trade the obvious breaks like this one, but I also like to trade less observed breaks as well. Case in point: the AUDJPY. The AUD is also showing some signs of toppishness, though much less weak than the GBP, if the USD really picks up some steam then the AUD pairs will certainly follow. Nothing can keep going up in a straight line like the AUD’s have been. I like the AUDJPY pair, on the weekly chart, attached, this pair has remained in a semi-tight 300 pip range for the past 6 weeks, remaining superbly underneath the 50% retracement level of last fall’s crash, right at 80.00. I wanted to point out a pair that has not yet broken down, so that we can catch the fall. Wait for a break of the range support at 76.80, and through the supporting up trendline. The negative divergence on the CCI is also supportive of this trade plan for shorting. But certainly, wait for the break and retest and continuation before entry. Targets to 68.00 area. Good trading.
EURUSD daily doji, at a monthly reversal pivot
Friday price action has closed with a gorgeous doji on the EURUSD pair, the daily chart, at an important resistance level going back to December. All week the quickening death of the dollar catapulted the euro up and out of its recent range, a 330 pip green candle for the week, directly to touch the upper bollinger band on the weekly. Is this daily doji a signal for a reversal? Incidentally, 1.4589 is also the monthly M4 pivot, a typical reversal pivot. Nice that price closed today below it. Fundamentally I see no reason for the dollar to strengthen at this point, but this could certainly just be readying for a technical bounce. This week’s move was so strong that price has not even touched the daily 5ema for the past three days. It is very, very likely that price will pull back to at least the daily 5ema on Monday, around 1.4500. Monday’s close will be important, whether significantly below the 5ema or not, possibly confirming some sort of reversal pattern like an evening star. We may even see a similar action like what happened the beginning of August, price rounding over to retest the daily 50ema, only to resume the up trend then. Personally, I may wait for a confirming daily close below the 5ema to begin some shorting next week. Of course, price closing above the 5ema, or continuing up to higher highs negates the shorting idea. Good trading.
On to September, bring on the volume
Summer is ending. Boo hooooo…. But with autumn trading and autumn higher volumes, the good trading times are just around the corner. First, let’s revisit August trading: +821 pips, 19 winners, 8 losers. I only traded GBPJPY in August, intraday trades, cutting losers quickly. Now with the new monthly candle closed, it is time to check the big big big picture. Sometimes it is hard for intraday traders to care that much about the monthly candle, but I do think it important and take the time, each month, to see where things may be headed. Attached is the monthly chart for the GBPJPY. The bear candle closed today certainly could indicate more to follow. But it is also important to remember: when price gets so far away from the 50ema, it will soon react like a rubberband and retrace back to that equilibrium, if only for a moment to recoil. That said, I have placed two fibonacci retracements: one from the high reached last year at 215.00 to the low at 119.00. The second is the green fibo up from the low to the recent high at 163.00. The “perfect” scenario would be for price to now dip down to the 50%-61.8% retracement area around between 135.00 to 140.00, that being sufficient to build new steam to break upward toward the 50ema, now sitting between the orange 23% and 61.8% retracement at 187.50. Also of note is the up trendline which also comes in around this level, even more reason for price to head in that direction. But it is our job as traders to deduce the next move, and then trade it for profit. Easier said than done, at times. It is certainly possible that when the summering institutional traders return to the market this month, they will be eager for more risk. But the interesting thing with the yen pairs most of the summer is how they are NOT in synch with the Dow as usual, making the trading landscape harder to decipher with the yens. So, remaining open and flexible to trading the charts and not my big picture plan is imperative. But I like to keep this in the back of my head. If price does reach 135.00-140.00 zone this month and bounce, I will certainly be looking to long for an almost certain bounce up to that 50ema. Would take months to get there, the next carry trade would be in swing, if only for a few months.
GBPUSD still remains in the range
GBPUSD remains in the range in the weekly chart between 1.6000 and 1.7000, since June. Since identifying negative divergence on the weekly chart two weeks ago, I have been tentatively shorting this pair, will some success. Looks like an evening star formation on the weekly chart confirmed for further downside, but this week’s close formed a doji, which means indecision. I am still expecting price to revisit the 1.6000 level, which is very near the 20 sma on the weekly chart, which is pointing upward. That may be all we get for downside on this pair, even though in the bigger picture GBPUSD remains in a very wide up trend, with the lower trendline way down at 1.5000. Also, this week’s close closed just below the weekly 5ema at 1.6525. We need to see a real confirmation below the monthly pivot which is at 1.6474. This week, every day, price flirted with this pivot point, but ended the week above it, helping to form this doji. So to me there is potential for serious support down there, as proven by this week’s action. The jury is out, with this weekly doji formed. The monthly pivot is key for next week. another thing to point out about this week’s candle chart is the MACD is certainly rolling over, near a cross over, but not quite a cross over. This could be just cycling down for another try at 1.7000 before any further fall. Truly the USD has not shown major strength this week, in fact is has stayed weak, it was the British pound weakened against major currencies, the fundamentals were not good for the Brits. I think this next coming week will be very interesting in price action, the summer is coming to an end soon, new and stronger volatility will be knocking on the door with fresh moves.
Jennifer Shotts
Casey Stubbs has been trading for 14 years. He started trading in the stock market and moved to Forex. 
Richard draws from his extensive experience trading to write insightful trading articles for both fundamental and technical analysis.
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