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!
Stress free New York session: avoiding econ news trades
It is often said that patience is the hardest thing to master for traders, but it is truly your ace in the hole to wait for the right entry and then wait some more for your profit target to be reached. As I have mentioned, I am an intraday forex trader: I get up around 06:30am New York time to start my trading day. I am rarely in overnight trades. I decided early in my trading career that patience was hard for me, so the quicker intraday trades made more sense for my style. But the noise associated with the smaller time frames of intraday trading, especially around economic news releases can be stressful and easier to make mistakes. My favorite days to trade the New York session are when there is little or no economic news releases scheduled. When there is no news to move the market, then the market looks more to the overall technical bias for its direction. Mondays are typically non econ release days, and since it is the start of the week, it is a good bet that the previous week’s bias will continue on a Monday. On average there are two days during any given week that will not contain economic news during the New York session. I can usually pick off about 50 pips on each of those days on the GBPJPY trading the prevailing trend. If you can have the patience to not trade unless it is a non news day, averaging 100 pips per week ain’t bad. I went back and reviewed my non news day trades for the past 3 months and I have shown 94% profitable trades just on those. Remember, this thing of forex trading is not a sprint, but a marathon of patience and emotion-free execution of your strategy. Taking some stress out of the mix could certainly help to keep you on track and avoid the noise of the news. Good trading!
Volatility is back
This week has seens some spectacular moves in most currency pairs, with important levels being broken left and right. Awesome trading if you are in on the right side of the trade. The GBPJPY, for example, finally hit my long term down side target at 148.50, 261% extension of the high at 162.50 to recent low at 155.00. It also worked out to be target of the head and shoulders pattern on the daily chart, it is so sweet when everything works. Now with today’s huge move to the final target, I have entered a long trade at 147.13, expecting a decent retracement. Technically, this pair has moved down about 1000 pips without much retracement, so it is likely to get one. I especially like to see price action on the daily chart with the entire candle outside of the Bollinger band, and this candle never had a chance to touch the daily 5ema. This pair is itching for a retracement. This type of contra trade (against the trend) can be extremely risky, but the odds are in my favor. This same set up is evident on the GBPUSD. Attached is the daily chart for the GBPUSD. A major up trendline is just below price here at 1.5800. It is certainly likely that price will eventually come down to touch this trendline, but I am betting that it will need to retrace first, to about 1.6150, before heading down there. To be safer, wait for price to reach this area then short it. Good luck.
End of the month and quarter: confidence reigns
It is hard to believe that 2009 is half over today! For those of us who have been “the glass is half empty” because of the recession/depression/economy gone bad, maybe the second half will be better. But for intraday forex traders, this market has actually been quite nice for making consistent pips, especially this second quarter. Typically I pull in about +200 pips per week, but my average has actually increased to almost +250 per week in the past few weeks. The thing with forex trading, as soon as you start to celebrate your wins, you may get knocked down a few notches with some losses, but so far so good. In June my average weekly winning percentage actually decreased from 82% to 79% winning trades, but my losses have been lower, therefore my overall pip intakes has increased. Pretty cool. I guess I am quite a geek for being so interested in the statistics of forex trading, but truly it is just as important to track all of that each and every week, as it is to actually do the trading. The reason: it will improve your confidence immensely in order to properly act at each trade opportunity rather than second guess yourself. I “feel” better about entering a trade when I have my trade entry confirmation when I know that they past 4 weeks I have seen 80% of these exact trades do win. It makes me sweat less. Along with the confidence of consistent trading, tracking the stats week in and week out will help you determine best days of the week to trade, best times of the month and year to trade. These markets are so cyclical. I have mentioned before in another post that during different times of the year the New York session is good and easy trading, while other times the Asia and/or London are much better and smoother. One way to track your weekly/monthly/yearly trading performance is to track your profit factor. Profit factor is your Gross Profit divided by your Gross Losses. For example: if you make 10 trades in June and 7 are profitable for $15,500, and 3 are losers for $4,100, your profit factor is $15,500/$4,100 or 3.78. The goal is to keep your profit factor consistently about the same, and definitely above a 1.0 profit factor, which is break even. It will make you feel pretty good when you master your trading strategy each month with a consistent profit factor, and the cash you made will make you feel pretty good too. July here we come!
Summer trading volume means $$$
It is summertime. Stock traders often say “sell in May and go away”, betting on the light trading volume that summer brings to slowly grind stock indices down over the slow summer months. But not so for day trading currency traders, who can be raking in the big pips and big bucks if they play their cards right. Here’s some tips for light summer volume forex trading to keep the summer blahs away:
1. Range trading is king. With light volume often comes less ability for market makers to move currency pairs much outside their current ranges. But this is not 100%, if there are less players in the market, then it will also take less players to move the market. Moves can be sharp, so you have to be quick on the draw. Typically currency pairs will move in beautiful wide swings, perfect for day traders or swing traders.
2. Use your fibonacci tool. For some reason the fib tool extensions seem to work even more precisely during the summer, maybe because the big money institutional traders are out of the market (they are all at the Hamptons), so us little traders can push a pair exactly to where we want it to go. I enjoy fibbing the most recent 2 or 3 hour range ending at 7 am EST and then taking the trade to the 261% fib extension.
3. It is summer, take your profit then go to the beach. For intraday trading, my trade target is usually hit within 2-3 hours. If I can be in the money by the time London closes at 11am EST, then I take the profit and shut it down. Why waist more time waiting for the next trade set up when you can outside enjoying summer? Take the money and run. Tomorrow is another day.
Summertime is perfect for intraday and swing traders to rake in the big pips, due to the typical large swings that currency pairs are making. Just be sure to be on the right side of the market’s current move and you can easily make +100 pips per day. Rake it in now during the easy months before the big money traders come back into this market and mess everything up! Good trading.
GBPJPY is following my plan
GBPJPY has been playing right into my trading plan this week. I started piling on shorts after I saw the evening star confirm on the daily chart on Monday for 3 trades of +100 pips each. I was targeting 155.00 as stated in my previous post, and sure enough price hit 155.00 almost to the pip today in London trading. When I woke this morning to check my charts at 7am New York time, I saw a golden opportunity staring at me in the face! Since the target had been hit and price was consolidating near 155.50, the smaller time frames were oversold at that point, just prior to the 8:30am news release. I figured there could be more room for a movement to the upside at that point, especially since the news was jobless claims which has been moving the markets positively the past several weeks. Also pointing up: there was positive divergence on the CCI on the 1 hour chart. So, about 15minutes after the news released I entered a long trade at 156.10. I managed to hang on for +100 pips, it was a quick trade, about an hour and a half. So now it looks like the GBPJPY is following along my big picture trade plan: it appears to indeed be heading back up to possibly form the right shoulder of this head and shoulders pattern on the daily chart. If you fib from the high at 162.50 to the recent low at 155.00, the 61.8% retracement is 159.60, pretty darn close to the 160.00 area I was originally thinking. I will observe the price action at that level (if it gets there) and look to enter a short to ride this back down to the neckline again at 155.00. Of course, price may not have the strength to reach 160 area, or it could blow right through it. That is why I prefer to set an alert for my price targets to actually see how price behaves before making any decisions. Wish me luck, and good luck to you.
Riding the 5ema
I like to use the 5ema on the daily chart to determine my bias at the beginning of my trading day. Since lately I have been using the GBPJPY for my intraday trading, I have included my daily chart with the 5ema in red. It is a fair assumption that if the daily candle closes above the 5ema, it is likely to continue moving up for the next day. Conversely, a close of the daily candle below the 5ema would signal the likelihood that the next day’s price action would also move down. This very simple method of determining direction is not 100%, but in my experience it does work about 80% of the time. Last week was a spectacular week on this pair for intraday trading. The white arrow shows Monday’s price action, crossing from bottom to top over the 5ema. My bias on this pair was DOWN on Monday, since Friday’s close was below the 5ema. So on Monday morning I looked for a good entry for a short and entered, but quickly price ran against me and I closed my trade for -52 pips. But with Monday’s candle closing above the 5ema, my bias then turned to upside. In fact all of my trades on this pair remained with a buy bias, and I made about +100 pips on each trade, 4 days in a row. Not too shabby. The key to this method of finding trade direction bias is to just look at the daily close in relation to the 5ema. Do not let the wicking price action during the day trick you into a contrary trade. This happened several times last week where price fell back down, reaching below the daily 5ema but only to actually end the day back above the 5ema level, signaling a continuation in the upside bias. Taking profit on this type of trading is up to you. For me, a cool 50-100 pips per trade is perfectly good. I like to look for entries at the hourly 20sma or the bottom bollinger band if I am upward biased. This way my stop loss can be placed just 40 pips below that, a good risk/reward trade. Good trading!
The dollar/yen technical dilemma
There are several forces that are pulling and pushing on the USDJPY as is evidenced by the daily chart attached. A large head and shoulders pattern, in pink, has been slowly developing since the breakout of the up channel, in white, some weeks ago. But in the past 10 days a smaller inverse head and shoulders pattern is now evident, in blue. It is important to note that the neckline of the inverse H&S, in orange, is also a trendline slanting down from a previous resistance, obviously still remaining very important and respected. So how does one trade all of this? Thursday and Friday there is important economic data expected: the EUR and GBP interest rate decisions on Thursday and then the NFP unemployment data on Friday. Everyone is waiting for this news before making any big moves. This is evident in this sort of price action: making chart patterns within chart patterns, creating a technical dilemma. So I for one will wait for price to tell me the direction and then pounce on it, because this sort of ranging and pattern making always preceeds a big move. In case this pair heads higher after the news, 99.50 is the level to watch. Price breaking 99.50 and then retesting it for a buy entry, confirms the inverse head and shoulder and also fails the larger pink head and shoulders at the same time, since a move above the right shoulder is a pattern failure. Target for longs is then 103.50 area. If, however, price decides to head downward after the news, 95.60 is the neckline to break for continued fall. A break, retest, and subsequent fall would then target 89.70 region. The important thing about trading these types of chart patterns is to wait until the break happens then look for a retest to confirm the move. Fakeouts are likely. Good trading, and be careful, use your stops.
EWI ponders the question: are successful forex traders just lucky?
Elliott Wave International (EWI) yesterday in their newsletter revisited a question that many have asked since the dawn of time: Are successful forex traders just really lucky? In their article they recount the Alan Greenspan comment made at an economic forum back in 2004 in which he stated
Forex madness..
The definition of madness: Repeating the same thing over and over and expecting different results. Could it be that many new traders in the forex market are too quick to brand a perfectly good trading strategy as “madness” if it produces 2 or 3 losing trades in a row? Personally I think there are many, many winning strategies out there, but way too much time is spent on looking for the very best one, in my opinion. A winning strategy that works for me may not work so great for you. Do not give up on a strategy so quickly, test it for at least a full month to 3 months to really get a feel for it and track its true winning percentages. Its like surfing: if you are a good surfer and the wave break outside your beach house is pretty decent, and you surf it and surf it, but then maybe you think, hmmmmm, I should go try out New Zealand, they got good waves there. So you spend a whole bunch of money and time to fly to New Zealand only to be disappointed because the wave break is waaaaaaaaay far out there and your arms get so sore from paddling. Then on the last day of your trip you catch some gorgeous waves, and you meet another surfer dude who invites you to his beach party that night, only when you get there a gang of thugs smack you over the head and steal your wallet and the bottle of rum that you brought. Bummer! You finally get home, after the long flight, drop your bags, and glance outside to your very own quiet beach with the perfect little wave breaking and you think, Man, I missed this! Forex, its just like that..
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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