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.
The FX Hustle described, or “kids, do not try this at home”
To all my aspiring, smart, pip-hungry newbie forex traders out there: READ THIS ARTICLE posted in the Financial Times this week. It describes a point by point IPO offering by GAIN Capital, or forex.com, a prominent market maker in the world of forex brokers, and just how they make money from the thousands, the tens of thousands of new investor/traders that are entering the forex trading world month after month. There are two very important points to take away from this article. First, GAIN Capital is a dealing desk broker, meaning, they take the other side of their clients’ trades, creating a very obvious conflict of interest. Compare to an ECN (electronic communication network) which is like an interbank broker, simply matching up trades immediately with other banks on their network. Most profitable traders that I know prefer ECNs to dealing desk brokers because they just do not trust a broker that is basically trading against you. The second and maybe the most important takeaway from this article is this: “Our customer base is primarily comprised of individual retail customers who generally trade in the forex market with us for short periods…” and “…If we are unable to maintain or increase our customer retention rates or generate a substantial number of new customers in a cost-effective manner, our business, financial condition and results of operations and cash flows would likely be adversely affected. For the year ended December 31, 2008, we incurred sales and marketing expenses of $29.3 million.” So, these brokers, all brokers, are willing to spend $30 million dollars on sales and advertising in order to get the newbie retail customers, the ones who are likely to jump into the market and under capitalize while over leveraging their trading accounts, and then quickly and quietly over trade and lose their entire account in a matter of months. This is why we see so many advertisements for “Low spreads, $50 to open an account, START TRADING NOW”. They depend on these type of newbie traders for their bread and butter. This is precisely why it is so important to start your trading account with at least $5,000, but $10,000 is much better. Otherwise the volatility in this market will eat your account alive. Do not be a broker’s delight, do not over leverage, give yourself the advantage by allowing plenty of room for the volatility to work IN YOUR FAVOR. The brokers will hate you, and you will love it. Cheers.
Brilliant market selling to end the week and month
The rollercoaster market that we forexers crave returned this week and the putrid whiff of fear is again wafting through both Wall Street and Main Street. The big news of the week was released yesterday with the US Gross Domestic Product release at 0830am, spawning a fresh load of buying and pushing the Dow up 199 points, the GDP data did slightly surprise to the upside to 3.5%. This after three days of a moderate slide in stocks, and continued dollar weakness. After yesterday, traders were excited that price action would likely continue up and up, at least for a time. Friday brought in the sellers. The important level to watch is 2712 on the Dow, which was September’s close. But with the -250ish point fall, the monthly Dow candle will be quite a nice wick and doji. Why all the selling today? Could be the consumer data today showing spending fell in September now that Cash for Clunkers in finished. This may be the beginning of truth coming out in the numbers as the economic stimulus wears, afterall jobless rate continues high and people here just cannot sustain the go-go-go spending that kept the US humming for so long. The jobless data next Friday will be big, either way. Question is, was today’s selling only end of month profit taking or the beginning of something much bigger? Meanwhile, I was happy to snag about 100 pips on the GBPJPY today, selling. Here is something to consider: The daily GBPJPY certainly points to further downside, but even with today’s action the weekly GBPJPY is still neutral to buy. Check it out: The 5ema has crossed the 8sma back down on the daily chart, indicating further selling. But the 5ema crossed the 8sma upward last week on the weekly chart and will close this week firmly in control. Lets see if we can get a drop to the 146 region to begin buying this pair again, near the 61% retracement, looking for a return to 155.00 and maybe even 162.00 level. Good luck.
Weekly GBPJPY chart
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!
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.
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!
USJPY wick wick
What a spectacular wick forming on today’s daily candle on the USDJPY pair, after Asian stocks has a troubling time of it pushing yen stronger, the action in the US and European markets helped this pair recover to nearly the same level as it began - - a doji. But before we get too excited about reversals for this super strong down trending pair, let’s do some investigation. Friday’s daily candle was a massive red down candle, closing outside the lower Bollinger Band. With today’s down move and subsequent retracement back inside the Bollinger Band, it stands to reason that we need to take a fib measurement of these two daily candles, the high at 91.34 to the low at 88.22. Today closed just underneath the 50% retracement at 89.79. And, the 61.8% retracement level is up at 90.15, which consequently is also a previous support level from Sept. 16, to the pip, along with the daily 5ema. I would guess that this level will be hard to break above, for now, and thus should be a good place to place short orders - I am placing mine at 90.00 with a stop at 90.45. Now, why wouldn’t this be a reversal candle with such a big wick? It could end up being the beginning of a morning star reversal candle pattern, actually. The confirmation will be with tomorrow’s candle closing higher than the 50% of the large red candle, at 90.41, which will also then close above the daily 5ema. For the short trade target I will be looking for a revisit to the low at 88.22. It is a good risk/reward trade. Let’s see how it plays out. 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.
All markets are connected
Today’s market action could be signaling a changing in the guard after the Federal Open Market Committee’s rate decision and accompanying statement. It is such a perfect example of how all markets are connected in some fashion: whether it is oil, gold, EURUSD, the Dow, or the Hang Seng. It is also a perfect example of why intraday traders need more than one screen to trade from, there’s so much going on to pay attention to. First I’d like to say, I never trade an FOMC statement. But it was spectacular to watch the reversal today after this bit of news, or non news, came out. Today’s price action in most markets were quietly awaiting the FOMC decision, minus crude oil prices. Oil had already dropped nearly $3 this morning when I turned on my computer. Consequently, the US dollar was showing signs of resilience against the euro, yen, and aussie, after reaching new highs in the euro and aussie during Asia last night. That spike last night certainly caught my eye, creating some serious negative divergences in those pairs today. Putting all this together I was starting to guess that the dollar was starting to reach some sort of bottom, if only temporary. So after the 2:15pm FOMC decision and price spike, (look how beautiful the double tops in EURUSD and AUDUSD!) it was not too surprising to watch the Dow also spike up, but all of these stalled after just 20-30 minutes and the US dollar came back strong to lead the EURUSD, AUDUSD, and the Dow down in a big way. The Dow made a 160 point swing to close -81 points down. Nice volatility, just like the old days. There has been quite alot of talk about the US dollar being the new carry trade, and that is probably why we have not seen “normal” market correlation with the dollar and the yen, and oil, in respect to the Dow. My good old trading strategy of Dow/yen correlation has not worked for many months now, but just selling the greenback against anything has been the trade of the year. Wouldn’t it be interesting now if we see more dollar strength, ushering in some risk aversion? Did the Dow get close enough to the magical 10,000 level (she hit 9906 today during the FOMC spike) for sellers to get in the game? Are the institutional traders back and in the swing of moving this market?? So many questions, so many pips. Good trading.
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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