Archives for October 2016

I don’t normally share small trades, because it takes time to mark up a chart and write up the trade.  Today’s example is to illustrate the psychology of the GBP short today in line with the tips this week on the use of stop losses and moving them to profit stops.

The GBP is a favourite short of mine.  Currently it trades in a range between 1.2080 and 1.2330 – most likely until we get clarity on the High Court ruling.

As price shot up early in the U.S. part of the session it ran into sellers – just as it had in the Asian and early part of the UK session.(see chart)  The larger charts are bearish, so we have confluence on the downward trending direction.  The long upper wicks indicate sellers pushing price lower. An entry short was taken at 1.2161 with a stop loss just above today’s highs – risking 29 pips for a potential 93 pips to our Target Price of 1.2068.  If I can get to the earlier U.S. session low – I will be very happy with the trade and of course the more pips the merrier.  Statistically it shouldn’t run much past 1.2068 though without some jarring news coming into the market.  However…it could get down to 1.2080 to close the week.

The entry candle got off to a bad start and price began rising against me.  This can and does happen…to everyone.  That is why we have a stop loss entered at the time we execute the trade.  If the stop loss gets hit…it closes the trade and could spare us from catastrophic loss should the market go violently or progressively further against us.  Put another way…a trader does his thorough analysis, accepts his risk and enters the market on a high probability trade setup.  If the market goes against you after you have done your analysis correctly and entered according to your trading plan – then get out.  Don’t take it personally…it’s the market not doing what it normally does…so get out.  Your stop loss will take you out or you can click out, but you need to follow your trading plan.

The thing I didn’t like was the USD was weakening to the EUR and AUD and then the EUR started to weaken to the GBP briefly, in the EURGBP. cross.  As price climbed a bit against me, it began forming a long upper wick as price entered the sell zone.  The candle closed with a lower high.(sigh of relief)  The following candle dropped as the European session ended – closing below both the Asian low and yesterday’s low.  This is usually followed by a retest… much like a retest of a 1.2100 or 1.2200 level.

After this move down, it was time to take the risk out of the trade by moving the stop loss to just into profit or if you prefer to lock in half the move of the large red candle or all of it…that’s fine too. Each way, you’re guaranteed a profitable trade.  Price then retraced just above halfway of the large red candle (very common) and then pushed down to close near its low (very bearish).  The next candle found some buyers as evidenced by the longish lower wick.  This coupled with the U.K close approaching and positions being squared for the weekend makes for a good reason to tighten the profit stop just above this candle’s high.  As the close approaches, the trade is closed for a few pips, but executed in accordance to the trading plan.

Not every trade will make you a lot of pips.  Following your trading plan, taking an acceptable calculated reward to risk ratio trade setup and being disciplined following your rules is what is important to trading survival.

The question a trader asks himself after a trade is whether he would take the same setup again in the future…all things being equal?  Did did he trade in a disciplined manner true to his trading plan?  What did he learn from the trade and would he do anything differently in the future?

I hope that helps at least one trader.

Clocks go back in the U.K. and Europe this weekend.  North America follows next weekend.

Enjoy your weekend!

****Note to my students – I have removed the Channels Final indicator as it seems to be off since the last MT4 Update.  Continue to use the Mod. 1 indicator and draw Target 1 in manually – 15% before Target 2.

 

 

An hour before the U.S. session began the GBP made a second lower high in the session, accompanied by a 3 candle reversal.  A short is taken risking 20 pips for a potential 92 pips to our Target 2.  Price started to plummet just in advance of the U.S. Core Durable Good Orders and Unemployment Claims release…so who knew?

Price continued down and briefly bounced above the Asian session low before quickly dropping right through the 1.2200 figure.  Not wanting to give back any pips on the probable retest of the 1.2200 level – we chose to close the trade.

Trading Tip:

Following up on yesterday’s tip of ALWAYS using a stop loss at the time of trade execution…is moving your stop loss to a profit stop.  When the market moves in your direction, get the risk out of the trade as soon as is reasonable… especially when economic news is pending as the market tends to get volatile.  If you’re up 15 pips, it’s a good idea to get the risk out of the trade by putting your stop loss to plus one or two.  This strategy has two beneficial effects.  The first being  the trader can be stress-free having eliminated the possibility of losing any money.  The second being that the worst case scenario is still a positive trade and your account grew.  This is very different psychologically from having a winning trade move against you and hit your stop loss which is never fun and happens to all traders.  Remember a plus one or two pip trade is a positive trade and as the adage goes…no one goes broke taking a profit.

As a trade moves further in your direction, lock in more profit by moving your profit stop closer to current price – also known as trailing the stop.  Let the market take you out, hit your targets or click out for your own reasons as was done today.  The most important thing is to not let a nice profit turn into a loss.  Over time you will get better and better with your profit stop placements.  Personally, I like to move it above structure , a strategic level or halfway up a large candle.

Good luck with your trading!

 

 

Australia’s CPI q/q yesterday came in at .7% up from the previous .4% and above the estimated .5% the market was expecting.  This resulted in the AUDUSD jumping up to the formidable .7700 area where it has a difficult time closing above.

When this type of news reaction move happens with the AUD, I like to look for a short setup as opposed to a continuation.  With the Aussie moving back down in the UK session, a short is taken risking 17 pips – above structure for 62 pips to our Target – which is the Daily and Asian session low.

The key here is to lock in profits and let the market take us out if our target price is not attained.  A candle with a long lower wick is a warning sign of buyers entering, and we don’t want to give back too much of our profit.  We can always enter again…and did today.  A second short entry is taken in the U.S. overlap risking 16 pips for a potential 42 pips to the Asian low.  This second trade backed up on us 11 pips before moving downward where once again a long lower wick had us tighten our profit stop to lock in 20 additional pips.

Trading Tip:  Stop Losses

Always always always use a stop loss.  This should be entered at the same time as you enter the market.  Although it may sound like common sense, I still come across traders who don’t use them and think they will click out if the market goes against them or even worse…think the market will reverse back and go in the desired direction to profit.  The market can and does make sudden huge moves – in a blink and if this is against you… it may cost you your account.  I have some strict rules around stop losses and how to move them to profit stops as a trade moves along in the desired direction. This comes from years of experience and also from traders who have been around a lot longer than I have.  The bottom line is to always use a stop loss with every trade at the time of execution.  Adjust it as needed but always use one.

Good luck with your trading!

CB consumer confidence  in the U.S. today followed by both UK Governor Carney and ECB President Draghi speaking .

As the U.S. session got underway, the GBP moved through the Asian lows and consistent with the charts, a short is taken risking 15 pips for a potential 78 pips to our Target 2.  The idea was to take minimal risk and keep locking in profit… as this pair is particularly volatile and headline sensitive of late with the “hard Brexit” chatter.  With Governor Carney speaking during the session, the pair tends to be volatile.

The GBP sold off hard and we exited at our Target 2.  Although our next zone level was where the pair bounced…the October 11 low, we were happy to reach our Target 2 and know statistically that this is where the pair most days should run out of gas.  With Carney speaking today…it could have dropped another 100+ pips but were happy to leave that trade for someone else.

Trading Tip:  If you can find a trading partner and look for setups together as long as you use the same trading style, it can be a rewarding experience. Choose your trading partner as carefully as you would any business partner.  When I was trained by a sovereign wealth trader (trades on behalf of countries not corporations) two of his traders worked together.  When either saw a trade setup they liked, they immediately had the other one check it. If they both liked the trade, they both entered and if one didn’t like the setup…neither entered.   I watched these two traders who reminded me of a married couple, each make $200,000 in 20 minutes on a single trade on a slow day.  They both were former Chicago Mercantile Exchange floor traders who had done very well for themselves and were continuing to do very well indeed.

Good luck with your trading!

 

Both the EURUSD and EURJPY have trending easy-to-read charts.  With some JPY strength today and a flat USDX, a  EURJPY  short worked out well.  This pair can be very erratic at times but lately it has been less so.  There is a lot of concerns regarding the Euro with Brexit, European banks and an Italian referendum.  Looking at the charts tells us that the institutions prefer to be short.

A nice setup occurred today in the EURJPY after it convincingly closed below its Asian lows , at the same time as the EURUSD closed with a bearish engulfing candle.  With the USDJPY moving lower this week, EURJPY weakness looked to be a better option than the EURUSD.  With a stop loss just above the Asian low, we had at risk 14 pips for a potential 43 pips to our Target 2.  As price moved down, we locked in increments of profit and before the U.S. Open we had locked in a plus one trade.  We continued locking in profits, moving the profit stop just above the lower highs and the trade was closed at our Target 2.

Lots of news tomorrow with the ECB Press Conference being the major event risk.

Following up on the GBP…it appears that although everyone was short a week ago…not everyone is this week.  A break above 1.2350 may bring in further longs.

Tip:

For those that are interested, I’m going to restart a series of “Tips” for traders.  As trading has been slower with my style of late, I have been tempted through boredom to take trades for the sake of trading.  Thank goodness…I know better.  A few weeks back a student of mine brought an interesting concept to my attention.  I wasn’t aware of it before and it seemed interesting… so I spent some time practicing it and making sense of it.  When a trade set up that I wouldn’t otherwise take, but looked good combined this new concept…I tried it out.  The result was a losing trade and I rethought the strategy.   I have completely abandoned this “new concept” and I am grateful that I lost the money by deviating from my trading plan.

Successful traders have very well defined trading rules.  If you take trades that go against your defined rules…you will not last as a trader.  If at first you deviate and get rewarded for breaking your rules…think about it…you will do it again.  Your trading rules are paramount to your trading success and help to decide which trades to take and just as importantly, which trades not to take.  Following your trading plan consistently is the only way to be a successful trader.  All successful traders are extremely disciplined with their method of trading.

When I learned trading from one of largest traders in the world, he insisted that we fill out a Trade Entry sheet for each trade or he wouldn’t discuss a trade with us.  I have refined this sheet over the years for both myself and my students.  If you would like a basic one to reference, please email me and I will gladly send you one in Excel format.

Good luck with your trading!

 

 

 

It was a holiday in North America yesterday and the U.S. traders came back today looking to make some money.  With a strong USD and the GBP continuing to look weak, a short was taken after a reversal set up early in the U.S. overlap.  The stop loss was larger than I initially like, but the R/R was greater than 3:1 and trades can be closed before a stop loss is hit.

The pair moved down quickly, briefly bounced for a candle at T1 before moving down to test the figure and closed our position at T2 …for a great start to the week.

Mark the low of the flash crash last week and look for the GBP to test this level in the near term.  I have a lower target still based on the MSML from the Daily chart.  My concern is that everyone else is short the GBP, so protect your profits along the way and I will be looking for opportunities to fade any waves to the upside.

The EUR is looking very precarious as traders are focused on the condition of the European banking system, the effectiveness of the ECB and politics in general.

It could be a fun week.

Good luck with your trading!