Coming back to trading

It was a nice trip and back, after all that stress and mum-in-law’s peaceful death. She deserved this reprieve from suffering, having led a good life devoted to the welfare and kindness towards others. It would be great if the townspeople erect that statue after all.

Forex wise, it was great to be on the right side of the money flow the day the BOJ declared massive, excessive monthly ETF selling. And my capital soared.

Soon after, the contrarian position on the massive MACD divergence paid off too, really soon.

My studies for the coming week :

1. Ichimoku for yen trading

2. Beginning to understand metals. Gold should sow some pretty hefty distribution at its 1400 lows, and I should be prepared.

3. More experience needed with RH’s Lazy Day Lines. It has an Ichimoky feel to it.

Realization :

The first x3 time time-frame period should tell me the side of the money flow I am on. Once I am right, and its obvious, only then I will apply Dirk Toit’s formula of scaling up the trade once the next profit target is reached. Scaling is extremely important as my capital grows in size.

 

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WEEKEND GAP TRADING : AUDJPY

So far, on both occasiions, with large weekend gaps, a closure happens quite predictably. Both in and against direction of the trend.

So far seems to be working out reasonably well.

Fresh start ! Back to basics. A nice counter-trend trade.

I  decided not to switch back again from the GBPUSD , watched the market patiently. Soon a counter-trend correction became obvious as the resistance levels improved technically.

Made up for last week’s losses at reasonably low risk levels.

Lessons :

1. The entry in a trade needs a feel for price action, and jumping into a trade is a stupid thing to do for leveraged trading. A lot of unconscious observation goes on in just watching like a zen observer – resistance level behaviour, volatility patterns, low risk entry patterns. Intuitive sense of the market rhythms is an important aspect. Currency trading is often like archery – the sense of when the release the arrow and trade entry are good analogies.

2. It is very true from reading Carley Garner’s book, that counter-trend trading has some of the best risk-reward ratios. This trae illustrates, that in oversold situations, it can give some nice, relatively quick profits.

3. Its becoming increasingly clear to me that a lot of forex sucess is to stay out of the markets, till there is a sense of an ‘obviouness‘ building up. Looking back the times I made most of the money was when it looked fairly obvious that money was coming.

The spectre of slippage !

The ugly face of slippage turned a reasonably logical trade into a bad one !  I was warned by insiders it happens, but I didnt take notice. And i paid quite a bit.

The GBP-USD hat hit a low, and broke down through barriers. A reversal was imminent, and the news release of BOE rate decisions was a event that could have started the reversal. A possible target set by Forex.com was a 250 pip reversal to 1.5250. I put an entry order at 1.5070 – premise : it should be well out of range of the overshoot after news release. If the price reached that level, it would be a strong upside reversal, and well above the pivot – A BUY !

To my horror, the order was filled when the price barely reached 1.5030. That is unethical, but i was warned, so its my fault. Its true I did not specify a limit buy. But I should not trust forex brokers around the time of news releases in the future.

I have had slippages before, but this was way out of line – to fill in an order 30-40 pips away from market price. I have decided to carry on with the trade because the price seems to be reversing at the 0.500 Fibonnaci, and at the least I should be able to make up for some of my losses.

P.S. In the mean time, I lost 100-150 pips on the AUDJPY trade I abandoned. Lesson : Do not neglect the golden goose.

Chain of events :

Friday afternoons, beware. Today was the NCP data release day, and I wasn’t aware. Result : though the GBP was on its way to a recovery, unexpected good data from the USA caused a sharp downturn, eroding severely into the week’s profits.

Three lessons :

1. Beware of Fridays. Stop all trading beforehand.

2. Beware of slippages. No more trading releases.

3. Not to trade counter-trend, unless all precautions met.

No major harm. Will make a fresh start next week.

RIDING A SHORT ‘SURF’

The current trade of the AUDJPY showed something interesting to me. Despite swings in the component pairs (AUDUSD and USDJPY), the cross pair showed relatively stable non-choppy intermediate type trends. I need to study this phenomena. When do cross-pairs show relatively little choppiness ?

Progress with a carry-type trade on AUDJPY

Has been a good, profitable upside swing trade however, with little risk and little anxiety. I obeyed the rules, and the markets continued trending without much choppiness. May be, its the ‘cross-pair’ phenomenon on a carry-pair trade. The ‘big dogs were perhaps simply allowing accumulation as they were in a positive interest situation (AUD – 3 %, JPY 0.25 %). The only bit of ‘risky’ behaviour I engaged in was in staying in trade during the two RBA releases : GDP and construction. All the data from Oz seems to be at par expectations showing a small improvement – thus I assumed that they would have little impact on the market. (I was right with a bit of luck).

The re-entry here was good, I took the time, and got in well. I must be composed like that when the markets are fast moving.

Set myself a logical profit target, based on an established long term resistance. We’ll see and learn.

LESSONS :

1. The ability to switch from swing to momentum trading, and back and forth would be a good skill to acquire at any time frame.

2. To determine probability of movement of a cross-pair in a certain direction, individual analysis of the component pairs seems to be a useful device. Need more work on that.

3. Anxiety-less trading needs fast decisions at ‘critical decision zones’. A single excellent advice from Raghee Horner.

4. Getting to know the AUDJPY is in process. The falls can be sharp and severe in the direction away from carry trade – may be the big dogs allow that.

5. Need to pause a bit after a good sustained spell of profits. I am not good yet and switching mindsets as risk perception changes quickly. Re-evaluate strategy. After a spell of just profits, the mindset can become ‘I am invincible’ or ‘I am really good at it.’ No such thing – My mindset coincided with a favourable spell in the market – thats all. Acquiring skills must continue. Like learning to navigate in stormy waters.

Stop-and-reverse. : lessons of the obvious kind.

Trading near decision points have one drawback – unless we are prompt in recognizing mistakes, losses could be heavy. But, as RH says 80 % of her trading earning is derived from momentum trading near decision points, and I can see why. It provides some of the most consistent short-term trading opportunities in today’s volatile market, and in swing trading, if we try the technique near tops and bottoms, the losses can be heavy.

As in this trade, recognizing a breakout is a crucial device to ensure staying in the game. On the other hand, getting caught out by retracement in an established trend is by comparison a lower risk situation. There is always a good chance that the trend will continue to wipe the losses off – unless we are already near a critical resistance / support or major psychological level.

 

STAYING ON WITH AUDJPY TRADING

Did not again change currencies this week. Reasons to myself :

1. Good currency pair I feel, that fits in with my working hours. The Asian trading session should establish the tone for the following session too, with hopefully a reasonable statistical average, as most of the active zonal trading is between 2300 GMT and 0800 GMT next morning, and its reasonable to give up some sleep. So far, not many huge moves during my office working hours, though I have always kept an eye on my mobile phone.

2. Volatility of this pair is quite high, in 2013. Around 110 pips daily is very good,

3. Being in the same zone I feel buffers the pair against moves against European / USD currencies.

OPENING TRADE MARCH 4, 2013 ( midnight)

Possible a slightly better trade than before, I have calculated the profit targets and R : R ratios. Plus convergences of nearly all 4 premises.

Will have to monitor still. There might not be a huge movement until Australian economic releases later this week.

What happened next :

Even with the best of trade entries (like I supposed above), the trade can go completely the wrong way. Within 2 hours of the above trade, it became clear to me that an ‘unexpected’ ugly downtrend was on its way. It went down so fast, that I had little time to react.

The reason however I did not abandon / liquidate the trade was because the AUSUSD was very close to a strong resistance level (plus USDJPY was on way up). In addition there was this obvious MACD divergence supporting a reversal in the short run. For the next  4 hours, watched the  Aussie slide below medium term strong support, but cross (AUDJPY) was stable at support, as JPY was going up. I was actively waiting for an AUD reversal, as it was so lose to a strong support line. It finally happened after 10 hours, and the reversal began. I was quite keen just to liquidate the trade on a zero trade basis, as the Aussie GDP announcement was due 30 minutes after midnight. Finally got the chance. Ended trade at no loss.

Lessons :

1. I think once the trade goes a wrong way, its pragmatic to just minimize the losses the best we can. As I use psychological stop losses based on the point at which the trade gets invalid, often, a sharp drop leaves me paralysed. I accept this is a drawback of psychological stop losses, but I would not change this attitude for the time being : My risk tolerance is slightly higher than average, as this is essential for capital growth through BIG MOVES. I CAN SEE THAT THE SINGLE BIGGEST FACTORS THAT WOULD ALLOW ME TO STAY IN THE TRADE IS LOW LEVERAGE. SCALING UP TRADE SIZE ISN’T A BAD THING > ONLY I NEED MORE SKILLS IN THIS AREA.

2. I used double the trade size that would have made me really comfortable, while anticipating the bounce back. Perhaps this needs more work.

3. In cross pair trading, I have been watching the base pairs to calculate the probabilities of move in a particular direction, and that’s fine. I think I might also use correlation charts (www.forextickets.co.uk) too for putting trades  on.

Conclusion :

Useful learning opportunity, but I am sure I missed a better trade elsewhere in sticking to the AUDJPY. May be I need to focus on RH’s market scanning techniques better.

Why am I going to stay out from markets to reduce trading costs.

Over the years, there has been a shift in my risk perception which I can see has been a crucial factor in my ability to stay in the market : I now see it more as a business than a easy way to earn money if a ‘few tricks are learnt well.’ Reasons for title premise :

1. ‘Am I missing out if I am in some sort of trade ?’ is a common deep seated fear. Which gives rise to futures and option traders using strategies like hedging and spreads. Once the trend becomes clear, the cancel out the other. That is an expensive way to trade the currency markets. It eats severely into our pips. And makes failure to stay in the market most likely, as the volatility and swings have increased more and more in recent years, as it has more chaotic.

2. I might use my demo metatrader account to put hedged trades on, and only executing the  conclusions into my real account. This should allay the anxieties in not being in the market. 🙂 Dunno if it will work.

3. Staying out of trades should be a challenging new mental discipline. It will be fun.

REFLECTIONS OF THE LAST TWO MONTHS

It has been a good learning experience. After many years of trying and failing, I have finally reached a level where I can consolidate on it as a skill-for-life. I took some more risk than what I would have liked to, but I have actually just about doubled my trading capital over the past two months. Partly it was because I managed risks well and stuck to well defined criteria for entry and exit; but another major part of it was, I have switched to a low leveraged situation. (25 :1). It means that I can still bounce back even after  a margin call and blowout. I am close to my goal of having 4 times the margin money in my accounts – hopefully, in future I would not need to take risky trades and watch closely day and night because of unexpected moves. At that stage, I will probably have money also to put on stop-losses (for now I will rely on psychological stop losses that depend on failure of basic trading premise rather than arbitrary targets).

Last trade of the week :

I must question my decision of continuing to trade the AUDJPY – after fairly recent large moves. May be I should have switched to another market; the sideways pattern became too prolonged, and finally when it did happen, I was more intent on covering on losses for putting trades too early, than waiting for trend confirmation. This is becoming a worrying pattern – putting trades on too early. Even if  I was right about the market direction, the entry without confirmation is stealing too many pips off. I need a balance.

From March I will put on more accurate trades. Inshallah, and The Buddha willing !

Severe criticism of a winning trade

Yesterday, it was kinda stupid to give up a lot of profit to a counter-trend move at a highly volatile period.

Lesson : After a major major move, the whole perception of risk changes. The reason for entering the trade no longer stays valid. Adding risk capital therefore in the same direction, without a fresh assessment of risk vs reward is stupidity. It is this stupidity which severely reduced my profit in the current continued AUDJPY Trade.

Start :

It started well. I took my profits at 93.00 and established resistance level as well as a good psychological level. The problem started when picking the re-entry point of the trade. As the down trend was still strong.

The decisions to re-enter trade at 1 and 2 were not based on any technical basis at all. It was a fast retracement as the market was moving very fast, and I had poorly calculated the amount of capital I put to risk. As I attempted to average down losses at a smaller leverage (5 units instead of my usual 10). Result : I found myself praying yet again, as the retracement continued to its highest point ( 3) over hours. I didn’t blow out although not far from it. The market turned around early morning, reversed and i ended up with some profit eventually at (5). Lesson learnt : Due to very very poor entry management, I lost an opportunity to bag 150-200 pips. 

The pair rebounded quickly, minutes after I took profits ( reason why we should focus our attention clearly around target zones), started hunting for my next re-entry. As we were still south of the day’s pivot, I was still only looking for opportunities to short. (6) looked like a good point, as it had rebounded off the lowest 32-EMA and a lower high was in place.

The market had its own mind, and resumed trend again. Quick liquidation and reversing trend proved a fruitful strategy ( momentum breakout).

And now, north of the pivot, with such a massive hourly candle, the mindset for now is changed to ‘buy’. Lets see where it takes us.