Saturday 5/11/11 End of week summary: Another great week for TS!
The dreaded NFP (US jobs report) did little to shift the markets last night. There has been mixed data during the last trading session and the indices, and most pairs, continued to trade sideways in a ranging fashion (see indices charts below).
The USDX is still ranging between 76.5 -77.5 and the EURX between roughly 107.5 -106.5. Remember that these charts represent the strength of USD, and EUR currencies respectively, against a basket of other currencies. To me, they're like a quick overview 'health check' of how the USD and EUR are going at any point in time. For example: a sinking USDX means that a short on the USD in pairs is probably safer than going long. I did post more details about these indices in an earlier post so, if you missed it and are unsure about these indices, please search back through the earliest posts in this blog.
The great thing about ranging markets though, as I continue to say, is that it lets the ADX get back down to the waterline of 20 making it easier to spot new trade setups. This seems to be the case with most of the major pairs (except G/J, USD/CAD and AUD/CAD). Thus, next week might be exciting with the potential of new trades looming.
The pip haul this week was 265 from just one trading session and 3 trades. I've realised that this tally must get added on to the October tally as the week started on Mon 31/10/11.
Most of the pairs are back to drifting sideways in narrow ranges. This makes it very hard to trend trade on longer time frames, such as on 4 hr charts. A look at the chart of the indices, EURX and USDX, bears witness to this. The USDX is still stuck between 76.5 - 77.5 and the EURX between 107.5 - 106.5. The US jobs report is out later tonight and the Euro zone debt circus continues. These events will continue to be potential triggers for price movement though. I will not look for further trades until next week.
ADX: 4 hr charts: a look at the ADX on these charts reveals how this indicator can keep you out of being drawn into losing, ranging markets. The ADX has been trending down towards the 20 level on both pairs for the last 10 or so 4 hr candles, that is, for the duration of this ranging movement. This observation should have kept you from entering trades on USD and EUR pairs over longer time frames.
Shorter time frames: For those of you who can trade on shorter time frames though there have been trading possibilities over the last couple of days. The 15 min chart of the AUD/USD shows two possible long trade opportunities over the recent sessions. (these are simplified templates of the full trading templates that I use).
Not much has happened overnight. A look at the chart of the indices reveals this. Both the EURX and USDX are pretty much just trading sideways. (see charts). The Fed announcement didn't cause much of stir in price action. This is good news for the ADX though. It is heading back to the 20 level on many pairs making it easier to see the next new trend.
The USDX is hovering around the monthly pivot and trapped between the strong S/R levels of 77.5 and 76.5.
The EURX is also lurking around the monthly pivot and ranging between 107.5 area (weekly S1, 4hr 200 EMA) and 106.5 area (daily & monthly pivot).
There is still a lot of news to come this week so I will refrain from trading.
I've made more than my quota in pips (265!) and I'm not going to risk giving them back, especially if the markets go back to ranging sideways.
I did end up taking 3 TS signals last night but was rather undisciplined. The upward surge on the USDX and downward move on the EURX gave me confidence to Long USD and Short the likes of EUR, AUD and NZD etc. I jumped in late on the short A/U and then later N/U. I also too a short on the G/U based on 1 hr TS and a trend line break. I say undisciplined as this was breaking my trading rules somewhat. Chasing trades is not advised. I am finding it hard to control my trading emotions though. I saw that I had missed a few good TS setups on Mon and Tue am whilst I was busy. Thus, I was keen to jump in and catch up. It worked for me this time to the tune of 265 pips. Not bad for one day and 3 trades but, yet, undisciplined. I am only human guys!
PS: I am avoiding JPY pairs this week post BOJ intervention.
Short A/U: 130 Short G/U: 53 Short N/U: 82 Total: 265pips!
The market has retraced a bit somewhat overnight. The USDX and EURX had both broken through their monthly pivot points. They have both retraced to re-test those levels. (see charts below). There is major news out of the US over the next few days. I'm going to try to not trade through this. Wish me luck!
The Aussie interest rate cut seems to have had some negative impact on the AUD. I have been busy today and have not been able to trade (Melbourne Cup). Earlier today, after the interest rate news, there were signals to short the AUD on the following trades:
Short AUD/USD, Long GBP/AUD and short AUD/CAD.
There were also signals to Long USD/SGD and Short NZD/USD.
Hmmm...my day out has been VERY expensive due to lost opportunity. To say nothing of the actual Cup race! I must remind myself though of the pip haul from last week.
The USDX is butting up against a major S/R level at the 4 hr 200 EMA. A clean break above this level will be a clear signal to look for further opportunities to Long the USD in new trend trades or continuation trend trades. The EURX has broken below its major support level. The GBP/USD has not signaled yet. It might be the next to go though if the USD continues to surge up.
An interesting night. I have woken to see that the synchronicity of the EURX and USDX has unraveled a little over night. The USDX has pretty well drifted sideways, after the initial reaction to BOJ intervention. It is trading once again in a narrow range around the 76 level. Whereas the EURX has had quite a move downwards. It has broken below the daily trend line but the 4hr 200 EMA which is looming may hold price up again as it did so effectively over recent weeks. (see charts below).
I am still going to wait for a clearer signal about the main trend direction; It is currently looking like 'risk off' with long USD and short EUR etc. This means, for me, waiting to see if the USDX can break up above and hold above the 76.5 level. There are some EMA road blocks in the way around this level. Although the EURX has broken below a daily trend line I will wait to see if it breaks down and holds below the significant support level of the 4hr 200 EMA.
There are a lot of 'red flag' news announcements this week which could move price along so, caution is needed.
Most pairs are drifting and this is enabling the ADX to get back down to the 20 level, good for spotting further TS trades. There were 2 signals that I missed overnight though, a short on the EUR/USD (up 90+ pips) and short on the EUR/CAD ( up 120+ pips).
Well, all that technical analysis on the indices for this week has just been shot in the foot due to intervention by the Bank of Japan. The BOJ have intervened to reduce Yen strength and the result has been to catapult the USD upwards. (see chart). Unfortunately, I was out all morning so missed this move.
I will wait to let things settle down before taking any further action.
Some reflection to start off the trading week:
TradeSpotting had a fantastic week last week! Patience and discipline paid off and I will exercise the same values again this week. My study of the USD and EUR indices last week led me to conclude that I needed to wait for a clear break of these indices out of their narrow trading channels before placing any trades. That meant, for me, waiting until Thursday to trade. This patience was rewarded though with an abundance of pips, more than I could possibly harvest. This is often the case with trend trading though.
I was much more disciplined with my interpretation of TS signals as well. I caught myself out during the ranging period last week, out of a desperation to trade, by relaxing my trade entry criteria! I have learnt that I must be patient and wait for the more valid signals.
This week my indices analysis reveals that the same respect is required. I need to wait to determine whether the current trend (essentially: long EUR & Short USD) will hold moving forward or, whether a reversal is in store. My TS system does not try to catch tops or bottoms of trends rather; it tries to capture a chunk out of the middle of a trend, once one is in place. The ADX is well above the 20 water line level making it more challenging to spot new trends. Please read my indices analysis to see what I am looking for with this weeks trading.