Thursday, January 31, 2008

Kramer's Bottom Call

I take heart in the fact that Kramer has called a bottom.

Although there is a lot of volatility I am hoping that over time I'll be able to build and protect a sizable AUDJPY position. You see, as you get positions in profit and place stop losses in to protect them, you get to start again with respect to risk. Also, as the profits rise, you can start to get positions that are funded by locked in profits instead of your own capital.

Finding a bottom, then sinking in some serious capital, will let you earn a decent incremental revenue without much effort... at least until some large downturn starts to remove you from the market.

At that time, assuming you've moved the stops up a little, you'll end up with some nice gains to your capital to offset the loss of income.

I guess there is always the chance that interest rates will change, but until then, this is my long term goal.

I only hope Kramer is right. If we've hit bottom, then it will be "easy" to buy into uptrend days... over and over again.

Saturday, January 26, 2008

Forex Trading Wish List

Well, once again it is Saturday. There is no trading at all today so I have some time to reflect on wider issues. So, as someone who wants to trade full time for a living, I am feeling the need for the following:

  • A nice large workstation including a comfortable reclining chair. As an active trader I can find myself sitting at the keyboard for many hours at a time so I might as well be comfortable while I do so.

  • A fast and light whisper quiet computer. Listening to noisy and raspy cooling fans all day long cannot be good for the ears in the long term.

  • Multiple large flat screen monitors. Trading a currency well requires an awareness of technical issues across charts in various time frames. Having them all visible at once would help.

  • A small cable ready television to watch CNBC during trading periods. It's very helpful to associate stock and Forex movements to news events. You can develop an understanding of how news affects stocks and currencies.

  • A wireless mouse and keyboard. This is certainly not a necessity but it is very nice to be able to avoid the confines of a wired setup from time to time.
Well, it looks like it is time for me to quit fooling around and start making some money -- especially since it is apparently already spent.

Friday, January 25, 2008

Forex Trading Review

So, I've been practicing my strategy using a micro-account for months, and it's time to up my game and start trading for real.

I capitalized my account on Thursday evening and have been playing the AUDJPY with a more serious dollar value for the last two days. Here is a summary of the mistakes I noticed myself making over this period:

  1. Discipline breakdown. I broke discipline and acquired too many open short positions as I was predicting an eventual downturn. Actually, I was afraid of it and wanted to be protected from it, but the result is the same. Lesson -- stick to the plan.

  2. Too impatient. For quite a while the market was moving very slowly. I tried to push capital into the market and forced some trading. This was a mistake. Lesson -- stick to the plan.

  3. Too protective. I was overprotective of my open long positions. Stop losses were placed too early or too close to market prices. This accumulated with my strategy of acquiring in-profit positions. Lesson -- adjust the plan.

  4. Confused. With a long position trading sub-account and a long position carry sub-account, I need to use different strategies for each. I got confused and used my grid strategy in the carry account as well. Needless to say this was not conducive to accumulating profitable carry positions. Lesson -- stay focused.

  5. Buying tops. With gridding strategies it is easy to buy at the top of price spikes. It is necessary to factor this in when setting stops (see point 3). Lesson -- adjust the plan.
In summary, trading with some real money for a period of almost two days has me up $1. While pitiful, I'm happy to not be negative while trading in such a sloppy manner. Fixing these errors, with the size of positions being used, would have me up $20-$40 over this period. Lesson -- do it right and make some useful money!

I don't know if what I'm describing will be helpful to anyone, but I'm putting this out here for my own benefit. Of course, if you can learn from my mistakes, that would be great.

Double Top Warning

It isn't here yet, and that means it may never arrive, but we are currently looking at a potential double top on the AUDJPY.

This means that the DOW could also be poised to give up some recent gains.

Obviously, the DOW can do what it wants, but if you are seeing gains right now and are thinking of jumping in, be wary.

Personally, I'm hoping for the downturn. If it happens according to "my" chart then it means that I'm able to take advantage of the movement. It also means that the AUDJPY will be "on sale" as it will eventually rise again. It will always rise again as long as the carry trade remains associated with the DOW.


The rollover continues...

While anything can happen, ignore such signs at your own risk!


I hope you were paying attention this morning...

The market has now made a double top and reacted to it. The DOW has followed/driven the AUDJPY (since I'm sure the overseas markets have a say in the matter too) and once again I have a strange feeling of "control" which is certainly misplaced.

Wednesday, January 23, 2008

Earning While Sleeping or Catching The Top

This morning I wake up to verify that I've made about 30% of the NAV (net asset value) of my downside trading sub-account. Sweet!

How did I do this?

I have been charting the AUDJPY for several days. There is a clear down trend and at 7:30pm last night the price touched the top of the trend. From there I'd been able to accumulate short positions, setting protective stop losses before opening up another position.

1hr AUDJPY with trend lines
Needless to say, I ended up with a large portion of my account value in sold positions, without assuming undue risk.

If the trend lines hold, and I hope they do, I'll be accumulating long positions at some point later today.

NOTE: The chart is a bit squished and perhaps complex, as I've got trend lines based on various high and low points, two different averages, one MACD, and some Bollinger bands. However, I've highlighted the significant top touch that set off my sell strategy.

Monday, January 21, 2008

Monday Forex Thoughts

Well, I was able to successfully navigate the downward movement of the AUDJPY overnight. It's always a pleasure to wake up to a large degree of pippage! Of course, I sunk a few positions with protective stop losses before retiring for the evening.

This morning, the AUDJPY is bouncing around the 91.36 resistance point. However, a double top has formed on the bounces, so I'm starting to suspect we'll get some further downward movement.

Looking at various time scales I don't see a channel bottom to run into at this point -- so we are likely to drop down to resistance levels if we resume our downward movement.

I'm poised to enter the market if we break downwards.

UPDATE: A few moments later...

UPDATE: Of course, it's never easy, here is enough resistance to make you second guess the action...

Friday, January 18, 2008

Is It Bigger Than A Breadbox?

This was gold!

Poulson, while trying to avoid questions about the exact size of a proposed stimulus package, answered "I don't want to play 'is it bigger than a breadbox?'"

It's hard to say what the DOW (and hence the AUDJPY) is going to do with this. Obviously, it's better for the economy than not having incentives, so it must have some impact. It also shows the government is serious about the issue -- whether or not it will have the desired impact.

I'm currently watching a bit of a bounce in the AUDJPY. Perhaps people are buying companies that are going to benefit from the impending temporary increase in consumer spending?

However, when the president was speaking we saw a decline...

Finicky Forex Friday

Well, in a while the president will be talking about some type of economic stimulus package.

The question is, will the market think this is meaningful?

So far, the market is up a bit but moving sideways. I guess we are all waiting to see if anything important is going to come out of this.

My guess is that the market will rise a bit before the details arrive, but then fall in disappointment when the president spends his time in politics and doesn't really show any type of real ability to make a difference.

He's probably just playing politics, as usual, and he's relentless in pushing his own brand of nonsense concerning how the world is supposed to work.

Thursday, January 17, 2008

Thursday's Bernanke Dive

Well, as per my previous post, Bernanke maintains his negative signal status.

I'm happy to say I was trading the AUDJPY downwards today. I don't usually trade the downside, as I don't like the chance of being caught in a negative interest income position, but with Bernanke on the microphone, I just couldn't resist.

I also had some very well behaving trend lines on the 1hr and the 5min charts. With both charts suggesting a drop from top of trend to bottom of trend, and Bernanke speaking, I got in at the top and got out at the bottom as the day ended. A very nice day...

Profitability rating: ~10% NAV

If only I wasn't trading a nano account (when I'm profitable anyway)!

The Bernanke Signal

If you haven't noticed, Bernanke has turned into a Forex signal.

The market will rise, anticipating that he'll say something useful, or helpful, but then he actually starts speaking and we get a precipitous drop in prices.

Of course, when rate cuts are announced we will get a momentary spike, but it will only be lasting if the rate cuts are deeper than the market has already built into prices.

Keep talking Bernanke, I've got a short position!

Wednesday, January 16, 2008

Fundamental Forex Guesswork

Okay, so during the NY trading session today I did manage to get some AUDJPY positions protected under a stop loss.

What I'm hoping, and I'll try to convince myself via fundamental issues, is that the foreign markets will rise based on US news. You see, the US economy came out luke warm today. Inflation didn't seem to be a big issue and various sectors were weak, but nothing was catastrophic.

This means that the Fed will apparently have no trouble lowering interest rates going forward.

So, we have competing issues. On one side we have a non-terminal US economy even though the US appears in the throes of a mild recession. On the other side we have the potential for a weaker US dollar because of expected interest rate cuts.

Anyway, as I said above, given the non-news out today, the world economy hopefully won't be seen to be mid-flush as of yet. This should let other markets take a small ride and possibly allow me to accumulate a few more protected positions.

As always, the alternate is that my stops are hit and I simply wait for a chance at an upward trend on another day.


I was frustrated to see that the double spike near the end of the trading day turned into a trend line. There didn't seem to be any good reason but I guess there never is. We'll see if that line will break. If it does, I'm expecting some upward movement from the break point.

Surprising Down Trend

Buying AUDJPY Under 94.00

I don't know about anyone else, but I'm excited to get my hands on the AUDJPY at current rates.

At the risk of repeating myself, since most visitors are new visitors, this is a great time to acquire small positions, building size as they become profitable and have been protected with stop losses.

Though it isn't easy, I've been working at bringing down positions that were purchased above current levels. Maybe trading a profitable position for an unprofitable position and then repurchasing on the next large downward movement.

Am I willing to call a bottom? Not a chance!

Tuesday, January 15, 2008

Turbulent Tuesday - AUDJPY Opportunities

I was on the road today, so I didn't have to witness the inevitable slide in the AUDJPY as the DOW searched for it's navel.

However, I was back in my technology haven in time to notice the AUDJPY bouncing off the 93.80 resistance point.

I don't know if we'll be on our way further down, but we are getting to historically depressed levels. Now, what to do. I'm putting in a little bit here, with the idea to put in more once I get this stake behind a stop loss. I'm hoping for an overnight bounce due to overseas trading - even though tomorrow might be another dizzying day on the DOW.

In general, whether or not you want to follow suit, I'm going to start considering the AUDJPY cheap, but at the same time realize it could drop like a stone. I'll take little pieces at resistance points, perhaps in the evenings after the DOW has wreaked it's havoc.

I really want to end up with some buried positions, here in the low 90's or further down, when the AUDJPY is back in the high 90's or 100's some time in the future. What could be better than having a large profitable carry position protected by 1000 pips or more once the recessionary downside is behind us?


After an initial bounce, to about 94.55 the AUDJPY has dropped down to a lower resistance level. Remember, if you want to get in, get in with sizes you can hold indefinitely, as there is no assurance of anything approaching a bottom.

Once a bottom does eventually occur, even if false, you'll be able to set stop losses and safely get stopped out during any downturn. In the mean time, if you jump in with too much, too often, you'll eventually end up with a busted account!

Sunday, January 13, 2008

Sunday Forex Reflections

Today I am wondering if I'm trying to do this the hard way.

Trading the AUDJPY is pretty perilous. There are all kinds of stock market driven perturbations that make the price gyrate around in a mad frenzy. This makes it difficult to get some funds into the market without risking some massive continued downturn.

If you don't take your profits when they are presented, you risk seeing your profit quickly erased... with the chance for a return to profitability at some vague point in time somewhere in the future.

Other currency pairs, that don't present a carry opportunity, could also be traded. They will move around based on more traditional influences -- which might be a little slower moving and easier to capitalize on.

Thursday, January 10, 2008

A Winning Forex Trading Philosophy

I'm starting to believe that being successful trading Forex has more to do with your philosophy than anything else.

You cannot trade based on how much money you want to make. You cannot trade based on how much money you need to make. This means that you can't push money into the market, desperately searching for opportunity, risking a large portion of your net asset value in the process.

You must trade lightly.

When you trade lightly, you simply let the market give you the returns that it is willing to relinquish to you. Quite simply, it is not a process of taking.

If you can change your mindset it will give you a lot of peace compared to the level of stress that many generate. Dip your toes into the market, following your strategy, with a level of investment that simply cannot begin to raise your blood pressure.

A little bit of market wisdom, developed with experience, combined with an appropriate philosophy will generate profits. I know that this is difficult to consider or even believe in today's rational calculating world, but the only way to win is to not fight the market. It is way too big for you.

Stop trying to generate winning positions and simply let the market give them to you.

Wednesday, January 9, 2008

Forex Gridding Strategy

Okay, I'm pretty much sold on this idea. Here are some advantages to gridding the AUDJPY on the upside:

  • Each purchase represents a carry position while waiting for it to become profitable.
  • Extremely limited downside risk when set up properly.
  • Excellent earning potential in choppy market conditions.
Using my nano-account here is what I set up last night. Place a limit order for NNN units every 2 pips. When an open position is 15 pips positive place a stop loss locking in 5 pips of profit. When an open position is 20 pips or more positive then adjust the stop loss to 50% of the positive amount.

Once you have defined your setup, as above, you can calculate exactly how many open positions you may have to carry. So, in the above, you will only be left with 7 open positions at a maximum. This is because if you held 8 positions the bottom one should have a profitable stop loss set on it.

Of course, doing things by hand means that you'll have to close out your grid to avoid acquiring additional risk. It also means a fast movement could open a lot of positions before you have time to set stop losses. You can combat this by setting a static profit taking point, but given the small unit size of this particular setup I wanted to let my winners run.

I'm now considering a slightly different strategy:
  • Place a limit order every 6 pips (spread is 4 pips).
  • Place a take profit at 20 pips.
  • Set the size of your purchase at a safe size.
  • Wait for the market to move in your direction and collect your profits.
Sounds pretty cool to me. The only thing to watch for is the situation where the market moves partially through your grid, but not out of it, before moving back down. If you enter more positions you will be increasing your risk. You may just have to be patient!

As I was creating this post I got VERY busy setting profitable stop losses on my current open grid...

Tuesday, January 8, 2008

AUDJPY Stop Losses Hit

Well, positions entered overnight and this morning have now been stopped out. We are approaching the SMA-50 (simple moving average over fifty measurements) at approximately 96.37 and we are likely to enter a buying zone soon.

Obviously, the risk is that it won't bounce, or worse, that it will bounce, give us false confidence, and then fall like a rock.

Picture taken shortly after post written
In any case, I'll be taking small chunks with the idea that accumulation is just fine as long as the positions are small enough.

Update - the apparent bounce collapses
Perhaps this will be interesting or informative. Notice how the upturn in the previous image has now been reversed?

And now we have a potential bottom/bounce, for this downward movement anyway, with some added trend lines. Of course, trends can be broken any time, but they do seem to work as predictors often too.

Possible trend line hit and bounce?

It's been a few hours since I started this post. Anyway, the AUDJPY is still trading in the trend lines. It's sweet to trade once you've established some trend lines -- as long as it stays in those lines.

At the very least, you'll notice resistance when the price hits these lines in the future (either top or bottom). There are other resistance points, of course, and it helps to know what they are too so you can trade wisely around them (after breaking or failing) instead of blindly taking your chances as they approach.

Another update which demonstrates the price bouncing off the trend lines previously drawn above. Now, whether this bounce is going to lead to a rally, or whether it will soon drop precipitously, isn't the important point. The fact that prices bounce around from what might at first appear to be arbitrary trend lines is the key point to take away from this...

Trend line proves it's value!
Of course, I bought another small chunk at the touch point. It's either going to be an accumulate position if the price drops down or a great buy if the trend holds.

Minutes Later...

The price has since dropped below the trend line. I'm now very happy I picked up only a small carry style position.

AUDJPY Bounce?

Well, it looks like it is going to bounce up. On the chart below you can see the AUDJPY dropped to touch the SMA (simple moving average) around 97.75 about the time I posted about being stopped out.

Since I was taken out of several positions, I did sneak another one back in and I do still have a few that are still underwater.

Recent AUDJPY Movement
Whether or not it will mean anything, the 1hr chart is showing a nice fat double bottom situation.

Monday, January 7, 2008

Crowing Too Soon?

I have now been stopped out of my AUDJPY positions (see previous post).

Now, will it continue to go down, and make me happy, or will it reverse and drive upwards now that it has shaken me off?

Profits in the Forex are a truly wily game.

AUDJPY At 100 Pips

So, if you followed the advice in my last post you'd be sitting pretty with some AUDJPY carry trades profitable to the tune of 100 pips.

So, while I'm sitting on a nano-account, if things continue to go up I'll be able to accumulate more and more position at very little risk. Why? Because all of my positive positions have a stop loss set at a point that ensures that I cannot lose money on those positions.

So, while I might be stopped out of my carry positions, I can always add one more small chunk to my holdings once the last has become positive. It's great. Using my locked in profits I can afford to hold more and more carry positions until the market reverses again. It could be in an hour, perhaps tomorrow when the DOW trades, or next month.

Until then... I'll happily accept my interest payments. Cha-ching.

AUDJPY Carry Loading Time?

Well, it's always impossible to call a bottom, but given the amount of downturn recently, it might be time to start loading up on a bit of AUDJPY.

For example, you could enter some minor positions right after you witness some support after a little bit of free fall. Whether or not it's a bottom does not matter as long as you are investing small enough quantities with a plan to hold on long enough to see an eventual upturn.

Alternately, while the price is relatively low, you might want to set up a grid to catch any eventual return to traditional prices.

You might consider doing something like the following:

  • Set a purchase of some number of items at each boundary of N pips.
  • If the amounts are small enough and the prices low enough, then you'll be able to hold the position indefinitely.
  • Set a take profit for each purchase at a level that lets you hold any other purchases that occur prior to the take profit.
For example, you might purchase N units every 10 pips with a take profit of 50 pips. This means that during an upwards spike you could acquire up to 5 purchases at a time, maximum, for whatever potential downturn you may encounter.

If you don't purchase small enough quantities you'll risk large losses or risk losing money as the grid purchases are lossed-out prior to another eventual upturn.

Avoid getting greedy, take small enough positions that you can hold them indefinitely as carry trades, and then set up strategies guaranteed to make you profits as the price goes up and down over time. After all, that's your only sure bet, that the price will go up and down over time.

Of course, on the risk front, with the AUDJPY being driven by the DOW, it is possible that we are going to continue on a downward path for months, as the US figures out whether or not it is going to slip into a recession.

Wednesday, January 2, 2008

Margin Call Today

Well, it had to happen. After I was forced to make a withdrawal from my account due to the fact I was surprised that someone had given me an NSF check. There simply wasn't much capital left.

This means that any sudden moves, as happened today, would cause my account to run out of cash. Well, it did.

It's not fun, but at least at this point we are talking about a very small amount of cash. So, though I was considering myself a microtrader, I now am forced to consider myself a nanotrader.

We'll see if I can manage to crawl back out of the depths and get my feet under me again. Wish me luck!