Longer Term Charts

Recently, Oanda has added a weekly period to their proprietary trading platform. As you can imagine this thing is not very exciting to watch on an active basis. However, I think there is predictive value available here.

For example, though it is difficult to catch a top or a bottom at this level of observation you can certainly see longer term bollinger events. Here is what looks like a bounce on the CADCHF.

A retest of recent highs near 0.9950, if that happens, will put 500 pips on the table. Is it worth waiting a month or more to earn some of that? Alternately, if you expect it is going to get back near those highs do you think there will be some excellent buying chances over the next month as price works its way there?

You bet!

The longer term play might involve a smaller position. You'd have to be willing to take the chance that news events will change the course of action and possibly be willing to endure hundred pip losses for weeks.

The shorter term plays, perhaps on the 1 day, 4 hour or 1 hour might be a bit more lucrative. If you are fairly certain you know what direction the price will be moving and the charts provide a nice entry setup then you may choose to put a bigger position into play for a relatively short period of time.

Just be careful. Long term charts can move a long way in the wrong direction even if you are ultimately proven right. You'll need discipline to hold on and to let go at the appropriate times.

Robot Thoughts

It's getting easier to look at a chart and figure out what to do. For example, recently I've been using bollinger bands on the D1 and trading infrequently when something presents itself.

It's more difficult to turn this intuition into an algorithm and quantify it. I suppose I need to come up with clever ways to localize a local bottoming or topping event and then characterize the shape of it.

What I am relatively good at is finding moments of extreme extension. Unless a major new trend is about to occur these can indicate reasonable entry points. For example, if the price is getting "far" away from a moving average and price action is respecting a boundary or throwing a good candlestick event then a robot can take action based on well defined situation.

There are also "warnings" available. If the price is moving very fast then what is considered a good entry point may be a lot riskier. This type of thing can be examined across multiple time frames to detect a larger scale event while trading on lower time periods.

The latest thought and robot experiment is to collect these little nuggets of interpretation. Accumulate the "value" of a list of reasons that it looks like a good time to trade and compare to the "value" of those reasons that a trade should not be entered.

To illustrate, let's assume our robot is "thinking" about entering a long trade on the USDJPY pair:

• Bid price is 8 pips below the m15 moving average (+ 0.08)
• Bid price is touching the lower h1 bollinger band (+ 0.10)
• Bid price is within one pip of middle h4 bollinger band (+ 0.05)

At the same time we have some hazards:

• The h1 bollinger band was recently pinched
• The previous m15 candle dropped 25 pips

Well, never mind then, a nefarious "something" is happening that the robot should have the sense to realize it doesn't understand. Wait for a clearer situation.

Perhaps many robots would be better than people expected if they were able to look for more reasons not to enter a trade?

Trader Interrupted

Once again, apologies for letting my blog languish.

Since I last posted Oanda has introduced an MT4 client. While this is good news for robot programming it's unfortunate that you have to trade in minimum amounts of 1000 units -- at least if you are trading using the MT4 client.

This has put my theoretical robot strategies out of reach on Oanda's MT4 platform as they depend on small incremental trading strategies. However, reading back a few posts, I think I should resurrect the "profit is my density" concept when I get the chance.  Back testing is free...

Anyhow, hoping to post more and more often too.

Topping Out?

It looks like the AUDJPY may be topping out. The following 15 minute chart shows a return to a previous high with something that could end up being a head and shoulders pattern emerging.

However, the 3 hour chart is showing a possible continuation and has been trending upwards for quite a while.

Open up your trading platform and choose your play...


Play safe!

Return Of The Robots

Once again I am purely a robot trader.

Part of the reason is that my day job does not allow me to use company Internet or computing resources for the purpose of earning revenue. This is a sensible restriction even if my use would only have been to let me view charts and enter trades.

Now I use the Internet at work purely to watch how my robot is doing. I don't enter trades, I can't access or change the robot's behavior during the day, so really, I'm watching buy and sell events for entertainment purposes. As long as it isn't chewing up bandwidth or interfering with my productivity that is alright.

The latest incarnation of live robot is a bi-directional trader. The theory is that at any point in time prices are going to move in some direction for a while and then in the other direction. This back and forth movement will continue endlessly.

Conceptually, break the bi-direction robot into two unidirectional robots.

With that done, admittedly, it is possible that one of my robots will run out of ability to trade as the price moves a long way in the wrong direction. However, my other robot will be earning a profit during this time. Additionally, I am certainly able to manually reallocate resources between these two robots if and when conditions support the reversal of a large movement.

With the volatility of last week this reasonably cautious robot did fairly well. However, this robot isn't suitable for professional trading as it is allowed to hang onto negative positions for a long period of time.

Perhaps the most important aspect of this robot is the sound it makes whenever it closes a profitable position. Hearing the ka-ching sound whenever there is price movement up or down is very rewarding... as it happens so often.

Weekend Notes

I've been through a lot of (non-trading) issues since I last wrote.

My family and I have moved halfway across the nation, we've gotten new jobs, and had to take care of a million minor items that occur when you relocate your life. Sorry for the lack of updates.

I have been doing a little manual trading here and there.

The AUDJPY has been failing in the 87.xx range for most of this month. Greece, Goldman Sachs and various other items are scaring risk takers while continuing signs of improvement placate them. I'm expecting an eventual spike once the 87.xx resistance is overcome -- so I'm very willing to open long positions when we pull back into the 83.xx, 84.xx or 85.xx zones.

On another note... trading seems to be getting "easier" as time goes by.

AUDJPY: Profit Is My Density

No, that's not a typo. It's a rip-off of a line from the Back To The Future movie. Anyway, this post is another in the series of theoretical considerations with respect to various robot building strategies.

In this scenario let's consider fixing our maximum total position size across a specific price range. For example, perhaps we are willing to purchase 10000 units per 1000 pips (remember, I'm generally talking about small account sizes). For Oanda traders this will run you up to about $175.00 in margin.

If you want to limit your overall positions to 10% of your account capital then you'll have to ante up $1750.00 to play in that 1000 pip range. Obviously, a large account value will either give you a larger playing field or a higher density of positions if you don't expand the playing field.

Are you still with me?

I know, at this point things are pretty boring. In fact, we're looking at a simple grid that we can play every time price passes through our space. However, this gets a bit spicier if we can find a way to optimize the open and close activities.

For example, what if we can compress our position openings towards the low end of a short term movement? Similarly, what if we can compress our position closings towards the higher end of price movements within our price space?

If you have good ideas for these processes, then you are set!

My thought is to adjust the probability of closing profitable positions based on the amount of profit a position embodies. For example, perhaps a position with a 10 pip profit has a 1% chance of being closed while a 20 pip profit has a 5% chance of being closed -- per bar. What would this do to the expected profit per position? Are some probability formulas able to provide much better returns?

Remember, we're talking about trading a maximum density of positions while prices move through our trading space. We know our total position, our total risk, and simply want to allow our winners to run as much as we can based on historical price movement patterns. Basically, we know that prices range for a while and then take off up or down. It's the multi-day upward movement that we want to catch... letting go of positions slowly during smaller moves until we can eventually latch onto a bigger move.

I'm probably about 85% into building a new robot based on this concept. I like the measured aspect of this on the risk side. I like the less definable profitability expectation -- it's beyond my math skills at any rate -- which is suggestive of an ability to preferentially capture larger profits. I also like that it should continue to eek out smaller profits if the price decides to languish in a smaller range for some period of time.

Maybe I'll be able to fire this up on Monday.

AUDJPY: Range Or Reversal?

The AUDJPY has had a nice run just recently.

However, the 1HR is showing a small double top. Obviously, we might be looking at the beginning of a range discovery action or perhaps even a reversal if we get renewed panic concerning Greece or similar situations.

Be patient and look for good opportunities.

Now if only I can take my own advice... ;)

AUDJPY: A Change Of Mind

Finally, something has happened to lift the pall from the AUD/JPY market.

What happened? The Australian economy showed signs of heat. We have recent employment numbers that absolutely blew away expectations.

Apparently, today, the AUD/USD moved from a value that gave a 25% chance of a hike in march to a 50% chance of a hike in march.

Do you remember me talking about the need for a upside surprise to start movement off a possible bottom? In order to continue upward all we need is some nice stats from China and the lack of a new crisis of confidence.

There is a lesson in this -- as if you don't know this already.

When the world has given up and this has been priced in (baked in) there will be a good chance to grab an upside move. The employment report could have been traded by taking a position with a reasonable stop prior to release... if you thought employment was going to be strong (hopefully because you had insight or evidence instead of just raw gambling).

My insight offering would be that a ship the size of China doesn't turn around overnight just because of some tightening. Alternately, tightening credit in China with an aim to keeping growth at 8% or so isn't tightening in the same sense that we'd consider it in the western world.

This was an obvious and big miss...

What I see is an opportunity to figure out some of the blind spots that the big money has -- let them spend their powder moving the herd and then pick a good point to have their mistake revealed, such as Australian employment stats, and take a stop protected position on it.

AUDJPY: Oh Oh

While I've been talking about the cake being baked we've just done nice big double top over the course of October 2009 through February 2010 on the daily charts.

Obviously, this doesn't have to "fire" but it does invite a big panic drop to retest the July 2009 low of 70.75 or so. Considering today's rapid plummet of 300 points at this point who can say.

As I noted on my last post I do think people are being too pessimistic. However, they can panic and be pessimistic far long than I can stay solvent if I bet against them. Be careful out there.

AUDJPY: The Cake is Baked

Well, the RBA just decided not to increase rates.

Recently, China decided to tighten up capital requirements for lenders.

Also, there has been talk of taxing or otherwise restricting carry trade activities.

Lest we forget, recent news in Australia is mixed.

The US market has been skittish.

Emerging markets have been very skittish.

So, what am I trying to say?

I'm thinking the cake is baked. You might want to let the dust settle from the RBA decision -- but I think we have become overly pessimistic. We are so pessimistic that all the bad news and presumptions of bad news should soon be baked into the price of the AUDJPY.

All we need now are some upside surprises...

UPDATE: It's thursday morning and we are having a nice panic day apparently due to a less than stellar jobs report. I think the panic is unnecessary but I do understand the lynchpin that is being attacked here. If jobs don't come back then how can the economy recover? However, I think they have it backwards, as we do see spending continue to recover, which should after a lag lead to jobs. Obviously, the market can stay irrational far longer than you can remain solvent, so don't jump in just because you have a long term belief (as I do).

I guess the cake is baking, but not yet ready to come out of the oven.

AUDJPY: Signs Of A Bottom?

First, I have to warn you, I'm eternally bullish on the AUDJPY. This means I'm wrong on my predictions a fair amount due to my long term viewpoint.

With that said, I've noticed a chart sign that implies some possible upward movement.

Take a look:


It may not be easy to see, but notice how the recent tails, at 09:00, under the last few candlesticks did not project below the closing prices during a recent, at 03:00, previous low?

Up until now, for days now, we'd see the close of each new low at the level of the tails of previous lows. This doesn't mean we can't go further down -- especially during the Asian session. However, it does mean that we have the potential to be running out of downward pressure.

If so, whether it is short lived or not will depend on upcoming news and the impact this has on the sentiment of traders. As you know the political unrest in the US and the tightening in China has set the mood negative lately.

UPDATE: Boom. Instant downward movement to invalidate my sign. The fact it showed temporarily may hint at trend weakening. We do have a fair amount of gloom and momentum to work through.

UPDATE: It's now 23:00 and AUDJPY has just risen to just under 81.60 which would seem to suggest that downward pressure had indeed been flagging. Of course, nothing goes straight up or straight down... but trading 100+ point moves is rather nice.

AUDJPY: Poised?

I don't have time to snip a chart or anything, however I'd suggest taking a few moments to analyze the AUDJPY.

What I see is the potential for a so-called "big W" on the 3 hour chart. You'll notice the right side of the W has a double bottom. If we do get the full "big W" we should see some dramatic upward movement over the week.

Fundamentally, inflation, employment and other indicators in Australia seem to indicate the need for the RBA to continue to increase rates. If any more hot growth news comes out prior to February we may see speculation on a 50 basis point increase instead of the widely expected 25 basis points.

In summary, look for a safe low-risk entry point if your analysis of the charts agrees (or even disagrees) with mine.

UPDATE: If you disagreed with me you'd be happy with this morning's (Jan 20) breakdown... though so far the next resistance point seems to have held.

AUDJPY: Technical Analysis

Well, my posts are few and far between these days.

In case anyone else is still following long here is some good information on the 3hr AUDJPY.

We have a nice symmetric triangle going all the way back to November 25th.

See?


I'm expecting this to break (upward) and then run into a downward sloping resistance line on the 1d AUDJPY. However, we'll have to wait and see. I've been wrong (more than a few times) before.

UPDATE: Here we have the price dropping, on the 1hr, giving us a good entry point. We can easily set a stop loss relatively close while targeting the upper boundary for profit. However, as there was news earlier, we may find that the support line yields to changed market expectations.


UPDATE: The bar isn't closed on the 1hr but it's almost 11:00pm ET and it looks like we are breaking downward at the moment.

Challenging Times

While I realize the world went through a bit of an unwind, before and after the Dubai incident, I've been busy with work and family issues instead.

Things have just been incredibly busy!

In any case, what with the volatility and unwinding that has been going on it's probably a good time to be inactive. I did manage to blow up my small discretionary account (my robots are far better traders than I am) but that's insignificant.

However, the big news, from my own point of view, is that I have some tweaks for my up-and-coming robot. Basically, I need it to detect a downward slide quickly and then decide not to waste it's risk capital on redundant positions.

Maybe I'll have some time to do some blogging and tweaking this week?

Trading Week Recap

I've been leery of letting BREAD (my primary trading robot) trade too much. I suspect prior tweaks have it taking too much risk. As such I kept it on a short leash and it only earned 0.9% for the week. Perhaps I'll have time to make some adjustments over the weekend.

On the discretionary front I was back down to a more reasonable 13% this week. Last week's 34% was probably some type of market movement vs trading style confluence. These thing happen.

In other news I have a new Bollinger Band based robot in the works. An early version of it was trading this week -- earning almost %1 as well. More trials and adjustments to look forward to!

UPDATE: No time to do anything Forex related this weekend.

AUDJPY: Ominously Flat

I'm looking at a short term chart, but the lack of volatility suggests that something is in the air.

Even with the recent good news from China things have been relatively lethargic.

The daily chart is also showing the potential to have a few down days.

This seems like a good time to manage risk.

UPDATE: This evening, while I was on the road, I see that we had a nice spike upwards, hitting my take-profit points and leaving me flat. Nice.

AUDJPY: Support Becomes Resistance

My last post showed a profitable overnight setup based on a week long support line on the 1hr chart.

Here, I've got an example of a support becoming resistance once it has been violated.

Take a look at the following 15min chart:


See the violation around 9:00pm last night? As an aside, this was a good point to try a well protected short. Overnight we tested a longer term support line (see my previous two posts) which held.

Finally, notice that recently this previous support line held as resistance just before 6:00am. I do expect it to be violated as the longer term support held -- but obviously we'll have to wait and see.

AUDJPY: Price Alert

Since I'm awake I thought I'd point out a price alert.

The AUDJPY currency pair is testing a support line.

A long tail break (closing on or above the support line) would still be a bullish sign.

Anywhere, here's a recent 1hr chart snip.


This is a good place to look for a trade. Good luck.

NOTE: See the previous post... it shows the support line valid since November 1st.

UPDATE: Upon waking this morning I see my take profit was hit and I managed to add 2% to my NAV while sleeping. Honestly, this is quite rare, but a good trendline (one that has been and does get honored again) gives you a well defined opportunity.


See how the violations are "tailed" and the line provides support? I got in at 83.21 at 12:38am and took profit at 83.70 at 5:35am. If I had of been awake I probably would have been nervous during the second testing after 3:00am.

AUDJPY Forecast

What the heck, I may as well jump out on a limb and let you know what I'm seeing with the AUDJPY.

Basically, if you look at the chart, we've had a good support line since the beginning of November.

Now, if I've got the right chart uploaded, take a look below:


Personally, I'd suggest taking a long position when the price approaches the support line. You can set a nearby stop and protect yourself from much by way of downside risk.

The only issue, for me, is that Sunday trading seems a bit wild at times.

UPDATE: Well, I hope somebody played the bounce...


It was worth it.