Buy AUDJPY On Dips?

It's very plausible that the RBA (Reserve Bank of Australia) has started the slow process of moving interest rates from emergency levels to normal.

RBA Starts Rate Rises

We'll want to see what happens over the next couple of months in order to confirm this analysis. However, from now on whenever the markets are panicked about the latest downward surprise, it might be time to dip your toes in.

We're staring at the bottom of a long term AUDJPY carry trade cycle.

I know that Japan has made some noise about not wanting a weak dollar -- but you have to look at the size of their debt load before you start to worry about them being willing or able to withstand high interest rates.

The recently touted alternate carry trade, consisting of the AUDUSD, is much more precarious in my opinion. It's great in the short term. However, in the longer term, perhaps a year or more, I think you'll find the greenback starts to get supported by higher interest rates. How else will the USA entice foreign entities to continue to buy and hold debt once the worldwide spate of risk aversion fades?

Personally, I think this is a good time to raise capital and slowly work on getting carry trades protected by an in-profit stop loss. Presumably, over the course of months and years, we should find that 80.00 represents resistance, then perhaps 85.00, 90.00, 95.00 or more. We'll probably have Yen intervention from time to time as well and language designed to scare us out... but if you keep an eye on the fundamentals you can probably view these as opportunities to place more capital into stop loss protected profitable trades.

Also, if I was managing a countries financial reserves I think I'd be looking for currency trading opportunities involving countries that are both economically sound and likely to continue to raise interest rates over the years as inflation gathers steam. The general business cycle is probably not going to disappear this time around either... regardless of all the hyperbole in the mainstream media.

Trailing Stop Strikes

Well, whether it is a small correction or not I have no idea, but the USDJPY has gone down enough to remove me from the market. So, my profits have been pocketed and I need to look for opportunities to get back in.

The same is true for my AUDUSD holdings.

I'm starting to look into the USDCAD, in the long term, but there is always the risk that the US dollar will take a dump when the Tuesday interest rate news comes out. It would be hard to imagine that we could get to parity, or that we could stay there for long, but there is always the chance that the war in Iraq will push us there. I see an incredible load of debt being heaped on the USA combined with an inevitable drop in spending when the war ends.

On a different note, I find myself sitting on the sidelines. I don't like being on the sideslines, but I don't want to keep throwing money at a market to see if I can a place where it will stick. That costs too much. Maybe I'll investigate some carry trade ideas. For example, the EURTRY is appealing, though very risky.

Riding the AUDUSD Upswing

I've been riding the recent AUDUSD increase.

Now, I have some competing issues on my mind. As the AUDUSD hits new highs I have to worry about corrections. However, if this instrument is going to continue rising, I'd hate to not maximize my participation. See my previous post about having to play to win.

Anyway, while a more experienced Forex trader might not have to "figure this out", I've finally stumbled on a strategy that I like.

As a current position moves into some level of profits I'll slap a trailing stop on that position. This locks in some quantity of profits, at my choice, that I can relax about no matter what happens in the market.

With that profit locked in, I can enter a new position and immediately set a (trailing) stop on that as well. This new position can have a total risk less than the locked in profit above though it doesn't have to. In any case, this lets me choose the risk level I'm taking.

If the new position gains enough, I can adjust the initial trailing stop, if desired, to lock in more profits, and then open up another position. This way I can ride an up trend with increasing participation while having any losses limited to a precise value on a single open position.

Of course, this can be modified, if I feel like being riskier, but since we are near recent highs I don't feel like taking larger bets.

Every Day Feels Like Sunday Baby

I don't know if you'll remember it, but there was a commercial on CNN a while ago that had this song. It would talk about stocks, making money and how great trading the NASDAQ was. Something like that anyway.

Well, when the markets are moving in your favor, every day feels like Sunday.

Yes, indeed, my pip grinding slogfest has been ongoing since Friday, but things have improved so much since then that I've recovered all my original losses and have been pocketing "here a pip, there a pip" at all hours of the day and night.

For example, at 3:00am, I'm catching an upswing or topping up during a short term downturn in a strong trend (e.g. AUDUSD).

Anyway, I don't want to give the impression that this is easy. It goes against every instinct in your soul when you see your positions dropping, your margin reaching dangeroud levels, and candlestick after candlestick dripping red. Stop loss strategies or not, at some point you need to be able to jump into the tide and try to start swimming... and you will have to wonder if every correction is the start of another onslaught.

Oh my, wherefore art thou precious capital?

I guess if I wasn't playing around with an extremely leveraged (200:1) tiny account with hardly any funds that life would be easier. However, do I have the discipline to not get into situations of margin mismanagement? Can I jump into a larger balance? What about opening up multiple accounts in order to segrate risks or risk strategies to appropriate capital levels?

Anyhow, I'm happy to be crawling out of the basement, but I want to try and capture the raw emotions, the ups and downs, that trading can evoke.

Trade Free Weekends

It looks like The Rookie has survived another week. Although, I have to admit I'm holding my breath on a few underwater instruments this weekend.

In particular, the USDJPY took a heavy knock on the jaw and is lying face down waiting for the three count. Maybe the weekend will be long enough to let the coach clean up a few wounds while the dollar catches it's breath for the next round? Get up Rocky, get up!

The Australian dollar was showing a little strength. Better yet, the AUDUSD was bobbing up and down and I was able to shave some pips here and there right up until the last couple of trading minutes. A couple of extra dollars in the account can make a big difference -- not so much for the value as for the extra margin buffer.

Personally, I was disappointed by the EURCHF. Cheffy, my pet name for the CHF (pretty clever, I know) was busy chomping on the Euro's nuts from the moment the US jobs report came out. Come on, we don't need the Euro to be a surrogate for the US dollar. Anyway, I'm just grousing because it would have been nice to see a little more traffic going in the opposite direction to the recent stampede.

Speaking of stampedes, the EURUSD was feeling pretty uppity. I'm afraid a large portion of my potential gains were penned up via some, in retrospect, cautious limits. That's really too bad, but as my last post said, I got some learning out of that too. Maybe one of these days I'll know enough to catch a bit of ka-ching here and there.

Heck, I guess I was spread all over the place. Pretty aggressive for a complete rookie if I think about it. Anyway, the GBPUSD was a bit ambivalent about the recent news. Sure, it left the dollar in the dust for a while, but the pound suffered from a guilty conscience and came back to offer encouragment. However, by the end of today it was tired of waiting up.

I'm thinking that once I can clear out of my current positions I'll move to trading within a basket of somewhat offset instruments. Heck, I'm sure I can figure out tons of ways to give away bits of money here and there. Most importantly, yes, it's still fun. I'm still stuck to the screen like a fly on a lightbulb. Yes, I am aware that usually this isn't too good for the fly. I'll change my analogies when I'm a cash magnet.