Friday Market Analysis

I am following CNBC regularly (via their web site) these days. I see many of the pundits advocating panic and doom. I suspect they all want to be able to claim they were right when we finally do experience some type of pullback.

However, these braying naysayers of doom really don't have much of import to say. All they really do is act as large forces on the emotions of market players. Everyone is appropriately skittish due to the massive bear movements over the last year or more. It's only natural.

All of these fools who only imagine one direction for the markets will be right from time to time. What they say is not important. What's important is to understand the volatility, or level of price fluctuation, and the amount of risk that this implies when you are trading.

For example, the odd negative number here and there doesn't mean all that much. This doesn't mean the market won't throw a tantrum, but it does mean that there could be a spate of good numbers in another week or two. These trends have variations in them as well. Perhaps because the media jumps on whichever bandwagon has the most passengers the market sentiment gets rapidly overblown.

So, sure, we could see some type of sell-off coming soon. So what? So, don't risk all your money on the notion that the markets, carry trades, risk appetite, GDP growth, corporate profits or whatever will only go up. In fact, cushion yourself by assuming a mini-panic could be right around the corner. Seriously, hasn't everyone been hiding under their sheets due solely to the fact that we're in September?

What am I going to do? I'm going to move more capital into my account. Any serious downtown represents a good opportunity to scale in. So, let it rain, I'm going to wait until all the overextended or panicked fools get forced out, then I'm going to take a peck at an opportunity here and there. Again, just make sure to nibble your way in at appropriate times.

Remember, fear and downward movement provides opportunity, but only if you don't assume you can predict the bottom and thus assume too much risk. When you aren't being pushed into making decisions by market movements you can make much better decisions.

So, early next week, fresh capital into my account. I can apportion this to my robot trading army (I know, but it sounds more fun this way) in small chunks as we come up to significant resistance levels. Unless the world collapses, and if it does my trading account will be the least of my worries, there will eventually be another upturn.

As a side note, I'm planning to make opposing robots this weekend. They will trade long and short positions in different sub-accounts. I expect that one of the two will be earning during up or down movements. I expect both of them will earn during periods that the market is moving sideways. You can't see it but I'm rubbing my hands together in a greedy manner -- think Mr Burns.

Good luck out there.

Market Rationality?

With some major changes happening on a global basis it's just possible that the forex markets will return to rationality.

For example, the Yen crosses (the carry trades) have been taking off like a shot today. I know I've been mooing about a possible bottom here and there in the face of mass panic and extreme volatility as indicated by the VIX.

Was that it?

I hope so, but at the same time there is a lot of economic funk to work through. We've got slowing economies, reduced earnings, ballooned government debt and a whole host of related irregularities.

However, simple economic malaise is not enough to roil the forex markets. They don't have to react in the same way as individual stock markets. If two countries are both going to drop into a recession it would seem that the currencies of those countries would react based on the relative differential between the fundamental shifts in those countries.

I'm not sure if that's clear, but it means that currencies will determine the difference, and change to that -- at least when the markets are rational. It would be great to return to that situation. I'm looking forward to trading in rational markets once again.

They are much easier to trade.

Daily Market Action

Every morning, upon waking, I open up my Forex trading platform and look for any major changes in the world of finance.

This morning, for example, I see that carry trades have had a bounce overnight.

So what, right?

Well, wait a minute here. Bounces represent opportunity. If you look at the 1hr GBPJPY or AUDJPY you'll notice some serious signals. Sure, the CCI, Williams %R and stochastics all moved north in the late evening, but just as importantly the price of these pairs started to show a bottom.

This would have been an excellent place to think about sticking your toe in. I use that phrase to make clear that there is every risk the market will continue to collapse after a false lull. However, those that don't freak out when the talking heads on the tube are mooing up a storm, have the opportunity to pull in some cash.

However, there is a bigger issue that I want to make you aware of. It is very common that the US and Asia will go in one direction while Europe goes in another. It's a natural turnaround point.

Just as Europe may wake up and find a sea change in the markets, so too can we. The end of the day, after Asia has had time to react, before the European markets open, if often a good time to act.

So, to be clear, if you live in Australia or Asia, the close of your markets represents a potential turning point. If you live in the US, you need to stay up until around midnight or so EST to see if the Forex markets will send you some smoke signals about a possible retracement.

Forex Roadmap

Do you have a roadmap?

Over time it is easy to lose your way. You may forget the current trading ranges of some currencies. You may forget long term position viewpoints that you had previously determined. Frankly, things get hectic at times, and you don't always have the luxury of spending all day reminding yourself about previous conclusions. Some pointers can be very helpful.

Here's an abbreviated version of mine:

Pair	Int	Type	Hist	Strategy Notes
GBPJPY	030	(L)	High	Trade -- expect GBP up long term
AUDJPY	020	(L)	Mid	Trade -- overloaded, reduce risk if possible
GBPCHF	017	(L)	Low	Acquire -- expect GBP up long term
EURJPY	016	(L)	Mid	Trade -- expect EUR down long term
GBPUSD	016	(L)	Low	Trade -- buy on 1 day lower bollinger hits
AUDUSD	013	(L)	High	Trade -- expect USD up long term
CADJPY	009	(L)	Low	Acquire -- expect CAD up long term
EURUSD	006	(L)	High	Trade -- expect USD up long term
EURCHF	006	(L)	Mid	Trade -- expect EUR down long term
USDJPY	005	(L)	Low	Acquire -- expect USD up long term

Pair	Int	Type	Hist	Strategy Notes
EURTRY	062	(S)	High	Acquire -- sell on large spikes
EURAUD	015	(S)	High	Acquire -- sell on 1 day upper bollinger hits
EURGBP	006	(S)	High	Wait -- consistent uptrend for over a year

Here is what it means:

• Which currency pair am I talking about.
• Carry trade interest ranking.
• Long or short positions.
• Position relative to prior year.
• Things to keep in mind while trading.

Notes:

• I'm a carry trader. I like to find buying opportunities in currency pairs that pay positive interest.
• Interest rates change. Don't assume this roadmap will remain static for any length of time.
• Your opinion may conflict with my strategy notes. That is fine.
Remember, opportunities will come to you from time to time as long as you don't overtrade.

Finally, I think it is worth mentioning that even when my strategy is to acquire positions, this does not mean I will simply continue to buy. It means that if I can put a protective in-profit stop loss above a position it is okay to acquire another when an opportunity presents itself. Strategy notes simply aid in decision making they don't replace rational trading tactics.

Bottom Spotting the USD/CAD

Down and down it goes, where it will stop, nobody knows.

Just how low can the USD go compared to the CAD? Parity is an option. Below parity is an option. However, there have to be some fundamentals that come into play here. The amount of trade between the USA and Canada is huge!

Traditionally, the USD has always sat above the CAD.

Anyway, I'm not sure parity or below is realistic. I'm starting to dip my toe into this market. I've got a small stake which represents a "water mark" to help me gauge future expectations. Somewhere, presumably within the next 500 pips, we should find the bottom. From there, we should see lots of volatility and false starts, allowing for profit in the short term.

It should also provide for profits in the long term once the USDCAD starts trending towards a more appropriate historical level. Unless of course there is a large fundamental change happening. That's possible, but flying under the radar still.

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.

Exchange Rates Differ From Stocks

There is an important difference between Forex instruments and stocks or bonds. The nature of this difference requires that you adjust your thinking.

When you buy a stock, the presumption is that with inflation or growth that the stock will eventually always climb. That, at least, is the goal.

Trading on exchange rates is a different ballgame. The rate of exchange is a ratio representing the relative value of the two currencies. It simply is not possible to expect one currency to appreciate relative to another indefinitely. For example, if the exchange rate between two currencies widened a lot then trade opportunities would be created to adjust this imbalance.

Obviously, with a plethora of fundamental variables and widespread speculation it will be difficult to determine the range, but you can theoretically consider Forex instruments to be variable between some unknown high and low exchange rate. Personally, I would prefer to rotate my charts 90 degrees, label each side with the currency in question, and then have the line move from left to right as the relative exchange rate adjusts.

At the same time, I'd like it if instruments were mirror imaged. By this, I mean that we should not be limited to buying and selling EURUSD, for example, but instead that we should be able to buy and sell both EURUSD and USDEUR. Yes, I know all of this is semantics, and it would require work for the market makers to either support this or have the trading systems perform on the fly translations, but it would make things less susceptible to common misconceptions.

Or so I think today. With a bit of time I'm sure I'll buy into the current way things are done if for no other reason that it is the way it has always been done. Also, at that point, why should newcomers have it easier than I did?

Rookie Survives

Well, the so-called sideways market just took a major jump down across a fair number of currency pairs.

I added some equity to my account just to make sure I would not suffer a margin call in situation that I feel comfortable waiting out.

I need to be careful though. If I add equity just a few more times I won't be playing with peanuts -- at least not according to the small quantity of assets owned by this financial rookie.

Getting Spanked

Oh oh. I might be about to get spanked. It's really strange, because you look at things and come to a conclusion, but the market certainly doesn't have to give a damn about any of your thoughts, calculations or conclusions.

Today I've been selling the EURUSD at the top of some price spikes. The only question is, are these really spikes are just some short term pauses on a large upward movement?

So, I have competing issues to deal with. The price going in a direction counter to my position and my "determination" that it will go in the other direction significantly due to a correction. So, if I don't get into the market to take advantage of movement I can't make money, but if I do get in, and reinforce my position to take advantage of it, I risk more and more.

This is exciting!

In the end, right now, I know I'm a beginner. I'm able to write off my entire $100 initial investment if it comes to that. Then again, if I'm right...

Holiday Doldrums

Well, I wasn't sure whether or not to take it seriously. What, you ask? The Forex educational material talking about what days and times to do your trading.

In terms of trading, today was a very boring day.

Very little movement. What movement there was happened at a snails pace. Maybe next time I won't glue myself to the market during a holiday.

Tick, Tick, Tick

Only three and a half more hours...

Impending Day Trading Resumption

I can hardly wait. In another five hours, approximately, the Forex currency trading markets will start another week of operation.

Will my open trades bust my account? Sure, it's only a SuperMini, but I'd rather not simply throw my money away. On the other hand, perhaps the EURUSD will go up and I'll end up looking like a hero? The suspense is awesome...

I've been doing my best to learn more about Forex trading, reading up at Babypips.com, as mentioned in a previous post. Quite honestly, I'd love to find out that I have the discipline and the ability to be a full time trader. Nothing would please me more than to give up the day job.

Okay, I'm rambling, but if I do blow up my account, I'll fund it again with another $100 deposit. I've only been trading for about half a week now, and I've learned first hand about the importances of stop orders, trailing limits as well as paying attention to when exactly the markets are open.

Hey, I'm sure I can find other ways to screw up, but that is how you learn! Or, on the other hand, if you are reading along, maybe you can learn from a few of my mistakes and save yourself from some costly early mistakes. Tick, tick, tick. Can I trade yet?

I should also mention that I am interested in having multiple simultaneous accounts. You see, while I am day trading right now, I am also interested in trading over longer periods of time. Both types of trading involve different risks and potentially a different level of capitalization to remain in the market. Also, the trading platform I am using will close out a position if the opposite trade is made, which could close out what was supposed to be a long term position.

Look, only 4 hours and 45 minutes remaining until trading time...

24 Hours A Day 6 Days A Week?

Well, that's true, but not.

Apparently the markets are closed from Friday at 4:00pm EST until Sunday at 5:00pm EST. I don't know about you, but that sounds like a 48 hour closure to me. Sure, there is only one day that trading does not occur, but that is semantics.

A 48 hour closure means that you can trade 24 hours a day for a period of five days straight.

A minor point, but I'm sitting here in an open position and I'm going to have to watch world news and events for two entire days!