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?

Carry Trade Panic Selling?

Did anyone notice the panic selling out there?

All kinds of carry trades unwound several hundred points in a very short period of time. Speculation in the Forex news rags suggests that losses due to the falling stock exchanges forced people to unwind their carry trades to cover their margins.

In any case, after days of regimented downward movement, the sudden fallout represented a panic moment -- for someone. In the short term, at the very least, this should represent opportunity. I've stuck my toe in.

I certainly don't know if it represents a bottom, but if everyone that wanted out got out, then it won't have much pressure to fall further.

Personally, I'm looking at the Yen based carry trades. Things like the EURJPY, GBPJPY, and the AUDJPY. While the US may eventually recover and raise interest rates, I don't see the Japanese being able to raise interest rates while their currency is appreciating.

How in the world would they compete internationally, exporting products, if they drove their prices up now when everyone else looks to be faltering already?

Have I mentioned lately how important it is to have money on the sidelines so that you can take a poke at raging opportunities? Whether or not you are a fan of his, Jim Cramer also is a proponent of not being fully invested -- which he states is a common joe public trader type of mistake.

Big opportunities offer big profits, but only if the opportunity didn't break you as it was developing.

Crushed By The AUD/JPY Rollover?

How did you do during the recent AUDJPY (AUD/USD to USD/JPY) freefall?

If you were paying attention you noticed the double top happen not too long ago -- the one I blogged about recently. That was your warning that the market was facing a potential reversal.

The market fell pretty fast. I hope you weren't sitting on any large unprotected positions.

While I don't have the patience to stay completely out of the market until large drops have happened, I can certainly add additional capital to my account to take advantage of the drop and treat it like the opportunity it is. However, I do have to wonder if this is going to end up being a retest of the DOW lows since the most recent bottom.

So, I now have three things to consider:

1. Is the market going to recover quickly, such that I want to be in it?
2. If I jump in the market now, is it going to sink and retest lows due to a DOW decline?
3. If the market does continue to decline, will it do so over a long enough period for me to be ready to inject some more capital at that point too?

Honestly though, I'll probably just execute a plan the emulates dollar cost averaging and not worry about it. I really enjoy being involved in the market without having to seriously worry about it.

Weekend Forex Thoughts

Although it is the weekend, I can't help but think about trading.

One of the things I've noticed recently is that the EURTRY pair is much less influenced by Wall Street. The DOW is flying all over the place, dragging the AUDJPY and related pairs up and down the charts, while the EURTRY drifts sedately instead.

However, a caution, the EURTRY has historically had some very violent and large moves during unwinding events. You do not want to get caught unprotected during one of those events.

Another thing I am thinking about, as an early idea, is the concept of being strategic with the use of sub-accounts. When thinking about the carry trade it is obviously best to buy into positions when their has been a large drop, over some period of time, and the pair in question seems most likely to start drifting back in the direction of it's natural inclination.

Sub-accounts could allow you to segregate buy and sell activities by price range. For example, if a pair you are trading has historically had a maximal total movement of a couple thousand pips, then you might create sub-accounts with fixed amounts of capital and execute trades in them when the price is in a range that corresponds with a particular account. So, account ABCXYZ100 would be used for prices at or above 100.00 while account ABCXYZ090 would be used for prices between the 100.00 and 90.00 points.

This gives you a segmented absolute limits and the ability to fire and forget, since you won't have to look at the sub-accounts or wade through the open positions every time you look at your main account. I don't know, I certainly haven't put any serious thought into it, but don't discount the ability to "fool yourself" or "avoid" seeing things that could have an emotional impact.

Hmm, something else I've noticed, it's hard to reverse trades when you've been following a trend for a while. When it does turn, it is very easy to get caught trying to trade the previous trend -- which of course is costly. In this case, it's easier to start trading against the previous trend using a sub-account. In fact, it's also necessary, as a counter trade generally take you out of the countering position. Just don't go crazy straddling the pair as there is no point in doing that either.

AUDJPY Unwinding

The yen is appreciating quickly at the moment, or should I say a short period ago. Luckily I was awake and able to scramble around in my account to keep things sane!

EDIT: It is still unwinding... now at 102.75 and holding. Oops, now approaching 102 and probably beyond.