Keeping an Eye on the EURTRY

I liquidated some profitable short positions in the EURTRY around the 1.9150 price level.

While this wasn't the absolute bottom it was well below the current levels -- due to a recent price spike. As the spreads are reasonable during the morning hours I will consider selling a small chunk tomorrow morning if it looks like things are going to turn around.

However, the EURTRY is not the place for absolute beginners to dip their toe. Not only is it volatile, but the widely swinging spreads play havoc with trying to use stops appropriately.

Thoughts on AUDNZD and NZDUSD

Both of these currency pairs have moved a long away against carry positions.

It might be time to consider shorting some AUDNZD and going long some NZDUSD. Take a look at the dailies [daily charts] and see if you think some type of reversal is in the works.

As always, remember I'm a carry trader, so I'd buy a small position that I'd be happy to hold for the long term in the event that I was mistaken.

Consider GBPCHF

It's starting to look like time to consider taking a small bite of GBPCHF. However, you may want to wait for a bit of strength before taking the leap...

Learning To Love Stochastics

Many of you trading in the Forex markets know that the difference between success and failure lies in the probabilities.

What is the probability that your speculation will be correct?

The more often that your positions are correct the more profitable you will be. This is part of the reason that so many bozos are busy promoting supposedly infallible commercial signals. Seriously, if their signals were infallible, why wouldn't they get rich trading on them instead of selling them to you for peanuts?

Something I've noticed recently is that stochastic indicators show a good correlation with spikes in price. Of course, this does not imply a one to one correlation, but if you are betting with the stochastic indicators you will simply find yourself on the correct side of a nice price move from time to time.

As I've said before, I'm also a fan of Bollinger bands... and they can certainly be used together.

Here's a simple strategy you can try. Pick a carry trade, such as AUDJPY, and consider buying it when the price touches the bottom Bollinger band. At the same time, ensure that the stochastic indicator is either at the bottom or just starting to come back towards the top.

The idea is to open a small position that you can afford to hold and carry, but to accept a profit if your position proves to be profitable. Remember, prices don't go in one direction forever, so don't be afraid to cash out your position -- without beating yourself up if you don't catch the top. It's about consistently making profitable trades not being the best at calling tops and bottoms!

Trading The EUR/AUD

I've spent the better part of a year focusing my attention on the AUD/JPY. I think it's time to start looking into other pairs...

Last week I started trading (shorting) the EURAUD.

The EURAUD is another pair suitable for the carry trade. [For you beginners, some currency pairs earn interest while you hold them. Those that do allow you to participate in the so-called carry trade. See my recent forex roadmap post for a nice list.] However, I've been trading it instead of trying to hold onto it... and so far it's been good to me.

The question is, what will next week bring?

I haven't focused on active day trading before. I've got a chunk of carry trade holdings across a variety of currencies, but that is a completely different game. Basically, as long as you don't overtrade [buy too much and hence expose yourself to excessive risk] it's very slow paced. When you have some extra capital in your account look for an opportunistic pricing situation and grab a small slice of a pair you are willing to hang on to.

Active trading is a lot faster paced. I'm finding that if I want to spend a lot of time on the market I need to be have the lure of gains. Yes, that means risk! So, I've created a sub-account where I put a few dollars at extreme risk. Assuming I can make some wins I'll shuttle those wins to a safer sub-account.

So, I'm no longer executing a purely boring long-term carry strategy. Seriously, it's very boring to put a few bucks into your account from time to time and then make a purchase once in a blue moon when your capital reserve makes it safe to do so. I want to do this, but I also need to drive the Ferrari once in a while, y'know?

Yep, shorting the EURAUD is my currency trading Ferrari. It seems to sidestep the volatility of the AUDJPY somewhat by avoiding the EURUSD and USDJPY influences. It handles well since the EUR is such a huge and active market and acquires some nimble moves from the AUD.

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.

March AUD/JPY Free Fall

On February 27th the AUDJPY reached 100.41 at it's highest. Less than a month later, on Mar 20th we got as low as 88.18 for a short period of time. That's a difference of more than 1200 pips in approximately 3 weeks!

There's no way to be sure, except to wait and see how things turn out, but on the 16th we hit 88.16 when the AUDJPY bottomed out. At the very least there is some healthy resistance around this level.

So, what to do? Should we panic and run away from the market? Should we dump our entire life savings into the market based on our belief of this being a local bottom? Just how should we tackle this situation?

The fact that we've seen a massive fall, enough to create margin calls in those that are careless, generally means we are looking at an opportunity. However, the flip side is the fear of a continuing fall. So, greed and fear are both sitting on our shoulders whispering in our ear.

My advice, or at least my own plan anyway, is to stay disciplined and trade within margin percentages that provide a high relative level of safety. However, when the markets are down like this I do want to increase my holdings and be ready to participate in a rebound.

The plan? Allocate small amounts of additional capital, if required, to buy lower and lower positions. Remember though, I'm a carry trader and am very happy to hang onto AUDJPY through any type of downturn as long as I can avoid putting my account at risk of a margin call.

Should I Stay or Should I Go Now?

Well, I'm really at an impasse with respect to the current state of the AUD/JPY. There are all kinds of messages out there that point to some serious downside risk, but at the same time it has fallen a great amount already.

So, to cut short a lot of withering and dithering, it's time to start sticking a toe into the market. I want to start accumulating some small positions, without risking any serious amount of NAV at any one time, so that I can increase my holdings during the next sustained upswing.

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.

Potential AUD/JPY Double Top

It's hard to say whether it will complete or not, but the 1hr chart is showing the potential to make a nice visible double top by the end of today.

As I'm sure my readers know... the AUD has had a nice run lately based on speculation that the RBA will be raising interest rates. However, the AUD/JPY pair has bounced back from attempts to get beyond 99.60 during this week.

We should start to expect either a break above this level or the formation of a double top, which could potentially lead to several hundred pips worth of decline.

Forex Reflections

Saturday is a good time to reflect on Forex activities.

What did the markets do? What did I do? How much cooperation was there between these actions as measured by achievement of my goals?

As time passes, and I actively trade, I'm starting to notice trends. The entry points that cause me the most stress, that I end up regretting or being put in a position where I'm forced to make decisions, are the ones that occur near the top of a movement.

If you are silly enough to ask why anyone would get in near the top, just be assured that it is incredibly difficult not to do. I do have rules and strategies that are designed to protect me from such things, but at the same time my goals push against these security blankets.

Anyway, I have to devise some new strategies.

I simply am not going to have the time to babysit the market all day long while I watch CNBC anymore. I'll be sitting at a desk all day gainfully employed instead. However, this little tryst between the markets and I is not something I'm willing to give up at this time.

The lure of earning decent money, or better, is keeping me in the game. I've been doing a passable job during these turbulent times. I can imagine how I would do if these were not turbulent times. As the saying goes, a rising tide floats all boats.

If I've been able to weather the stormy periods with plenty of ups and downs, I'll be able to do much better when the economic sunshine starts to grace us once again. So, the real game plan in the medium term is to play safe. When things start to get better, when the weather starts to warm, I plan to be in the game.

My goal, and I've been experimenting with it for a few days, is to trade off balancing high cost and low cost positions to end up with medium cost positions. I know that doesn't sound very insightful or precise, but remember that I trade the AUDJPY and it's a good carry pair. So, what I'm suggesting is that I'll slowly work to lower my average price over time.

Sure, I know, that's easy, right? Just buy into new positions when the price is lower than your current average! The problem with that is that with limited capital it simply is not safe to enter into more and more positions. Pretty soon too much of your NAV (net asset value) is sunk into the market. Pretty soon you are carrying way too much risk and eating Rolaids for breakfast.

No thanks.

Create a budget, pop in some new funds on regular basis, and sink them into the market at opportune entry points. Over time you'll develop some positions that represent high cost entry points and others that are low cost. Those pairs can be canceled out and used to retry at some new lower entry point.

Time is a powerful thing so put it to work for you instead of struggling against it. Heck, it's a force of nature. Enlist it to your cause and then stay out of it's way.