Trading Results: AUDJPY

For the week ending Fri 05-Dec-2008 I managed scrape out an 8% increase in net asset value.

This week was more challenging, for me, than last week. I seem biased to seek opportunities with gains on the up side. So, on a week with sideways trading and periods of downward drift things slowed down.

However, as always, watching my own trades brings insights that might be useful to other traders.

For example, I've found that momentum indicators can be quite useful. They measure a different aspect of performance and thus they can give you an independent look at the state of the market. However, my favorite indicators are still the stochastic variety. If you take the time to tune them to your time frame they can be quite insightful -- as long as you remember that no indicator is perfect.

Next week we may hear some good news concerning the US auto bailout. If this happens perhaps we'll have some upward market days and some increased risk appetite. This would give me the upward movements that I perform best on. Does this concept remind anyone else of the phrase... "a rising tide floats all boats?"

I consider it important to get equally adept at dealing with up side and down side markets. Otherwise, a significant market move that works well with my own bias may fool me into thinking I know what I am doing. Actually, I'm really trying to warn you to keep an eye out for this in your own trading... and I'd hate for you to gloss over this fact because I seem to be talking about myself.

AUD/JPY Trading Review

Guess what. Some of the books that I bought have had an impact on my trading. I know, I hear the phrase "No shit, Sherlock" echoing out there. However, so many of the Internet generation want everything to be fast, easy and online that I just have to stress the value of more formal information.

I bet you'd also be surprised to hear how many traders are starting out in their teenage years. It's just another Internet game to them!

Anyway, if you are a crusty old bugger, just bear with me as I talk about things that any sensible trader should already know.

So, back to the topic at hand, my trading week. No, better yet, my illustrious trading week. Here's the scoop:

Sunday Session: +4.1%
Monday Session: +7.7%
Tuesday Session: +2.9%
Wednesday Session: +4.5%

While today isn't over I did go flat not too long ago. Obviously, I may do some more trading before the end of today's session.

Anyway, something to think about. I'd do better if I was more patient. I find myself jumping into the market and then waiting for it to go against me a little before turning around and going where I expect it to go. I guess I'm always trying to get the jump on the market and not waiting for confirmation.

Sigh, more homework.

Betting Against The AUDJPY

Well, with commodity prices spiraling down the toilet, it's a good time to be short of the AUDJPY.

Look, put an SMA 20 on your AUDJPY chart. Load up the 1HR or 3HR chart. What direction is the simple moving average going?

That's the trend.

So, if the trend is your friend, what's the best direction to play?

You guessed it in one... down!

If you know how to draw a resistance line, or to put something like a CCI, Williams %R or even possibly a stochastic or RSI indicator then you should be able to pick relative high points to pal around with your friend the trend.

Heck, even the SMA or a set of Bollinger Bands will probably do the job.

Really, it can be that simple, at least while you have a clear trend.

Get your trades on!

Europe Gets Crushed

Well, it's been an interesting 24 hours on the Forex markets.

I'd like to say I was on top of everything and made a boatload, but instead I have to admit this has been a lesson style experience. My stops were hammered mercilessly and then the markets dumped me unceremoniously on the pavement. So to speak.

I guess the theme of the day is weakness in Europe. Another theme might be strength in Japan though I think their claim to fame is merely stability by avoidance of stupidity. Think back a few months, when the Euro was hitting new highs daily, and the US was in the doldrums.

So, the big question of the day is really whether or not you expect the Euro to continue tanking in the short term. On the other side, you have to wonder when people will slowly unclench their butt-cheeks and allow themselves to convert their Yen into other assets. Obviously, everybody has been burned, so we can expect caution, volatility, profit-taking and anything else that can make the markets hard to fathom.

Just ask yourself, what's he worst that could happen? No, no, I'm not talking about supreme disaster, but with respect to whatever trade you might be interested in speculating on. Will the Yen rise, drop, go sideways? Will the carry trades buck like a bronco while Europe does a head fake, with intervention promised but not delivered?

I don't really know what to suggest. Wear your seatbelt? Okay, in English, take smaller trades and be sure to use protection, er, stops.

On the flip side, when it's over, you can easily be left on the sidelines. I mean, the world got it's panic on, is there much left? If you've already liquidated your kitchen sink, there really isn't much else to do during the next wave, is there?

Good luck out there!

Best Forex Trader Return

I see people in various forums asking what the best rate of return is for professional forex traders.

What kind of question is that?

Do you want an annualized answer based on a great trading day? I could boast a fabulous rate of return if I did that, but it wouldn't be meaningful.

How about an annualized rate of return for a trader's best month? No? Maybe some arbitrary consecutive twelve month period? Oh, maybe you wanted a number representing January through December?

Forex trading does not really have a linear behavior that makes it easy to determine what a good rate of return is. Are you a cautious trader? Are you more comfortable taking large risks? Are you trying to accumulate a carry trading position?

Even if you do get someone to tell you what they made over a suitable period of time, you have to realize that past results are not a reliable way to predict the future. Situations change. Economies change on a global scale. Political events that elevate risk levels happen all the time. Just as with stocks, you can never really be sure what will happen.

On a more personal level you are either profitable or you are not. If you are profitable you either have enough of a track record to make a living off it, if you even wanted to, or you don't. If you don't have enough capital to make a living off it, then you can work to build your capital if you are profitable.

Worry about being profitable. Worry about preservation of capital. Don't worry so much about what other people can do or claim to do. This isn't a market that is set up for easy measurement and comparison between participants.

Rest assured, the best rate of return out there is going to be much higher than you or I will be able to earn.

Forex Trading Review

So, I've been practicing my strategy using a micro-account for months, and it's time to up my game and start trading for real.

I capitalized my account on Thursday evening and have been playing the AUDJPY with a more serious dollar value for the last two days. Here is a summary of the mistakes I noticed myself making over this period:

1. Discipline breakdown. I broke discipline and acquired too many open short positions as I was predicting an eventual downturn. Actually, I was afraid of it and wanted to be protected from it, but the result is the same. Lesson -- stick to the plan.


2. Too impatient. For quite a while the market was moving very slowly. I tried to push capital into the market and forced some trading. This was a mistake. Lesson -- stick to the plan.


3. Too protective. I was overprotective of my open long positions. Stop losses were placed too early or too close to market prices. This accumulated with my strategy of acquiring in-profit positions. Lesson -- adjust the plan.


4. Confused. With a long position trading sub-account and a long position carry sub-account, I need to use different strategies for each. I got confused and used my grid strategy in the carry account as well. Needless to say this was not conducive to accumulating profitable carry positions. Lesson -- stay focused.


5. Buying tops. With gridding strategies it is easy to buy at the top of price spikes. It is necessary to factor this in when setting stops (see point 3). Lesson -- adjust the plan.

In summary, trading with some real money for a period of almost two days has me up $1. While pitiful, I'm happy to not be negative while trading in such a sloppy manner. Fixing these errors, with the size of positions being used, would have me up $20-$40 over this period. Lesson -- do it right and make some useful money!

I don't know if what I'm describing will be helpful to anyone, but I'm putting this out here for my own benefit. Of course, if you can learn from my mistakes, that would be great.

AUDJPY Stop Losses Hit

Well, positions entered overnight and this morning have now been stopped out. We are approaching the SMA-50 (simple moving average over fifty measurements) at approximately 96.37 and we are likely to enter a buying zone soon.

Obviously, the risk is that it won't bounce, or worse, that it will bounce, give us false confidence, and then fall like a rock.


In any case, I'll be taking small chunks with the idea that accumulation is just fine as long as the positions are small enough.


Perhaps this will be interesting or informative. Notice how the upturn in the previous image has now been reversed?

And now we have a potential bottom/bounce, for this downward movement anyway, with some added trend lines. Of course, trends can be broken any time, but they do seem to work as predictors often too.



It's been a few hours since I started this post. Anyway, the AUDJPY is still trading in the trend lines. It's sweet to trade once you've established some trend lines -- as long as it stays in those lines.

At the very least, you'll notice resistance when the price hits these lines in the future (either top or bottom). There are other resistance points, of course, and it helps to know what they are too so you can trade wisely around them (after breaking or failing) instead of blindly taking your chances as they approach.

Another update which demonstrates the price bouncing off the trend lines previously drawn above. Now, whether this bounce is going to lead to a rally, or whether it will soon drop precipitously, isn't the important point. The fact that prices bounce around from what might at first appear to be arbitrary trend lines is the key point to take away from this...


Of course, I bought another small chunk at the touch point. It's either going to be an accumulate position if the price drops down or a great buy if the trend holds.

Minutes Later...

The price has since dropped below the trend line. I'm now very happy I picked up only a small carry style position.

Margin Call Today

Well, it had to happen. After I was forced to make a withdrawal from my account due to the fact I was surprised that someone had given me an NSF check. There simply wasn't much capital left.

This means that any sudden moves, as happened today, would cause my account to run out of cash. Well, it did.

It's not fun, but at least at this point we are talking about a very small amount of cash. So, though I was considering myself a microtrader, I now am forced to consider myself a nanotrader.

We'll see if I can manage to crawl back out of the depths and get my feet under me again. Wish me luck!

Unplanned Forex Setback

Well, things have gone poorly just lately. Not because of anything that I've been responsible for, but because I was the recipient of an "insufficient funds" check. As the money I was planning to use over the holiday period was rudely removed from my account I was forced to withdraw a large portion of my Forex account.

I'm quite peeved!

Especially since I had some good in-profit positions protected by a stop loss. After I had to unload for a small profit the market continued to rise for a couple of days. Of course, if I was still in during the Thursday evening sell-off, I would have been taken out for sure, it still would have been at a higher profit level.

Oh well. There isn't much I can do about it. As it is, I'm searching for a job and hoping to soon be playing the Forex in a serious way. Up until now I have only been working with an extremely small capitalization. Upon resuming my career, which I expect to happen early in the new year, I'll be able to accumulate a reasonable stake and put my recent "education" to work.

Recent Non-Success

Today's fed announcement caught me with an unprotected position. Needless to say, as the floor dropped out of the AUDJPY market, I was given a bit of an unpleasant ride.

However, I didn't blow up my account, so hopefully things will settle down and drift towards "the middle" so I can get out without too much pain.

Recent Success

Well, it has been a few days since then, so I can't remember the full details, but I was able to catch an up-trend with a significant amount of my net asset value slipped in.

Basically, when an initial foray is in-profit, I'm ready to put in more when the trend seems apparent and things are acting rationally. So, after a few ups and downs, perhaps within an up trend, I could have accumulated several slightly profitable positions.

If this continues for a while, it's easy to get a large portion of your net asset value into a situation where tiny profits are locked in (stop losses set above the entry point). Then, if the market doesn't drop low enough to take you out, or perhaps a news event occurs in your favor, you can grab a large profit over the next hours or days.

In any case, I like to do this with AUDJPY, buying in during an uptrend, willing to let some carry positions accumulate until the market decides to either reward me or close me out because of my protective stop losses.

I am thinking of looking at some other currency pairs. The carry pairs seem to be closely driven by the stock markets, and hence have an awful lot of volatility, whereas some other pairs might be a bit more manageable.

Success With AUDJPY

Finally, I seem to be able to make a few dollars. This is significant as it represents a ray of sunshine in my quest to become a Forex trader.

I'm still playing with a small account balance, but hey, if I'm able to grow this into a more serious stake, I'll be willing to trade with it.

Anyway, to give you what might be a trading tip or two, my process currently is to start out by looking at a 1hr chart, identifying any potential trends. Once I've scoped out this level, I'll drop down to the 15min chart, again looking to identify any apparent trends.

Once the above have been done, I'll use the 5min chart to look for entry points into the trend. When the market is "rational" then simply buy low and sell high.

Of course, it is particularly difficult to execute this strategy, and it is very difficult to know when the market will become "irrational", but you only need to be right more often then wrong if you do this right.

One hint, when you approach the end of a trend, a boundary between two trends, or major resistance levels, the market may or may not behave rationally. Trends often break, prices halt, drop or pop unexpectedly, and bets on the trend get even riskier than they are under the best of conditions.

AUDJPY Thoughts

I'm still trading the AUDJPY.

I've learned that the Dow Jones and the AUDJPY have a correlation based on the fact that people borrow Japanese Yen to invest. You can watch the AUDJPY rise and fall as the Dow rises and falls.

Hmm, what else have I learned?

I've also learned that I have a tendency to get too heavily invested. I guess I'd be okay if I had a larger capitalization -- assuming I did not increase my position sizes by the same proportion. You see, as a corrective trend gets longer I'll often see opportunities and act on them, and then be left positions I view favorably, though I can't get rid of them without a loss unless I wait.

Blah blah blah. Good thing for me to realize about myself as perhaps it will let me slow the trigger a little bit.

What else, oh yes, charting. I've been looking at common chart patterns, and have started to see them happen... and what do you know, at times I can make a prediction, for a reason, and watch it unfold. It's very exciting to see an opportunity, pull the trigger, and watch the pips roll in.

Trending the 5 min AUDJPY

I've been having a great time spotting trends on the AUDJPY today. Well, of course, I have to point out that trends are good until they change. However, with that out of the way, I've been able to pick up some trends, identify channels, and generally advance my knowledge and confidence quite a bit.

Sure, sure, I know, everyone can float in a rising tide, but check the charts today, things have been a bit choppy!

It's a powerful thing to see prices bounce off the "walls" of your trend lines for two or three hours. While maybe only an illusion this gives you the ability to enter and exit trades with a feeling of control. Well, a semblence of expectation at the very least.

Similarly, there is a chess-like pattern to this dance. If you've got a gain, there is going to be a drop. If you've seen a quick drop, there is going to be a gain. These aren't truisms, but you can rely on one of two things. If you have a long position, and the short term average is under the price, the price will either hit the other side of the trend line, or your position will improve in profitability.

When you can start to see some inevitibilities, while a trend holds, you can start to plan, have enough confidence to hold aside both greed and fear, and reap profits while the market stays rational. When it falls apart, it's time to start looking for the patterns in the sea of chaos...

Missing the USDCAD Bottom

Well, I'm not sure if the USDCAD has finally hit bottom or not. It's around parity today which is pretty much what people were talking about.

Now, I did purchase some before parity. So, I'm underwater, holding my breath, wondering how much time it might take before I'll notice some buoyancy and float back to the surface.

I guess this makes me a swing trader, because now I'm looking at holding my position for a long time, until the market swings a good distance. That's okay, as I've said many times this is a live and learn situation with an extremely small amount of capital involved.

Honestly, I think the world markets are on crack when they think of Canada as predominantly a commodities play. Don't they realize that a large segment of the GDP comes out of the manufacturing and export sector? Who are they going to send exports to with the Loonie hitting massive highs?

Also, while there are massive oil reserves, they are in the form of tar sands. It will take decades of massive development before these can be exploited. In short, the dollar is now way overvalued and the Canadian economy is going to suffer for it. Somehow I expect these facts to show up and force a USDCAD correction.

Minimal Participation

Sure, you want to have as much capital as possible involved in an upswing, but it's painful having a stake while the market slides.

Unfortunately, you have to keep dipping in your toe. At the apparent end of a long slide, or when a correction appears to run its course, it's time to dip in that toe. What happens when you end up tossing your coins into the fray and the market rejects your advances?

All you can do is repeat the same. On a downturn, open up a new position. On an upturn, release the last toehold and climb down a notch. At some point, perhaps in a day, or in a week, assuming the overall trend does not reverse, you'll have to catch and ride an upswing. Heck, even if the overall trend does reverse you should still catch an upswing if you are patient.

Then, as I blogged about previously, during the upswing you want to maximize your involvement. You want to jump in, safely, as your locked in profits rise, to ensure that all the losses from toe dipping pale compared to the wins you eke out on the return. Winning a multiple of the amount lost will be worth it.

You have to play to win... but you certainly don't have to put a lot into it until you see that you have the upper hand.

Gun Shy

I'm still a little gun shy.

I see little dips and corrections, which is only to be expected, and my stress levels go through the roof. That's what I get for playing across the recent job reports news last week.

All I can do is remind myself of various cliches. You have to play to win. No risk no reward. Buy low sell high. No guts no glory.

I suppose all this concern is healthy. It will certainly remind me to limit my downside and not to take inappropriate risks.

You Have to Play to Win

Well, now that I've exited most of my positions profitably, I'm paranoid. What if I put in some more cash and the market takes another massive dump? Heck, it has been a long upward run so I'm sure a correction is brewing at some point, right?

You have to play to win.

If I sit on the sidelines and fret away the day I'll get nowhere. What I need to do is participate in a guarded way. What I intend is to open up a new position, which immediately places me slightly under water, and then sell my current open position once the newly opened position is profitable. Of course, I intend to buy these new positions during moments of weakness -- which is where the fear factor comes in.

What if the moment of weakness is not just a moment, but instead the start of some massive retrenchment?

Anyway, when the new purchase is above water, I don't have to sell immediately upon achieving profitabilty and I can always use a trailing stop on the items that have moved significantly above water. The trick is that I want to increase my share of revenue earning movements without having to take undue risks. However, I do have to continue to take risks if I want to make profits.

This Business Is Tricky

I'm learning. Every day I'm learning.

Some fundamental news came out this morning. That was great, and I got some profits because of it, but at the same time I had limits on a lot of my positions to help ensure that I'd get out of positions and free up margin room.

This means I've left a lot, and I mean a lot, of gains on the table. That's too bad.

In the currency exchange market, finding the right balance between caution and greed is tricky. You really don't want to exclude yourself from massive movements in your favor. At the same time, if there is no massive move, or if it isn't in your favor, you'd had darn well better be protected.

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?