AUDJPY Roller Coaster

Generally, I follow and prefer to trade the AUDJPY. It goes through unwinds from time to time as the bigger players suffer fits of risk aversion.

For the last few weeks we've been bouncing back and forth between 77 and 80. On the way down, with all the gloom and doom blaring in the media, it feels like we must be about to fall off a cliff.

It's difficult not to be scared. After all, anyone who was trading during the last couple years knows very well what it feels like to fall off a cliff. Ouch.

However, it's precisely when everyone is scared that prices adjust too much. How do you know when to get in without trying to pick the bottom? You get in when you have a strong resistance point. You can enter your trade, conditions permitting, and set your stop at a safe distance below the resistance point. You get in when you know there is a large potential upside and a low potential downside.

With all my work on robots I haven't been doing much discretionary trading lately. In a strange way, this is helping me develop patience.

My personal take is that we're going to have variability in the global economic recovery. Some portions of the world will contract while others expand, and then we'll probably get oscillations between those regions. This means that the roller coaster may be the main mode of the markets until everyone starts to settle down and stop pressing the panic button. This could take a very long time.

However, this is great news!

The roller coaster is a great place to trade. As long as you are only trading appropriate amounts of capital per position you have the ability to earn every time we get another cycle of exuberance and fear.

As long as we have people in both camps, gloom and doom vs surprising growth and strength, then the markets will be a great place to be. Just keep an eye out for anything that truly is a disaster in waiting.

In particular, I think we are at a point where different segments of the trading world exhibit different behavior. For example, Australia and Japan exist in a different economic climate than the USA. It's quite possible that traders in these regions, especially those not too tied to US events, won't be feeling risk aversion.

Similarly, sections of Europe seem to be recovering nicely. I can see that many regional traders would not be overly risk averse, in general, and that carry trade strategies might be entertained. For example, China and India are becoming more important in terms of world trade and they don't seem to be necessarily synchronized with the US.

This is another reason for our roller coaster. We may get different directions on the risk trades (carry trades) based on which financial center is generating most of the trading activity. Yet another reason to expect a choppy ride.

Related reading... yahoo finance.

Twitter Forex Tweet Strategy

Have you been following people involved in fx trading on twitter?

Have you noticed how many people are happy to tell you what happened? While macroeconomic news and previous day post analysis can be useful, it certainly doesn't help you make a trading decision based on current charts.

I have a little proposal to make.

Instead of tweeting that you've opened a long or short position provide some information that other people can use to apply their own strategies. Frankly, I don't care what crappy decisions others are making. I care what the charts are saying. I'll do my own technical analysis and decide on my own trades.

So, tell me that a pattern is forming on a named pair's chart in a certain timeframe. For example, right now the AUDJPY is retesting May highs of 76.00 and obviously this is true on any chart -- though you may need a longer chart to actually see it.

Then, I can whip open my chart, draw some lines, figure out a strategy, and trade on the opportunity.

To summarize, we need to tweet about opportunities that are shaping up. We need to just drop each other a note that something is happening. Anybody who has traded for any length of time can figure out what to do -- but unless we have the luxury of trading full time we just can't spot all the opportunities.

In short. Smarten up and stop trying to show the world how damned smart you are. We don't care!

How about we call this the Useful Forex Tweet Agreement (UFTA).

UPDATE: I've tweeted the AUDJPY information (again) using the #ufta tag...

AUDJPY: Slow Decline

I'm sitting here watching the slow, achingly slow, decline in the AUDJPY.

Based on RSI and stochastic evidence, not shown on the image below, it's very possible that we'll get an upturn soon.

Anyway, this image shows you that we are continuing to approach what I've called a containment field. It represents a possible consolidation zone while the market tries to figure out whether to ultimately head north or south.


Obviously, I'm bullish on the AUDJPY so I expect this to bounce. A lot of other people, on Twitter or elsewhere, seem to be bearish.

... continuing ...

If we do get a solid bounce, you'll notice that we'll have a double bottom in the right side of a W shape. I'd generally expect this to be bullish, but we have to figure that we'll be going into the Asian session before long. One possibility is a trouncing of the Yen while another is an increase in risk aversion -- generally bad for carry trades.

AUDJPY: Risk vs Opportunity

Today we see the crux of the issue.

The AUDJPY has suffered a pullback. A return to recent highs gives us the possibility of a double top. A bounce off the recent low gives us the possibility of the a double bottom. There may be more complex structures at play as well, but you get the idea.

This is risk point. This is an opportunity point.

If you get in, say with a long position right now, you don't know if it will turn around. You don't know if the recent upward trend will survive. Sure, you'll set a stop, but you don't really want to throw money away at stops needlessly.

You have to look for clues as to the market's probable direction. For example, you might notice a pattern on the candlestick chart, the stochastic, RSI, or perhaps some other indicator.

I'm long term bullish, but that doesn't mean the market can't confound me long enough to relieve me of my money if I'm foolish about it. There's an opportunity out there right now. Who's going to figure out what it is and who's going to suffer a loss for it?

Hey, seriously, there is no shame in staying on the sidelines and waiting for whatever signals you follow if there aren't any there now.

EDIT: By the way, I see the price dropping below support, so I think we're going to see a bit of downward action before we return to optimism.