Publishing errors

Much to my disappointment there have been technical errors. I had 2 post and only 1 made it to the site and 4 days late at that. Please note the post on Monday. I entered the GBP/JPY on the 7th at 209.90 and it is breaking higher. No good news from Japan is good news for this trade. Oil has also been rising this week helping the GBP side of the trade. I was taken out of a number of my trades on tightening my stops. All of the trades exited were profitable. I am waiting for another entry on the USD/CAD but with no luck on a break out yet. This is actually a good thing. The more time it spends in the channel and the tighter the channel the more pressure it will be under when it breaks out giving a greater opportunity for profits. Friday is usually fairly quiet. I anticipate the market will pull back some and calm down for the afternoon. Next week could be full of opportunities.

Calendar Events

Quick post, tightening stops. Eur/Aud to 1.5727. Usd/Cad to 1.1605. Eur/Cad to 1.3677. All ahead of EuroZone minutes, Australian Balance of Trade, Canadian Building Permits and US non Farm productivity and Factory orders.

Happy Holidays. USD/CAD

Happy Holidays.  I hope you had a great Thanksgiving and hope you took the trade set up on the USD/CAD.  As I posted before, if the USD/CAD broke the 1.1850 it would be a good entry, well it most certainly was.  Right now that trade is up 175 pips.  I am a little leery of the upcoming FOMC meeting Thursday.  My take on the market is, for the first time in over a year, we are not certain of a rate increase.  An increase would be a pleasant boost to the dollar bulls, a non increase to rates could give the USD the beating many have been expecting for months now.  The USD/CAD could drive down to the original target near 1.1520 if rates are not raised, but I am not willing to lose my 175 pips. I will be tightening my stop loss today to 100 pips from the close and potentially tighter tomorrow afternoon ahead of the announcement.  

The Eur/Cad trade is up 240 pips.  I am readjusting this stop loss to the highs for the last 2 days at about 1.3880.  This only locks in 90 pips but it allows for the volatility that the Euro has shown.

The Eur/Aud has paid out the $1 a day per mini contract.  Since the open of the trade at 1.6023.  So now we have 20 days of interest (0% return on a 2% margin account) plus 85 pips to boot.  I am a little uncertain about this trade.  The US changing or not changing rates will affect the Euro and the AUD differently.  I am readjusting the stop loss on this trade to 1.6023.  If I get taken out of the trade, I got paid the interest, if not and the pair continues flat or drops further I am golden.

We also looked at the head and shoulders on the GBP/USD.  I would like to say that I took this trade, but then I would be lying.  If you had taken this trade, you would have been up about 180 pips.  I did not take the trade and now that we are ahead of the FOMC announcement, I wouldn’t chase the trade.  Take a look at the chart, you will see today being a significant bearish day for the GBP.  Purely based on technicals, this appears to be testing the neck line and could be a good entry short on the GBP/USD.  Once again, I am not comfortable with the trade.

We are still in the Eur/Usd.  We never hit our stop nor our limit.  Currently we are up all of 20 pips.  I will be tightening this stop right up against tomorrows high, before Thursday’s announcement.

For those keeping track, we are doing rather well with our trades.  Based on the postings, I don’t include my scalping; we have profited about 510 pips.  Adding the interest earned and risking no more than 5% in any one trade, based on the stop losses, the account is up 25.4%.  Not too bad for a month of trading with minimal risk.

Last thought and I have said it before, “THE LONGER I TRADE, THE LONGER I TRADE”.  Some of these trades are 3 weeks old.

Bearish Pennant

Bearish Pennant

As I posted, I jumped into a trade short term. Eur/Cad is up 44 pips. I have 2 contracts on this pair; I am closing 1 contract and letting the remaining one run. The Eur/Aud contract is still paying its interest and is up 58 pips. The Eur/Usd trade is up 121 pips.

Looking at the Usd/Cad, I have been stubborn about the fact the Usd/Cad should be going down due to fundamentals, yet it has been rising. I have been adamant about oil not going below $58 but it did and then stalled out. If you look at crude oil prices, the price has reached where oil gapped up in March. Frequently a gap in price will act as a barrier (support or resistance). Oil bounced off that level and rose just under 2% today. The Usd/Cad has consolidated, giving spinning top dojis right at the resistance price 1.1975, which has been a barrier 6+ times in the past year. This has occurred in a downward trend, creating the bearish pennant formation. The formation is encompassing 380 pips at the widest point. If the Usd/Cad breaks below the pennant by 10% or about 40 pips (1.1850) the price pattern would set up a move to near 1.1520, coincidentally the trend line going back about 9 months. Add one more technical indicator forming, a bearish divergence on the CCI. If the pair breaks below the 0 on the CCI at the same time it breaks the 1.1850, this is a great signal to go short. I am still very bullish fundamentally for our friends to the north (bearish for this pair). That being said, if it breaks upward above 1.2010, the price could go to 1.2200 short term.

Quick entry to trade

Got called out for a few pips of profit. Went short the Eur/Cad AGAIN (3 times a charm) at 1.3971 and the Eur/Usd is still running at 1.1660. The Eur/Aud is still paying out about $1 a day and is up a few pips to boot. Happy trading.

Keep it Comin'!

Usually the first couple of hour in the afternoon early evening holds little activity, today is different. Most of the gains on the 3 open trades showed up after the 5pm est rollover. At the time of this post the Eur/Cad trade is now 123 pips up. The Eur/Usd trade is up 104 pips. The Eur/Aud trade is up 34 pips, remember that the Eur/Aud is also getting about $1 in interest to boot. All in all a fantastic couple of days. I am feeling rather exposed on the Euro. I like the fact that there are 3 different trades, in essence long the USD, long the AUD and long the CAD. I don’t like that I am short the Euro 3 times over. Spreading out sentiment of one currency across varied pairs is a good strategy if your intension is to reduce risk of a single trade but to trade longer term. To give ample opportunity to continued trend and possible reduce my short Eur exposure. I am going to tighten stops slightly, not too much like last time but a little. I will tighten my stops to 115 of the current price on the Eur/Cad and the Eur/Usd. I am leaving the Eur/Aud unchanged as it hasn’t moved very far and I am trading it for a longer term trade and interest payment as well.

Now, much to my surprise, oil finally closed below $58 for the first time since June of this year. Stubborn as I am, I am not convinced this is the break out. If it is a break out of the head and shoulders pattern that formed over nearly 5 months, we could expect oil to slide potentially down to $46 over the next 5 months. IF oil drops further tomorrow, I would also expect the Gbp/Usd to also complete a head and shoulders pattern and drop 800-900 pips potentially. That kind of move is possible If and only IF oil drops and IF the Gbp/Usd confirms a breakout of the head and shoulder (10% of target ~1.7300-ish).

Other setups are forming. More to come.

Apology and Update

Apology and Update

I apologize for not updating this blog in the past 2 days, they have been busy.  Let me give an update of my trades.  The Eur/Cad retraced and touched my revised stop loss by 3 pips.  I believe it is human nature to think that someone has it out for you, but I have it on good authority someone is out to get me.  This person pushed a multiple trillion dollar market up just to clear out my stop.  Obviously this is an absurd notion that someone was looking for my 2 mini contracts and purposely pushed the market to close me out of my trade.  The reality is I placed my stop too close to where I saw a strong barrier.  The big banks and large players must have also seen this barrier and tested it.  My stop was just part of the casualties caused by the test.  Enough said.  Back to the trade.  I saw that I had been taken out, still believing it was a break out and seeing the test and bounce off of resistance, I went short again.  My entry this time was 1.4030, same original trade, second attempt.  This means I gave up 20 pips from my previous trade, the cost of a stop set too tight.  Lesson learned…,… I hope!
Next trade, the Eur/Usd closed below the 1.1850 target.  I have been waiting for this break for months now.  Short entry at 1.1796, target of 1.1596, stop of 100 pips, 2:1 RR ratio.
Now here is another trade I have been waiting for, in fact I had been waiting for over a month and had forgot to check it so I missed my entry by 9 pips.  The Eur/Aud is a fairly consistant, slower moving pair.  What I like about this pair in particular is the interest payment. Depending on the dealer, the Eur/Aud pays out about $1 a day on a mini and $10 a day on a full size account.  Going back to the highs last December, the pair has dropped more than 1700 pips.  Add on to that $365 in interest paid for leveraging one mini contract.  Even if the pair netted 0 pips negative or positive and you sold this pair short, the trade would have ended up paying out 182.5% for the year in interest alone.  DON’T GO BET THE FARM ON A CARRY TRADE (maybe bet the tractor). The Eur/Aud has bounced off of resistance and is coming down, hence the reason I sold the pair short (entry price 1.6023, stop loss 1.6173)  Yesterdays close showed a MACD cross, a declining 5 period SMA after the aforementioned bounce off of resistance.  It is my intent to hold this trade until the MACD and or CCI give me an exit signal, each day being paid interest and hopefully a few hundred pips to boot.
Last comment until the next post.  There is a lot of uncertainty on the Usd/Cad.  One of my colleagues and I have argued this.  He says oil is dropping and the pair is rising and no one in the right mind would take this trade short.  I am not one to be a contrarian but I do believe in commodities rising and I think this pair will probably turn around and go south here soon.  Keep an eye out, yesterday provided a beautiful spinning top at a resistance level.  Tomorrow is Sept Trade Balance for both the US and Canada.  It could help break this pair out (my guess to the down side for this pair)

BAM!!!

BAM!!!

We nailed the triangle something fierce.  What a great break out.  At the time of this posting the Eur/Cad is sitting at 1.3930, this is 120 pips on the break out.  If you are trading minis, the pip value is $0.85 per pip, this is equivalent to $102, or $1,020 on full size accounts per contract.  We started with a 100 pip stop loss.  I am going to adjust my stop loss to the entry price, this will guarantee no loss on the trade, gives me a 120 pip stop loss and the entry price is, interestingly enough, the 67% Fibonacci line based solely on today’s move.
The Euro broke below the 1.1850 mark I have been waiting for the past 3 months.  I think it is a good time to watch for an entry.  I am extremely excited, this appears to be the break out and the end of our flat, erratic non trending market.  A trending market can be a real cash machine.  Have a great weekend and successful trading.

Tightening the entry

Tightening the entry signals.

The triangle narrowed today, I am still comfortable with this trade set up. I am adjusting my entry prices to reflect the narrowing triangle.  Buy entry price, 1.4305, Sell entry price 1.4050.  These entry prices are still 50 pips (10%) outside of the triangle.  The 100 pip stop on both and limits still hold.

TRIANGLE READY TO BREAK

In the picture below, we have a beautiful triangle forming on the Eur/Cad.  This is a 30-day triangle (time from the base to the tip of the triangle).  The rule of thumb is not to take a breakout in the last 10% of time, in other words the last 3 days on this triangle.  This allows us to watch for a breakout up to 11/9/05.  The base of the triangle is 500 pips.  I like to see a break of at least 10% of the pattern size.  That being said, a break above 1.4320 or below 1.4035 will indicate a trade.  A retracement of the 50 pip break and cross back into the triangle would kill the trade.  The set is as follows, buy entry order at 1.4320 with a 100 pip stop and a 400 pip limit (4:1 reward/risk ratio) with a simultaneous, mirrored sell order at 1.4035, 100 pip stop loss and 400 pip limit.  These limits are 50 pips short of the upper target based on the pattern and 50 pips late on the entry.  I would rather make 80% of the movement and be right more often than try for 100% of the price movement and be wrong a lot more. Because it has taken 3 weeks to form, it could take 3 weeks for the price to reach the limits.  If the pair breaks out, I will probably adjust the stops along the way.  If it does not break by the 9th, the pattern is void.  If I had to pick one direction, I would favor a short trade as commodity pricing has been rising and the Euro has been struggling.  The ECB meets tonight which could be the catalyst to break the price out of the triangle.  If you have questions about the pattern or trade please click on comment and the system will email me.  Feel free to click the email link below to forward this to friends or other traders.

Eur/Cad Triangle poised for a break 

Two one Touches ahead of FOMC and ECB

The Eur has calmed down right near the middle of the channel. This 300 pip channel has been the plague of many trades, whether long or short. This week the FOMC meets as well as the ECB (European Central Bank). The Eur/Usd is interest rate sensitive, my anticipation is the fundamental outcome of the week will give the pair, and probably numerous pairs, the thrust necessary to break out of the channel. I have bought 2 one touches 220 pips away from the current price. This places the one stops 35 pips or just over 10% outside of the channel. As long as the trade moves I have about a 2 to 1 costs vs rewards or a 1 to 1 risk to reward. There is a slight chance both could hit by Friday morning, but this is unlikely.

Stopped out

Ouch.  Last night my dogs got out of my yard requiring me to go look for them.  Because I was out looking for the dogs, I was up at 1:30 and pulled up the charts.  I was very pleased that the Euro trade had gone up 40 pips.  This morning when the economic news started rolling out it was quickly apparent that the GDP was going to help the dollar more than the Michigan Consumer Confidence was going to hurt.  That being said, we are 5 pips away from being closed out of the trade.  RESIST THE URGE TO READJUST THE STOP LOSS.  Just because the pro USD push is running out of steam does not justify a change in the stop loss. Remember, if you have a stop at a major level, the institutions may have stop near the same level.  If the big players hit their stops, it can cause a snowball effect.  While I was typing this, we got kicked out of our trade and the pair slammed down another 14 pips beyond our stop.  

Closed out of two trades. Going long the Eur

Got stopped out on the Aud/Usd, up 50 pips. The Usd/Cad stopped out as well for only 15 pips. This if fine, both pairs experienced a strong reversal and if I average 30-35 pips per trade every two days, then so be it. (this would equate to a 350% annual return investing only 2.5% per trade) One or both may bounce in the next day or two, so I will be keeping a close eye on both.

The Eur/Usd has broken above its downward channel. It is not a strong break but it is a break out and the 20 period CCI crossed above the 100 line and the MACD is continuing to climb. Entry price of 1.2141. Short term target of 1.2200 (60 pips), intermediate target of 1.2270 (130 pips) and long term target of 1.2370 (230 pips). Stop loss set at 1.2075 (65 pip stop) Short term ratio of 1:1, Intermediate of 2:1 and long term of nearly 4:1. Keep your powder dry on this trade.

If the Usd/Chf closes down another 40 pips near 1.2690 or if it breaks through 1.2640, the Usd/Chf could drop to 1.2400 if not to 1.2200 long term.

Locking in Profits

Locking in Profits.

It was a good night for the trades.  It appears the Aud/Usd has moved our direction and created another support near 0.7565.  I am adjusting my stop to profitable territory.  I like what has happened with the Aussie and feel good about locking in 50 pips while letting the trade run.  My stop is now at 0.7563.  The Usd/Cad pushed down below and has been able to remain below 1.1685.  I like the Fibonacci from yesterday as resistance near 1.1725.  This only locks in 15 pips profit but it gives room of about 65 pips, allowing the trade to run down to the target of 1.1600.

I will look at the yen and the euro again later on today for potential trades.

Australia Restoring Faith

Aud/Usd proving itself. It is about 9pm mtn, 11pm est. The Australian market has opened and my faith is being restored in our friends on the opposite side of the world. The trade is back near short term resistance and back up 52 pips at the time of this post. Looking at the hour charts, I am excited to see a test if support at 0.7530 where previous consolidation has occurred. After the US market opens, I will consider readjusting the stop into positive territory. Right now I am just content with the support bounce and climb.

The Usd/Cad trade is stronger yet at 1.1664 up 76 pips from our entry. No changes to the analysis, I want to see it sustain a point lower than the 1.1685 mentioned earlier today.

Sticking to the short Usd/Cad

Sticking to the short Usd/Cad trade.  I am feeling pretty darn good about this trade.  The trade is up about 50 pips and it looks to be heading to our support for another attempt.  I am adjusting my stop to 1.1760.  Not a big adjustment but it does reduce risk to only 20 pips of the originally entry point. The best traders control their losses and let their winners run.

Looking at the Aud/Usd, I am a little less certain about this trade.  The Aussie’s have had some poor economic data and commodity pricing has not been able to outweigh the negative.  I am not giving up on the trade, but I am going to watch it carefully.

The Usd/Jpy is under a lot of pressure.  We could see the Usd/Jpy push through the ceiling, creating new 2-year highs.  The target on a break above 116.30 could push the yen toward 118.50, the trading level last seen in August of 2003. If the news out of Japan tomorrow night is good for the Yen, we could bounce off and pull back toward 113.75.  I am condsidering playing two one touch options out 2 weeks depending on the cost.

The Eur/Usd is possibly setting up for a trade.  The Eur/Usd seems range bound in a downward channel of about 150 pips.  The next day could confirm a sell and another attempt to break below the 1.1900 mark.  We will see what tomorrow holds.  

Long the Aud/Usd still, Short the Usd/Cad

Long the Aud/Usd still and short the Usd/Cad
Last night I placed and entry sell order at 1.1740 for the Usd/Cad based on my analysis of wanting this the pair to break through 1.1740, this triggered about 9am eastern this morning. My stop was originally set at 1.1805, about 25 pips higher than the high of today and right at the 50% Fibonacci from yesterdays drop. There is a support level at 1.1685, if the pair bounces of this level again, I will take my profits. If the pair breaks through and goes further down, I am targeting 1.1600 for a limit. From entry I have a 140 reward/65 risk, or about 2 to 1 ratio. Based on the move this morning, I feel comfortable moving my stop down to 1.1770, about 30 pips higher than yesterdays low and above the 62% Fibonacci from today’s move by about 20 pips as well. With the adjustment of my stop loss, I am at a 4 to 1 risk to reward.

Based on the two trades from the beginning of this blog, the Aud/Usd is up 25 pips and the Usd/Cad is up 30 pips. Remember these are correlated pairs and should act similarly in an inverse fashion. If commodity prices strengthen or the dollar weakens, both trades should improve. I like to split the trades between the two pairs to diversify rather than playing 3% of my account in one pair, I can split the trade across two pairs.

Buy signal on the Aud/Usd

Buy signal on the Aud/Usd, set up on Usd/Cad

Yesterday, I had the pleasure of hosting an active investor talk session.  During the session we discussed the fact that the Aud/Usd had a buy signal based on the MACD, 5 day SMA system. Below is a picture of the Aud/Usd (you can expand the chart by double clicking).  The signal played out well so far, I would consider adjusting my stop on this trade to about 10 pips below the low of the day (0.7470).  This tight stop is OK with the Aussie due to the low volatility..  After entering a trade based on the signal of the MACD, I am watching the MACD to cross back down or the CCI to create a divergence or cross a major line (100, 0, or –100).   Using whichever exit signal comes first.  

In the conversation yesterday, I discussed the fact that the USD/CAD had touched resistance but had not yet confirmed.  I suggested the idea of using a correlated currency pair, such as the Aud/Usd, to give a subtle confirmation to a correlated pair.  If the confirmation on the Aud/Usd were used to trade the Usd/Cad short, as indicated, you would already be up 100 pips on the trade.  If you missed this trade, I am watching to see if the Usd/Cad will break down out of the channel we discussed yesterday.  If the Usd/Cad closes below 1.1740, I would anticipate a move of an additional 150- 200 pips to about 1.1600 or even 1.1550.

BE CAREFUL.  DO NOT CHASE THE SCHOOL BUS.  If you have missed the ride wait for the next bus.

Aud/Usd long signal 

Currency Pair Correlation for the Past 170 days. 

Correlation Table

Correlation Table

The following table is a list of currency pairs and their correlations for the past 170 days of data. Depending on your browser, you may want to use the picture above. To zoom in to the picture above, just double click.

A correlation of 1.0 indicates 100% correlation. That is to say if one currency pair moves the other will respond in kind 100% of the time. A negative number indicates a similar correlation but as an inverse relation. This is to say if we look at the Eur/Usd and the Usd/Cad, one would expect the Usd/Cad to have an inverse or opposite move than the Eur/Usd 83% of the time.

An interesting note, the Eur/Usd and the Gbp/Usd had a correlation as high as 95% in the past. Currently the correlation has dropped below 70%. I believe this is due to interest rate speculation and highly volatile oil prices.




Correlation for the past 170 days
Eur/Usd Gbp/Usd Usd/Chf Usd/Jpy Usd/Cad Aud/Usd Nzd/Usd Eur/Chf Eur/Gbp Gbp/Jpy
Eur/Usd 1.000 0.681 -0.744 -0.367 -0.837 0.843 0.773 0.686 0.794 0.468
Gbp/Usd 0.681 1.000 -0.629 -0.099 -0.435 0.480 0.467 0.338 0.125 0.832
Usd/Chf -0.744 -0.629 1.000 0.202 0.314 -0.305 -0.272 -0.025 -0.462 -0.518
Usd/Jpy -0.367 -0.099 0.202 1.000 0.494 -0.471 -0.486 -0.330 -0.400 0.416
Usd/Cad -0.837 -0.435 0.314 0.494 1.000 -0.967 -0.886 -0.908 -0.796 -0.153
Aud/Usd 0.843 0.480 -0.305 -0.471 -0.967 1.000 0.957 0.931 0.767 0.206
Nzd/Usd 0.773 0.467 -0.272 -0.486 -0.886 0.957 1.000 0.867 0.689 0.175
Eur/Chf 0.686 0.338 -0.025 -0.330 -0.908 0.931 0.867 1.000 0.681 0.139
Eur/Gbp 0.794 0.125 -0.462 -0.400 -0.796 0.767 0.689 0.681 1.000 -0.071
Gbp/Jpy 0.468 0.832 -0.518 0.416 -0.153 0.206 0.175 0.139 -0.071 1.000

Hello, Welcome to Random Acts of Forex

Welcome to my Blog.

Random Acts of Forex will focus on trading in the Foreign Exchange markets. My thoughts, though they may appear random, will focus on combining technical aspects, fundamental knowledge, inter-market analysis, and a balanced strategy of system trading, news, and money management. I have been trading in the currency markets for 3 years and I have my series 3 and 30 licenses (Commodity Trading Advisor and Branch Manager). This blog is focused on my thoughts and analysis of the markets. My hope being, someone reading the blog could follow the trades and learn how to avoid pitfalls while taking calculated risks. I find that my own analysis and trading improves when I take the time to write it down and to review my thoughts. I hope the information is as beneficial to you as it will be to me.

Blake Young