Friday, October 28, 2005

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.  

Thursday, October 27, 2005

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.

Wednesday, October 26, 2005

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.

Tuesday, October 25, 2005

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 Posted by Picasa

Monday, October 24, 2005

Currency Pair Correlation for the Past 170 days. Posted by Picasa

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