Friday, November 09, 2007
First of all price, how can you argue with that. The dollar hit record or multiple year lows against the euro, the pound, the aussie, and the loonie (by lows I mean as compared to these currencies no forum posts pointing out the obvious record highs on some of these pairs, it was the dollar weakness or lows that caused it). If the economy were strengthening, GDP were truly rising, and new jobs were everywhere, would the dollar continue its collapse?
Second, Ben Bernanke backed me up yesterday, giving clear indications of economic slowing and probability of further more “severe” problems in the housing and credit markets’ already poor situation.
Third, and the one none can argue with, the actual data. Last week the non-farm payrolls report surprised everyone. Septembers new jobs were 110k new jobs, October was expected to be 82k but the report came in at 166k, 84k more jobs than was expected. The Burea of Labor and Statistics October report for multiple job holders over the age of 16 came in at 7852k (that is right a ‘k’ meaning thousands) which is up 231k from September (0.2% higher).
Now for some simple subtraction 166k new jobs minus 231k more people with multiple jobs equals -65k jobs or in other words, less total people are employed and more people are picking up second jobs. You may be thinking ah-ha I caught you Blake, they said that unemployment didn’t go up, true the percentage didn’t but the number of employed individuals went down 250K people in October. This is off 11k, but notice I said there were 250k less employed not 250 more filing for unemployment, that is a different number. Unemployment filings went up in October by 38k, not enough to change the 4.7 rate to 4.8.
Mmmm, tastes like pudding.
Oh wait, it was just a java script in the pivot point that was crashing. So no more pivot point calculator here and things should be fine again. I am writing a post similar to last week today so if you can suffer through a long post then come back later on.
Oh wait, before I stop for the moment, let me point something out to the nay say-ers. Remember the Gbp/Chf trade??? You may have forgot, it has been a month now. On October 4th I said that no comment was not a good thing out of England and it would hurt the pound and I liked the Swiss Franc as a counter part. A number of people questioned my logic and sanity in chats, emails, and phone calls. Well, this is just another one of those I was right situations isn't it? He He and Ha Ha, laugh my way to the bank.
Now were are we? At a support level. If we see consolidation or a bounce, get out. If we see a break of the 2.35 level hang on for a couple of more days to see where it goes. It took a month but for 500 pips, that is alright.
Friday, November 02, 2007
I have heard a lot of people questioning why the dollar weakened when the nonfarm payroll jobs data was so strong and such a positive surprise. You may find an article by John about the nonfarm payroll last month, interesting as well. In John's article the basic conclusion was the number is not just the number, we need to dive a little deeper.
To do this let me point out a couple of specific announcements from this week that tell a very interesting story.
First ADP gave a glimpse of up and coming nonfarm payroll with expected 60k actual a whopping 106k
Second annualized GDP q/q with expected at 3.1 and actual coming in at 3.8, healthy growth and a surprise.
Third nonfarm payroll expected 82k new jobs, actual 166k.
That is the positive I want to focus on. The neutral is unemployment rate, expected 4.7 and actual 4.7
With all of this good news, why did the dollar weaken and what is really happening with the economy. Keep all the above in mind and remember what you already know.
In case you don't know what you already know, let me remind you. You know that the economy appears to be slowing (in spite of the above information), you know that the housing market is collapsing and you know that there is a significant credit crunch. You may be thinking, "yeah and..." Well let me give you a couple of additional numbers also from this week.
Fourth, Interest rate decision cut to 4.5 as expected (sign of slowing econo-credi-housing industry needing a boost)
Fifth, Personal spending expected 0.4% actual 0.3%.
Sixth, Average Hourly Earnings expected 0.3% actual 0.2%
OK, so with what you already knew, we added 3 positive surprises, 1 neutral, and 3 negative surprises. Those all should cancel out and we should be able to just go with what we know right? Maybe.
Let me paint a picture: Bob Jones is an average guy with an average job that last year decided to buy an above average cost house (market conditions last year) with a below average (subprime) loan just like the average Joe.
He has one of these ALT A subprime loans. This loan not only doesn't require any principle paid but has a variable minimum payment very similar to a credit card payment. His intent, like the average Joe, is to make the minimum payment and invest the rest. Like an average Joe, this didn't actually happen (see articles with titles like, "Falling into the Real Estate Trap", "I'll Invest the Payment I Would Have Made and Other Lies We Tell Ourselves", and "Real Estate's Sucker Bets").
Bob buys his $300,000 house with a monthly minimum payment of $700. The payment on a normal amortizing loan would have been $1700 and the interest on this payment would have accounted for $1300 of that payment in the first year. During the first year Bob only makes the minimum payment, makes no extra payment and invests no money. The amount of accrued interest equates to $7200 for the year and is added, compounding each day, to his $300,000 principle balance.
Because of the credit crunch, Bob's minimum payment jumps to $1400 (still no principle payment) and he decides the payment is getting too rich for his blood. The housing market around the United States has corrected/dropped 15% on average (some places less some places much much more) making the market value for his house $255k. He owes 307,200. What are his choices? Under new bankruptcy laws he can't just walk away from his negative equity. He could sell it for a loss and negotiate payments on the $52,200 or he can try to continue to make the payments. What to do what to do? I know, get a second job.
Bob goes and finds a second job. What are second jobs usually? Usually a second job is a job that is not in a "professional field" that is why they call it a second job. Second jobs usually pay less than principle jobs. Where do you find a second job easily? The service industry (retail, sales, construction, food, grocery, etc). Which sector contributed most to this month's nonfarm payroll? Service...hmmm...a connection?
So more people get second jobs, more service jobs are created, we see that in the numbers. Do we see more spendable income? No, less consumer spending, where is the money going, to pay for our over leverage debt ridden society. Average hourly rate goes down, due to second jobs (primary job pays $20 an hour second job pays $10 for 20 hours a week, average hourly? $16.66, lower average hourly rate). Production goes up (GDP) because everyone has second jobs and are working more. This is not good job growth, it is not good GDP growth because all of the growth and improvement is being spent on keeping the econo-credi-housing industry's head above water via paying our outlandish credit payments on the exorbitant debt.
Did I miss anything? I don't think I did. Basically, as a society we are scrambling not to lose our homes that are upside down because we would rather do that than pay for something we don't own and yet 1 out of 65 homes in Nevada are in forclosure (3% of all homes in Las Vegas are in foreclosure) so we still aren't doing that well at it.
Conclusion, the jobs data was great data if you understand it wasn't positive for the economy, in fact it was similar to a drowning man's head coming above water for the third time(maybe only the second time).
The moral of the story, stay out of debt and sell the US dollar.
Wednesday, October 31, 2007
Happy Halloween everyone.
Tuesday, October 30, 2007
Oil also has a lovely divergence formed today. I believe this last push was likely an over extension of the oil prices, making me believe oil should pull back near $90 a barrel over the next day or so if not $87.5o. I could be wrong and oil could find support, kill the chance for a bearish divergence to play out and move to $95 but.....I am not holding my breath. If oil drops, expect that GBP/CHF trade to play out. I think we could see this pair finally move with the pressure it is under, it has to break sometime.
Short term resistance at or near .9700
Next level resistance at or near .9810ish
Most significant level of resistance 1.0000
These are not guaranteed but I certainly feel that the trend, the fundamentals and the monetary policy of rate cutting will keep the downward pressure on the USD/CAD.
I also like the idea of playing the CAD/JPY long as the USD/JPY is having trouble going beyond the 114 mark. If the USD can maintain strength and support versus the JPY and the CAD is stronger than the USD, I like the CAD/JPY long positions (include the AUD/JPY with similar analysis of the AUD to the USD to the JPY)
Monday, October 29, 2007
Now the concerns, the Fed announces rate decisions this week and my anticipation is obviously a rate cut, me and the rest of the bond commnunity. If you want a glipse of what is coming based on the bond trader's perspective (which I might add is very effective), check the CBOT for the 30 day fed funds rate.
07Oct 95.2550 4 3/4%
07Nov 95.4900 4 1/2%
07Dec 95.6100 4 3/8%
08Jan 95.6650 4 3/8%
08Feb 95.7900 4 3/16%
08Mar 95.8350 4 3/16%
08Apr 95.8950 4 1/8%
08May 95.9600 4 %
The Fed cuts rates in 1/4% or 25 basis point increments. With that in mind the expected rate should be near 4 1/4% by first quarter next year. We are not dealing with just one rate cut but many.
This should all mean weaker dollar but I am expecting some volatile times over the next 2 weeks, possibly volatile like August and September again.
Two choices: Keep your stops really loose so you can ride out the storm and stick with the bigger trend or tighten your stops, get stopped out of your trades and wait for the wind to stop blowing. If you are more agressive, there could be a lot of scalp/intraday trades with the potential volatility.
Side note, GBP/CHF is still channeling in the same rough range.
Thursday, October 25, 2007
A continuation here is expected but a strong support lies at .9630. A sold resistance sits near .9700 and the longer term resistance stands at .9800. Keeping with the terminology here, put your trade to rest at support where it lies. Sit tight at the intermediate resistance and stand and run away if we break above the .9800 from along term point of view (or stand firm at .9800 for another selling opportunity, whatever you like best there).
This is a fun little exercise of analyzing a short term trade. The way I look at trading in general is this... it took me as much money in spread and even more time, focus and energy to trade this scalp as it did the trade I shorted at 1.0000 a few weeks ago. So for my time, focus and energy, and really for my money, I'll go with the long term trade. Some of these will line up in the future as this has but I won't be discussing them nearly as much.
Wednesday, October 24, 2007
In essence I am watching for the cross below the fib fan for a continuation and a move down to a collision of longer term trend lines and older fib fan lines as the next target. If it bounces here, I would consider an exit of the scalp trade.
Longer term traders following the previous posts, disregard this post. This is a scalp trade. Don't confuse the two.
Are you interested in the in depth fundamental pontifications like the deciphering of the BoE? Pure technical trades? Scalp-ish trades ?( I usually won't post too much that way but sell the USD/CAD today off the .9720 level). Longer term trades like I usually look at?(5 weeks on the 2 trades we are in for a lovely profit right now). Wise cracks with pertinent commentary? (I like doing that but some don't like reading it)
What do you want? Post it the comments please.
and Thank You
Wednesday, October 17, 2007
Information item #1: The Bank of England (BoE) voted 8 to 1 to leave rates alone. If you were to read this, your first thought may be to assume that this is very bullish for the GBP for the fact they were so united (there is always one rebel mixing things up). But to know why they voted to leave it the same is even more important.
Information item #2: The BoE said, "The preparation of the November Inflation Report and its projections would give the Committee more opportunity both to assess the impact of market turbulence and other developments in order to reach a more considered judgement and to explain its policy stance." -Translation: We need more information so we can make an informed decision. In fact in the minutes they specifically said they wanted more time and information before they take a rate cut. No discussion of leaving it long term, no discussion of raising rates, just timing a cut.
Information item #3: CPI has now reported in under 2% for 3 months now. This is not growth, this is slowing to a point that is teetering on recessionary if the CPI can bleed into GDP.
Information item #4: The BoE said, "It was possible that a cut in rates this month could be misinterpreted as a signal that monetary policy was focused on supporting the financial system and not on meeting the inflation target." - Translation: We wanted to cut rates because we thought it would be a good thing but we were afraid that it cause a misdirected focus on the balancing act we have to follow as the BoE, hence the "No Comment" two weeks ago.
Information item #5: The BoE said, "A reduction in Bank Rate this month was not widely expected. There was a danger that such action would be misinterpreted as a signal that the outlook for growth and inflation had shifted decisively to the downside." -Translation: The market didn't expect it and this would have been a huge shock, so we didn't do it. Note, the outlook for growth and inflation has shifted decisively to the downside.
Information item #6: Oil record highs, from August 1, crude oil has risen 13%. The GBP/USD is no higher today than it was on August 1. If 10% of what drives this economy growing at 13% can't help the GBP what can. Dive a little deeper, if you assume that oil prices account for 10% of GDP for the GBP and oil prices have risen from 40% since January 1, near $55 at the beginning of the year to $87 a barrel, then there should be a similar move in the GBP. Just in the past 2 months the 13% would equate to 1.3% growth of GDP based on oil alone. GDP for the entire quarter reported in September was 0.8% and expected to come in at .7% for the October quarter over quarter report. Take out oil growth and what do we have? 90% of the GDP is shrinking or decreasing by roughly .5%. Two quarters of negative GDP is considered a recession.
On the surface it appears there is growth and concern about inflation. Diving deeper, adjusting for climbing oil prices, the British economy may be in a hidden recession. What do I expect...weakening pound. This is why I still would expect a GBP/AUD short to play out if time right, a EUR/GBP long trade if timed right, and the GBP/CHF trade as referenced earlier in this blog to play out.
~~note: anything underlined in this blog is a hyperlink to view more information.~
Tuesday, October 16, 2007
So when you are thinking of Leverage And Margin Examples or of my friend John, just remember this handy acronym---LAME
You are my hero John.
~~~It appears that many of you felt my playful jab at my friend was an indication of the video. The video is very informative and not really lame, it was a joke, I was laughing anyway. I don't know if John was, maybe I was the only one... oh well live and learn and learn some more. Go watch the video by clicking the underlined link above.
I hear it frequently, if you set your stops too tight, start looking at these options, if you are giving yourself enough room in your trades, the spot usually makes them most sense and money.
Today, what are we looking at? The USD/CAD has pulled back to a short term resistance level. The pair has not moved a lot when it probably should have. So here is the trade and the fundatechnimentals behind it. Oil- record highs, should benefit the CAD. No rate change from the BoC, this is better than the FOMC cutting rates, should benefit the CAD. TIC data for the US not only didn't show the expected $60 Billion of foreign investments coming in to the US but showed a withdraw or fleeing of $69 Billion in foreign monies, bad for the US dollar.
No significant move from the pair, this could be a chance to sell will minimal risk or buy in to the CDD put. I like the December 97.50 put for $1.35 or $135 per contract. Fixed risk lots of potential 8 weeks of time to play with. The USD/CAD would probably need a little wider stop on this one 99.15 or even back above the $1.00 mark. Pick your poison.
Thursday, October 04, 2007
None of that makes sense. The term "No Comment" is primarily reserved for the accused, politicians, and attorneys (just typing that makes me realize those three groups share a similar lack of scruples) or someone that is hiding terrible news.
This morning at 7am Eastern, the Bank of England left rates unchanged and said, "NO COMMENT". What is the likelihood that it was No Comment because they didn't want the world to know that it was a unanimous vote to leave rates unchanged, they didn't want to tell the world how great the British economy is doing or they had no concerns of the credit crunch and housing market? Could it be they left a no comment because they are concerned about how bad the news is and how much it would shock their currency if they exposed the whole truth of their decisions (minutes will be released on October 17th). I am betting on the second and I am a little surprised that the world market didn't read between the lines on this one. Lots of bad news and a weakening pound but No Comment must have been because they were tired and didn't want to say anything today.
Looking at the previous blog on why I thought the pound should weaken and why we should have heard dovish comments out of the Bank of England, I began my search for the right pair to trade and I found it in a peculiar place. I found it on the Gbp/Chf. This is not necessarily because I think this will be the most profitable trade, more that it is one of the easiest pairs to analyze and control risk. In the chart you can see a nice down trend over the past couple of months with an approach and likely bounce off of resistance.
Risk can be controlled with a 200 pips stop and a potential reward of nearly 500 pips if not more. As time goes on and if the lower trend line is reached, the lower trend line could be as low as 2.32 for a 750 pip move.
The problem with this trade is that the CHF is a weak currency. The benefit is, if I am right about the GBP, the minutes will reveal the dovish sentiment and further unwind "carry trade" pairs including the GBP/CHF pair.
Tuesday, October 02, 2007
I am going to make this a brief analysis and looking at 3 correlations occurring right now. Starting with Ethanol, Ethanol is a corn based fuel that acts as a direct substitute for oil based products. Looking at the December 2007 CBOT Ethanol Futures, there are two things to note. First note, a high point in March/April time frame and second, a consistent downtrend to today.
If the demand is decreasing for the primary substitute for oil, this causes me to believe the demand in general has been falling recently for oil. What has oil been doing in the time from March until now? Climbing, surprisingly enough.
Oil has climbed up and hit record highs over the past couple of weeks. If you look at the price at the pump, at least here, retail gas has not increased while oil has climbed up approximately 26% or climbed from $65 to $82.50 a barrel. Retail prices should have increased by about the same or higher. Why hasn't it? No increased demand while price is rising. This is a divergence in the inter-market analysis.
As seen in this image, both the CCI and the RSI (differing times) are diverging from the price. In most cases the price snaps back in line with the indicator, if this is one of those times, I would expect oil to fall.
The pound has not really benefited as of late on such a significant move on oil. Why? Possibly the concern of the housing market, slowing global economy, maybe the fact that the price is going up but demand is not means less purchases from British Petroleum.
Now what does that have to do with anything going on right now? This week we are going to hear the Bank of England rate decision. If I my assumption of slowing demand and increasing price is correct, the lower than expected trade balance we saw 3 weeks ago from Britain would be correct. If the GDP is slow, PPI has been low and housing is still struggling than the economy is not growing enough to be concerned about inflation. Sound familiar? It should, this is not far off from what the FOMC was looking at, slowing economy, inflation not as much of a concern as housing and BLAMMO, a rate cut.I don't expect a rate cut from the B of E, but I wouldn't be surprised if they became very dovish in the comments which could weaken the pair near a resistance level. Look for a short oportunity, not necessarily against the USD but maybe against the AUD or the EUR or the CAD or anything that has shown recent strength. You have between now and Wednesday night (US Wednesday Night) to find a good risk position...
...or what about an option on the BPX?
Remember the 1.00 is a strong psychological barrier and likely will hold. At this point simply watch for it to stop going up, look for a peak with low risk and trade.
Thursday, September 27, 2007
You would think for $40 billion you could buy some pretty sweet swim lessons. Watch the fed with the $40 billion in swim lessons below.
"So, how do you like my swimming?"
Wednesday, September 26, 2007
Just click on comment, write up your comment, and submit. Don't be shy and don't be over sensitive.
Tuesday, September 25, 2007
Friday, September 21, 2007
Another great article today by John on the divergence in oil is available. To see it, go here.
Thursday, September 20, 2007
Tuesday, September 18, 2007
Watch this about trading options and today's 50 bpp cut by the fed.
Also, I made some good returns today but now I am watching for an add position and new position on many trades, especially the carry-ish trades. Keep an eye for pull backs to key positions and then watch for a couple of longer term trades.
Wednesday, August 22, 2007
I hope your accounts are doing ok with all the excitement.
Wednesday, August 08, 2007
Now with the USD/CAD. I have been pro Canadian for months now and the pull back has played out well. We talked about selling off on August 1st, price was near 1.0600 but I didn't get any graphs posted. Now we have had a good move and a pull back. I think 1.05 is a good resistance and shorting point. 1.0630 is the next resistance level with some wiggle room to watch out for. We may see some consolidation and slowing near 1.0400 and again near 1.0350. If we can clear these levels, the 1.02 and even parity is possible. This graph is a 4 hour chart.
Gbp/Nzd is close.
Tuesday, August 07, 2007
Pivot 2.6638, R1 2.7037, and S1 2.6413 , where R1 = Resistance and S1 = Support.
Looking at these values and dropping down to the shorter term daily or 8 hour chart, you can start to see how these values apply to the chart pricing. The prices will not hit exactly the key points but if you have trouble defining support and resistance levels, give pivots a try.
At the bottom of this page you can input any values from any pair. It works well on monthly candles, weekly candles, daily candles and intra-day candles. The basic premise is to expect the price to be bullish above the pivot to the resistance levels above the pivot. The other side of the equation is to be bearish below the pivot and use the values below the pivot as potential support levels.
As those who have followed the blog know, I like to buy at support levels and sell at resistance levels. As i look at the GBP/NZD, I generally use my own support and resistance levels but looking at the pivot points they match very close to some of the key levels I am watching. It would have been great to sell of the 2.7037 level and a close below the 2.6638 level could be an indication of bearish sentiment to the next level.
The key with these levels, in my opinion, is use closed or completed time frames for the values to start the calculation and then remember to control your risk by selling off of resistance levels and buying up support levels. Add some of your own discretion and some fibs and I think you have a decent trading plan.
There is surprising amount of buzz about the Fed interest rate decision today. I have looked at the CBOT fed fund futures and it appears we have a rate cut priced in toward November or December. My first response based on what the futures show would be, we could hear dovish comments from the fed. My next response is, the fed is stuck between a rock and a hard place. We are finally seeing some slowing in the economy and the real estate market is being further hammered as well as a significant credit crunch. By lower rates that would definitely stimulate the economy and some spending but it could also spurn stagflation. Stagflation occurs when inflation is going up while economic growth is not. That is what we have setting up now. Commodities are still high, sure we have seen some pull back but it is still in a growth market. The best choice from the fed would be to leave things alone. Ben Bernanke has shown he is willing to stand his ground on
Usd/Cad has given a pull back and I like the idea of selling it.
Gbp/Nzd... not as convinced. It is stalling out at 2.6540 and has been within 50 pips either direction for the past 16 hours. 100 pips is a large "stuck area" for most pairs but not for this pair. That is hardly a shadow worth noting when the pair can move 600 pips or more in one day.
More on these developing events...
Thursday, August 02, 2007
Now if we can get that upward mobility, 105 is certainly not out of reach and possibly back to the 107 level as we discussed a couple of days ago. Potential bounce levels? 102, 101.40, 102.70
Wednesday, August 01, 2007
Tuesday, July 31, 2007
Next let's look at the long term view of the AUD/JPY. The pair is still trading in the channel that goes back to Feb/March time frame. It is testing the channel support, approaching the 100% fib retracement level and the 38% fib fan "supports" the trade for the same time frame (groan... I can't believe Blake went for the cheap pun). All of these favor the setup of a long position. From the risk and reward stand point, a 100 pip stop could allow you to trade the pair back to 107.50 level. Risk 100 pips gain 650. Mmm tasty. But the upside trend line is moving higher as time goes on so the target could becom 110.00 now we have a 900 pip target for the same 100 pips stop...yummier.
I have talked a lot about giving yourself more room to trade than you think is necessary. What about a stop in the 97.50 level. We now risk 350 pips for the same 650 or 1000 pips. Though the risk to reward isn't as appealing, I think the view of taking bigger stops will make you more right more of the time. It only takes one more winning trade in 8 trades to make up for the additional exposure.
To be more conservative and time the trade, let's drop down into an intraday view. Waiting for a move to break the 102.50 level for confirmation of the break of the fib fan and getting back into the fib retracement from prior would be a good idea. BUT, WE SHOULD BE MUCH MORE WORRIED ABOUT THE LOWS AND NOT THE HIGHS. If we are going for a long or bullish trade then we concern ourselves with the lows or support levels. If those support levels are broken then our trade is over. The reverse is true in down trends. If we bounce off of the 101 level then we have a higher low and continuation of our trend. I will then use a fib fan and the 61% line to draw a support line off of the bottom of those two lows. The fib fan will give me a quick controlled out of the trade as well as a target for the next high. After we see a bounce I will post again.
Monday, July 30, 2007
I am not kidding, take a stand, make a comment, show you have an opinion. No one is wrong, some of us will just be "righter" than others.
Look at the long term trends, look at fib levels, look at gold... then post in the comments and let's talk about this one. What is the appropriate stop level? What would you expect long term? Is the pull back over? Is it time for a trade? Am I a few sandwiches short of a picnic?
This and more in the next blog post.
Tuesday, July 24, 2007
It's payback time of course. That's right get mad, show the Gbp/Nzd who is boss. Throw your money at it and see if it bleeds... oh wait, that's your blood...hmmm... scratch what I just said.
I am still bearish on the pair but now I have to wait for a good risk to reward again before I take the trade.
Is it here at the 2.5650 level? Only time will tell. Exactly 2 hours and 3 minutes to see if the close price takes me outside of my fib fan level and the resistance level. If not, I am good to watch for another entry. If it is closer higher, I like 2.5800 as a possible new short.
As fortune would have it, I am still in the trade and it got within 12 pips of stopping me out. If we close higher I will exit the trade with some profits and watch for the new entry.
If you got stopped out, cry me a river and wipe your eyes with dollar bills. You made about $140 per mini contract for a couple days of reading my blog.
Click here for the special report page with the protective puts article.
Monday, July 23, 2007
You can get to this free special report by clicking the link here or by going to the link on the right side of this page and then going to the special reports section of the PFX Global site.
If the links in the web page don't work for you , you may need to copy and paste the URL here.
Saturday, July 21, 2007
Thursday, July 19, 2007
Any other Gold traders out there besides me???
Wednesday, July 18, 2007
So what do you do when it is near either a break out in a short term uptrend or resistance in longer term trend. GO WITH THE LONGER TERM TRADE!!!
I like the risk level now. It is about where it was yesterday as it is testing this 60 pip range going back and forth. A short position near 2.5880 with a stop up about 2.6100 seems like huge risk. Remember that the risk is 220 pips at about a 80 cents per pip or $176 per mini contract and realistically if I see a solid move beyond 2.5900, I will watch for an early exit. There is a solid resistance near 2.60 as well. These are all key levels to moderate risk for the potential target. If you are only risking the move to 2.60 that is about $100. Potential target...2.5560, 320 pips, $256. 2.5:1 risk to reward.
Tuesday, July 17, 2007
First, it depends on where you got into the trade. If you went short and sold near resistance (at 2.6100) you are still very profitable, if you got in the trade lower and losing money you are probably struggling right now and looking to get out.
Second, it doesn't matter where you got into the trade, either it is a good trade now or it isn't. If you are in the trade now where do you see resistance. Money gained or lost in the trade at this point has nothing to do with the current set up.
I see the resistances at 2.6100, 2.5870 and 2.5880. Any of these points could be considered for shorting opportunities. You may note that we are at or near the lowest resistance level listed which correlates to the consolidation and resistance level 4-5 days ago and the support level tested on June 28th. I like this position from a risk stand point but I like this pair has a tendency to give large shadows and test your tolerance of larger stop losses. If you aren't short a position here with a 125 pip stop seems appropriate. If we close beyond the fib fan and the 2.5900, I would still be comfortable selling it near the 2.6100 again. Low risk--Great Potential.
This pair is great for practicing your long term trading strategies and getting better at understanding risk to reward ratios.
Good luck and Good Trading.