Paper trade: Short GBPJPY @ 146.32, Target 143

GBP/JPY finally broke below an intermediate term wedge pattern formed from Dec 30. See Figure 1 for the daily chart. I am noticeably late in this GBP/JPY short entry because I was preoccupied with other positions (e.g. my EUR/CHF and GBPCHF shorts) today.

In any case, this is an intermediate term (a few days at least) play so there is no rush. My first short was executed at 146.51 on obvious signs of short term pound weakness versus the GBP/CHF pairs. GBP/JPY made some retracement on a test of 146.00 but GBP/CHF kept on dropping, so I took a short position once it touched the 146.50 resistance. My average price in this is 146.32. I have set my stop loss to lock in some profits already (which might get taken out soon).

Note that I just happened to be watching the GBP/CHF currency pair as I have a position on shorting that too. Otherwise EUR/GBP and GBP/USD would have been better for short-term intermarket analysis because of higher liquidity.

With regard to this formation, as you can see on Figure 1, today’s break of 147.50 gave way, all the way, down to 143.00. This target price is estimated from the height of the wedge pattern which it just broke through. The distance from 147.50 to 143.00 is about the distance of the height of the wedge (Dec 29th low to 30th high).

Another reason for targeting this 143.00 price is because of my weekly chart of Figure 2. 142.50-143.00 is the next support according to a long term trendline (lowest ascending white line) as shown in Figure 2.

GBP/JPY haven’t seen these prices for a good month, so hopefully the move down shouldn’t be too difficult. As usual, I will stockpile my short position in this gradually to limit risk.

GBP/JPY, daily chart

GBP/JPY, weekly chart

Why I shorted CAD/JPY @ 88.57 instead of long USD/CAD @ 1.0251

CAD/JPY failed a major resistance level at 90 and has edged out an obvious intermediate-term downtrend (Fig 1). USD/CAD is also bouncing off a major support at 1.0200 (Fig. 2). And crude oil is below $80 on a slippery slope. As such, shorting loonie seems like a good move at the moment according to my FTC trading setup. Yet, here is why I am opting to short CAD/JPY and not long the more popular USD/CAD currency pair.

Figure 3 shows a 5-year, weekly chart of CAD/JPY (top) and USD/CAD (bottom). Evidently, the exchange rate of CAD/JPY is still in a depressed mode since the fall of September 2008. It’s also clear on this chart that why I say 90 is a major resistance level. Beside from being a nice round number, CAD/JPY has failed to break above 90 twice since August 2009.

As for USD/CAD, the picture isn’t as clear. 1.0200 is definitely a very strong support because it marks the top of a 6-month range in the first half of 2008. Yet, the downward slope in the long term since 2005 is not to be ignored. As such, I do not dare to bet on a bounce on this pair at this price.

Moreover, the intermediate-term move on both of these pair is giving us a confirmation. CAD/JPY is now testing a falling trendling (Fig. 1). Whereas USD/CAD is testing a falling support. Thus, I am shorting CAD/JPY under pressure. Going long on USD/CAD now would be like betting it to bounce on a slippery slope.

CAD/JPY, 3-hour

USD/CAD, 3-hour

CAD/JPY and USD/CAD, weekly chart

Paper Trade: retrying AUDJPY short @ 84.52, Stop 85

My previous AUDJPY short entry was early as I surmised (entered without short-term confirmation). I made a number of ins and outs with that trade as depicted in Figure 1. Some were winners, some were losers. In all, it’s around breakeven in that trade. However, I have re-entered this short in AUDJPY just now at 84.52 using the same long term setup (see weekly chart in that post) as it hasn’t been broken yet. Moreover, AUDJPY is in the process of making a negative divergence on the 3-hour chart as shown in Figure 1.

The key word is “in the process”. There is still a possibility of a breakout upward from here. I am being aggressive to establish a position here because of intermarket divergence in Aussie crosses versus gold price overnight. See Figure 2. As you can see, gold made a marginally higher high above 1130 on the 4-hour chart of Figure 2. Yet, neither AUDUSD nor AUDJPY followed suit. Those two currency pairs are holding their respective double top. The exception is EURAUD, it keeps diving downward, but that can be accounted for by Euro weakness. It would have been a perfect picture of EURAUD can hold its bottom though.

I wouldn’t count this trade to work out just yet. That’s why I’m only risking 0.2% of my account with a small position size for now. As you can see from my trade orders shown in Figure 2. I have a couple limit orders just below the near-term supports to add to this short.

My pawns have been placed. Let’s wait and see what the market does.

AUDJPY, 3-hour

Aussie crosses and gold price

Paper trade: Short AUD/JPY @ 84.53, Stop 85.00

I haven’t done one of these trade analysis post for weeks. So I thought I’ll start the year on this promising long term (more than a week) trade on one of my favourite currency pairs, AUD/JPY. This entry on shorting AUD/JPY is executed according to my Forex Trend Reversal (FTR) setup. Figure 1 shows the weekly chart. Please excuse the mess. There are only 3 relevant lines in addition to the price.

Referring to Figure 1, first line of note is the top of that 4-line descending channel. Notice that 84.50 correspond with the resistance this week. Secondly, there are 3 ascending trendlines drawn. We have a triple X-cross on the 2 ascending and 1 descending lines at around 85.00 last week. AUD/JPY failed to touch it. If this trade goes well, AUD/JPY shouldn’t test 85.00 again because it has missed its chance. That’s where I placed my stop. Anyway, these are just doodles on a chart, we need confirmations. For that, let’s take a look at the major Aussie crosses and gold prices in Figure 2.

AUD/JPY, weekly

Aussie crosses and gold, 4-hour

The recent strength in Aussie is clear in the 4-hour charts of Figure 2. From top to bottom, Figure 2 shows AUD/USD, EUR/AUD, AUD/JPY, and GC (gold futures). We also see that gold prices is staying at a depressed level below 1120. This rising Aussie but toppy gold price is a sign of divergence.

Furthermore, we have a shooting star candlestick pattern in the previous gold price bar. Gold spiked above 1130 briefly but couldn’t hold above 1120 so far. Another plus for the short.

Now that the entry signals have been met. I needed to time my entry. This the the part that I should have done better. I basically just shorted it at the ’50 resistance without giving it much thought. The short-term bullishness is still strong and I really should have waited for a lower high on the 3-hour chart. Figures 3 and 4 are the daily and 3-hour charts, respectively.

AUD/JPY, daily

AUD/JPY, 3-hour

I took a smallish position in this trade at an obvious resistance level. My intention is to add to it as long as AUD/JPY stay below 85. Also, a safer stop should be 85.50 as seen from Figure 3 (daily). 84.40 was a recent top in October.

Lastly, I chose to short AUD/JPY instead of AUD/USD because I have some other U.S. dollar longs already.

AUDJPY Short 81.37/77.17: Anatomy of my first 400+ pips trade

420 pips in my demo account to be exact. Still, I feel very lucky.

In this post, I will review why I entered this position, why I added to it, and why I exited. The goal is for myself to learn from what works and what can I do to improve on this trade given some hindsight advantage.

The Signal

See Figure 1 on the daily chart of AUDJPY (first entry price pointed with blue arrow). Notice the lower highs, with the 2nd high inside my fChannel and the 3rd (last, just before entry) high below a yet longer term fChannel. Plus 1 point for the lower highs and another 1 point for the highs moving into the channels. Two points here.

AUDJPY

The Choice

While both AUDJPY and AUDUSD seemed promising. I focused on AUDJPY because the Yen seemed better poised for strength. I discussed my method of choosing a better counter currency for trading in another post, so I won’t discuss it here. However, as this trade became more and more obvious and into the green, I diversified my short by adding shorts in NZDJPY and NZDUSD. Those two netted around +100 and +250 pips also.

Another plus 1 point for picking and choosing.

The Confirmation

What really gave me confidence in this trade is the price action in gold in comparison to the Aussie. Figure 2 shows the Gold Futures price (/GC, lower left) and Australian dollar futures (/6A, middle left). Notice that gold has been trending up steadily for days but the Aussie made a lower low. That’s a negative divergence. Plus 1 point.

4-hour charts of forex markets, gold, and crude oil

The Timing

For timing this trade, I observed the intraday movement of AUDJPY, EURUSD, and other related pairs. The most obvious sign of Aussie weakness was from comparing the price action of EURUSD and AUDJPY. The 3-hour charts of EURUSD and AUDJPY are shown in Figures 3 and 4, respectively. Notice on Nov 24 and 25, EURUSD trended higher and made a new high. At the same time, AUDJPY barely moved on the 24th and squeezed even more on 25th. The difference was even more noticeable when I was watching the 30-min at the time. I had thought that my datafeed was lagging when AUDJPY barely moved yet EURUSD was rocketing up.

Plus 1 point for the 3-hour price action and then another 1 point for the 30-minute price action (not shown).

EURUSD, 3-hour

AUDJPY, 3-hour

The Entries and Exits

Six points total for the trade, time to establish a position. You can see my orders in Figure 4 above. My first entry was Nov 25 15:12 at 81.37 with a half position. It is marked by a yellow triangle at the cliff beforethe dive (how lucky). I added another half that evening 23:06 at 79.94. I was waiting for a 50% retracement to 80.50 to add but that didn’t seem to be happening. So I added 1/2 when AUDJPY failed to break 80.0 with a strategy to add another at 80.50. But 80.50 never happened and it took another dive.

My exits are determined at the time as usual by using stops. I simply keep moving the stop along and narrowing them once we break support level. After the move became vertical, I zoomed out to the daily chart to view potential targets. The 77.0 and 76.00 levels (as shown in Figure 1) became my not-be-greedy targets. I had my stops really tight at those point and even had a take profit set for half the position at 76.0, but that level wasn’t tested before I got stopped out.

The two red dots at 77.17 and 77.08 are my stopped exits as shown in Figure 4′s last bar.

The Conclusion

What made this lucky trade happen is that I had spent a lot of time analyzing it from different perspectives and watching the intraday price actions for days. I also took my time to scale in and out to minimize my risk. To make this a habit, I will use this point counting system from now on to help me analyze more and trade less.

One thing that I’d like to improve upon is to be more aggressive on a winning position. How? That will be saved for another post when I figured it out.