Barred from Trading at Work: A curse or a gift?

Well, they’ve done it. The IT guys at my day job have blocked access to streaming market data. I can’t trade at lunch anymore or even doodle on charts! Yet, this event merely pushes my agenda forward as I’ve never intended to trade actively at work (i.e. no intention of getting myself fired). Although I have honestly been pushing my luck these weeks.

For the longest time, I’ve traded stocks, options, and even dabbled in futures (not while at work!). On a whim in September 2009, I decided to try out the foreign exchange markets with a demo account just to see what the fuzz is about.

Since then I have not looked back… Nah! But no, trading stocks still remain my main staple. I am just curious about forex and it never hurts to broaden my understanding of the capital market. I must admit though, forex suits my trading style. I fully intend to incorporate it in my portfolio in the long run.

So what is my plan about forex trading? What do I want to achieve with my obsessive paper trading lately?

My paper trading objectives:

1. Identify my trading weaknesses
2. Identify my strengths
3. Experiment with various trading signals and strategies
4. Get a feel of trading the forex market
5. Understand the dynamics between currencies

I’d be a fool to claim that I have achieved my objectives. Trading is a never-ending learning process. This is nothing but the first stage in my forex trading sojourn.

The next stage now, as I have intended from the beginning, is to automate some trading processes from what I’ve learned. Such that I can remain active in the markets even when I am not around. Not for more profits, but to reduce risks. This need became blatantly obvious to me as some of my positions were left running through Asia and early Europe. Profits were sometimes turned into losses. If only my stops were moved.

Fortunately, the vigorous paper trading in the past few months does have its advantage. It has given me ideas for 3 new trading systems. I have disclosed one concept with my post on FTC setup.

As I was saying, being blocked from trading at work merely pushes my agenda forward. I haven’t touched a single line of code for 5 months. Now I have no choice but to work on developing some semi-automated trading systems to continue my forex paper trading.

My ultimate goal is to let myself do the high-level decision making, such as which pair to trade, which side of the position, and when. Then let loose a simple algorithmic trading system to take care of the timing for entries and exits, and some basic risk management.

My forex trading life continues.

Closed EUR/CHF and GBP/CHF Shorts: Best. Trade. Ever.

As I was saying earlier this week, I have been stockpiling in EUR/CHF short in my demo account (Fig. 1). Aside from that, I’ve also stocked up some GBP/CHF shorts this week (Fig. 2). Both positions are now closed because of my adjusted stops. These positions have single-handedly lifted me half way out of a deep drawdown in my demo account. These trades netted me about 1.5% in my demo funds. Yes, you read that right, a meager 1.5% gain and I’m calling these my best trades. No, it’s not like I haven’t had good trades in terms of the money made or the fastest pips. These shorts aren’t even close from just looking at the numbers. Heck, it would have been a lot more profitable if I shorted Euro and Pound with a Dollar or Yen counter this week. So why?

If you read my post on measuring trading performance, you may recall that I don’t measure success by profit alone. It is performance in terms of amount risked that matters in trading.

These shorts in EUR/CHF and GBP/CHF are my best forex trades ever (in my 4 months of fx trading so far) simply because I risked no more than 0.2% at any given time (most of the time there were no explicit risk as my stops have locked in profits) to make that 1.5%. 1.5% gained by risking maximum of 0.2% gives a Reward/Risk ratio of 1.5/0.2 = 7.5!

There were several occasions when I had doubts to add to my position or were pondering about taking profits to settle my worries. Despite all of that, I soldiered on, managed my stops like they were my babies, and piled more into the position according to my plan and trading setup (Fig. 1). By the time I started scaling out, I have built my biggest (non-scalp) position. That gave me a lot of freedom in scaling out as you can see on my exits shown in Figure 1 (red dots).

This Reward/Risk ratio is the highest I have achieved in recent memory. I have always read about 10x or even 20x trades at the SMB Capital blog. Those guys can achieve this type of reward/risk ratio day in and day out (I’m not affiliated with them). I guess that’s the difference between the pros and me. This is definitely something I am strifing to do myself. Executing consistently high reward/risk trades.

How I might do that? By continuing to improve on my trading skills and my understanding of the forex markets.

EUR/CHF, 3-hour

GBP/CHF, 3-hour

Paper trade: Closed AUDUSD short @ 0.9057 for +126, +26, -13 pips

My AUD/USD short from yesterday played out exactly as I planned. But I took profit a few pips earlier than I wanted because the bounce from 0.9025 fooled me. As you can see from Figure 1, AUD/USD is resting on 0.9000 support as I predicted. Now the million dollar question is, should I go long in this currency pair because of the super long term trend as I discussed in my previous post?

That brown support line in which AUD/USD is resting on now (Fig. 1) extends all the way back to April 2008. However, there’s also a nearby support at 0.8945 as shown on Gav’s Trading Blog. Since I don’t trade such a long term timeframe, I will be more conservative on this by watching how the price reacts in the short term at this 0.9000 level.

Gold also broke below 1100 but is holding above its own support around 1080-1090 too. Both markets are finding support at current prices. Let’s see how well they last.

I am flat in this pair until things are more clear to me.

On another note, this isn’t exactly a victory as I’ve been trying to short the Aussie for days. You would have been better flipping a coin in comparison to my success rate lately. I’ve lost more than I have gained on this move so far. In fact, I am still on handicap mode (half position size) as I’m still in a 3% drawdown as shown in my trading log. However, I am slowly crawling my way out with limited risk and profitable trades such as this.

AUD/USD, 3-hour

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

A change of wind for Australian dollar: Shorted AUDUSD @ 0.9183 and AUDCAD @ 0.9546

I have been barking up the short-Aussie-tree since the beginning of the year. See post #1, #2 on AUDJPY, and #3, #4 on AUDCAD for the long term analysis. (Also see my post on being early shorting the Aussie.) Anyway, now that AUDUSD has backed off the 9300 level with a bang, it seems that the trend reversal in the Aussie is getting clearer. Why do I say that? Notice the sequence of recent AUDUSD price action depicted in the daily chart of Figure 1.

1. Breaking below lower long term trendline (thick brown line, Fig. 1) on Dec 14 followed by a 300 pips down move
2. Reversing on Dec 22 at 8730 price level, right on the last long term support line
3. Testing the same trendline in #1 from below and gliding along it since the new year
4. Bouncing off the previous resistance at 0.9330
5. A rapid breakdown right to the neckline support at 0.9100

Meanwhile, the breakdown of gold price (Fig. 2) is helping to keep the downward momentum in this currency pair.

Now that recent moves are confirming my long term Aussie short outlook as discussed previously (#1, #2, #3, #4), my plan is to stay on the short for the long haul.

My target on this dive for the AUDUSD is down to 0.9000 corresponding to the long term support line of #2 in that list above. Of course, prices don’t go one way. So remember to manage risks and be prepared for some probable counter-trend moves.

AUDUSD, daily chart

Gold futures (GC)

If you’ve been following my analysis, you’ll see that I’ve converted from shorting AUDJPY to shorting AUDUSD. The simple reason is that USDJPY looks to have bottomed out and is on a run upward. Thus, the US dollar has more potential strength than the yen to go long.

Lastly, as the title says, I also shorted AUDCAD at 0.9546 for the long term. See Figure 3. That short is playing out nicely as well with an amazing long term bearish setup.

AUDCAD, daily chart