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.

[caption id="" align="aligncenter" width="580" caption="AUD/USD, 3-hour"][][][/caption]

Posted 21 January 2010 in forex.

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. [caption id="" align="aligncenter" width="580" caption="AUDUSD, daily chart"][AUDUSD, daily chart]AUDUSD, daily chart[/caption] [caption id="" align="aligncenter" width="580" caption="Gold futures (GC)"][][][/caption] 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][#3]. [caption id="" align="aligncenter" width="580" caption="AUDCAD, daily chart"][]1[/caption]

Posted 20 January 2010 in forex.

Paper trade: Short AUDCAD @ 0.9583, Stop 0.9670

Gold price made a 15 point jump over the weekend to 1160 and is consolidating now (Fig. 1). Crude oil tested 84 and is back down to just above 83 now. Yet, AUDCAD is still struggling to break above 9600 (Fig. 2). You would have thought that AUDCAD should mustered enough momentum to break above this key resistance with all these gold bullishness and oil bearishness. Thus, I am giving this AUDCAD short setup as described previously another try. I am only risking 0.16% on this trade. It is half of my usual initial entry. First because it is a FTR (reversal) setup and second because I am in a 3% drawdown. So my risk manaegment rules dictate that I trade halved size. This setup is according to the monthly and weekly chart, so it could take a while, and probably more tries, before it shows its hands. I will keep shorting it as long as it's below 9600 on the weekly. Limited by the amount at risk according to my risk management rules, of course!

[caption id="" align="aligncenter" width="580" caption="Gold (GC futures), 4-hour left, daily right"][][][/caption]

[caption id="" align="aligncenter" width="580" caption="AUD/CAD, 3-hour"][]1[/caption]

Posted 11 January 2010 in forex.

Paper trade: Short AUDCAD @ 0.9489, Stop 9540

I've been stopped out of all my Aussie shorts on the breakout today. But my setups for AUDUSD and AUDJPY are still intact as the resistances are still safe. Having failed so many times in shorting AUDJPY (first try, second try), I am taking a conservative approach on that particular play. Although those setups are ripe for entries, I'll wait til the test of resistances hold first before entering short again in AUDJPY and AUDUSD. Which begs the question of, why AUDCAD, and why now? First of all, I still have conviction about my Aussie short because of the setups as discussed previously and the fact that gold price is holding the 40 day ema at 1135 at the moment. That 40 day ema has worked well on the uptrend in the past few months. So it should be respected if gold is indeed in a downtrend now as I surmise. So why short AUDCAD instead of the popular AUDUSD? Simply because AUDUSD broke out of a short term range whereas AUDCAD is still holding as seen in the AUDCAD 3-hour chart of Figure 1. This shows AUDCAD is weaker even when gold is making new short term high.

[caption id="" align="aligncenter" width="580" caption="AUD/CAD, 3-hour"][][][/caption]

For the big picture, see Figure 2 for the weekly chart of AUD/CAD. We see that 0.98-0.99 has always been the turning point for a massive 1000+ pips selloff. We've hit 0.99 back in November and the slide is already in progress.

Secondly, we see from Figure 2 that AUDCAD bounced off the 40 week ema in late December and ran up to 0.95 from 0.92. 0.95 is a decidedly important round number resistance as it was also a peak in April of 2007. You know, the time before the economy started to crack as shown with the topping in the markets.

[caption id="" align="aligncenter" width="580" caption="AUDCAD, weekly"][]1[/caption]

Now that I've established that the trend is pointing down. I still need to time my short entry.

Figure 3 shows the daily chart of AUDCAD. In view of the above discussion, we have a good chunk of resistance above 9550 as marked by the purple box in Figure 3. This is the all important safety net for this short entry. As long as AUDCAD stays below 9600, this long term setup remains intact. And don't forget the broken uptrend line.

[caption id="" align="aligncenter" width="580" caption="AUDCAD, daily"][]2[/caption]

Lastly, notice the RSI trends in both the 3-hour (Fig. 1) and daily charts (Fig 3.), they are both showing negative divergences. Figure 1 is my timing for this entry, see the current negative RSI divergence marked by the downward trend in RSI versus the toppy price.

In summary, here are my signals for this FTC setup:

  1. Weekly chart shows downward trend.
  2. Big resistance above current price on daily.
  3. Broken uptrend line on daily on retracement from weekly chart.
  4. Intermarket relation with gold testing 40 day ema at 1135.
  5. Negative RSI divergence on 3-hour chart.

Posted 06 January 2010 in forex.

continue   →