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 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. [caption id="" align="aligncenter" width="580" caption="AUD/JPY, weekly"][][][/caption] [caption id="" align="aligncenter" width="580" caption="Aussie crosses and gold, 4-hour"][]1[/caption] 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.

[caption id="" align="aligncenter" width="580" caption="AUD/JPY, daily"][]2[/caption] [caption id="" align="aligncenter" width="580" caption="AUD/JPY, 3-hour"][]3[/caption] 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.

Posted 04 January 2010 in forex.

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. [caption id="" align="aligncenter" width="580" caption="AUDJPY"][AUDJPY]AUDJPY[/caption]

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.

[caption id="" align="aligncenter" width="580" caption="4-hour charts of forex markets, gold, and crude oil"][4-hour charts of 6 major
currencies, gold, and crude oil]4-hour charts of 6 major currencies, gold, and crude oil[/caption]

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).

[caption id="" align="aligncenter" width="580" caption="EURUSD, 3-hour"][EURUSD, 3-hour]EURUSD, 3-hour[/caption] [caption id="" align="aligncenter" width="580" caption="AUDJPY, 3-hour"][AUDJPY,
3-hour]AUDJPY, 3-hour[/caption]

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.

Posted 26 November 2009 in forex.