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