Sold 4 MFC 11JAN Puts 14.00 @ 1.74, Mark 12.96, Loss 0.1%

S&P500 managed to bounce back from below 1130 support. It is confirmed by EUR/USD's rise and treasury's gap down (TLT) today. I'm not going to argue with the market. So I am ditching my short for Manulife Financial (MFC.TO) while it is still testing its 13.00 resistance at the open. 12.60 is the 50% Fibonacci retracement level for MFC. It made a textbook perfect bounce on it (Fig. 1). Also, it's Friday today, so I'd rather not have the time decay eat more out of my premium by holding over the weekend. Loss for this trade is (\$1.74 - \$1.70) * 100 * 4 = \$16 - \$27.90 = -\$11.90 = -0.10%. Now that I am out of my short position, watch the market tank without me on board. Update: MFC and the market managed an impressive rally today. MFC closed at 13.15. I am glad that I followed my own strategy. I guess I do make good timing once in a blue moon. [caption id="" align="aligncenter" width="570" caption="Manulife Financial (MFC.TO)"][][][/caption]

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. [caption id="" align="aligncenter" width="580" caption="EUR/CHF, 3-hour"][][][/caption] [caption id="" align="alignnone" width="580" caption="GBP/CHF, 3-hour"][]1[/caption]

Posted 22 January 2010 in forex.

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.

EUR/USD +95 pips in 2 hours: An example of swing and day trade convergence

I had my best day-trading day this quarter on November 27. I made 95 pips in two hours at the open with only two trades. This post is a review of my trades that day for my future reference. To save you and myself from reading, the two reasons for this good run are:

  1. Convergence of intermediate term signals with day trading signals
  2. Ignoring my bearish sentiment (Dubai news) and traded what I saw from the prices

Before moving on, let's start by setting the stage with some background information to summarize what conditions were like that day.

Background

The news on November 25 after NY close of Dubai World delaying their debt repayments sent the dollar and yen soaring. I made my first 400+ pips trade by being at the right place and time on this panic wave. The U.S. market was closed that day but FTSE sold off more than 3% the day after the news. So the expectation was for US to do a catch-up sell off when it opens again on Friday 27th. Risk aversion (equities down, yen and dollar up) was the talk of the day. Figure 1 below shows the charts of ES futures (e-mini S&P500). Left is a 1-min. from midnight of 27th to that morning's NYSE opening. Right is an hourly showing the move overnight from 26th to 27th.

[caption id="" align="aligncenter" width="580" caption="ES Futures (e-mini S&P 500)"][ES Futures (e-mini S&P 500)]ES Futures (e-mini S&P 500)[/caption]

Intermediate term signal

Figure 2 shows my intermediate term signal. EURUSD has been printing an uptrend on the daily (not shown). Figure 2 shows that EURUSD was testing the bottom of my channel so I should consider going long. Notice that this is the same channel that called for the 1.5150 top on 25th. At least it has proven itself useful once.

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

Short term signals

For the short term signal, we need to go back to Figure 1 for the ES charts. ES tanked 40 points over the holiday with very low volume. It made it all the way to 1067 just before 3am on 27th. Then it lifted all the way to 1080 at 9am. 1080 is the line in the sand for the bulls and bears. So retracing all the way to that level before opening is significant. This pre-open strength in ES was the sign of oversold for me. This is the short-term confirmation I needed. I entered my first position to long EURUSD @ 9:09 am to test the water. Then I watched both EURUSD and ES closely for the next half hour. Once NYSE opened. I noticed that the TICK was relatively mellow with readings around -250 to -500. It's unusually good for a -20 points open drop on S&P 500. One would expect at least -800 readings for a strong negative sentiment. So after watching EURUSD, ES, and TICK for about 10 minutes, I entered a second position on a weak retracement at 9:39 am.

The exits

For my exit, I took profit at 1.5180 because it's the 50% Fibonacci level and it's also the top of another of my channel (Figures 2 and 3). After about 10 minutes of watching the 1M bars, EURUSD failed to clear that resistance, so I took profit on the second half to go flat in this pair just before 11 am because it's an early-closing Friday (NYSE closing at 1pm). The gains were +95 and +93 pips for +0.27% and +0.28% in my demo account total. Not bad for holding for 2 hours. Update: Thanks to Jeff on Twitter for the question. I updated Figure 3 with the Fib. levels and showed the top and bottom used to draw it.

[caption id="" align="aligncenter" width="580" caption="EURUSD, 30 min."][EURUSD, 30 min.]EURUSD, 30 min.[/caption]

Conclusion

In summary, I started with an intermediate term setup that aligns with the major trend. I observed the reaction of the markets on an important news. Identified an oversold condition from the short-term charts for a short-term positive divergence signal. Scaled in a position. Then added more with another confirmation. I scaled out when the target was hit.

Recommendation

Once again, I could have been more aggressive on this trade. As shown in Figure 3, 1.4920-4930 was a short-term resistance. I could have added more to my position when that level broke, with a stop at 1.4900.

Posted 29 November 2009 in forex.

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