Trade Reviews & Trailing Stop Losses

The buy stop order for the USDJPY nicely executed during the Friday trading session, entering at 81.25 and the stop loss at 80.50 (75 pip risk), now we are waiting for the Profit Target to be hit and close out half the number of lots removing the trade risk.

So we now have 2 positions open in the JPY, the initial position that opened after the reversal bar was formed, and this new one.

The AUD we are sitting on the sidelines for the moment till we get a little more info to the story.

Another thing we need to look at is having a trailing stop loss on the trade, following and locking in profit as the market advances.

Trailing Stops

Although we remove or at minimum reduce the risk by taking profit at a Profit Target it is a good idea to use a trailing stop as the trade advances so that you can lock in as much profit as possible.

So have far away do you set your trailing stop?

Some traders will trail the market by a standard amount, for example 50 to 100 pips.

But a good method we use is the natural support and resistance levels found in price movements – remember in a previous post we looked at angular support and even swing charts.   Check out the image below – see in 2 of the bull moves I placed a small green line underneath each swing low, and towards the top the trade naturally closes itself out at one of these levels.

Sure you never always get out at the best price, but this strategy as your final exit allows you to ride some very nice big trends.

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Product Review: Professional Charting Software

Hiya all!

Ok before I go into the product review lets quickly check out some of the recent market action on the pairs that we have been analysing.

USDJPY:

We gained an early entry on the Yen on the open of Tuesday’s bar just prior to the market rallying on Wednesday, nicely hitting the Profit Target closing half the trade, removing the risk of the balance.  

I have found again the data differs between my charting software program and my brokers platform. As we are looking for a pullback entry on this market we need a lower high and a lower low than the previous bar, this happened Thursdays bar on my broker platform but the low was only just not exceeded on my charting software.

So for those traders out there that have a bar with a lower low signalling a potential entry bar they could have placed a ‘buy stop’ pending order a few points above the high, and stop loss a few points below the low of Thursdays bar.

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Stepping it up to a full time trader

You know millions of ordinary people dream of becoming a full time trader. Escaping the weekly grind of 40 plus hours working for the man… and battling the ever expanding, never ending peak hour traffic.

The reason I fell in love with the financial markets, was the unlimited freedom it had to offer for both time, money and locality.  Wow, that was all the inspiration I needed to put every inch of effort I could in to learn the ropes from the ground up.

Now if this is a similar dream you have for yourself, but are not there just yet, here are a few tips that can speed up the process.

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USDJPY and AUDUSD trading

Markets have been very steady today as traders eagerly await the QE2 announcement by the FOMC.

JPY Monday Entry

Upon the close of yesterday’s bar, confirmation of the inverted hammer reversal, I entered the USDJPY long, getting in at 80.57 with a stop just below the low of that signal reversal bar at 80.14 (trade risk of 43 pips).  I placed a Profit Target at 81.00 (43 pips above the entry).

Today the market has been relatively quiet with a small intraday rally, that just missed my profit target by 5 pips!  Which was a little annoying as now the trade would be at break even, and I would lose nothing should the market reverse and hit my stop.  But that is the nature of trading.

Typically I wait for an entry on a pullback, as we have been discussing in previous posts, this reversal entry is simply a smaller position testing the market.  With the market steady today Im interested to see if the QE2 announcement positively affects this trade.

AUD Entry and Analysis

By Mondays close the AUD was not giving any real indication of either going upward or downward as it ranged through a ‘flag’ pattern, which although we are awaiting a downward move, generally flags break upwards.  After the RBA interest rate announcement the AUD rallied breaking for a period through the flag resistance and even above the all time high, making a new one at 1.0023.

As discussed yesterday, the AUD has a longer term 33 month cycle and a 22 week trading cycle.

Currently it seems we have passed the midpoint of our 22 week cycle zone, at week 24 (zone band = 18 to 26 weeks). This means we have 2 weeks left to see a significant low formed. At week 21 the market reversed and fell for only 2 weeks down to week 23. 

Could week 23 be actually be the cycle low, has it already finished and a new one just starting?

 

AUDUSD Observations:

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Weekly Outlook & AUDUSD Monthly and Weekly Cycle Analysis

It should be a very big week this week with the US elections and release of leading economic data, just some of the reasons why we mentioned earlier that we expect some volatility.  Tuesday is the Federal Interest Rate decision (FOMC meeting) and likely to drive a rally for the USD.

As expected the USDJPY created a new low, with a massive spike intraday we may see this bar close out as an ‘inverted hammer’ reversal. The imminent rally is near.

I think I might have mentioned in a previous blog, that on a strong reversal bar at strong support/resistance lines can allow an early entry on open of the next days bar, with a stop loss a few pips below the low of the reversal bar.  It is an excellent opportunity for a smaller than normal position size to ‘test’ the market.

This blog we are going to start cycle analysis on the AUDUSD.

Let’s look at our original check list that we started on the Yen.

Check List

  • Start on the Monthly chart (larger cycles dominate smaller cycles).
  • Identify all significant/major ‘Lows’ in a market.
  • Rising markets = lowest point must be cycle start.
  • Falling markets = lowest point must be cycle finish.
  • Minimum 4 cycle lengths.
  • 80% + accuracy fit within cycle zone (plus/minus 16.67%).
  • Watch for a Reversal Bar.
  • At or near previous Support and Resistance.
  • Only trade Long – first 20% of trading shorter term cycle.
  • Only trade Short – last 20% of trading shorter term cycle.
  • Entry is on daily chart.
  • Order is a ’day only Stop Order’.
  • Time must not be exceeded, with a 3 bar maximum.
  • Price must not be exceeded.
  • ‘Inside bars’ are ignored in the pull back.
  • Place Stop Loss opposite end of the signal bar.
  • Place Stop within Stop Order (same time).

So starting on the monthly chart. 

My data for the AUDUSD goes back to 1990 so was able to get a good 6 cycle samples for the monthly chart, but have decided to only use 5 as in 2008 there was a significant drop in the market and it gave a smaller irregular 14 month cycle (‘contracted’).

As mentioned in earlier blogs, this contraction or expansion often happens when a larger more dominant cycle is due, and as you can see in the image below the amount the market dropped to the 2008 low it most certainly behaved like a very long term, much larger cycle. 

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