Trade Spotting: January 2012

Post NFP
Well, stocks have surged on the good jobs news but the USD has done very little. Strange times indeed. The AUD, clearly, got quite bored by the others and has gone out on its own party!

The indices are still revealing little about any new trend just yet, clearly waiting for Sunday's Greek debt talks. I've moved the botttom trend line on the EURX a wee bit but not much. You can see from these charts, there is still a lot of indecision.

Friday 3/2/12 (2.45 pm)
The charts of the indices, E/U and E/J look exactly as they did this am. (see below).

This sideways drift is normal leading up to NFP data. I will be very interested to see how the markets react to the news...good or bad. These are my thoughts on the matter...posted on another trading forum just now.....a response to a trader question.......

A positive jobs result is supposed to be 'good for currency'. That would normally mean go LONG USD (and SHORT AUD/EUR etc). But, lately, good news has met with a 'risk on' attitude resulting in a falling USD and rising EUR/AUD etc etc.

So, to me it's a bit of a gamble as to which way the markets will trend after the news result.

Clear as mud heh!

I think a wager at the trots, dogs or pacers might be more reliable for tonight.

BTW: I'm taking bets that my son won't find his Cadet's cap if you want to gamble on that? This is a fairly safe bet!

Friday 3/2/12 (7.30am)
As expected, very little has happened over night. This usually happens in the day or so leading up to Non Farm Payroll data out of the USA. A look at the charts will reveal how the indices and major pairs are still trading within tight trading ranges and within technical patterns. I sometimes wished my kids conformed as much as these charts!

I often wonder, at times like these, is there some supremo FX dude up there making sure the max and min prices of the trading instruments fall within these tight and narrow boundaries? As someone with a Science background I struggle to balance here the Law of Entropy (that is, 'that everything tends to maximum disorder') with the Rules of Maths ( patterns, straight lines and triangle etc). Hmmm...and, speaking of Entropy,...I'm off now to look for my son's cadet cap. Detention awaits otherwise and, this won't be a good start to the year!

I will check back in now and then but won't be trading until next week. not that I'd expect any further trend signals until after NFP anyway!

Thursday 2/2/12 (9.30pm)
Still just watching and waiting for trend line breaks to initiate new trends.......

Thursday 2/2/12 (5pm)
Nothing much has changed since this morning. I am still waiting to see which way the indices break: that is, whether the EURX breaks up or down out from its triangle and whether the USDX can clear its narrow trading range (see charts below). I would not be surprised if little more happens though until after the NFP announcement.

In summary: I've only had 2 signals this week that I would consider; the LONG A/J and A/U from last night. The Aussie data out today was mixed so I didn't take either of these signals. I have noticed that both did reach a maximum of 70 pips from the point of signal overnight though. The only other signal was a SHORT E/J which I discounted as I have no intention of trading for a strengthening Yen.

Thursday 2/2/12 (9am)
Well, I'm looking back at the week so far and taking stock. The USDX has pretty much chopped about sideways and seems stuck trading in a range between 79.5 -78.5.

The EURX has chopped about in a downwards pattern though.

Neither index has produced a valid trend signal though this week and this is reflected in the lack of trend signals on the major currency pairs as well. Whilst this choppiness is frustrating at least it is telling me one important thing and that is: that this is not a week for 4 hr trend trading. Not every week can be and I just have to accept that. This week is more of a week for shorter term trend trading or trading off bounces/levels. Patience is needed in weeks such as this when there are few, to no, signals. TS has kept me out of losing trend trades this week. The last few weeks have been fantastic for trend trading, not that I caught them all of them by any means. One needs to accept the rhythm of the markets though and this means that there will always be trends and, then, periods of pause or consolidation.

This current chart action on the EURX, to me, seems that this is a week for the Euro to consolidate a bit before the markets decide whether there is to be a continuation of 'risk on' sentiment (long Euro/short USD) or a return to 'risk off'. I mentioned earlier in the week that it is entirely possible that the EURX could keep rising to the 200 EMA on the daily chart at 106. If I look now at the daily chart it seems that this is still possible. In fact, the current daily chart pattern is looking like it could be forming a bull flag/pennant pattern with the current consolidation being just a pause before the next upward move.

I think it is safest to wait to see which way the Euro breaks out of the triangle/flag pattern before being confident of any new major trend.

Please remember that these are just my own, personal, humble ramblings on my trend trading journey.

Thursday 2/2/12 (7am)
The USD continued to fall mostly through the night and the Euro rose. Essentially though, they are both still bouncing around with no clear trend.

I had a signal through my overnight to LONG the A/U and A/J. There is AUD data out later today, Sydney time, so I would be cautious with these Aussie though. It is NFP day tomorrow which is always a day to avoid any new trading.

The lack of clear signals on all the other pairs just confirms the the lack of follow through on longer term trend trading though. Shorter term trend trading is definitely the best way to approach these volatile markets. Again, last night, there was an easy 100 pip haul on the A/U using TS on the 30 min charts during the later London/US session. (see chart). There were similar trends on the E/J and E/U but these latter two were much more volatile.

Wednesday 1/2/12 (9pm)
There has been a sharp reversal back to 'risk on' on the indices despite mixed data results. There have been rumours of an imminent positive announcement re Greek debt. Maybe this is the cause as I couldn't see anything on the calendar that looked like it triggered this price action. Who knows for sure though. Anyway, the USDX has pulled back below the trend line and the EURX has bounced up from the monthly pivot.

This choppiness and sharp reversal on the indices has undermined any of the TS signals that looked like developing. This week is clearly not a time for trend trading off longer term, 4 hr charts. One just has to be patient and accept that. These markets are more suited to trend trading of much shorter time frames.

PS: Chatting on my trading forum just now got me looking at the shorter time frame for this evenings session so far. Drilling down to the 5 min charts on the E/U showed how an easy 80 pips could have been picked up. Hmmm. My thoughts on this: This is still trend trading. Perhaps, when the markets are choppy like this again on the 4 hr time frame, I should try looking down for simple set ups on the smaller time frame charts.

Wednesday 1/2/12 (5.30pm)
A bit late as just back from cricket pick up. The USDX, still 90 min to candle close on Admiral platform though, looks like it might break, hold and close above the bear trend line.

This should lead to some new TS signals. These won't print though until the next candle close at 9pm.
Patience is needed here.

Wednesday 1/2/12 (1pm)
This is a quiet Asian session today. I am still waiting to see if the USDX can break up above the bear trend line. I think this possible break will be the determinant for any new momentum trend.

I have had a signal to SHORT the E/J. I will not take this yen pair trade though. The U/J is getting very close to levels where, previously, the BoJ has stepped in to devalue the Yen, resulting in upward price spikes on the U/J, E/J and A/J. Thus, with this possible intervention, i will not SHORT these pairs.

I have my eye on possible TS trades lining up on the E/U, Swissie and SGD.

Wednesday 1/2/12 (6am)
Well, as per usual, I have woken to see that the trend line breaks kicked in overnight without me!. The EURX broke down but the USDX is still just lurking under his.

I have to admit that I groaned when I opened my charts just now but, then, on closer inspection, I have noticed that there are still no valid TS signals. This is even though there trend line breaks on the E/U and Swissie, as per yesterdays thoughts. BTW: These were the ones that I was thinking of taking. Hmmm..curious indeed.

So, what now? I missed entering these trades on pure trend line break strategy. This happens a lot down here. I will now wait to see if a valid TS signal develops on any pair on the 4hr chart and then take them in line with the overall trend.

I am sure that I will go back and see that there were possible TS signals on the shorter time frame charts. I have noticed this before when the markets have been quite choppy; you get TS signals on smaller time frame but not the 4 hr. That, in itself, should tell you something!

More later!

PS: Sure enough, there was an easy 100 pip trade using TS on the E/U 15 min chart possible for those who could trade during the US session.

Tuesday 31/1/12 (9pm)
The indices are still chopping around. One green, one red and one green candle on each for the last 3 x 4 hr candles! This makes it very hard to determine what the overall trend is.

I did have TS signals to LONG the cable and SHORT the Loonie but I am still not confident of an overall trend and I don't like these pairs anyway!

I have also just had a signal to LONG the A/U but, still am not sure enough about the trend to take this trade. There will probably be a clearer idea about trend over the coming hours whilst I'm asleep. So be it! I'll miss the 1am candle but be up soon after the 5am candle.

BTW: Confession time: I have put in an order for a speculative LONG trade on the USD/JPY but this is NOT a TS signal trade.

Tuesday 31/1/12 (6pm)
It looks like the USDX could be putting in a double bottom. We will have to keep watching!

IF this keeps reversing to 'risk off' then we could get our H & S breakouts. There are a few pairs to pick from if this happens and I can't trade them all. All of them have some form of road block in the way so, it's a matter of picking the best of a bad bunch. I'm steering clear of the YEN pairs because of the ever potential BOJ intervention. I like the look of a SHORT E/U and a LONG USD/SGD (bigger spread :-() or Swissie.

Tuesday 31/1/12 (5pm)
This is still a waiting game as far as I am concerned. Whilst the EURX is still pushing up and the USDX down, I am confident that these moves will be sustained. The rate of this 'risk on' movement on both indices has slowed.

The other factor is that a lot of the pairs are showing a technical pattern called a 'head and shoulder' pattern which spells that a reversal might be in store. For these pairs, this would be a reversal back to 'risk off' being a LONG USD and a SHORT EUR sentiment. So, it's clear as mud! Now then, it's back to seeing how price behaves around the all important trend lines, as discussed earlier. These trend lines would be the break of neck line that these technical patterns require if they are to evolve.

BTW: I've had TS signals to LONG the G/U and SHORT the Loonie. I'm not trading these pairs though so will pass on these.

Tuesday 31/1/12 (1pm)
Well this is entertaining if nothing else. It's kind of like..."well, if today is Tuesday then this must be Paris...". Ok, I mean..... yesterday was 'risk off' and today is 'risk on'. There has been some good news data come out during the Asian session today. This is hard stuff to trade on 4 hr charts for sure. The USDX is currently trying to push down and the EURX push up but the latter faces a few road blocks. Please note that I've re-drawn my bottom trend line for the EURX to cater for this latest support.

I will be looking to the ADX for clues to trade 'risk on' if the market continues to move that way and I'll look for trend line breaks on the indices if it reverts to 'risk off'. I will then assess each currency pair for the one with the best TS signal and for any other confirming technical patterns.

There are no TS trend signals as of the 1pm candle close here Sydney time.

Tuesday 31/1/12 (9am)
FX pairs continue to be choppy. The trend line break on the EURX has not had the follow through, as would normally be expected. It has been held up by the strong previous resistance level and the 200 EMA of the 4 hr chart. (see chart)

The USDX continues to bounce sideways as well leaving no clues, as yet, of a future trend either.

This indecision is not really surprising given the crucial Euro zone talks that were happening at the EU summit through out Monday. As a result of this indecision though, there has not been any clear trend on many of the pairs. The lack of a TS signal on these has helped to keep me out of potentially losing and or directionless trend trades. I keep saying this; TS is as good at picking new trades as it is of keeping you out of bad trades!

There were Yen-based trends yesterday and overnight but I'm not sorry to have let them go. The signals on these did not align with the main trend at the time. The divergence on the Yen pairs, compared to other majors, smells suspicious and always leaves open the potential for BOJ intervention here. I am conservative and want high probability trends and trades, not risky ones like these. Yes they gave pips but, to me, this is more in line with gambling.

I will continue to watch the EURX and USDX to see when a new, clear trend develops. I think the 200 EMA on the 4hr EURX will be the first clue here. If the trend is for 'risk off', with a falling Eur and rising USD, then we are close to some trend line breaks on many of the pairs: E/U, A/U, G/U, USD/SGD and Swissie (USD/CHF). So, there will be plenty of pairs to choose from! If the trend is 'risk on' then I will use the ADX and TS signals to spot the new trend.

Tuesday 31/1/12 (5am)
I got up early as I suspected there would have been a lot of action overnight. Well, there was some but not as much as I would have expected..

The EURX did indeed break down below the daily trend line. It's just holding up above the 200 EMA though as I write.

The only real pair to fall though, in line with this 'risk off' trend, was the E/J. However, the U/J also fell. Hmmm. Smells more like Yen strength. Most other pairs, the E/U A/U A/J Swissie, Loonie, have pulled back to trade 'risk on' though. This divergence is very odd.

The only TS signal to develop fully overnight was, indeed, the E/J. The lack of TS signals on the other pairs was borne out by the reversals with them. TS is great at helping to pick up on new strong trends. The lack of signal on these reflected the lack of clear trend.

I am not taking this E/J short though as I shouldn't chase trades and, it is sitting just above a huge psych level of 100!. If this 'risk off' approach follows through then TS signals should develop on some of the other pairs. There are trend line breaks looming on the E/U, A/U, Cable, USD/SGD and Swissie as well which will give confluence to any new clear 'risk off' trends on these.

Monday 31/1/12 (9pm)
The EURX is close to breaking down through the daily trend line but hasn't quite achieved this yet.

I've had TS signals to SHORT the A/J and also the A/U. I have not taken these though because of the lack of confirmation of the new trend from the indices.

I almost have a signal to SHORT the E/J and a weak one on the G/U and to LONG the Loonie but all of these have road blocks in their path still as well.

So, I'm left with nothing to trade, just yet, after my 9pm candle close. I suspect that things will develop before the next 4 handle close and during my overnight though...Murphy's Law.

Monday 31/1/12 (5.30pm)
Seems like it's 'risk off' for the moment still. That is, a rising USD and falling EUR etc. I'm still waiting for a clear break, close and hold below the bull trend line on the EURX before shorting the Euro though. I like the look of the E/J. I'm thinking that I will have a TS signal to short, a trend line break and a break, close and hold below the 200 EMA on the 4 hr by the time the EURX breaks down. That's if it does break down though!

Monday 31/1/12 (1.45pm)
The dollar is having a bounce at the moment and the Euro is pulling back. (see charts). The TS signals that looked like developing earlier, thus, have not done so. TS is as good at keeping me out of bad trades as it is in getting me into good trades!

The EU summit is on Monday, Europe time, so I don't expect too much action prior to that. I will watch the indices to assess any new trend direction and I will wait for a break of the trend line on the EURX before going short on the Euro in pairs on valid TS signals.

I have had a TS signal to SHORT the A/J but will not take this signal whilst there is, at present, unclear direction on the indices. I have also had a TS signal to LONG the EUR/AUD but I don't trade this. I watch it just out of interest.

Monday 31/1/12 (9.30am)
Nothing too exciting has happened on market open here. No decent TS signals yet and I'd wait until my Indices charts from Admiral Markets open anyway. This won't be for another couple of hours.

Sunday Preamble:

NB: Please read my 'Indices Analysis' post for this week before reading further. This is the previous post to this one and was listed yesterday.

The last few weeks have provided many fantastic trend trading opportunities with TS. These offerings had the added bonus of having trend line break confluence as well which provided extra confidence. One really needs to harness these opportunities when they arise. This can be difficult if you keep trades to a 4 or 5% risk per trade as many similar trends will all arise at once. This is part of the current phenomenon when every thing seems to trades as either 'risk on', ie SHORT USD or 'risk off', ie LONG USD. One needs to get to risk free on one trade before opening a second trade.

I, sadly, chose the wrong currency pairs last week to capture the latest 'risk on' rally. I correctly spotted this reversal to 'risk on' with my indices analysis but, I chose the wrong pair, NZD/USD. I am also finding that the G/U and USD/CAD do not trade as freely during 'risk on' or 'risk off' rallies as the other majors. They both seem to have too many other agendas at play. Lesson learned so, I move on. I say again, good horse, dud jockey. This jockey needs to take up a crop but, to use it on her own head!

The following majors gave fantastic trends last week and I will stick to them in future. It is not surprising that the most liquid pairs having the biggest herd following. Just to re-cap, these are the TS signals identified from last week that kept going into this week. Some of these are still going!. The first pip value gives the target possible if simply waiting for the ADX to turn. The second pip value gives the max possible pips achievable if the trades were just left to keep running.

E/U: min 180. Max 480

E/J: min 180. Max 430

A/J: 220

U/S: Min 110 Max 320

U/C: Min 100 Max 300.

That is a massive haul of possible pips and these were very easy trades to spot. They were straight forward TradeSpotting signals with the added confluence, for most, of trend line breaks.

The week ahead may not be as easy as there are not the same number of technical patterns, like triangle or trend line breaks etc, to factor in to our analysis. At least not for the moment anyway. For this week I will be relying on the development of TS signals to capture trends. The current trend still seems to be a 'risk on' one, based on a review of the indices. This sentiment can change at any time though with news or data announcements. That is why you need to regularly check your trading calendar and keep up with the trend on the indices. There isn't much red flag news until about Wednesday but there is the EU economic summit on Monday which always has the potential for random news releases.

There seems to be a new LONG TS signal about to form on the E/U and A/U and a SHORT TS signal on the Swissie. I will check for these again at market open.