Rhody Trader

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Getting out of the EUR/JPY short in expectation of being able to get back in at a higher level has ended up working out for me after all. I’ve been able to start rebuilding my position a couple hundred pips higher. I still like the scenario playing out for a run at least into the middle 150’s, if not the lower 150s in the weeks ahead.

Strictly on a short-term basis I’ve done a position flip. I’ve closed out my short EUR/JPY position because it’s looking like that pair is ready to take a break. It’s near important support and very stretched on a near-term basis. I’ll be looking for a good opportunity to get short again either on a rally, or a break through the support.

I’ve also taken a long position in USD/JPY. It’s pulled back from the recent highs, but today put in a rejection low. The daily chart trend is clearly higher, so I put on a trade that gets me in at a very nice risk/reward point. I’m risking about 50 pips to make 200 pips, and potentially more, in a swing trade type of timeframe. USD/JPY could easily rally to 106 in the next few days. If it gets up into the area of the mid-late January range (about 106-108) it could even run right up through.

I still like the AUD/USD trade I’ve mentioned, but obviously doing it would require ensuring I don’t get over exposed to the USD.

Sometimes I’m so good I amaze even myself!

The other day I wrote about what looked to me like a fake-out breakout situation setting up in AUD/USD (AUD/USD: Look for Some Action Soon). It was based on what I was seeing in terms of a likely volatility expansion in the offing and what the price distribution was showing in terms of likely price actraction. Tuesday the breakout started to show. The Bollingers moved wider by a bit, but that was it. Yesterday things turned completely around. 

It’s too early to say I’m right yet, though. For that I want to see a close back below .9350 again as a starting point. If that happens, the fake break and reverse scenario I outlined will start looking really good.

As for my other recent forex call (EUR/JPY), I mentioned locking in 3R by taking a bit off the other day, but I’m still well positioned for a big gainer. From my entry I’m up something like 500 pips, which means another 4R on what I have left open on the trade. I’m expecting another 400 pips out of this one (or more) before the play runs its course. Unless that happens in a straight line (which I’ll admit it’s threatening to do), I should fine some places to add to the position once more.

And where did GLD find support? Right in the range where I said it would.

I should do this professionally or something. Wait! I do!

I took some money off the table in my EUR/JPY short yesterday. It was basically a risk control move. The market had run so far so fast that it got well extended away from a reasonable trailing stop point. So I knocked off half my position at a gain of a bit over 300 pips. If the market rallies a bit more I it might give me the opportunity to add some or all of that back.

In the meantime, I basically locked in a 3R gain on the trade with half the position still open. And that half has a trailing stop that’s in the money as well. In other words, I will definitely end up with a better than 3R final result for this trade. If EUR/JPY drops down to 155, as I think is very possible, I will add another 8R.

I love this quote from Vince Farrell posted on Larry Kudlow’s blog:

The market can stay irrational far longer than you and I can stay solvent.

One of my colleagues just informed me that Treasury prices have risen an average of more than half a point on Friday’s in 2008 and hasn’t once fallen. At the same time, the S&P has been down 10 of 15 Fridays, and up only three times. The average drop has been 22 points and the average gain 16.

The Financial Philosopher has done a guest post on The Change Blog in which he says “People want to be told what to do”. From my experience in trading education (and beyond), I can tell you that’s 100% true. Obviously it’s not everyone all the time, but that definitely seems to be the case for most folks most of the time.

I’m loving my EUR/JPY right about now (see EUR/JPY: Might Be a Good Time to Be a Seller). I generally try to avoid negative carry forex position trades where I can (might as well earn the interest, not pay it), but the set up for a short was just too nice. I got into a position just a bit below 165. If the pattern plays out, it could be worth 10+ JPY.

This has been a brutal week.

I have done 10 trades on the S&P to-date and only one of them made any money. I haven’t taken any big losses (only risking 4-6 points per trade), but it adds up quickly when you don’t mix in a few winners. It’s quite possible for me to turn a good profit even at 40% or fewer profitable trades because my winners average better than twice my losers, but 1 of 10 just ain’t going to cut it. I need to stop taking bad trades. I’m definitely pressing.

To make matters more frustrating, while my winner yesterday was a 4R+ gain, it could have been more like 7-8R.

I suppose I shouldn’t complain. This has been my first negative week of the year.

This week has been a challenging one. Until today I’d done eight trades in the S&P and only one of them made me any money. I was down eight points for the week. To be honest, I was a bit concerned that this would be my first down week for the year.

Yesterday afternoon, though, I put on a short based on a combination of chart analysis and looking at what was going on in other areas, particularly Treasurys. The profits off that one trade turned me back positive for the week. One more nicely profitable trade after that took me to better than 20 points to the good. I did take a loss on an afternoon trade, but at up 16+ for the week heading into Friday (no overnight position) I’m basically assured that I won’t end the week south of the zero line.

This is one more example of how win rates are not nearly as important as you might think. I will admit, however, that losing frequently can chip away at your confidence - especially if you aren’t used to it.

Ugh! What a frustrating day!

I need to think less and go with what the charts tell me more. Today could have been a really nice day if I had. Instead. Two losing trades.

Heh, heh. I just noticed the conflict in headlines between this post and my last one.

I received an interesting note this afternoon from a reader of the service I write for during the day. This guy is a big fan of my work providing day trading strategy for the S&P futures because my calls have been so profitable up to this point. His note, though, actually challenged me to give more thought to something which has already been making me wonder.

You see, the approach I use, as much for the sake of simplicity as anything else, is that when I make a call I take a kind of trend trading approach and let the positions go for as long as they’ll go, trailing a stop. While I do provide readers with target points where they can take profits, and sometimes even reverse, I just stick with the one position until the price action triggers my trailing stop.

The question I have been having is whether I’ve actually be doing myself and my readers a disservice by not exiting at the key target levels and putting on those reversal trades. Most of the time those target exits would be worth 10+ points in gains, while my current average winning trade is running at less than 10 points. That got me wondering.

Today, though, this guy Peter actually has forced me to really step things up. He used my proposed target exit on a short trade to book 17 points of profits, then used my suggestion of a reversal trade to take another 20 points out of the market. I, on the other hand, only booked 9 points for the day.

Hmmmm.