It's Really All About Consistency...

After much deliberation, I've decided to create a public journal for the purpose of gaining a greater degree of consistency in my trading, as well as refine my approach to a fine point, in order to reach several different professional goals.

This is not to say I'm new to the markets. I've been trading full time for a couple years now, but after a very solid 2011, I've experienced a slump recently, and although up for the year, it is no where close to what I know it could be.

I've made some fundamental changes to the way I approach my own perspectives regarding the markets recently, and have very recently refined my own trading plan completely around my own personal psychological strengths and weaknesses, whereas before it was primarily focused on the mechanical aspects of the game.

In short - my revised trading plan is designed to play to my strengths, insulate me from my shortcomings, with every component of it designed to keep me in control, and thinking clearly.

By creating a public journal here, I hope to discover and plug any subtle "leaks" that I have not yet addressed, as well as solidify the processes I undertake during the course of my trading day. I am hoping for honest, insightful feedback from anyone who feels they have some insight to offer, either in regards to market mechanics, or my own trading. Why I am optimistic that posting on a public anonymous forum will be beneficial is something that escapes logic for the moment... but I have a hunch, and want to see it through.

Besides, I know if nothing else, there are some who will probably find some interest in how I trade... and if this journal helps others develop into successful market participants, it will be enjoyable if nothing else.

More to come in the following posts...

There is more than one way to skin cats, and to trade markets...
however, at my core I always have believed there is a "best" or "optimal"
way. Furthermore, I believe that for every loss, there is a reason, and in nearly all situations, that reason is able to be determined before a trade is executed.

I know of many who would disagree... and some of them are very successful traders in their own right, and a number of those traders are more successful than I am. But I see it as such:

If successful trading is a function of identifying a confluence of circumstances that expose a market that is overpriced or underpriced relative to where the current imbalance in orders is equalized, and then placing an order with the expectation of price returning to "balanced value"... then a losing trade represents a factor or variable present that invalidated the confluence of circumstances we believed were accurate implications of a market out of value.

Many would say "well, these factors in confluence will win most of the time, and the XX% that they lose, well, you can't account for that".

but, if we are able to determine an opportunity when we see a particular confluence of circumstances, that is correct, say, 60% of the time, then it simply means to ME that 40% of the time there is something that we haven't considered. BUT, should we discover what we were missing, then we could increase our success rate. And it is logical to believe that if one can gain an understanding of variables that contribute to a 60% success rate, then one could reasonably carry that forward and understand other aspects of the market which would also affect a trades outcome.

So, just find them all, and your set!

Well... in theory I believe this... in practice, I am in no way this demanding of my trading results. But, if someone wishes to follow this journal, It is going to be important for them to know my philosophical view of the markets, to understand why and how I conduct my analysis to generate money in the markets. I know most of you will not share this philosophy. That is fine... just know that I am not here to debate the practicalities of this. It's not what this journal is about...it's just a context to better understand my method of analysis.

With that said, my next post will start to cover some of the factors I look at when I trade, to put as many odds in my favor as possible, every single time I enter the markets.

even before I ever started trading, I wanted to understand how the markets worked. As I became more exposed to them, I came to see it through a variety of viewpoints. I found enough success primarily as a technical trader that I was able to trade full time for myself. However, on more than 1 occasion, gone through a period of weeks (or even a few months) of "not success". Of course, in the beginning, that included an incredible drawdown, almost to the point of ending my career (and this was AFTER i was paying the bills trading). Since then, it's happened a few times, though now the drawdown in my primary accounts is more like "treading water" or "slowly leaking". If I made 35% in 2 months, maybe at 4 months I'm at 34%... or something akin to this. Then it's back to jaw dropping returns, only to follow with a period of stagnation (and frustration).

After a rock solid 2011, I believed I had moved past such inconsistencies that I experienced in late 09 and parts of 10. But, I now know this is not the case. For myself, it's about a very clear understanding of the market, and what is influencing it. When I have this sense of confident understanding, I make money nearly every day. When I don't.... all the mechanical setups in the world won't help me do much better than break even.

I've recently realized that such clarity is not the most important thing in my trading... it's the only thing!

So i've built a preliminary plan that covers the broad concepts that I feel are most important to my trading success on a day-to-day basis, that will give me a "step-by-step" process to follow in order to obtain that clarity and level of understanding.

Last week I employed this "new" plan for the first time, and the results were immediate and profound. I felt I was on my "A" game about 85% of the time I was involved in the markets. Considering I have not had such a successful week in a few months, this was a major victory for me.

So this journal is my attempt to now "comb through" and refine the general into the specific, into the methodical, step-by-step process from which I will use to turn a "confident understanding and clarity" into a automatic state, in which the step-by-step approach will naturally facilitate every day I sit down to trade the markets.

This is my ultimate goal with this journal.

Next post I am going to start listing what I consider in my analysis....

As I said, I found success as a technical trader, but it was limited. It was next to impossible for me to know when a breakout was likely to run 20 pips, or 200. I was hyperagressive about moving stops to BE, and would get frustrated when "f***ing awesome levels" weren't respected. this would have a secondary effect of affecting my insight into the market, and thus would diminish trades I took in the future.

Over the last year, I've worked to understand what ELSE moves the market, if not what I can see on a chart. The fact of the matter is that people all over the world, for all sorts of reasons, place trades in markets. Some to offset exposure to price fluctuations, others to profit from such fluctuations.... some because we just reached a low not seen in a month, others because that countries economy has been slipping, and others just because they need that currency in order to make other investments with it.

So, while Tech's are (IMO) the best foundation for retail trading... Fundamentals and Sentiment play a very big role, as does the worldwide interconnectedness of money. And just like charts... the extremes for Senti/Fundies are where the game is best played. Not everyone looks at a 5 min chart, or even a daily chart.

If one can learn to see the market through the eyes of their major competing traders, and learn to properly evaluate, filter, and weight the major variables that others are considering... then one can understand with precision where value lies, and how best to take advantage of it, as well as what to reasonably expect during the course of the trade.

So, regarding Senti-Fundi analysis... here are some of the things I consider:

 

1. Bond Yields. Always the U.S. 10 year, as well as respective bond yields of currencies I am trading, as well as any other sovereign bonds that may correlated in some way to what I'm currently looking to trade. In the most general sense, the lower the yield the better it is for the underlying currency
2. Central bank rates. Like earnings for a stock price, this is the single most important fundamental factor for the value of a currency, all other things being equal. In theory, the higher the rate, the more attractive the currency.
3. Central bank policy - also massively important, because the intentions/actions a central bank takes can literally alter the course of a countries entire economic viability. It has it's limits... but those limits far surpass what my stops will handle Understanding their outlook is often a key driver in underlying market trends.
4. Options, including exotics, vanillas, etc. - larger market participants such as multinational financial firms, soverigen states, etc, will often take on relatively large (read 9 digit sums) options positions for one reason or another in the forex markets. And unlike a position in the spot market, it is entirely possible for an option that was once valued in many millions to be absolutely worthless a few days (or even hours) later. So, if price is anywhere near these as they near expiration, one party often tries to push price above a certain level, and the other party tries to push price below that same level. The effect is essentially a magnet for price... because the market always moves toward orders.
5. Headline Financial News - in order to understand what events are influencing the thoughts and actions of many market participants, I read and notate in detail anything and everything I find that may have an effect on the currency markets. I do this every day, after reading through bloomberg.com, reuters, WSJ, and a few other financial news hotspots. I pay close attention to common themes that appear in multiple articles, and across multiple websites. I look to filter out opinion, and just get the fact, as well as the tone of the story. Does the "tone" influence me? you bet your ass it does, and it does the same for the "other guy" as well...so I want to know it.

More to come on the next post...

Senti/Fundi elements of my analysis continued...

 

1. Drawing the most compelling conclusions, and focusing on those markets. Once I have taken thorough notes on the various events unfolding in the world, and the "likely" or "expected" effect that they will have on the markets, I create a summary of what I've learned. Often times, there is 1 or 2 markets that stand out above the rest as far as clear and obvious influencing factors. There is usually also at least 1 market that clearly has reason to be taken on the other side of the trade to the first 1 or 2 markets. And then, there's usually a hodgepodge in the middle...which i use more "informed guesswork" to sort out what may be a stronger or weaker currency than another. This part of my analysis can be far more valuable than most realize, and allows me to get behind a seemingly unexpected rally, or even more importantly, to avoid taking a level because of overall investor fear of what MIGHT happen with the upcoming central bank meeting tomorrow. Knowing this can substantiate why I believe an order imbalance may exist at all at a certain price, or to know that it may not be as good as one would think, if they looked only at a chart!
2. Analysis of market response to recent news events. This is possibly the most important thing I've listed here so far. Knowing the news and events that market participants are using to decide how they will participate in the market is one thing. But knowing how the market has responded recently to previous events is of the utmost importance! If surprisingly good news that broke yesterday has had very little effect on a currencies value, and that currency has experienced a significant rally up in price over the past 3 months, it is entirely likely that going long that currency today when another major news release is coming out is probably a lower probability than the chart would show. If the market can't move up on good news... then should good news come out, a long trade won't be helped...but should even "mixed" news or, worst yet, "surprisingly bad news" come out, it could absolutely crush a long trade. And on the other hand, if slightly good news which hasn't done anything for weeks, suddenly creates a 60 pip spike up that DOENS'T retrace within 24 hours... it indicates a market that is undergoing a major sentiment shift... and at this point, the "trend is not your friend"... but again, one can't get that insight with a chart alone.
3. Live Newsfeed and published flow analysis. The big headlines are an important contributing factor to sentiment, but they are not the whole picture. I have live newsfeeds from dow jones for events that may develop into headline news, and a few others that even provide specific price points in major pairs where large concentrations of bids and offers are sitting RIGHT NOW. Sometimes they include the price at which stops are concentrated, as well as who are the primary "big players" who are placing those orders, and what events may affect their placement of orders. Does that mean one can just read the published flow info, put an order there, and then smile and sit back? Only if you want a guy like me to reduce your account size. This information, just like a good S/R level, or knowing how a market will likely react as a news event develops, is only really effective if used in concert with other independent factors that support it. That being said, knowing that the BOJ is quietly placing bids on the eur/usd to the tune of a few hundred million dollars between the price of 79.50 and 79.30 can be a great additional insight into where value is in the market.
4. COT analysis - for those who don't know, this is the "commitment of traders" report put out by the CFTC that shows, among other things, the net holdings (long or short) by commercial traders, large traders (hedge funds, etc), and small speculators (retail guys, private traders, etc). By knowing how "oversold" or "overbought" a particular market is, it can provide insights that can be used to catch 500 - 1000 pip moves... or, at least, tell you that the "retracement" your seeing is actually more likley a significant reversal, and at very least, to not trade against it for the next few hundred pips. Others on the net have covered this in great detail, and I would recommend to anyone interested look those resources up.
5. Correlated markets (and how they are currently moving). I read somewhere that the EUR/USD is correlated about 80% to the German DAX stock index futures. And the DAX is correlated about 90%-100% with the S&P futures contract. So, if both the DAX and the S&P just broke through that resistance level on the daily chart... it's a darn good bet any EUR/USD shorts are about to start really sucking right now. Furthermore, if a euro company IKEA and INTEL before the U.S. markets open both post disappointing earnings on a day where the markets lacked direction, playing for a long GBP/USD or EUR/USD breakout might test your patience, and your bankroll... etc.

more on the next post...

1. I then try to find the strongest currency, and focus on finding technical setups that will work to trade it against the weakest currency. In the event that there are two closely correlated currencies (say, AUD and NZD), I will pull up the cross pair chart of AUD/NZD, and using techincal analysis (as well as any senti/fundi data that can help), I will make a determination as to which one is REALLY likely to perform the best in the event of a breakout on AUD/USD and NZD/USD. As for using Senti/Fundi data... if the market is focusing on China and slowing... aud will likley be hit harder...and conversely, if the market is focusing on central bank interest rates, then AUD will be more likely to get the boost for the day. Of course, it's best when the techs line up in the same direction as the Senti/Fundi data
2. Internal review of my comfort/confidence level with this information I have been planning around, as well as developing a "PLAN B". At this point, I sit back and take stock of how well this all resonates within me. It is very important that I resolve in my mind any conflicts of information, be it Sentiment, Fundamentals, or Technical aspects of my analysis. Once I have a relatively good comfort level with the most predominate elements that are shaping the decisions of large traders world wide, I then focus on the 1-3 most powerful driving elements of the day, and play out various scenarios of what could occur to CHANGE that, or to otherwise negate the conclusions i've drawn. On more than one occassion, I have found a news release comes out, and is much more surprising than I had considered, or is a much bigger influence on the markets as a whole, and without having already created a "plan B" for that possibility, I find myself hurting psychologically as my trades go against me, and my gut telling me to just close them out, but my head telling me to not act impulsively... and the two feelings conflict and leave me in frustration and confusion, and thus ruin any chance I have to trade well for the rest of the day. The best place for me to be I find is when I believe in the story, not just the data points, and I'm then able to act with the utmost confidence during my entire trading session, and regardless of how the day is going so far.

For me, an engaged but dispassionate demeanor, combined with a sense of confident understanding of current market circumstance, and a clarity of thought to tie it all together, is my holy grail.


And the best way for me to reach that state of mind is to consider both the macro and the micro picture of the market, from a variety of viewpoints, as well as understand how these views could change, what that change will look like on a chart, and what type of opportunity will be present as a result of this change....


It's this level of understanding that I believe can nurture and guide one to trading excellence. and it's this level of understanding that I am going to develop a detailed plan around... a plan that will facilitate a focus on self awareness and re-enforce good trading habits, so the process of finding my own clarity under any circumstances will become second nature to me.


And once such clear thinking becomes a matter of habit, then acheiving consistency in trading will be relaxing and simple... as it always is when something unknown becomes something of comfortable familiarity.

Interesting post...will follow with interest

Yesterday was a bit of a disappointment for me in some ways, as well as very fulfilling in others.

The disappointment was that I wasn't able to capitalize as I should have due to a lack of thorough preparation. Specifically, I lacked a concrete plan of action as various opportunities in the market presented themselves. The result was that I had less confidence in my trading as the day progressed, which greatly inhibited what profits should have been.

The more fulfilling aspects were that my overall analysis was nearly spot on... but more importantly, I was able to recognize the internal disconnect between my overall analysis, and a sense of "emotional fickleness" that was pulling on my emotions, and causing a rift between my thoughts and my feelings. This is never a healthy place from which to make market decisions. So I did the best thing I could have:

I stopped trading for the day.

For me, having all facets of myself working in sync with each other is of paramount importance in my trading. No matter how good a particular opportunity is, self doubt will ruin it. Although I've known this for a long time, my ability to recognize and respect it for what it is has not always been consistent. Yesterday, I did. And my account is larger than it was the day before for that decision.

Since starting this aspect of my personal trading development a week ago, this was the first time I felt really "challenged", psychologically speaking, and I made the right choice.

Consistency. By turning off charts, I was able to preserve a small profit from the day, as well as not risk any of last weeks profits. Furthermore, as this type of internal confusion can and does rise up from time to time, I have taken step one towards developing a set habit in how I handle it.

Consistency is everything.

Today is a new day, and since I have just about resolved a few personal distractions (computer crash and an unscheduled errand), I will have plenty of time today to properly prepare myself for any market opportunities I see today, including a plan of action. I am looking forward to trading today.

X

Why did EUR/USD go up all yesterday until around the time of Londons Open? Who the hell would be buying this stupid market today??? Doesn't everyone know europe is falling apart, and the EU just might disintegrate?
And Damnit, why isn't that gap filling...and why is my short about to get stopped out?!?!?

While there were a number of factors that were influencing yesterdays pre london price move... and in fact it's impossible to tell why exactly it did what it did.

But there were some subtle clues that a move up was likely, and new breakout to the downside was less likley... and some of those clues could have been uncovered if one carefully considered market sentiment.

MARKET SENTIMENT, A OVERLY BRIEF SUMMARY:

Market sentiment is one of those subjective aspects of trading that can be so easy to confuse. It's not about the fundamentals or technicals, but how the greater trading community as a whole FEELS about the fundamentals and technicals. And in fact, it is a much better paradigm from which to view market movements through.

When news comes out and the market moves contrary to it, it's likely because sentiment and expectations did not correspond directly with the specific fundamental event that just transpired.

The problem most traders have regarding sentiment, is it is rarely very clear. And of course, just when you finally feel that everything pretty much lines up, and everyone is thinking the same thing, and you've got it right.... Thats when yesterday happens, and your short stops out.

And you decide that sentiment doesn't have any effect on the markets after all. But, it does...much more than you realize.

I will post something more detailed later on sentiment to give those who are interested a background on it... in fact, I'm starting a seperate blog more focused on teaching about the markets. I'll post that link up at a later time.

So with all the bad news out, and the market seeming half scared to death of the possible demise of the euro union, why did we move up above 1.2600, and then not even make a new low from last friday?

the concept of sentiment from a traders perspective is that there are usually just a small handful of driving factors that the market is fixated on at any given time. It is both the markets current view of these factors, AND expectation about what is likely to occur in the near future, that effect overall sentiment, and consequently order placement and market movement.

As for yesterday, here is a list of a few things I saw developing since friday that affected a shift in sentiment coming into the pre london session at the start of this week.

1. the COT report was released, showing that more traders are holding a net short EUR/USD futures position than they ever have in the history of the eur/usd futures contract.

What this tells the trading community is that the whole world is basically net short the euro. The implications of that are very important. Remember, markets move based on transactions between a buyer and a seller across a range of prices.

If so many people are holding short positions already.... who else might sell to create a drop in the market? The answer is "I don't know... but I do know if any of these folks who are short decide to take their profits today... there may not be many buyers, and the market will start to rise"

But it gets more sophisticated than that. You see, if you are a larger professional trader, you tend to KNOW this... and even though you may not want to take profits on their EUR/USD short position.... you are worried that a hedge fund manager buddy you have might take profits on HIS euro short.

And if he starts to take profits in a market that is so short already, his profit taking will likely move the market up and reduce your profits!

So you think: "Screw that... i'll take my profits first, here, now, and NOT RISK THE CHANCE of getting caught in a move up created by profit taking"

This is also called a short squeeze situation.

But taking it one step further... even if a short squeeze DOESN'T happen... the knowledge in the market that it COULD happen will prevent large traders from selling aggressively. And if larger traders don't sell more, at very least, it greatly reduces the possibility of a market making a new low.

So, the fear of a short squeeze due to the COT report likley reduced some selling pressure on the market yesterday.

Another factor on sentiment was what I call -"market tone"

This is a very subtle aspect of measuring market sentiment, and it takes vigilant observation to notice, and some experience to develop a way to measure it, but for those who learn this skill, it can provide some of the earliest clues to what day or week will a change in direction occur.

If one were to read the posts on the EUR/USD thread here, or the headline news at bloomberg.com, or reuters, or oanda... or if they have a live news feed by Dow Jones, etc... they would notice that 2 weeks ago, there was a great deal of conviction in what was being said about the euro. Almost anywhere I looked, all I saw was

"I'M SHORT AND GETTING SHORTER, LONGS ARE FOR SUCKERS,
THE WORLD IS ENDING!"

Last week, it was much the same. no one had a single thing positive at all to say. The newsfeeds I get basically said:

"without some type of QE or capital injection (like an LTRO), the situation that greece is causing in europe will give no one any reason to buy the euro."

Those are really incredible statements. As if there is not a single interested buyer in the world... and for 2 weeks... they were mostly correct.

But then...over the weekend, something shifted.

A bloomberg article listed about 7 reasons for the euro to drop... but also listed 1 or 2 reasons it MIGHT not drop more now.

The tone of the articles I saw on my newsfeed were still shouting about the end of the world... but nothing NEW was developing that could be WORSE than what had already developed.

The posts over on the eur/usd threads had some people posting some pretty strong convictions regarding a bounce being possible....

And more importantly... I didn't see many who were of the "short the euro" camp who were saying they "just got short". No, most were "waiting for a bounce" And some were "getting long", or "ready to get long"

Although none of this in itself would be a "development" that could change the euro problems... it WAS a development of the mindset of TRADERS who were trading the euro.

Market tone. It's subjective, it's subtle, it's easy to miss... and it's a damn good indicator of what can come, particluarly when a market is extremely bullish or bearish.

And of course, we have the most important sentiment factor of all -
"a possible shift in the engine of current sentiment"

The headline that the political party leading polls in greece is a pro-euro, "pro austerity" party of sorts was a minor game changing announcement.

You see, very few people believe that a new political party will save greece or the euro from it's financial problems.... but if you think back... that is NOT what REALLY is causing fear in the euro markets right now

It is that greece may leave the euro, and thus threaten the fundamental basis for the currency existing! Greece has had problems for a long time, all the PIIGS have... but the recent drop below 1.3000 was because now, for the first time, a real threat of a country leaving the euro was a reality... all thanks to the political instability and possibility of greece electing an "anti austerity" party

But with the Polls showing us that a more cooperative, more "austerity agreeable" party is leading... this could undermine the very reason for the fear that broke the euro down over the last 2-3 weeks.

This is actually the most important factor of all... and I was surprised to see so many overlook it.

I find that many focus on the facts, and a generalized view that those facts illustrate.

A slightly more difficult, but more valuable way to view sentiment is to look at the specific catalyst that caused a recent shift in market direction. And realize if something comes out to alter THIS specific development...it could have a much stronger effect on market sentiment than any other single news event.

In regards to sentiment, these are some of the reasons I went long early in the day yesterday, and had a profitable position.

And as for today? I've seen no headlines yet... but I now see a very obvious divide in the internet forums regarding who is looking for a move up, and who is looking for a continuation down.

My take is that this confusion is probably gonna cause some ranging for a today (at least as long as the greek polls continue to support a pro austerity party)

I could be wrong... as there are more reasons to drop considering all factors than to rise, but for now, i'm approaching today with an awareness of a range bound day... and to watch out for false breakouts, particularly to the downside.

in fact, I won't be short unless i can get short closer to 1.2600, if i get short at all. This way, even if i'm wrong and the market crashes down further... I might not make a profit, but by avoiding a possible false downside breakout i also eliminate one possible way of losing money.

And avoiding 1 more marketplace risk I have sentiment to thank.

X

Since I learned the how to trade based on technical analysis alone, and had a basic understanding of how and why it works, reviewing my losing trades has been the single most important aspect of my trading career.

Without trade review, I wouldn't have the trading plan I do today. If your not making money in the markets... I'm willing to venture a guess that you don't review every losing trade you take. It's that simple.

With that said, I looked at the 3 losing trades I took last night. GBP/USD short, and GBP/AUD short (at two very similar prices).

For those who are curious, you can see these trades in my trade explorer.

Here is the result of my analysis for the GBP/AUD shorts.


Date: 5-27-12
Market: GBP/AUD
Direction SHORT
Entry Price: 1.5907 and 1.5903
S/L Price: NA for these trades
Trade Analysis - just poorly planned trades that never should have occured. I sold after a strong drop in price, playing for a breakout of sorts, and saw a potential stop run reversal, ignored it, and set my orders. Also, it was not planned premarket, but during market. This is something to watch out for.

Problem with trade:after a drop in price, and a stop run, without any signficant recovery

Take Home Lesson: Plan out my trades BEFORE they are taken. If I miss it, I miss it. Also, don’t sell after a long strong drop in price when a stop run is either likey, or possibly JUST occured.

For me, these lessons should already have been learned long ago, but it shows that even full time traders can make the most basic mistakes from time to time. As I've already stated, the purpose of this is to have a public accounting of my actions and results I take in the market, considering my goal of consistency.

By the way folks, let me know if any of this is helpful or interesting to you all... particularly this trade review thing. This is of a more personal nature, and if most who check this thread out don't find this part in particular helpful, I will likely exclude it from future postings, as I already have it down in my own journal (offline).

X

It's always nice to have not 1 but two trades that trigger and start working in your favor during the Asian session.

I see it as a bonus, considering my focus is the london session, and sometimes the U.S. session as well.

At any rate, I caught a long trade on AUD/USD as it retraced to the opening price of the week, and the point of the breakout, and the figure, and a "spike base" that is visible on a 1 hr chart. (spike base is a term I learned from nobrainertrades.com - a blog I can highly recommend)

I'm long from 0.9807, already took about 40% of the trade off as profit, and moved a stop to about breakeven. So It's in a no lose situation.

I'm targeting around 0.9845ish h for a 2nd target, and 0.9875 for a final target.

Also, I'm short GBP/AUD again (seems this week I have a love affair with this pair) COT readings on both currencies, as well as sentiment, technical indications, and recent price action show it on the verge of breaking down hard. I'm targeting 1.5700 - 1.5800, though realistically, I could see it falling to 1.5500.

Opportunities like these I don't see every day (though maybe 2-3 times a month) so I try to take advantage of them whenever they appear. As long as China doesn't fall into the ocean, or the RBA decide on a surprise 0.50% rate cut this week... this trade should be a great one.

I'm short GBP/AUD from around 1.5960

They can be more seductive sometimes than they are worth, but thats what my rules and review help me with... to fine tune and/or eliminate the 2nd rate opportunities that an overall market may offer.

The best setups are easy...as well as easily missed. They will have a great confluence of factors (tech, senti, and fundi) overlapping, as well as need planning, otherwise, they will often hit the ideal entry price and then move away from it within minutes or hours.

Overall, I feel good about both trades, particularly the GBP/AUD short.

ALthough I strongly suspect london or the U.S. will offer something, but if not, I won't worry a bit about it because I've already made some profit on AUD/USD (and it can't lose now), and the G/A trade, IMO, is an A+ trade.

Well... that GBP/AUD short is working liike a charm... up about 50 pips so far.

As soon as it breaks and has a close on the 1 hr chart below 1.5880, i'm putting stops to BE on it, and likley take 1/3 off the table.

Again...the best trades are obvious, and exist as an opportunity to be seized for only a moment. Failure to prepare for such is literally preparing to fail in these cases.

X

P.S. AUD/USD rocking out too... up 45 on it now.

Ok... here is what I do EVERY SINGLE DAY as a mini research project to get ready for the day. It provides a significant edge, and I believe that all traders would be well served to do such a write up for any day they make a trading decision.

I do my research based on a live newsfeed, as well as articles on bloomberg.com, reuters.com, and occassionally forexfactory news and oanda.

MY NOTES ON SENTIMENT, INCLUDING OVERALL SUMMARY AND CONCLUSION OF RESEARCH BELOW:

Dollars are scarce, top grade assets have been reduced by 42% since 2008 it looks like.
This is a pretty strong indicator of an extreme sentiment... I just think of scarce as “expensive” at least for today... and it shows that there is a very possible oversold condition in risk markets in general, the euro in particular. E is down against DX by 5% over past 6 months. Most of article discussing how things stand now... not what will happen next. And as it stands dollar is expensive (for today)

China Investment Corp, the 5th largest in china, ceased buying euro demoninated assets on may 10th, due to the fact that euro lacks a real plan for the endgame here.

hedge fund FX concepts sees a euro rebound before greek elections (and then a resumed decline). it’s a 3.9 billion dollar fund.

President of FX concepts said on 24th in an interview that it was “way oversold” of the euro.

One thing that is making the dollar stronger above all others is that the alteratives, the swiss and the japanese are trying hard to keep their currency devalued. They would be alternative safe havens, and if word leaks that either central bank MIGHT think about reduced intervention measures...either could rally strong.

Also, the Bank for International Settlements passed regulations Basel III. This increases the requirements for capital reserves, and will therefore “increase the price of safety” embedded in assets deemed a reliable store of value... so said an IMF report releast on april 18th. However, this may not be relevent at this point... really not sure if it’s not alreayd priced in.

Finally also interesting to note is right now dollar assets look good on a relative basis. 10 year yields are t 0.37% higher than the german bunds... in november, it was onl 0.33%. Watch this for possible future developments as an early clue to strength/weakness.

The long view of the euro still seems that it’s going down

Also, headline of bloomberg is gold sucks compared to the dollar. I believe this is the beginning of the end of the dollars rally. Too many things are pointing to buy... but by no means the end yet.

China stimulus is having a strong effect on risk assets, particularly AUD and other comdolls.
the asian stock markets have reversed their losses from earlier...this could bode well for strength into europe, no doubt.

There is an italian bond auction tomorrow, however, article states strong reason for a short term bounce in the euro.... interesting to see this is the theme now in the marketplace.

consumer confidence in may is reaching an all time low, as is unemployment at an all time high. But, this was the SAME news I read yesterday (or was it last friday)... and regardless of when, it's neither new...nor did it have much of a negative effect on the euro be it freidays news, or yesterdays news. Guess we can pretty much discount it altogether (and this is the advantage of doing this every day... you get a feel for what mattered, and what didn't)

Yield difference from spain to germany 10 year note is 5.12% yesterday, the most since 95.

Again, more bad news...but nobody wants to get short it seems, and many are looking for a bounce.

Mexican peso up as the improved greek polls are supporting risk.

The positive development in political polls in greece is what is affecting overall sentiment the most of anything else today...same as yesterday.



IN SUMMARY: due to positive sentiment shift on account of greek polls, AND the chinese injection of support into the market, not to mention the momentum this risk sentiment is gaining as the asian markets climb, the best bet today is long comdolls, AUD most of all, risk in general... and the DX and JPY are likley to continue to remain weak. The JPY most of all, due to threats of intervention, and the DX having already sold off strong in past weeks against it.

CONCLUSION: look for risk longs, most of all AUD...and short USD, though JPY may be even better.

Don’t short risk today.

I have decided to reduce risk on my GBP/AUD trade... I really don't want to close it out, since I have good reason to believe it will drop lower, HOWEVER, I also realize that another test of the 1.5970 highs would indicate some increase price action strength, and therefore an increased probability that the trade isn't as good as I believe it to be now.

SO.... I am going to close half the position out if we retest 1.5958. This gives me basically a break even on half the position.

Again, I recognize that until unless price were to get to 1.6070 or higher, I want to be short.... but simultaniously, if it gets to 1.5970 or higher, it is showing i have less reason to want to be short.

therefore, the best way to reconcile this contrast is, IMO... to reduce risk at a BE point. still want a trade but not as solid as you previously believed? just make it smaller.

Works well for me in general.

X

Due to the results from my sentiment analysis, and the developing price action on the AUD during asia... I'm upping my target to 0.9900 (25 pips higher), and i fact MIGHT look to get in an additional small position if we can retrace back to around 9830ish after europe opens.

and unless osmething really changes in the world between now and london close, anything touching 9800 and I'm long in AUD/USD

Just took a very small long on the euro... with a stop pleny below the lows of friday.

The momentum in the risk markets in general through the asian session has been very strong, and good news abound with greece banks getting much needed billions in capital, china committing to a stimulus plan, not to mention greatly reduced downward momentum on the EURO drop over all, and a whole bunch of other reasons I'm not gonna list.

And do I think for even one second that this will "save the euro"?

No

But does it give me reason to believe the euro will bounce towards the high of this week in the next 24-36 hours?

Ya... it does. a greater than 50% belief... and that should be good enough to make some money.

Remember, it's not just about the facts. It's also no just about how the world feels about the facts. It's how the world thinks others might feel about the facts.

In addition, with EUR/GBP looking like it may be bottoming out, of the 3 markets I have in my plan to actively day trade...the eur/usd looks like the one tonight, and the plan is to take it long.

So, I hav a half a percent risk long from around 1.2534, and will look around 70-80 to take half off, and move stops to BE.

I also am looking to get a larger order (about 1%) long if we can retest the lows from this week... :::: no idea if it'll hit, but i'll happily take it today if we can.

X

For all talk in trading about "removing ones emotions from trading", and as much as I agree with this in general, I believe once a person transitions from novice to professional... everything changes.

Right now is a good example. Because I've done a careful review of what I'm trading today, both from a technical, and sentimental perspective, and I've been watching as news comes out to see exactly how the market is reacting to it... also watching price on correlated markets such as other currencies, asian equity markets, bond markets...etc....

I feel I have an excellent grasp on what the intentions of the bigger players are today.

For those who want to see how I think about it more in detail...read my post on my sentiment research for today.

One great thing is I am currently up about 100 pips on the day with my 3 open positions....

but I felt really good about things as I took those trades. It's a very solid sense of relaxed confidence.

That good feeling I have tells me I know exactly what I'm talking about today. It tells me not to worry, and due to my preparation, it also tells me what to look for that might warrant a "worry" or essentialy a shift in market senitment and price action for today.

This feeling basically is my "pat on the back".

When I have it, I know I have done my job, AND results are on the way.

When I feel anything else... it's just best not to trade.

I can't emphasize how important preparation is on a daily basis for day trading.... and preparation on a weekly/monthly basis is if your swing or position trading.

If you wonder how in the world you will ever know how to let a winning trade ride out 200 pips, while knowing you made the best move to cut a loser off early at 20 pips... (instead of the other way around)...

it's by gaining confidence. And when eveyrthing in the world tells you that your very likely correct...it's very very easy to feel confident.

Just always keep in mind what information you saw that got you to that point, and make sure that information doesn't change without you!

X

Well, just moved stops to BE on the GBP/AUD trade...because I'm going to scale it a bit more if we can hit 1.5880. this is some tremendous bearish PA going on... and considering we ran stops yesterday on the lows of support...and that it was a low liquidity day yesterday, there will be less stops below now for a large player to use to fill a buy order...

and larger players (good ones anyway) know that opportunies that are good only exist for a moment...

They know they would likely be betting on a race that's already finished by assuming a low liquidity day (and player) would have got long at yesterdays low, and somehow or somewhy placed a stop below that is somewhat greater than what was previously there.

This means that a smaller opportunity now exists that previously for a larger player to get long.

and smaller opportunity to the long side often translates to larger opportunity on the downside.

It's a bit esoteric....this analysis I wrote. and it may be absolutly wrong... I'm making a few assumptions here... and I havne't spelled out every reason I see for there to be less opportunity to go long at 5880 than yesterday...

but I've been using concepts like this for a long time to build an understanding of what various market participants may be doing/thinking/etc.

And it serves me well....and if this goal of mine in reaching consistency becomes a reality... thoughts like those above may end up serving me very, very well.

X

Well, I really don't like the reversal price action I just saw on gbp/aud.... and it doesn't necessarily mean it's gonna all fall apart on me, but just to be safe about it, I closed half the trade out at around 50-60 pips of profit.

I also closed half of my eur/usd long out at 20 pips, and moved the stop to about 15 pips below entry. So if it stops out, I'll still net 2.5 pips profit on the origiona position... and due to similar PA concerns at a fairly critical level on aud/usd, i closed another portion out...now only have about 1/5th the original size on it...but that 1/15th could go about 100 pips...which is well more than the original stop of about 40 pips on it.

So, we'll see how it goes...but ya....looks like risk on.

When the technicals, sentiment, and fundamentals all line up.... and one is prepared fully and understands fully most of the major market influencing factors... then trading well, and being profitable on a very regular basis is very possible.

On a separate note, I believe I'm starting to get a better understanding of what I need to do as part of my daily plan to be fully engaged and confident with my trades. More on that later... but it's actually a lot better than a 100+ pips by london open.

A whole...whole lot better.

X

Of Mice and Men...

But the nice thing in the market is one doesn't need to be right. one only needs to be right enough

So, quick breakdown of the evening. Bad first -

I made one "mistake"...in other words, took one action that I clearly should not have done. Again, it was an impulsive move.

For whatever reason, I stopped listening to the story and the mental framework of "likley shortsqueeze" today, and started TELLING the story " short squeeze"

Listening closely is the perfect behavior. Telling the story is simply frustrating and expensive.

Did have 3 euro long trades, and the mistake was the last one. THe first one was solid, the second one... was ok, but stopped out for a net profit. And this is in part why the 3rd trade was just silly. they market was telling me by stoppping out the 2nd trade that the story was changing,

but i was too busy telling it my own story at that point to hear. ANd it cost me 1/10th of this weeks profits.

The good news is, that was the only clear cut "mistake" I made tonight. much better feel than yesterday.

The other disappointment was my entire thinking on the reduced chance of a stop run at the 5880 level on gbp/aud was obviously the opposite of correct.

But, it wasn't a mistake. It was well thought out on a number of levels... it just happened that the 2nd smaller "breakout entry" at the 5880 level didn't work. My analysis was incorrect, but not "flawed". Losing is fine. Wrong is fine. Mistakes are not.

Now, that's about it for the bad. For the good news, I pulled in about 50ish pips on most of it, lost about 25 on the entry at 5880, but all in all made about 1% on the entire trade, so I'm happy with that.

And my final exit on the aud/usd was pretty damn good, 9889.

Over all, that was the best trade of the day. I took some of my origional position from 9807 to 9889. That's catching about 84% of the entire move from bottom to top.

Best trade by far.

Final score for the day is about a 70%+ win rate, with my winners being larger than my losers by a significant factor, and a total profit of about 2.2%.

Really not bad. Still a lot of room for improvement, like not scaling out of some so early, and not making mistakes, and greatly moving stops closer to current price when price action clearly shows signs of reversing...etc.

Likley could have made 35-50% more today just by doing those 3 things, nevermind what I haven't caught yet. (full review tomorrow before I start trading of the 2 losing entries)

So that's it. I'm done for the session. More to come tomorrow.