Maxsmarts Trading Journal and Discussion

So Despite oil prices dramatically increasing over the last few days, the CAD has not been able to gain much ground against the dollar. In addition, we received a negative trade balance from Canada when a positive one of about .9b was expected. The market took this as reason to increase losses of the CAD. At the time of writing this oil is up $1.16 today to $71.21 and yet the CAD is receiving a pounding. It should be interesting to see if the CAD is able to pull itself together in the near term and overcome its economic impairement with rising oil and commodity prices. Preferably, of course, before my option expires on the 18th.

So today we heard from Bank of Canada's Governor Carney who actually caused a huge pullback on the usd/cad after increased risk sentiment and rising crude oil prices pulled the USD/CAD down to its support level at 1.0950. To recapitulate his speech, he was not at all happy with the recent, very quick strength of the candadian currency against the USD. He intimated that the Bank of Canada may step in and intervene if neccessary and that caused a pullback on the USD/CAD. The Swiss bank has also hinted at possible intervention and has perspicuously enunciated that they are not happy with strengthening CHF; however, you may notice the the CHF as continued to gain.

Now I'm not saying by any means that we will ignore the central bankers remarks. This is a warning sign that goes off to a possible reversal in the trends combined with an inevitable correction in equities (especially since the vix is reaching such low levels.) However, in the short term fundamentals still support a stronger CAD, AUD, EUR, GBP, CHF, and NZD against the USD. But as we have received our admonition, look for possible ends to the downtrend on the dollar.

As far as the Euro goes. I wanted to point out a few things as we see a potential head and shoulders pattern on the 4 hour chart with the neckline at about 1.38 targeting 1.34-35. So even though I do have many comments on other currency pairs I will cirumscribe my comments to the EUR/USD tonight.

So the first chart is showing that potential head and shoulders pattern on the 4 hour. Now, we get a break below the neckline at about 1.38, we will be targeting 1.34-1.35 as we take the height of the head and project it down from the neckline. So that certainly is one option.

Now lets zoom out to the daily chart which is the next chart on here. Looking at the Daily chart we can see some of the makings of that same potential head and shoulders patter on the daily chart. But was else do we see? We see that shorter term uptrend line that has been in place from mid-april was violated to the bottom with a daily close below that level on June 8, 2009. This violation lends evidence to the termination of the short term uptrend. We can also observe, that this same uptrendline, once support is acting in the capacity of resistance. Now this does not neccessarily mean that we are going down, in fact, we may trend sideways for a time. However, this serves as a warning to watch for a reversal of the short term trend which is validated on close below 1.38 (though I may watch 1.3720 as that was dynamic resistance and could prove strong support). What else may we observe from this chart? We may observe that medium term uptrend of the euro/usd is still intact as we see that line has yet to be violated. The trendline is the one connecting the march low to the mid-april low. This trendline is currently lying at about the 1.34 region. A break of this medium term trendline would bestow evidence to a change once again in the medium term bias to bearish.


Now I'd like to use Dow theory and the Elliot Wave theory to evince how I think this situation might potentially play out. Now Dow theory and Elliot wave theory postulate that the uptrend occurs in 3 upward moves. For the waves, that I have marked, the upward waves will be waves 1,3,5. Correctional waves will be waves 2, 4.

1. Now fundamentally what caused wave 1 to occur? It was the Federal Reserves decision to purchase a ton of its own debt which in turn increases supply of U.S. dollars which in turn devalues the U.S. dollar. The Fed's monetary policy statement also clearly conveyed that they would take any neccessary future steps through continued quantitative easing to stimulate the economy back to growth. Essentially they layed their cards on the table of a weaker dollar in exchange for a recovering economy.
2. Fundamentally what caused wave 2 correction? Wave 2 occured as investors made a flight back to safe-haven investements like the dollar and government bonds despite the FED announcement in the face of scary economic picture. So wave 2 extended all the way down to 1.29 where it was able to find support.
3. Fundamentally what caused wave 3? More quantitative easing by the FED and the fact that Federal reserve chairman Ben Bernanke confessed to "printing money", increased risk sentiment due to the steps taken by the FED during wave 1. Due to the wave 2 pullback; we were able to draw projection to about 1.42 which the eur/usd actually topped at about 1.4325
4. Wave 4? We could possibly get our correction as we have exited our short term uptrend line. The correction may only go down as far as 1.38 region which is not unreasonable as this level makes up a neckline and 1.3783 is a 38.2% retracement from the move in April to June. In addition the correction for wave 2, was about 800 pips. The correction for wave 4 may also be about 800 pips which would put as at about 1.35 which coincidentally is the projection zone from the potential head and shoulders pattern currently on the 4 hour chart and the location where most likely the uptrending medium term line will be at about that area to serve as support, and it happens to be the 61.8% retracement of the short term uptrend. So this place looks like a good place for the furthest possible extent of wave 4. Therefore, I think that 1.37-38 may hold; however 1.34-1.35 may be a good place to buy since there is still one more wave left and that is wave 5.
5. Now if wave 4 ended at 1.35. Wave 5 would be projected up to about 1.48. If 1.38 holds wave 5 projection would be at about 1.50. In either case I think we still have a play to make on 1.47 before returning lower since market trends usually occur in three upward phases. We still have one more left. Of course this isn't written in stone. But this is how I see things panning out. So currently I am long above 1.38. and will go long again 1.34-1.35 targeting 1.47. Note that I am doing my projections based on price patterns instead of fibbonacci projections. I find this to work better during times of retracements.

So the USD/CAD was a disappointment. The option I bought expired worthless after performing very well initially. -$3,650 for that trade.

However, I am short EUR/USD here at 1.3860 due to the gloom and doom prediction by the IMF and the pessimistic prediction from ECB. I think this will give traders a reason to get away from risk taking. As a result, I will expect a strenthening of the dollar as traders close their risky positions. I am targeting the bottom medium term uptrend line of the EUR/USD, so about the 1.35 range. My stop loss is a close above the downward trending line on the Daily chart that.

Also exiting GBP/JPY here at 156. Profit +$3,500 as equities start to decline and risk aversion returns.

Today on the USD/CAD signalled a break above 1.15 with the close after the american session above that level. I expect it to reach 1.17-18.

Selling a call on the GBP/USD at 1.65 as their is resistance at the 1.65-1.66 level. Premium payed to me 107 pips or $1,070. Call to expire the 30th. of June

Stopped out here at 1.4050. for -$1,900. Another bad trade. Going long here however at 1.4050 on the break of the downward descending trendline. Targeting 1.47. Will watch FED announcement tomorrow for further direction.

Here is a daily chart of the EUR/USD to show the breakout of the flag above the downward trendling line. Note that even though I am targeting 1.47, initial resistance lies at the previous top at about 1.4320. So, possibly expect resistance around that level. We need equities to pull through as well as an announcement from the FED predicting growth, but not suggesting raising interest rates too soon but somewhere down the line.

Sorry for my ignorance, i never tried option but im willing to learn soon.. wasnt there anyway you could put a stop loss in the the positive> or BE.?Can you suggest any good broker of fx options service with a demo
Thanks!

Yes. I could have exited that option initially in the positive for a gain of about $6,000 or put a stop loss in there. I'm just an all or nothing kind of guy usually when it comes to options unless the fundamentals change significantly. The risk premium of the option is usually a good risk to reward ratio for my trades. So in short, I was greedy. Ikon global offers custom forex options. Thas my broker. www.ikongm.com. Apparently IG Markets offers options as well; however, I have no experience with them.

The call I sold @ 1.65 on the GBP/USD expired worthless which means I get to keep the entire premium of $1,070.

I'm exiting my long spot position here at 1.4020 on depressing jobs data. It looks like we are in consolidation mode for the markets with not enough data to push the markets either way. A case is mounting for a stronger dollar perhaps in the medium term as forclosures mount, jobs look, bleak, and investors are starting to observe the facts and that is all ecomic indicators point to a dismal contraction of the economy. I may look to take advantage of this consolidation with straddle strategies on some of these currencies using options. Or covered calls or covered puts. I still see the USD/CAD rising to about the 1.1750-1.18 level while 1.1460 holds as support. Another option for playing consolidations is buying at the support and selling at the resistance. In this case, 1.38 is the support on the Euro and 1.41 is the resistance.

As for the Pound, It is having difficulty closing up above 1.66 so I may sell a call at 1.66 again when given the chance and cover myself with a spot position on a close above 1.66

In following your trade you talked about the eur/usd, usd/cad, and gbp/usd currencies. Since they are all in consolidation you talked about selling options, both puts and calls, what expiration date are you looking at selling these currencies? Also what size would you recommend trading, we're just starting out?
Thanks for the help.

About a week to two week option. Like say July 16th or later. Nothing too far down the road where these currencies may break out of consolidation. Of course if they do. Just cover yourself with a spot position. I would recommend about 10,000 or 20,000 contracts for just starting out.

I think that Newstraders "Always let the S&P be your guide" located on the forexfactory news articles is a great article to read to see signs of when this consolidation will end and turn into a trend. Watch the 875 level on the S&P for a breech to the downside.

It looks as though we will finish the day with a close below 1.62 for the pound. Next support level is about 1.59. I'm targeting 1.59 with my stop loss at a close above 1.62. I had already entered short at 1.63 on more pessimissm in the market and investors actually being "realistic" about a near term recovery as well as many countries have agreed that this g8 meeting is not the appropriate time to debate the status of the dollar which should lend some strength to the dollar. However lets say that I entered right now short at 1.6135. I would still put my stop at a close above 1.62 and a target of about 1.59 or 1.58.

I have just gotten short the GBP/JPY as well here at 152.71 targeting 150 even. If you can't see the breakout. I'll post a chart

If you could post a chart that would be great. I don't see the breakout very clearly.

thanks, we really appreciate the help.

First is the pound dollar with the break below 1.62 with the daily close below that level. Second is the break below the neckline on the head and shoulders pattern for the pound yen. The target has already been met on the gbp/jpy. However, If we get a weekly close on the S&P 500 below 875 we will most likely see more Yen and Dollar strength.

So we are out of the GBP/JPY for a profit of $2,700 already

Heres the link to the story you requested http://www.forexfactory.com/news.php?do=news&id=180798

I think we finally have a trend. Tonight I will write what I think it is and How I think we will be able to make at least $20,000 in the next 30 days off of a the equity markets tumbling

The S&P 500 is not yet below 875; however it has validated a head and shoulders on the daily chart about 3 days ago. It had a bit of a retracement to retest the neckline; however, the pattern targets at least 825. Reality is hitting investors that the recovery may take longer than previously expected and that the jobs market is worsening and that no economic indicators have shown any signs of growth and only a few showing signs of slowing in the economic detioration. Since we are at major crossroads not only in the currencies (with the EUR/USD near its previous highs in the 1.40's the pound topping at 1.67, AUD/USD hitting congestion at .82 resistance) but also equities validating a turn of the tide in the trend through the head and shoulders pattern, earnings will be extremely important over the next week to determine the direction of the trend. My bias is already to the downside due to the technicals and fundamentals. It looks like investors have reached a "show me" phase. They have invested in a rally due mostly to hope and not facts, and now they need a reason to continue the rally. Therefore, I think in the near term we will see a strengthening of the dollar and the yen.

How to take advantage
As long as earnings come out disappointing and the fundamentals continue as they are now...

Sell the rallies for the eur/usd. Anywhere in the 1.40 range is a great sell given the current market conditions. 1.4050-1.41 and 1.42 should cap any upside. Look to target the bottom of the medium term trendline about 1.3720.

Sell the USD/JPY on rallies. 94.50 Would be an ideal sell; but the head and shoulders has already started look to target 90 yen level. Sell calls at 95 to expire in about a 2 weeks to a month.

Sell the EUR/JPY on rallies. 131 Ideal place to sell targeting 1.24.50-125 area.

Sell GBP/JPY on rallies. I'm looking to sell at about 152 targeting 140. As long as 153 holds as resistance this should be a good sell. Sell calls above 155 which makes up the neckline of the head and shoulders on the pound/yen.

Sell the GBP/USD on rallies. I'm still short from 1.63 looking to target 1.59.

O_O 20k/30day!!!