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Identifying Market Swings - Medium and Long Term Trading

  • #21
  • Jan 21, 2010 3:20am Jan 21, 2010 3:20am
Quoting okehiedon
Razorjack finally found a thread that combines fundie and technie(which in my opinion is the correct way to trade). Now my question could you take us through the practical...
Hi okehiedon,

Congratulations on your profits.

Now my question could you take us through the practical process you arrived at going long on usd cad and short aud usd bearing in mind that the long term trends on the weekly/ daily charts are currently opposite your positions.

Yes, I'll do my best. Just ask if something isn't clear.

I know that price were at extreme levels and sooner or later a correction was expected particularly against the commodity currencies. So what other factors did you consider.

Yes, prices were at extremes but I look at WHY prices were at extremes and what was driving the commodity trends.

My assessment is that major weakness seen in the USD throughout most of 2009 and the huge credit fueled boom in China were the major driving forces behind the commodity trends and thus the trends in the commodity currencies.

So I have been waiting for the USD to strengthen and for China to tighten it's monetary policy. We're seeing both of these now.

So what I did was wait for price exhaustion in the commodity currencies around major S/R levels and trendlines. Then slowly built my position over several days as the S/R levels were holding. There wasn't much more to it than that.

Actually in these particular trades, even pure technical traders could have called these trades, had they looked at price extremes and price exhaustion at major S/R levels.

With the fundamentals in mind, I just happened to be anticipating this movement for several weeks.
-Razorjack
  • #22
  • Jan 21, 2010 4:47am Jan 21, 2010 4:47am
Hello Razor,

I did not know you started a thread...good work..I was reading your post on another thread and i completely agreed for what you mentioned there.

I started to read this thread and it gives lots of information for people like me.

Thanks again, great job.
-happyTrading-myFx.
  • #23
  • Jan 21, 2010 4:51am Jan 21, 2010 4:51am
Quoting Razorjack
Here guys,

Just to show everyone that this can be applied practically!

Hi Razor,

Can you explain little bit about these two charts? example: why you took the trade? why you think that this is the right setup?, etc..sorry for asking, but this will make us easy to understand.
-happyTrading-myFx.
  • #24
  • Jan 21, 2010 3:06pm Jan 21, 2010 3:06pm
Quoting myfx
Hi Razor,

Can you explain little bit about these two charts? example: why you took the trade? why you think that this is the right setup?, etc..sorry for asking, but this will make us easy to understand.
Hi myfx,

I thought I went through this, but I'll try to explain it again.

There were plenty of reasons for taking this trade. First of all the major long term trends on AUDUSD and USDCAD have been very extensive, they've moved in conjunction with the huge movements in the commodities during 2009.

The reasons for the big movements in the commodities has been the weak USD in 2009 and the massive credit fueled economic expansion in China. The economic boom in China was a major force in driving demand for oil, energy, metals, etc.

So I have been waiting for these conditions to change and present the next big trading opportunity. So now what we are seeing is a strengthening USD and China is looking to tighten it's monetary policy to cool an overheated economy. Both conditions had changed and there was an increase in risk aversion over the short to intermediate term.

This made the conditions ripe for shorting the AUDUSD, NZDUSD and going long on USDCAD. And according to my calculations, I had a minimum of 6:1 reward:risk ratio ..... And of course by leveraging the open profits ..... there was a lot of money to be made.

So did this make sense?
-Razorjack
  • #25
  • Jan 21, 2010 3:38pm Jan 21, 2010 3:38pm
Quoting Razorjack
Hi myfx,

I thought I went through this, but I'll try to explain it again.

There were plenty of reasons for taking this trade. First of all the major long term trends on AUDUSD and USDCAD have been very extensive, they've moved in conjunction with the huge movements in the commodities during 2009.

The reasons for the big movements in the commodities has been the weak USD in 2009 and the massive credit fueled economic expansion in China. The economic boom in China was a major force in driving demand for oil, energy, metals, etc.



So did this...
Hi Razor,

Thank you for the reply..I perfectly understand the logic behind it.

Thank you.

-myFx-
-happyTrading-myFx.
  • #26
  • Jan 21, 2010 4:43pm Jan 21, 2010 4:43pm
Amazing views by RazorJack
  • #27
  • Jan 21, 2010 4:45pm Jan 21, 2010 4:45pm
Quoting Razorjack
Hi okehiedon,

Congratulations on your profits.

Now my question could you take us through the practical process you arrived at going long on usd cad and short aud usd bearing in mind that the long term trends on the weekly/ daily charts are currently opposite your positions.

Yes, I'll do my best. Just ask if something isn't clear.

I know that price were at extreme levels and sooner or later a correction was expected particularly against the commodity currencies. So what other factors did you consider....
Thanks for your reply. I personally trade looking at short term sentiments of risk appetite or risk aversion. The other only fundie I consider before now was interest rate expectation. But I think I would go deeper into fundies based on your sound explanation. By the way another good day for me trading the US session. Risk aversion set in and sell yen pairs (GJ EJ) all thanks to Obama's statement.
LISTEN TO MR FUNDAMENTAL AND MR TECHNICAL
  • #28
  • Jan 21, 2010 5:00pm Jan 21, 2010 5:00pm
Hello
Razorjack please can you explain the correlation between EURAUD (and GBPAUD) with the risk on / risk off market especially now with these risk aversion conditions because the AU fundamentals are better then any other major economy including EU and UK. what will happen ??
thanks
  • #29
  • Jan 21, 2010 5:13pm Jan 21, 2010 5:13pm
Quoting 555
Hello
Razorjack please can you explain the correlation between EURAUD (and GBPAUD) with the risk on / risk off market especially now with these risk aversion conditions because the AU fundamentals are better then any other major economy including EU and UK. what will happen ??
thanks
Well before razor jack comes around. I have traded the euraud;gbpaud occasionally and have noticed that when risk appetite sentiment prevails, gold is bulllish including all precious metals and crude oil the market would buy the aud and sell the eur so you have a short scenario on euraud. When risk aversion sets in the opposite is the case. But remeber the best currency pair to judge risk sentiment/risk aversion setinment is audjpy / cadjpy cause they track the commodity market.
LISTEN TO MR FUNDAMENTAL AND MR TECHNICAL
  • #30
  • Edited Jan 22, 2010 1:21am Jan 21, 2010 6:50pm | Edited Jan 22, 2010 1:21am
Quoting 555
Hello
Razorjack please can you explain the correlation between EURAUD (and GBPAUD) with the risk on / risk off market especially now with these risk aversion conditions because the AU fundamentals are better then any other major economy including EU and UK. what will happen ??
thanks
Hello 555,

I'm not an all knowing guru, I still get things wrong. I just learned a few things about how the global economy is linked together, so when something changes at A, it will have an impact on B, etc.

I also refuse to spoon feed anybody, it's too much work and the other person will basically learn nothing.

Having said that, I can offer you some guidance.

First of all, why are you looking at a currency pair and then doing a fundamental analysis on it?

If you had read about how I analyze the markets, you would see that I do an analysis of the global economy first and that points me to the best trending currencies for the best opportunities.

I can tell you that after doing my analysis, EURAUD and GBPAUD didn't even register on the radar, there are MUCH better opportunities in other currency pairs, such as AUDUSD, NZDUSD and USDCAD.

Ok, now let's take a look at your statement:

because the AU fundamentals are better then any other major economy including EU and UK

Are you sure about this? What do you mean by "better fundamentals"?

Yes, Australia's economy has done much better than other major economies, but it's fragile. You need to look deeper into this.

Why has the Australian economy done so well? This is the real question you need to ask.

The answer is China. China's economic boom created huge demands in commodities that benefited Australia: Coal, copper, etc

Now that China is looking to tighten it's monetary policy, what will that do Australia in the short to medium term?

So basically AUD is heading down.

Then look at the EUR, it's burdened by large deficits in Greece, Portugal, Ireland and Spain. So EUR is also looking weak.

So you have a weak economy against another weak economy, how do you invest? You don't! You look for better opportunities else where.

Actually, let me rephrase this. There are better opportunities in other currency pairs, RIGHT NOW and the immediate future. Remember the analysis I told you to do? What would change the current situation and turn it into an opportunity?

Here is one example: There could be an opportunity in the intermediate term, IF the markets shift over to risk appetite, China's monetary policy encourages economic expansion and the debt threat in the Euro Zone worsens. Then we can see the AUD take off against EUR.

This is just one scenario, there could be many others.

So using what I gave you, Why don't you do the analysis for GBPAUD and describe it for us?
-Razorjack
  • #31
  • Jan 22, 2010 4:13am Jan 22, 2010 4:13am
hello, it is rare to see such a knowledgeable person - razorjack

fyi, i hv not trade forex before. - still trading the demo acc

let me try to answer to view on gbp/aud :

for GBP, there are many positive econ data this wk.

for AUD, Asia (include China) equity mkts were sold dwn this wk.
there is an increase to risk aversion .
i suspect this may continue for next wk

thus, i think it is better to be long GBP/AUD

i do not know the duration for long posn -maybe for a few weeks

can anyone argue from interest rate perspective?

thank you
  • #32
  • Jan 22, 2010 6:44am Jan 22, 2010 6:44am
Quoting peter lee
hello, it is rare to see such a knowledgeable person - razorjack

fyi, i hv not trade forex before. - still trading the demo acc

let me try to answer to view on...
Welcome Peter,

hello, it is rare to see such a knowledgeable person - razorjack

Not sure about this, there are probably much better analysts than me out there. Just like you, I'm still learning.

fyi, i hv not trade forex before. - still trading the demo acc

No worries, mate! I've also traded demo accounts. Take it seriously and treat the demo trading as if you are trading for an institution, it's not yours but your job and reputation is on the line.

for GBP, there are many positive econ data this wk.

Yes, this is true. But the time frame you're looking at is too small. You need to look at more than a week, you have to look over the past 6 months.

What's happening in the UK, behind the numbers? What is the BoE doing? What is the treasury doing?

for AUD, Asia (include China) equity mkts were sold dwn this wk.
there is an increase to risk aversion .
i suspect this may continue for next wk

Yes, again this is true but it's still too small of a time frame. Look over the past 6 months.

Why were the equity mkts sold down? Why was there risk aversion this week? What makes you think this will continue?

thus, i think it is better to be long GBP/AUD

I think you are drawing hasty conclusions. Do bit more in depth reasearch. See if you can answer the questions above.

can anyone argue from interest rate perspective?

UK: 0.5%
Australia: 3.75%

Interest rates won't help you until you know the overall global economic conditions.

What you don't want to do is just pick a direction in a currency pair, that's not a thorough analysis. Different currencies are going to react differently in different market conditions.

So what you want is a list of scenarios, each with different economic conditions and how the currencies will react in those situations.

BUT REMEMBER THAT NOW WE ARE PUTTING THE CART BEFORE THE HORSE!

Picking a currency pair and analyzing it doesn't provide you with the best opportunities. Instead you need to look at the current market conditions and that will point you to the best currency pairs with the best opportunities.
-Razorjack
  • #33
  • Jan 23, 2010 1:34am Jan 23, 2010 1:34am
An excellent thread..I for sure will be following and also adding based on whatever little I learn about doing fundamental analysis of the economies...Thanks a lot for this great thread...
  • #34
  • Edited 7:36am Jan 24, 2010 6:20am | Edited 7:36am
Quoting 555
Hello
Razorjack please can you explain the correlation between EURAUD (and GBPAUD) with the risk on / risk off market especially now with these risk aversion conditions because the AU fundamentals are better then any other major economy including EU and UK. what will happen ??
thanks
C'mon guys, isn't there anyone else who want to take a crack at this one?

You skills won't develop until you learn to put yourself out there.
-Razorjack
  • #35
  • Edited 7:44am Jan 24, 2010 7:24am | Edited 7:44am
Hi guys,

I'm sure everybody on this forum knows who George Soros is, but does anybody really understand how he trades?

BTW, in case you've been in a coma for the last 2 decades and don't know about George Soros, I suggest you do some research.

George Soros has a very complex way of looking at the economy, however you can break it down into one simple method.

Here is the idea, first determine what kind of state economy is in and then likely scenarios that may occur in the near future. From this, you can determine how the markets "should react" in each of these likely scenarios.

The reasons why I say "should", is that markets don't always react rationally.

And this is exactly what George Soros looks for. He will look for irrationalities in the markets, exploit it and then wait for the economical forces to move the markets back into the "correct" direction.

One example of this was the great IT bubble that burst in 2000-2001. There was so much euphoria around tech stocks and options, there was a feeling of no end to the uptrend in sight. However the shrewd trader would have realized that tech stocks for companies showing no profits at all were being pushed up to record levels and eventually it will be time to pay the piper.

So in this particular case, George Soros would have ridden the trend upward along with everyone else, but the whole time being aware and prepared for the recoil. So not only did he make money in the uptrend, but he made a killing in the crash that came afterwards.

Here's an example of how I use this knowledge in my trading.

In the beginning of Oct '09, we saw major weakness in the USD and at the same time alot of strength in AUD. Commodities were in a strong uptrend, with China leading the world in economic expansion. The market consensus was that the RBA would raise interest rates in November or December '09. Two days before the RBA rate announcement, the department of labor was releasing NFP numbers. The market consensus for NFP was at -179k.

AUDUSD was hanging just underneath the long term trend line that started in March '09, so I knew there was a good opportunity depending on what the NFP numbers were and if the RBA decided on an interest rate hike.

So what happens? NFP numbers were at -263k, much worse than expected and AUDUSD shoots down over a 100 pips in a matter of minutes! I knew that this was an "irrational" reaction. I assume that this was a tactic by large institutions initiating hedge programs and/or creating a market to unload shorts and / or to load up on longs.

So what did I do? I went to town! While AUDUSD was dropping like a rock, I put on as many long orders as I could get in! Then 25-30 minutes later the AUDUSD stalls on the down swing and I'm still loading on more orders, then starts to slowly head upwards.

AUDUSD then takes off more than 200 pips upwards picking up all my orders along the way. I had planned to hang on to my orders over the weekend, anticipating RBA rate hikes.

I had already made a substantial profit from NFP, but I knew that there was still another opportunity coming. Basically I had nothing to lose and everything to gain. There was very little chance of the RBA lowering rates. If the RBA left rates alone then it's what the market was expecting, no negative reaction. But if the RBA did raise rates then AUDUSD would make a substantial move upwards.

So on the big day, 30 min before the RBA rate announcement, my orders from the week before are already in profit and I put on more long orders above the price, leveraging my open profits, in case the news was good.

So what happens? There is a rate hike of 25 basis points! The market picks up my orders and I wait. The best part? I'm in with my orders 4 hours before the London session and 10 hours before the New York session!

This is what I mean by getting in at the beginning of a new swing slightly "ahead" of the market.

Anyways, AUDUSD continued in an upward trend for another 8 weeks. Even though I left quite a bit on the table, I still managed to make more on this trade alone that most make over several years.

Comments, questions and feedback please!
-Razorjack
  • #36
  • Jan 24, 2010 8:32am Jan 24, 2010 8:32am
i am still far away from you ...
can i assume that you have deep pockets?

can you comment on this:

for coming monday,

probably, asian equity will go dwn and eur/usd will go dwn too
in far east time

probably, GfK German Consumer Climate
forecasted 3.2previous 3.3
and DAX decline
will force the eur/usd dwn too.

after which,
the Existing Home Sales
forecasted 5.98Mprevious 6.54M
will give support to mkt till it released

after which , eur/usd will go in opposite direction to what happen to
the 2nd half LDN session

is the above correct?

by the way, do you use intermarket analysis in your trading?

gd night
  • #37
  • Edited 1:12pm Jan 24, 2010 12:57pm | Edited 1:12pm
Quoting peter lee
i am still far away from you ...
can i assume that you have deep pockets?

can you comment on this:

for coming monday,

probably, asian equity will go dwn and eur/usd will go dwn too
in far east time

probably, GfK German Consumer Climate
forecasted 3.2previous 3.3
and DAX decline
will force the eur/usd dwn too.

after which,
the Existing Home Sales
forecasted 5.98Mprevious 6.54M
will give support to mkt till it released

after which , eur/usd will go in opposite direction to what happen to
the...
Hi Peter,

You're definitely making progress, however you're trying to make predictions.

A proper analysis doesn't make predictions, a proper analysis makes anticipations. There's a difference.

You missed several important parts from my previous reply:

1. First I told you, that you need to look at a longer period at least 6 months. If you look at only the previous week, then you will get a very limited picture.

2. What you want is a list of scenarios, each with different economic conditions and how the currencies will react in those situations. You only listed one outcome from one scenario.

Let me see if I can give you an example, instead of looking at a specific pair, look at the overall economy and what it is telling you. What are the biggest events happening right now?

The biggest event is the credit tightening happening in China. Then you need to an analysis based on how the tightening of credit will effect the different economies.

Which countries will be impacted by this?

This is where you need to understand the kind of economy China has and how it is linked in to the global economy. I'll give you a couple of hints, but you need to do your own research on this to get a full understanding.

China is in the midst of a credit fueled boom since early 2009 and has been a major consumer of commodities. Tightening of credit may have an impact on the demand in commodities and thus currency pairs like AUD, NZD and CAD.

Instead of looking at the economic data this week, you need look at the big picture. The big picture tells us that this event in China will either cause risk aversion or risk appetite. We've seen risk appetite through out most of 2009, with China's booming economy clearly a driver of risk appetite.

So there's a good chance that this will cause continued risk aversion until it is clear to investors that credit tightening will not have a major impact on economic growth.

Note that I am not predicting this will happen, I am anticipating both risk appetite and risk aversion, I will be ready to trade both ways. However I believe that risk aversion is the more likely scenario.

What you need now is some more research on how money flows in times of risk aversion and in times of risk appetite.

Here's a little clue: The last time we had risk aversion was around Nov 25-27 '09 during the Dubai debt crisis, take a look at your charts to see how the different markets reacted. Then ask yourself why the different currencies reacted the way they did.

We had risk appetite through the majority of the time between March and Nov '09. Look at how the currencies reacted and research why.

Now based on what I wrote, why don't you reply with what will happen to EURUSD if we have risk aversion and what will happen if we have risk appetite.

China's development and progress has been pulling the rest of the world out of the financial crisis and China will therefore exert a great influence over the next few years. Anticipating what will happen with China and it's economy will go you a major advantage in trading.

This seems like a lot of complicated work, but necessary as the different economies will be impacted differently in different market conditions. For example economies have reacted the way the have after the financial crisis due to the global conditions, once these conditions change so will the impact on different economies.
-Razorjack
  • #38
  • Jan 25, 2010 12:36am Jan 25, 2010 12:36am
Quoting Razorjack
Hello everyone,

I am new to posting to this forum so maybe a quick introduction is in order.

I started my Forex adventures several years ago and it was a lot of blood, sweat and tears. I've read hundreds of books and if there is a system out there, I probably traded it.

I started with trading short time frames using technical analysis, then moved to longer and longer time frames but still using only technical analysis. I traded demo accounts for over a year until I started making some profit, however before I was completely ready I moved to...

Hello Razork,

I am trying to digest your posts, so now starting from post one again. It is very clear, but I need to do some homework to get the bigger picture of what you posted.

Thanks again.
-happyTrading-myFx.
  • #39
  • Jan 25, 2010 1:18am Jan 25, 2010 1:18am
Quoting myfx
Hello Razork,

I am trying to digest your posts, so now starting from post one again. It is very clear, but I need to do some homework to get the bigger picture of what you posted.

Thanks again.
Hi myfx,

Whenever you learn something new, there is always a learning curve. It took me awhile to first understand technical analysis, then to understand fundamental analysis and then to understand how to combine the 2 to trade. Not to mention the hardest part about controlling your emotions.

Hang in there and ask questions, I'll do my best to answer them. I can promise you that once you get a good understanding of the fundamentals and you combine it with technical analysis, then you will move towards becoming a complete trader.

Right now, I have my own system of using technicals to enter trades, but the fundamentals guide me, so I know how long to hang on to open trades and which way the markets can shift in the future.

And the best part, you'll be able to know when all the odds are in your favor and when they're not. So you can adjust your risk size and really go for it when everything lines up.
-Razorjack
  • #40
  • Jan 25, 2010 2:18am Jan 25, 2010 2:18am
Quoting Razorjack
Hi myfx,

Whenever you learn something new, there is always a learning curve. It took me awhile to first understand technical analysis, then to understand fundamental analysis and then to understand how to combine the 2 to trade. Not to mention the hardest part about controlling your emotions.

Hang in there and ask questions, I'll do my best to answer them. I can promise you that once you get a good understanding of the fundamentals and you combine it with technical analysis, then you will move towards becoming a complete trader.

Right now,...

Thank you Razor, you are absolutely right it will take some time to learn and understand but I prefer to invest in that than blindly enter into market. I been trading live for the past 10 months with a small capital. To be honest, i lost some money, but I learn lot from those losses. Recently i started to use only S/R levels and Fib in my trading. Since then I can see some progress.

I am sure that by learning fundamentals, and combining both technicals and fundamentals I will be to come up with success.

Thanks again.
-happyTrading-myFx.
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