FX Analysis: The IPA Trade Methodology

I am not following this quote: Actually wave "c" of "1" (ED) is unfolding.

However, regarding your first part, the move off the March 6th lows cannot be an ending diagonal as the sub-waves are unfolding 5 not 3 and there is no overlap between the waves. Additionally the overall structure is not taking on a wedge shape with converging trend-lines.

The IPA Methodology applied to AUD/JPY

http://www.aspentrading.com/uploaded...AUDJPY_IPA.png

S&P's hanging tough at 1394:

http://www.aspentrading.com/uploaded....12sp60min.png

A hold here makes shorts in AUD/JPY, as noted in previous posting, not an option. We are evaluating AUD/JPY short entries but are becoming a bit unsure if they make sense with S&P's holding tough.

S&P bulls pull one out of the hat - solid close higher off the 1394 support level.

Trading Implication? Shorts in USD/NOK, EUR/GBP and possibly even a long in AUD/USD.

For clients/thread followers who cherish more short-term trading action....

http://www.aspentrading.com/uploaded...12aud15min.png

http://www.aspentrading.com/uploaded...urgbp10min.png

http://www.aspentrading.com/uploaded...12gbp15min.png

I thought this retort to the complaints about high gas prices was pretty insightful:

"The last time gasoline was $4, natural gas was $3.50, not $2.10. Net-net, I am probably saving more on my home heating/air conditioning bill from lower natural gas prices than I am losing income to the gas pump."*

Source: TIS

Good morning traders. As Todd noted in the previous posting...

http://www.aspentrading.com/uploaded...DJPY_30min.png

...AUD/JPY still has a bit further to go to the upside - and that it what I want to focus on for today's 'Preview'. One of the things that Todd and I made a conscious decision on heading into 2012 was always being aware of the overall trend in the markets we are trading/monitoring. While we have never been ones to fight the trend there were times in the past where we might try to take the analysis to a point where we were trying to get in front of the market rather than trading in synch with the market. The result has been a marked improvement of win/loss ratio and an upward sloping P&L curve absent sharp draw-downs.

Looking at yesterday's AUD/JPY trade, even without the benefit of hindsight, we can see some areas that perhaps were not fully worked out in the pre-trade analysis. Let's explore them here as a way to avoid a similar mistake going forward.

1. You always want your lead market and/or related asset class to be one of the primary drivers so that you get the wind at your back. In the case of shorts in AUD/JPY we will want to see weakness in equities - i.e. S&P 500. While there has been weakness in the last few days in the S&P's, the overlay chart (see below) shows that the S&P's are lagging AUD/JPY.

http://www.aspentrading.com/uploaded...AUDJPY_IPA.png

2. That is certainly OK because if the S&P's do break lower we know that AUD/JPY would sell-off sharply. In this instance however the S&P's were tackling a key support level at 1394

http://www.aspentrading.com/uploaded...3.29.12spx.png

3. At the time we contemplated initiating the short in AUD/JPY prices were testing that 1394 level but not getting a meaningful bounce higher from it - a characteristic you want to see to have confidence that level will hold - hence our decision to get short BUT keep a close eye on subsequent price action - which we did.

4. What we did do quite well last week was identify two very robust resistance levels in the S&P's at 1416/26 and 1442/50. If you want to fade a trend you have to do it at levels that are very uncomfortable not wait for the market to react lower (in this case) and then sell into the correction higher. Getting short AUD/JPY into those levels, while a bit unsettling would haveproced to be the lower risk entry.

5. There are 2 other pieces which were not completely factored in and frankly they are tricky regardless as it is impossible to predict the impact of both month and quarter-end flows as well as any impact due to the end of the Japanese fiscal year.

As traders we can never expect perfection on every trade, but what we can demand of ourselves is a rigorous pre-trade checklist that should be completed before execution. So, did AUD/JPY not meet the minimum criteria? That is open to discussion as there were some points that in retrospect did not completely line-up as noted above.

So, moving on and looking ahead to April, it seems clear that the S&P's will want to explore the upper resistance level at 1442/50 and thus we should start looking to position accordingly. Pairs and crosses that are lining up nicely with this general outlook ar shorts in both USD/NOK and EUR/GBP. Stay tuned - we are just getting going here. -DF-

Just a couple of charts worth noting:

http://www.aspentrading.com/uploaded...urgbp4hour.png

http://www.aspentrading.com/uploaded....12aud15TI.png

A step-by-step approach to using our IPA Trading Pyramid for trade selection - in this example we apply it to USD/NOK:

http://www.aspentrading.com/freeresearch/?id=2692

This piece from CitiFX is well worth a read and may account for some of the rebound in stocks into the close:

"After a full read of FOMC minutes, our USD trader could not find the main Bloomberg headline which caused the market’s reaction *FOMC SAW NO NEED TO EASE ANEW UNLESS GROWTH SLOWS, MINUTES SHOW. The headline seems to represent Bloomberg’s take on the minutes, rather than specific words from the Fed.

It is also worth noting that Reuters ran no such headline. Their main one was A "COUPLE" OF MEMBERS SAW NEED FOR ADDITIONAL STIMULUS IF ECONOMY LOSES MOMENTUM, FEWER THAN AT JANUARY MEETING."

Big headline on MarketWatch today saying "Best Q1 for S&P since 1998".

Hmmm - I went back and saw that the S&P closed 1998 just a bit under 1200.

So, in fact the market is up around a bit less than 20% in 14 years!!! And, in fact, then most of that gain just happaned in this last quarter!!

Headline could have read "S&P makes all its gains for last 14 years in last Quarter"!!

Want to know what to make of the current FX market? Here is today's conference call we did with clients today (every Wednesday) -

http://www.screencast.com/t/3ClMmE5PbK

Dave,


i still can`t follow your count of wave „v“ of the S&P index you have shown in post#87. All intraday patterns are corrective:


http://imageshack.us/photo/my-images/850/ewspx544.gif/


You should consider too that wave “v” will last until end of april / begin of may based on the cycle considerations.


Sixer

Traders, every once in a while I come across some chart analysis - or in this case - data mining, that just resonates with me as well as the dominant wave count we are tracking at the time. CitiFX just put out a great piece that examined previous trading ranges since 2003 in EUR/USD and the subsequent implication. I have re-created the data findings in the chart below. Can somebody say longer-term shorts in EUR/USD?

http://www.aspentrading.com/uploaded...RANGEBREAK.png

Drilling down a bit from the earlier USD/NOK chart I posted...

http://www.aspentrading.com/uploaded...12nok60min.png

...USD/NOK, from a short-term traders perspective may offer some short opportunities for clients comfortable doing some hit and run trading.

http://www.aspentrading.com/uploaded...12nok30min.png

Looks like I need to provide an update on USD/NOK - got the short-term count noted below a bit wrong last night.

From our service:

"....the short-term count I posted here yesterday was invalidated overnight with the move above 5.7931. It is entirely possible though that the bearish count remains intact by making this small adjustment to the count (see below). Either way, price action in here is generally pretty lame."

New Count:

http://www.aspentrading.com/uploaded...12nok15min.png

A solid overview of recent price action - change is in the air - never ignore inter-market relationships for turning points!

http://www.aspentrading.com/uploaded...erlay_5min.png

Our current positions - we did book partials ahead of the data this AM but that was mere coincidence - the decisions to book partials and lowering stops to b/e (not seen in image below) were a main function of the charts as well as 'trading' this market. Certainly not a market where you can sit your butt down at the trough.

http://www.aspentrading.com/uploaded.../4.12.12op.png

We are certainly in a traders market traders. While we still like our positions, the S&P's do seem likely to push a bit lower - thus our decision to book partial profits looks pretty wise at this point. We can always add to these postions or establish new ones that are aligned with a 'risk on' environment. This is not a market where you can sit your butt down at the trough - nimble is the operative word presently.

http://www.aspentrading.com/uploaded...15minchart.png

Traders, the cornerstone of our trading is the IPA Trading Methodoloy.

http://www.aspentrading.com/uploaded...ril_12/ipa.png

We firmly believe it is what sets Aspen Trading apart from other traders and analysts and is the tool you need to elevate your trading results.

Below are a series of short videos done by Aspen's own Todd Gordon on the set of CNBC where he co-hosts the Money in Motion show every Friday at 5:30 PM EST. These videos begin to break-down the components of IPA Methodology - we trust you will find them helpful.

Click here to view all the videos (this will take you away from the FF page)