Low Risk, High Reward Trading Experiment

Someone who is not looking for a low risk / high reward trade could probably earn some pips by shorting any of USD/CHF, USD/JPY and USD/CAD right now, with the prices at 1.2205, 112.57 and 110.15 respectively.

This is the probable top of a corrective wave.

There is considerable downside potential from here.

This is just an opinion. Check the facts for yourself employing your own sytem of analysis.

Wait for a while and short Usd/Jpy at 112.80 ,Usd/Chf at 1.2240, and Usd/cad 1.1025 otherwise you may face whipsaw.

Thursday 6/1/2006 12:30 ET

The retracements were small on all currencies on this wave 4 corrective cycle. The three currencies mentioned above have all formed tight wedges, and are just about to break out downwards. Everything points to a good, strong trend that should carry us to our targets.

Is there any summarize about last results?

Thursday June 1 15:40 ET

The turning point has now just been reached, and the morning's trend should be resuming itself after this short respite.

We expect another retracement to occur before a large move in the direction of the trend,

USD/CHF will descend to about 1.2190 - 95 and then bounce up again.

GBP/USD will likely rise to about 1.8670 - 80 and then descend quite strongly, to about 1.8610 - 30 before resuming its upwards trend.

USD/JPY is very bearish. It will bounce a bit at about 112.27 or so.

USD/CAD is also very bearish. It will likely bounce a little (or alot - it is, after all - the USD/CAD, and thus quite volatile) at about 1.1015 or so.

We suggest for the more active traders to exit their positions and climb in at a much better price later on in the wee hours of the morning.

Be careful of the non-farm payroll swings tomorrow morning at 8:30 ET.

Here is a previous comment on this topic:

http://www.forexfactory.com/forexfor...ance#post61175

Friday 6/2/2006 3:30 ET

The top of the correction of USD/JPY, USD/CHF and USD/CAD has been reached a few minutes ago.

We suggest that anyone who exited their short trades at the bottom of the earlier downwards movement re-enter and enjoy the continuation of the trend.

Choose your entry points wisely, preferably at the top of a minor upswing.

For research and experimental purposes only.

Friday 6/2/2006 3:30 ET

The bottom of the downwards correction of GBP/USD and EUR/USD has been reached a few minutes ago.

We suggest that anyone who exited their long trades at the top of the earlier upwards movement re-enter and enjoy the continuation of the upwards trend.


Choose your entry points wisely, preferably at the bottom of a minor dip.

For research and experimental purposes only.

At 21:00 ET on June 1 we stated: "Another retracement expected before a large move in the direction of the trend". Assuming that the corrective wave is over, here is a summary table of the predictions vs the actuals.

............................Predicted Value ........................Actual Value (s)

USD/CHF................. 1.2190 - 95............................. 1.2186

GBP/USD.............. 1.8670 - 80 / 1.8610 - 30 ............1.8673 / 1.8608

USD/JPY .................112.27 ......................................112.40

USD/CAD ...............1.1015.......................................... 1.1020

Earlier post:

We expect another retracement to occur before a large move in the direction of the trend,

USD/CHF will descend to about 1.2190 - 95 and then bounce up again.

GBP/USD will likely rise to about 1.8670 - 80 and then descend quite strongly, to about 1.8610 - 30 before resuming its upwards trend.

USD/JPY is very bearish. It will bounce a bit at about 112.27 or so.

USD/CAD is also very bearish. It will likely bounce a little (or alot - it is, after all - the USD/CAD, and thus quite volatile) at about 1.1015 or so.

We suggest for the more active traders to exit their positions and climb in at a much better price later on in the wee hours of the morning.

Be careful of the non-farm payroll swings tomorrow morning at 8:30 ET.

I am not sure whether the problem is me or the market, but this week I have been having difficulty feelilng comfortable with my evaluation of what has been going on.

I know that we are all wrong some of the time and, hopefully, right some of the time, but this week I seem to have been wrong more than my usual amount. My usual 70% right and 30% wrong has become 30% right and 70% wrong. Bad, bad, bad.

Having admitted this, my question to you Itme, is whether you would hold positions during non-farm payroll or close positions in advance. I admit that at this point in time I do not trust my own judgment. In the past I have sometimes held positions during non-farm and sometimes not. It worked out well all but one time. This week, I am ready to ask for someone else's opinion. Thanks.

Dear Moonchild,

It is good that you are self-evaluating. That is an essential part of successful trading.

Regarding today's trading strategy, we are currently shorting the USD/CHF and USD/JPY, which we are very comfortable with. The configuration is very clear and very favorable as far as we are concerned, and we anticipate major progress over the next 48 hours in the downwards direction.

When the data is released at 8:30 ET, it will either be as predicted, or deviant from the expected figure. If it is as predicted, it will have no impact. If it is deviant, then it will either favor our trade, or be adverse to our trade. If it favors our trade, then it will accelerate and amplify movement in the direction of our trade. If it is adverse to our trade, then it will cause a spike type motion against our trade. If our stop is far away, we can survive this spike, even though it may be as much as 100 pips in size. After the spike reaction, the market will return to the original pattern, which is a strong downwards trend in our opinion.

Our prefered strategy is to bring the stop up to a fairly close point immediately before the news release, so that if the news is favorable we can enjoy the benefit. If the news is adverse, then we will be automatically stopped out with a small loss, and then re-enter at the top of the retracement spike.

I hope that this is useful. We have employed this strategy successfully in the past.

If you are more adventurous, then you will evaluate the data as soon as possible, and then enter the market immediately in the direction indicated. You will need a very fast source of news, and a broker that will allow a trade to be entered at a time of very high volumes. So you may not be able to get in fast enough, or even to exit when you need to .

Itme, thank you for the input. It is really appreciated.

You are correct about the warning about brokers, since I know that mine is a problem, although that will no longer be such a big problem after this week. I am very thankfully funding an account at a different broker tomorrow. Sigh!!

I am currently holding a long position on cable which is doing very well and which I will close before 8:30ET and a short of USD/JPY which seems to be going nowhere at present, I will put a close stop on that one.

I had been expecting all of the yen pairs to drop since they tend to move together, more or less. However, the GBP/JPY short I had been holding was stopped out when it rose rather convincingly. Since GBP/JPY and EUR/JPY both rose while USD/JPY stalled rather than dropping in response to dollar weakness, I was wondering if there was some other factour affecting the yen that I had not taken into account. I would imagine not since all 3 pairs seem to have all of a sudden turned downward.

In any case, thank you for the help. It is really needed when as far off the mark as I have been this week.

Why on earth would you want to close your cable now? If you are in profit, move the stop tighter and if the NFP comes out weak, you will get the entire move from the beginning. If it moves against you, you lose a little or none. You don't get better risk reward setups than that. Good luck!

The one pair I do not like to hold through non-farm payroll is cable because it is so prone to a whipsaw effect. Even if it is going to go in the direction I am going, it will usually take out my stop first. As a result that is the one pair which I will close just before and try to get back in as soon after as I am able. I am at about 50 pips profit at the moment.

If it were any other pair, that would be different since none of the others is quite so prone to wide whipsaw effects. I have learned through experience that this is the safer. If I felt extremely confident about the outcome, I would hold cable without a stop, or with a very distant stop, but there is no way that I am about to do that. In many ways, I have found that I have to use somewhat different rules for trading that pair than I use for the others. My experience tells me that if I put a tight stop it will certainly be hit (it has been suggested to me that that happens much more often with the broker I am using than with others). Given that virtual certainty, my course of action is the most sensible and will result in the smallest loss of pips. Hopefully with my new broker such an action will no longer be necessary. I plan to watch the price action at the new broker very carefully during non-farm so that I know what I can do next month. This month, I will try to demo-trade with the new broker.

Friday 6/2/2006 1:00 ET

The non-farm payroll data gave our short trades of USD/CHF and USD/JPY a big push. Our strategy described above worked perfectly. Our account increased a very large step. We are holding until we reach the prescribed targets.

nb. - just out of interest, our model suggests that AUD/USD could move strongly upwards over the next few days. Let's watch it and see.

I decided to patiently hold onto my long pre-NFP positions in eur/usd and gbp/usd and both exploded upwards after the release of the very low 75k increase in jobs. No matter a potential whipsaw risk, you still don't get a better reward for a relatively small risk. 200 pips on cable alone. But yes, you plsyed it safely and I do hope you got in early enough to catch some of the move up.

Hi Moonchild,
I agree with you. This week was pretty hard to understand the trend, because in my opinion there was no real trend, just swing.

Fortunately i got more then 130 pips in gbp/usd on the payroll news today, otherwise this week would have been without profits

Hello ITME,

I came across your thread by accident and i amazed by your analysis of the market . A note to let you know i appreciate your wonderful trading signal.
Your in-depth analysis and your precision of prediction are marvelous.
Thanks again for your work . I assum all newbies like me will learn a great deal from your thread . Good work ITME , we are rooting for you

Hitting Stops often can make for nervous novices and even seasick seasoned swingers so polish on. The risk reward aspect is worth consistant reflection however rare losses and almost constant gains even if gains are small are easier for most to stomach I suspect. Clearly a system must both work mathematically and also fit the mindsets of those using it for widespread success and confidence agreed?

There is risk going through a green traffice light however risk of getting hit by another vehicle is small... now that's a system one can have a high degree of trust in. How many green lights would you go through if you expected a high chance of having a "fender bender" on each occasion? Maybe not the ultimate analogy however it does illustrate the point. Low risk and high rewards... May it be so. Isn't that what all traders are working on, or in many cases still searching for? Yes, high rewards with few trades is better. That's less time consuming than lots of trades using a safe system. And having quality time is perhaps the most important life commodity...

Here's for a polished system that requires really small stops and enables stops to be effectively placed at zero...

Cheers