qFish

9/9/2013 UChf 31 Trades +535.37 Pips (15.7pips/trade at $0.11/pip)

Update: MT4 shows correct calculation of trade: +521.1 Pips

9/12/2013 UJ 46 Trades +1107.5 Pips

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hi what is your analsysis on aud?

My bias for AU would be slightly Bullish. Strong support below. H4 dragon is starting to turn up with nice 1-2-3 PA. Price broke the H4 89 ema and retraced back with the previous candle. I'd wait another day or two to confirm the rally, in which case I would start building Long.


Now lets look at the daily. What a nice place to be. We are at a significant support level (tested and held 3 times). This could be a great setup for long-term Long building with the trend with a small hard SL possibly set around SR 8800. If price breaks support and go lower, the down trend could continue with lots of strength. That's why a hard SL would be desired. I consider this a high probability LONG trade on the daily.


What do you think?

-qFish

what about volume? what do you see from the volume?

For Volume, check M1 for analysis: I see a collection of Shorts at the 9000 Resistance with a recent collection of Longs at the 8950 Support. You'll find a lot of these conflicting signals. And most probably b/c you have hit a major SR level on the Daily. You now have MMs on both sides fighting to send the PA in both directions. Best thing to do if you want to trade volume is wait to determine the real move up or down. Reading volume requires the general knowledge of the current trend. Of course we are in a down trend on the daily, which means the MMs should be collecting Longs as prices move lower. However, the trend may change at this point so you really don't know if we will have a reversal. I'd say give it 1-2 weeks before we get any good confirms.

thanks. why do you say 1 -2 weeks? what are you looking at to confirm if trend continue or change?

I'm looking for 5-10 daily candles for trend confirmation on the daily. Trend change can come from many things, 1-2-3 PA patterns, break of the dragon and 89 ema, also 200 ema is a good consideration. Significant SR also increases probability of trend change.

is this the start of a sell down?

That is one question that I, personally, can never tell you or answer myself. My trading philosophy is that everything you decide is speculative. Price goes where the market leads it. The only thing you can do is have your strategy, rules, and stick to them. The statistics should work themselves out. I can't really teach you how to trade. You just have to try it and build on what is comfortable and makes sense to you. If you want to learn from me, then just look at my charts. They should speak for themselves how I trade. So go make that trade and don't be afraid to Lose. You'll learn from it. If you wanna feel safe, do demo. When you are confident, go live.

I decided to try building position using a hedge strategy of two closely knit pairs. The idea is to hedge using pairs that have high correlation (positive or negative it does not matter) on H1, H4, Daily, and Weekly time frames. For this example, I used EU and UC. Note that in addition to slightly different pip cost, their volatility is also different. Thus, for this strategy to work best, you must analyze the volatility based on at least recent legs. The ratio of volatility will give you an idea of position sizes that needs to be open for both pairs at the same time to give the best hedge possible (near zero gain), which will allow minimal drawdowns during large moves. As price goes your way in any pair, a position of the correct ratio is placed on both pairs to increase profits on the winning pair and average a better price on the losing pair. This trade lasted about 12 hours, but I ended prematurely as I begin to realize the same faults that plague non-hedge trades. As time passes, you will either be slightly positive or negative on the net, which is desired per the hedge strategy. Once you reach a location that you believe to be a good candidate for reversal, you will close all trades on the winning pair. At this point, you will have a maximum drawdown that can continue to accumulate losses, or reverse in trend (ideal). The other downside to this strategy is that you are guaranteed a losing position which takes up half of your trading margin. In addition, as the trade progresses, it becomes harder to keep the ratio between positions at the right amount to keep a zero hedge. In conclusion, the hedge is possible, although not perfect. You got to also check the hourly to make sure the pairs are still in good correlation. There will be times when they go out of sync, but they will mostly likely return due to higher time frame correllation.

So here is the completed trades that I ended up closing in slight profit after 12 hours:

EU: -9.7 x 5 x = -48.5 pips


UC: +12.3 x 6 = 73.8 pips


net: +25.3 pips.
The target position ratio was 5xEU to 8xUC based on volitility of recent leg.

So this made me think that the best way to use this hedge strategy is to trade a single pair until you reach a point (max drawdown allowed) before opening up the correlated pair with the proper size to wait for the confirmation of trend reversal. You just need to make sure you have enough margin for the hedge. This is the normal use of hedge to essentially "pause" your trade to wait for the right price action to continue.

EU and UC Closed:

UJ Closed: 23 Scouts x -70.7pips = -1626 pips


UJ Closed: 48 Scouts x 47.5pips = +2280 pips


Total net: +655 pips


Take Home Points:

1. Big news bring big moves. Avoiding these trading times may be more profitable by avoiding losses.

UJ: Closed for +660 pips

Closed 3 pairs for total of +165.6 Pips: