The Dollar Cost Averaging Pivot Point Trading Method

Waiting for the bounce referenced here, which would be splendid for my EUR/NZD and GBP/NZD short positions:



Full article: http://www.efxnews.com/story/25805/i...usd-audjpy-seb

So much for my prognostication skills (which betted on the EUR/JPY short closing first) ... . The GBP/CAD short hit its TP:



This leaves me with my EUR/JPY short at 136.934/TP 136.834, my GBP/NZD short at 1.98202/TP 1.98102, and my EUR/NZD short at 1.57359/TP 1.57249.

The EUR/JPY has approached the 137.00 level several times, but appears hesitant to pierce that level and hit my TP. It could be that, going forward, it falls into a range here between 138 and 137 ... .

At this point in the day, I pretty much know what I'm going to do with my Daily Fib Retracement Pivot Points at the end of the day. This is because my current total exposure is greater than I would like it (usable margin is currently at 80.15%/exposure is at 11.7 x equity, which is a little over of where I want to be), so I want to focus on closing out what I've got to get the max exposure under 10 x equity (60k lots total for all positions).

With the EUR/NZD and GBP/NZD short positions, I am comfortable with waiting to add to those for substantial periods of time. The positive swap is so good that I can probably just hold those without addition to see if they hit their TP's unassisted or present better selling opportunities to add to those positions if the Kiwi does not settle on a bottom somewhere near its current level.

The EUR/JPY position seems poised to move lower below the psychological 1.37 level, but appears hesitant to do so. While it enjoys a modestly positive swap, it is not enough to make me regret when the position hits its TP. Out of all three positions, I would prefer to close out the EUR/JPY position first, and that is what I'll concentrate on in the short term, leaving the NZD longs to sort themselves out unassisted.

Currently, I have an open entry order to sell EUR/JPY should price strike the today's .764 at 137.527. Should that expire unfilled by the end of the New York close, I'll fashion a new entry order to add to the position should price strike the new .764 formed after the New York close.

Hi ZebraSquirl,

I like the thinking "no panic! urgent to do nothing and be patient", even more when you explain that the swap is nicely on your side, especially with the 2 Nzd positions.

Just one thing I do not catch so far:
How come you are 11.7x equity with just 3 positions (3 pairs)?

I guess it is because you have already taken actions and averaged the entry price 2 or 3 times depending of the position.
Am I right, or I am missing something?

I do appologise if it is explained already in on of your posts and I have somehow missed it :oSS

Thanks again for your thread, it actually helps me a lot and makes myself think.

Cheers,
J-F

Exactly right ... . With EUR/JPY, for example, I've taken five positions or so over the last week for a total of 30k in the net position.

With EUR/NZD, I've taken four 6k positions and one 2k position for a total of 24k and with GBP/NZD, I've taken a total of two 6K positions and one 2k position for a total of 14k. (I decided to take the 2 2k positions at the top of each of these pairs' trajectories just as a measured risk type of position to take advantage of the price extreme ... .). This is for a total of 70k.

My current equity is about 6K, so 70K/6k = 11.7 x equity.

The EUR/JPY short position is the cleanest example of my trading strategy (all legs of the net position are the same size -- 6K or 1 x equity). As I've made various tweaks to my way of doing things, I've been playing with lot size to see (1) how many pairs I can have open at one time; and (2) the maximum exposure I experience as that trade cycles through to net profit for the position given a particular lot size for the legs of that position.

It's kind of looking like the largest lot size I want to go per leg is 1 x equity with four pairs open max.

But during this 1 x equity per leg trade cycle, I kind of wanted to push the limits of my max exposure rule and test my comfortability with intratrade drawdown to see whether I could go higher than 10 x equity exposure and still not have a heart attack. I think my approach going forward will be to stick with 1 x equity per leg, but to discontinue opening trades in new pairs until I have closed out problematic net positions, which I call "dogs."

For example, I initially tagged the EUR/JPY short as a "dog" when the pair moved somewhat substantially against my position (nearly to 138 from 137). Late last week, I had actually closed out all the other pairs' trades in net profit, leaving the EUR/JPY as sole remaining open position(s). At that point, recognizing that it was a "dog," I should have stopped trading in other pairs altogether until I was able to close out that position in net profit. When I've only got room to trade in four pairs, having one "dog" in the bunch is plenty to have on one's hands ... .

In practice, however, this is tough to do. I naturally want to keep trading since I want to try to keep making money somewhere. Yet, by continuing to do that, I open up the possibility that I'll acquire another "dog" in the mix, thus increasing my exposure. "Dogs" generally require greater patience and the addition of more positions in order to get the net position into profitability or the possibility of profitability ... . If I would just stick to this rule, I could probably go larger with each of the leg sizes, but I'll stick with 1 x equity for now ... .

Current Open Positions

EUR/JPY short at 136.934/TP 136.834: Price is currently 18 pips above target price. An entry order is fashioned to short the pair should price strike the .764 Daily Fib Retracement Pivot Point level (137.309). Should that order fill, the TP for the net position will be adjusted to +10 pips for the net position.

GBP/NZD short at 1.98202/TP 1.98102: Price is currently 24 pips above target price. An entry order is fashioned to short the pair should price strike the .764 Daily Fib Retracement Pivot Point level (1.99108). Should that order fill, the TP for the net position will be adjusted to +10 pips for the net position.

EUR/NZD short at 1.57359/TP 1.57259: Price is currently 64 pips above target price. An entry order is fashioned to short the pair should price strike the .764 Daily Fib Retracement Pivot Point level (1.58465). Should that order fill, the TP for the net position will be adjusted to +10 pips for the net position.


Notes

Earlier today, I figured I would focus solely on closing out the EUR/JPY position in net profit. Unfortunately, that pair is appearing to be uniquely stubborn in moving past the 137 handle, at least in the short term. Consequently, I need to focus on exiting all three pairs in net profit in the event that my efforts to close the EUR/JPY position in net profit prove unavailing.

As previously noted, I am fine with carrying EUR/NZD and GBP/NZD shorts for quite an extraordinary length of time due to their positive swaps, but also have concerns with my maximum exposure, which is above where I'd like it to be (still at 11.7 x equity). Closing out any one of these three positions would be put max exposure below 10 x ... .

It is also kind of nice to take a break from looking at opening new positions in other pairs for a bit, especially since we are coming up to the end of the month/the beginning of the next. This can produce some more than usual volatility as traders look to close out trades, lock in profit, etc.

Okay -- I really did not see this coming ... . Both EUR/JPY and GBP/NZD shorts hit their respective TP's:





This leaves one open position -- the EUR/NZD short at 1.57359/TP 1.57259. Price is currently 13 pips away from the net position entry.

Entry orders to add to the EUR/JPY and GBP/NZD short positions are, of course, deleted.

Since price is so close to the TP with respect the EUR/NZD position, I'm deleting that, too.

The remaining open position is 4.16 x equity and usable maintenance margin in now at 93.35% -- back in my comfort zone ... .

... and the icing on the cake ... EUR/NZD short TP hit:



See you at the end of the New York sesh ... .

Multiple Time Frame Analysis

Pair/Relationship to 1H & 6H Period SMA (Consistent Pairs Highlighted)

EUR/USD Below/Below (But How Much Lower Will It Move?)
GBP/USD Below/Below (But May Be Short-Term Range-Bound)
AUD/USD Above/Below
EUR/JPY Below/Below
USD/JPY Above/Above (But How Much Higher Can It Go?)
GBP/JPY Above/Below (But May Be Short-Term Range-Bound)
NZD/USD Below/Below (But Was .8300 the Bottom?)
EUR/AUD (Below/Below)
GBP/AUD (Below/Below)
CAD/JPY (Above/Above) (But How Much Higher Can It Go?)
EUR/CAD (Below/Below) (But How Much Lower Can It Go?)
EUR/NZD (Below/Above) (But May Be Short-Term Range-Bound; Reinstate the Grid Below Down to 1.5500?)

Well, there's a number of pairs that have good consistency between the 1H and 6H time frames. Ordinarily, I would figure that all of these would be good candidates for pivot point plays. There are also a few pairs that may be inconsistent between the two time frames, but are on the verge of presenting interesting set-up's for range plays or longer-term enter and hold plays where positive swap is on your side.

On a more macro level, EUR crosses generally appear to be reaching historic S/R of some kind reaching back into late last year. The question is, "How much lower can the Euro go?" Well, quite a bit. The thing is that you have to reach quite far back into history to figure out how low that might be, and I would say it is all the back to the 7/2012 low of around 1.2100 or, at the very least, to the financial meltdown when EUR/USD came off its high of slightly north of 1.61 in July of 2008 all the way down to 1.24 in October of that year (three months; 3,600 + pips; wow). That being said, traders may hesitate to push it lower amidst the muddled timetable for U.S. interest rate hikes and the ECB's glacial pace of easing (which should have been done a long time ago in the scheme of things). Wait to sell on bounces, I say, ... .

GBP/USD, however, has got a lot of air under it of more recent vintage. It appears to have temporarily taken a respite from its steep dive, but it could naturally dive even lower, and it has plenty of room to do so before meeting stiff resistance, with the next stop on the elevator ride down being the .618 of the line formed between the 7/13 low to the 7/14 high -- around 1.6284 or so. That being said, Cable is not sitting in the same seat as the Euro. The BOE is itchy to normalize; the ECB is on the verge of ... kinda ... sorta ... well, easing (if they ever figure out how to do that). More positive labor data for the U.K., for example, could stop the slide dead in its tracks.

My love affair with EUR/JPY, I think, has somewhat come to an end ... at least for now. The pair is on the verge of this year's low, which has provided some mild resistance. The Yen weakened a bit on a short term basis merely on rumors that the BOJ was considering an additional stimulus package (an idea quickly squashed) causing the pair to bump upward, but it remains to be seen whether it will have the gall to break 136 convincingly or continue to muddle somewhat directionless in the short-term between that level and something north of 137.00.

USD/JPY. Well, what can I say. Too high to wade in now, which is all I would want to do with the pair, and the dips aren't really that deep presently. Moreover, if we do get a short spell of bad U.S. data, we could get a better buying opportunity lower.

With EUR/AUD, GBP/AUD, or EUR/NZD , I think there is still room to short these and hold them for a bit, which I would like to do due to positive swap.

I am going to go make some dinner and be back with my final selections ... .

Current Open Positions

None.

New Positions

Pivot Point

EUR/USD Short Entry Order to Sell at the .764 Daily Fib Retracement Pivot Point; TP the .236.
GBP/USD Short Entry Order to Sell at the .764 Daily Fib Retracement Pivot Point; TP the .236.
EUR/JPY Short Entry Order to Sell at the .764 Daily Fib Retracement Pivot Point; TP the .236.
CAD/JPY Long Entry Order to Buy at the .236 Daily Fib Retracement Pivot Point; TP the .764.
GBP/AUD Short Entry Order to Sell at the .764 Daily Fib Retracement Pivot Point; TP the .236.
EUR/NZD Short Entry Order to Sell at the .764 Daily Fib Retracement Pivot Point; TP the .236.


Directional Grid

EUR/CAD Short Grid (10 pip increments) down to 1.3870.


Notes

I don't expect all of the pivot point entries to execute (I would otherwise have my hands full) and will check in from time to time to make sure that I don't get involved in an uncomfortable number of positions, deleting out any remaining orders to prevent that from occurring.

You might have noticed that I added the "ZigZag" indicator to my charts (the idea was borrowed from Hayseed, who employs the ZigZag in various ways to fashion his entries and exits), and I'm going to start experimenting with these with certain pairs to see how they work out. In particular, I am going to focus on using the ZigZag with pairs that offer good positive swap, as I anticipate holding these positions for longer term plays, such as on shorts for GBP/NZD, EUR/NZD, EUR/AUD, and GBP/AUD, all of which have stellar swap.

I will probably do my same, multi-time frame analysis to figure out which direction I want to take a trade for a given pair or, in the case of the above-referenced pairs that a short is a good play.

The principle of entering at "price extremes" applies with equal force to the ZigZag as to the use of pivot points. You are looking at previous price action (as shown by the ZigZag) to fashion entry orders where price has previously turned. For example, say I was going to use the ZigZag for an NZD/USD long set-up, where I would want to buy on dips:



I can see how the ZigZag might offer some advantages over pivot points, at least over the ones I am currently using, which use Fibonacci calculations based upon the previous day's high and low. Don't get me wrong; the previous day's high and low are important, as are the week's high/low, the month's high/low, etc., it's just that the levels within that high/low may not necessarily hold particular significance (with the probable exception of the pivot point). In all likelihood, traders are looking at obvious support and resistance, some of which may or may not coincide with the particular day's pivot levels. Naturally, everyone would like to know where price has previously actually turned, and the ZigZag will show that.

So, here's an actual set-up I have for a EUR/NZD short play. The entry (shown by the red arrow) is an f-up (always check to make sure you are not entering a market order before you click "OK").

Each of the horizontal levels you see drawn on the chart represents a level where I have fashioned an entry order to go short should price strike that level, as price has shown a tendency to turn at these points in previous history:



In this particular case, I want to attempt to accumulate EUR/NZD at price extremes and then hold it to take advantage of its positive swap, so I will be taking a few small positions in the pair over time (although you can naturally also use ZigZag's to just do a single entry) and then will bail out of the net position when it's to my advantage.

In the case of EUR/NZD, my target is quite ambitious (although you could limit the TP to the 1.57319, an area at which price has previously turned):



Although price bottomed out at 1.54156, my TP is going to be set north of that at 1.5500 for the net position I accumulate (assuming I don't grow impatient and bail out of it earlier).

Fashioning entries based on the ZigZag are proving to have additional advantages over the Pivot Points. If you are using Daily Pivot Points (whether it be Camarilla, Fib Retracement, or the like), you will have to wait for the New York close to fashion your entries, since that is when the new pivot points form.

Fashioning entries based on the turning points or pivots established by the ZigZag can be done without regard to the New York close ... .

Made a little bit on the EUR/USD short pivot point trade, the EUR/CAD grid (which I ultimately deleted out to play with the ZigZag for a bit), and an AUD/NZD short, which was an afterthought after my posting yesterday regarding pivot point trades I was looking at.


Current Open Positions

GBP/USD short at 1.65911/TP 1.65690 (pivot point)
CAD/JPY long at 95.559/TP 95.903 (ZigZag short term)
GBP/NZD short at 1.97849/TP 1.94000 (ZigZag long term/carry)
AUD/NZD short at 1.11531/TP 1.11355 (ZigZag short term)
EUR/NZD short at 1.57369/TP 1.55000 (ZigZag long term/carry)

Usable Maintenance Margin 91.96%


Notes

Obviously being tripled up in NZD long is not ideal. I kind of got carried away with the ZigZag I guess. Fortunately, when I experiment with something new, I generally do it with smaller lots than usual, which leaves me room to play around without getting burned or getting backed into a position that is difficult to get out of. After I scarf down some dinner, I'll be back to look at pairs to see if there's anything else I want to get into. I am not enthusiastic about getting into too much; this will be a long weekend due to the Labor Day holiday on Monday ... .

One thing I have to figure out with the ZigZag (if I'm going to use it in the long term) is what lot sizes to use on what trades.

With the long-term carry trades (like EUR/NZD short), I may want to make the lot sizes smaller; the short term trades, larger. Naturally, I'd prefer just using one lot size and sticking with it regardless of whether it's a short-term or long-term trade, it's just that I anticipate adding to the longer-term carry trades more throughout the history of the trade.

I modified the GBP/NZD and AUD/NZD shorts to take profit at 10 pips for the net position out of concern that I was overly exposed to NZD:





You can see where I entered positions around short positions around the tops of Zig's ... (although I think I goofed up both initial entries as market orders; sleep deprivation is bad for your trading). Holding on to the EUR/NZD as the Kiwi long-term play.

Open Positions

GBP/USD Short at 1.65911/TP 1.65690 (Short-Term ZigZag)
CAD/JPY Long at 95.559/TP 95.903 (Short-Term ZigZag)
EUR/NZD Short at 1.57488/TP 1.56300 (Long-Term Carry ZigZag)


Pending Entry Orders

I have a bunch of GTC entry orders at ZigZag pivots for the following:

EUR/USD short (at four Zig's)
GBP/USD short (at four Zig's)
USD/JPY long (at four Zig's)
EUR/NZD short (at three Zig's)
CAD/JPY long (at one Zig)

Current Usable Maintenance Margin: 94.27%

The GBP/USD and CAD/JPY shorts hit their target prices, leaving me with only the long-term EUR/NZD carry position in place over the weekend. Usable maintenance margin is currently at a more than comfortable 97.25%.

Week's Results:



Month's Results:



I started out the month with a balance of $7099.29, withdrawing $1412.44 mid-month to bring the account down to $6000 even. Even assuming that I had kept the entire 7k plus in the account, I earned a total of $649.46, resulting in an ROI of $649.46/$7099.29 or .0915 (9.15%) with per leg lot sizes that I ran at .5 times equity through the middle of the month, 1 times equity mid-month through the 25th or so, and then with .5 times equity for the few ZigZag trades I finished up this week with.

Although I think a 9.15 % ROI is more than satisfactory for my purposes, that number could be improved modestly upwards if I consistently use lot sizes that are larger than .5 times equity and up to 1 x equity, as I long as I don't go overboard with my maximum exposure, which I think can be achieved through limiting the number of pairs in which I have open trades and keeping the amount of usable maintenance margin at or above 80%. I don't think I've really thoroughly tested my tolerance for an exposure that involves legs of 1x equity (I only did that for a couple weeks, really), and I may continue to attempt to do that as I test entries and exits using ZigZags throughout the month of September.

I want to continue testing out different things until the end of the year before settling on a strategy I like and can be successful at (and by successful, I mean, 5-10% ROI per month), at which time I will devote more substantial capital to this type of trading. I naturally don't want to do that if I am unsuccessful (like I was January through the end of June doing things the "old school" way) or inconsistently successful, and, frankly, eight weeks of success is not enough to go "all in" ... yet.

I would also note that this marks the eighth consecutive profitable week in a row, and the eighth week in a row during which I have been able to close out all positions (initial legs plus entries) in net positive territory for the entire position.

For some reason, this month (in terms of pure pippage gained) was far better than last. In July, I made 81 total trades for 1007.5 pips; this month 204 trades for 2525.5 pips. Without digging into all the trades, my sense is that this month saw a little bit more dramatic movement in certain pairs than last and the directional grid trades I had set up as an experiment took major advantage of that. That being said, those are not particularly consistent results; they are both positive results, but this month's pippage is two times larger than July's, leading me to believe that it will not always be possible to get a 9% + ROI each and every month. I guess time will tell ... . The average pippage for July and August is 1766.5 pips per month ... .

I have one position left over from last week -- a EUR/NZD short that I am thinking will be a long-term hold type of proposition, with the intent being to take advantage of positive swap the pair has to offer, so setting up entry orders to add to that position is the first order of business today. As I mentioned at the end of last week, I am going to continue playing with fashioning entries based upon the ZigZag indicator. Looking at the 15 minute chart, I see a couple of levels that are of interest (indicated by the horizontal lines):



You'll notice that there are two horizontal lines, each of which represent levels at which price has turned previously. The question is, should I place entry orders at both levels, just one, or should I look to enter at an even higher level?

I am going to pass on at least an entry at the lower level (at about 1.57488), and this is why. If you look at price action with respect to this level, price has turned at this level only once, at least on the 15 minute chart.

With respect to the higher level, though, price has either tested this level on multiple occasions or, at least, has shown a tendency to retrace from it, especially if you go out to higher time frames, so I will fashion an entry order to sell the pair if price strikes that particular level before the end of tomorrow's New York close (good for day entry). The entry will be slightly below the peak of that particular Zig.

You can naturally set up other entries at higher peaks if you'd like, but I'm going to limit entries to one per day if I am adding to a position. Additionally, you should be looking at the valleys for potential entries, since previous support could arguably become resistance.

With positions that you are considering for longer-term holds (like I am for this one), you may want to consider taking off pieces from time to time as long as it's profitable to do so in order to ensure that the net position doesn't become unduly large. In this particular case, the first leg of the position (I'm subject to FIFO, so this will be the first one that I will have to close) is in profit (it's not much -- 8.2 pips), but I'm going to close that leg at this time.

The other question you will want to answer is whether you want to change your TP. Currently, the TP for the net EUR/NZD short position is 1.56300. However, in looking at the charts, I see some hesitancy to move past 1.57 and the fact that it hasn't been at 1.563 since mid-July. My short-term trading mindset is to generally smash and grab what I can. Here, however, I'm going to wait to see what the pair does; it's nearly at 1.5700 and is poised to break lower, should the Slow Stochastic be an indication of what's in store.

And now I'll move on to see if there's anything else of interest out there ... .

I am not unduly excited about adding a bunch of positions today due to tomorrow's Labor Day holiday here in the U.S., which is likely to make for fairly slow trading during the New York session, and then potential volatility when New York opens after the holiday. Nevertheless, it can't hurt to do some multiple time frame analysis to see if there is stuff out there that is simply too good to pass up or that will do an adequate of job of gaining a few pips here and there.

This time, I've put the consistent pairs in bold, and pairs that are inconsistent, but nevertheless might be of some interest, as underlined. As previously mentioned, look for longs if the pair is above the 200 period SMA on both time frames; for shorts, if the pair is below on both time frames.


Multiple Time Frame Analysis on 1H and 6H Time Frames

Pair/Price in Relation to 1H and 6H 200 Period SMA

EUR/USD Below/Below
GBP/USD Above, But At or Near/Below (Basically Sideways Since 8/21)
AUD/USD Above/Below, But At or Near (With Arguable Resistance at 6H 200 Period SMA)
EUR/JPY Below/Below (With Arguable Resistance at 6H 200 Period SMA)
GBP/JPY Above/Below, But At or Near (With Arguable Resistance at 6H 200 Period SMA)
NZD/USD Below/Below (But Unattractive as a Short Due to Negative Swap)
EUR/AUD Below/Below
GBP/AUD Below/Below
NZD/JPY Above, But at Or Near/Below
GBP/NZD Above/Above (But Unattractive as a Long Due to Negative Swap)
AUD/NZD Above/Above (Of Interest as a Short Due to the Fact That It May be Topping)
CAD/JPY Above/Above
EUR/CAD Below/Below

EUR/TRY Below/Below (Of Interest as a Short Due to Positive Swap, With Big Spread Being the Drawback During Certain Sessions)
USD/RUB Above/Above (Of Interest for a Short Due to Positive Swap, With Big Spread Being the Drawback During Certain Sessions)

I'll fashion whatever entries I'm going to do and post them here shortly ... .

Well, it appears that there are bunch of pairs that could be interesting. Currently, I only have a EUR/NZD short open, so my tendency is to look for other pairs that don't involve either of those currencies to round out my open positions. So this would involve looking at GBP, USD, JPY, AUD, and CAD.

A few of the charts involving these pairs show substantial directional movement without retrace, which is not attractive to me as a set-up. I'd prefer to have a lot of Zigging and Zagging going on (more rangey type motion) than substantial trending. So here's what I'm going to go with:

GBP/JPY long good for day entry at 172.195/TP 172.619.
AUD/USD long good for day entry at .93053/TP .93275
USD/CAD long good for day entry at 1.08411/TP 1.09722

It's not particularly exciting, but it'll prevent me from having trading withdrawal today and Monday.