Advanced TST

My thoughts on support and resistance, since I may seem inconsistent on the subject. If I am trading a commodity - eg copper, wheat, platinum etc ..... I take great notice of horizontal support/resistance levels and big round numbers such as 1.500 and 2.2500. Commodities are actively traded into these levels and price respects them. I often use these levels to place S/L and T/P targets.

If I am trading a major currency pair, such as EUR/USD or USD/CAD I take a little notice of these levels, but I consider the trendlines and moving averages more important. Sometimes I will avoid a trade if I will be buying into heavy resistance/selling into heavy support or a big round number just to be safe.

If I am trading a currency cross such as AUD/CAD, I don't take any notice whatsoever of horizontal S/R levels or big round numbers, I consider them to be logically irrelevant. If the Australian Dollar is increasing in value it is hitting resistance levels against every other currency - eur, gbp, nzd, usd etc.... it isn't going to stop and turn around just because it hit some level against the CAD. And the Canadian Dollar isn't going to change direction because it hit a horizontal level against the AUD. When trading the crosses I like to use trend channels to identify exit targets, or even use time exits (getting out at the end of the week, or after xxx number of days).

This is where my method gets a little complex .... I don't treat every asset the same, I think each instrument is driven by, and responds to different things and they need to be treated slightly differently. A method that works for EUR/USD wont necessarily work for Soybeans. The basics of my entry method don't change ..... find a trend on the weekly chart, wait for a pullback on the daily then enter when 4H turns back to the weekly trend. That's the only way I enter a trade, but I use slightly different analysis methods for different assets.

I also only use COT data for commodities, I never use COT on currencies. If you look at the raw COT data from the CFTC website it tells you how many traders report each week .... this week the COT data on the Swiss Franc only shows the net positioning of 43 traders. On the NZ Dollar it's only 68 traders. That's a low sample size, 43 traders is a small drop in a large ocean and doesn't have any real bearing on the future direction of the currency.

This weeks corn COT data on the other hand is drawn from 729 traders. The Corn market is much, much smaller than the NZD market and those 729 traders are f*ing big players, so that is significant. Those 729 traders most likely buy and sell enough corn to move the market significantly, so that is why I take notice of COT positioning in commodities but not currencies.

Just experienced that once again, upsetting to no end.

Right .... having no T/P at all, and just trailing your stops for as long as you can is also something I tried for a long time. It means you give back some profit at the end of every trade, but it also means you are a chance of catching the big, big moves which come along once in a while (and more often than not those big moves are in the direction of a fundamental trend).

Trailing stops indefinitely works well if you are trying to catch trends and fundamental moves which you expect to last for several months .... if you are focusing on fundamental themes which change every week however, you are probably better off thinking about shorter term exits. Either way should work with the method I have described in this thread though.

I also agree that you need to pick one exit plan and stick to it, otherwise you will end up making a lot of reactionary decisions which are rarely correct.

Hey Jakucha,

it's all good the way it is.

This is actually kinda what I've been harping on about, trading just being a probability game with inherent, system immanent uncertainty:

In real life trading, without the benefit of a crystal ball telling you how far the next move is going to go, NO ONE can exit every trade in the respective ideal manner catching all of the move.

The best you can do is decide what works best for you, taking regular smaller profits which will give you a higher win %, or trail wider stops giving you lower win % but better R:R ratios.

Still had this on file from Linda Raschke on the topic:

Linda [16:20:54]> So - point of this is, most people can not accept that the majority of the time, it is best to play for small win
Linda [16:20:57]> lock in that profit
Linda [16:21:06]> and dont cry if you do not hit home run
Linda [16:21:13]> and , if you are going to try for the home run trade
Linda [16:21:26]> then you must EXPECT to lose a very high percetange of the time, but
Linda [16:21:40]> be consistent in your game - the ultiamte trend follower.
Linda [16:25:25]> you MUST keep in mind it is a numbers game
Linda [16:25:35]> the temptation is to try and time exits and have control over
Linda [16:25:46]> every wiggle and jiggle - you can not do that
Linda [16:25:55]> your JOB was to find the intiial SETUPS
Linda [16:26:02]> that favored above average WIN
Linda [16:26:06]> and the JOB
Linda [16:26:09]> is to determine
Linda [16:26:15]> how TIGHT a stop you wish to trail
Linda [16:26:35]> the WIDER stops will of course lead to bigger wins but have lower win loss ratio
Linda [16:26:41]> you must accept this.
Linda [16:26:49]> There IS NO PERFECT WAY TO TRAIL A STOP

Just pick one, and stick to it.

Dunno if you guys have been following ClivePackham here, very very interesting read about a (very nice he seems) guy who has come up with a very simple, robust, repeatable method, but is or was struggling for quite some time. (OK one reason was he traded far too big, but the main one was exits I suspect.)

So he has a good, workable system, but was forever alternating and tearing hair out over which version to go for, hitting singles regularly for small profits, or gunning for more irregular homeruns.

There is no one right or wrong answer, both can make money, and with compounding take you where ever you want to go.

But, one definitely has to decide on one and stick to that, otherwise you'll never be able to realise a potentially positive expectancy from your system, if you're forever alternating betweeen taking singles or homeruns you'll usually be picking the wrong one for the actual move of the individual trade, thereby destroying the longer term edge you could have had sticking to one.

Hi Numbnuts,

I'm actually quite a bit shorter term than you, so for me the trend moves I'm after are the ones you get on intraday charts, and with NQ / ES / BUND being as volatile as they are you get plenty, but completely agree with your premise, they are fewer inbetween than going for singles which you get constantly.

Just more satisfying for me, also very robust, plus less transactions, so there we have the all important psychological component again, about trading what fits you and your expectations about what you want to get out of this longer term, and not trading the next guys takes on that.

Good trades guys

:-)

I found this too...quite easy to find the chart you want. Data looks similar on quick check.




http://commitmentsoftraders.org/wp-c...COT_CHARTS.htm

Some hawkish tones starting to come from USA again ......

Futures markets are pricing in a 60% chance of at least one rate hike by December:


The chatter has become decidedly less dovish in the last few weeks:

"Heightened global risks and the asymmetric ability of monetary policy to respond to them warrants caution" - FOMC, March 15
"Yellen's speech was dovish; she stressed caution in raising rates in the context of global risks and lower inflation expectations" - J Davis, March 29

"Fed signals caution on rate hikes, worried by global growth" - reuters, April 7

"It's highly probable the fed will continue to hold a dovish stance in the immediate future" - piponomics, April 24

"Growth in economic activity appears to have slowed" - FOMC, April 27
"Inflation is expected to rise to 2% in the medium term" - FOMC, April 27


"Fed leaves rates unchanged, signals openness to June increase" - Bloomberg, April 27
"Today's statement is slightly positive rather than negative, because global trouble no longer worry the fed" - K Lien, April 27
"The fed won't be moving at their next meeting, but investors agree that a 2016 hike is back on" - K Lien, April 27
"Overall, the fed had a rather neutral tone yesterday" - piponomics, April 28
"No major upgrades or downgrades from the fed, so there is probably still room for two rate hikes within the year" - piponomics, April 28


Fed's Kaplan says UK referendum will influence the next meeting, making rate hike extremely unlikely:



I won't be buying any USD yet, until the Fed makes a more definite move to the hawkish side, which probably won't happen until after the Brexit vote.
With longer term indicators all looking promising but immediate interest rates staying low, usually means it's a good time to buy SPX.

It is dangerously close to long term highs but the market seems to agree, with large speculators shifting to net long positions with plenty of buying capacity left:

Crude Oil has found some consistent strength recently. Large Speculative positions are still net long and don't look to be selling off:


I'm not looking for long positions yet though, since the weekly WTI chart isn't showing an uptrend.


Instead I am looking at CAD, which is closely correlated to oil (Canada being a major oil producer).

Continued strength in oil prices in the next few weeks should continue to strengthen CAD, but there is also the added fact that the Canadian economy is improving across the board.

-----------------------------------------------------------------------------------------------------------------------------

CAD:
"Neutral to slightly bullish, with sentiment in lockstep with WTI" - J Davis

"Canadian economy is clearly growing more robustly than anticipated a few months ago" - Bloomberg, April 13

"Low interest rates, a weak CAD and slight recoveries in oil prices are translating into improvements across the economy" - piponomics, April 25
"Until leading indicators or oil prices once again drop, there is no incentive for BOC to cut interest rates further" - piponomics, April 25
"Canadian dollar finds little standing in it's way as WTI pushes higher" - Dailyfx, April 30

------------------------------------------------------------------------------------------------------------------------------

Right now I think the Canadian Dollar is the strongest currency fundamentally, so long as oil price don't plummet again in the immediate future, so I'm looking for spots to buy it in the coming week. To spread the risk I will be looking to sell rallies in USD/CAD, EUR/CAD and GBP/CAD. All three weekly charts are showing downtrends, so I am watching the daily charts for pullbacks.

Corn. Weekly chart has broken above its moving averages, as large speculators accumulate:



Daily chart shows a nice pullback to the trendline, also a recently significant S/R level, but COT hasn't indicated that the fundamentals may have changed yet.


H4 shows sideways weakness/consolidation after the last move down:


Entry order is at 3.76, S/L at 3.7 and TP at 3.875

William Dudley just said that two rate hikes from the fed this year is still a reasonable expectation ..... I don't take much notice when hawks talk about rate hikes or when doves talk about cuts. But when one of the feds most dovish members comes out right after a disappointing nfp and says something like that it makes me sit up and take notice. The fed has been edging more and more hawkish over the last two months, seems to be little doubt now that the fed will be the next central bank to raise rates .....



"Heightened global risks and the asymmetric ability of monetary policy to respond to them warrants caution" - FOMC, March 15
"Yellen's speech was dovish; she stressed caution in raising rates in the context of global risks and lower inflation expectations" - J Davis, March 29

"Fed signals caution on rate hikes, worried by global growth" - reuters, April 7
"It's highly probable the fed will continue to hold a dovish stance in the immediate future" - piponomics, April 24

"Growth in economic activity appears to have slowed" - FOMC, April 27
"Inflation is expected to rise to 2% in the medium term" - FOMC, April 27
"Fed leaves rates unchanged, signals openness to June increase" - Bloomberg, April 27
"Today's statement is slightly positive rather than negative, because global trouble no longer worry the fed" - K Lien, April 27
"The fed won't be moving at their next meeting, but investors agree that a 2016 hike is back on" - K Lien, April 27
"Overall, the fed had a rather neutral tone yesterday" - piponomics, April 28
"No major upgrades or downgrades from the fed, so there is probably still room for two rate hikes within the year" - piponomics, April 28
"The fed has subtly switched it's focus from global risks to domestic concerns" - piponomics, May 6

"While NFP is disappointing, two rate hikes this year remains a reasonable expectation" - Fed's Dudley, May 6
(Dudley is one of FOMC's more dovish members)

"Economists say June rate hike is off the table after slightly disappointing jobs data" - MarketWatch, May 6
Economists at Barclays say they now expect one rate hike in 2016, down from two hikes previously" - MarketWatch, May 6
"Kiss the chance of a June rate hike goodbye after today's NFP report) - K Lien, May 6
For the fed to hike rates, we need to see a positive jobs report - Bloomberg, reuters, May 6

RBA cut rates to record low this week and threatens to cut again if inflation doesn't start picking up. The cut was a surprise, predicted by only 12 of 27 economists surveyed

"RBA remains on hold and are prepared to ease further if necessary" - J Davis, April 11
"Unemployment drops to 2.5-year low; rate bets drop" - Bloomberg, April 14
"Any hope of an imminent rate cut is well and truly out the window on the back of these figures" - AMP, April 14

RBA cuts cash rate from 2% to 1.75% - May 3

"Inflation has been quite low for some time and recent data were unexpectedly low" - Glenn Stevens, May 3
"Stevens admitted at the very beginning of his statement that lower than expected inflationary pressure was to blame for the surprise cut" - piponomics, May 3
"The board will continue to assess the outlook and adjust policy as needed" - RBA, May 6

----------------------------------------------------------------------------

Since RBA is likely to cut rates again and the Fed is almost certainly going to hike rates at some point, I'm starting to look for short AUD/USD trades. The weekly chart looks to be resuming a longer term downtrend, so I try to sell rallies on the daily.

Hello numbnuts,thank you for your insight.
Keep tracking of all the raw economic data is certainly overwhelming and time consuming for individual traders.
It is very brilliant to collect other experts' opinion and make your own decision.
It's like you've owned a think-tank.
I have a question about how you determine trend and retrace.
Do you use a set of rules that can be written on paper like:
Price above both EMAs & 20 EMA above 50 EMA ----> Uptrend
Price below 20 EMA & Price above 50 EMA & 20 EMA above 50 EMA ----> Retrace in an uptrend
Or it also involves some kind of discretion ?

Hello Numbnuts, given you're bullish USD more recently, have you gone off selling USDCAD (about a week ago due to strength in oil)? You also mentioned you were looking to spread risk by also selling EURCAD and GBPCAD on pullbacks on the daily (since posting all three have pulled back on the daily).

Hi jpch

I have some rules for trends, but there is some discretion involved too.

To me a trend isn't just technical, it's also fundamental. On longer term TFs like the weekly, I kind of see them as the same thing - a technical trend is nothing without a fundamental driver, and fundamental shifts are nothing without a technical trend.

Ideally in an uptrend, price will be above both the 50 and 20 weekly EMA's and the 20 will be above the 50 .... AND central bank A will be hiking rates while central bank B is cutting rates. That to me is a perfect trend. In that perfect situation I would jump hard on every daily retrace I could find. It isn't often that things line up as nicely as that though - usually there is some doubt about the commitment of one of the central banks, or the 20EMA hasn't quite crossed the 50 etc. ..... like the current weekly chart of AUD/USD below. Technically you could argue it isn't in a perfect downtrend since price is just crossing the EMAs, but everything else lines up. It's obviously in a long term downtrend. The last movement (the last two weeks) is down. RBA just cut it's interest rate and is threatening to cut it again, while the Fed is almost certainly going to hike sometime in the next 8 months - that's about as clear a fundamental signal as you can get, so I'm happy to pull the trigger now instead of waiting for lower highs/lower lows below the weekly EMAs.

Hi KoiFish

Yeah I've definitely stopped looking for any short USD positions after Dudley's comments about rate hikes. EUR/CAD and GBP/CAD have both pulled back on the daily, and both 4H charts are showing a bunch of inside bars so I have short orders on both of them .... about half the size I would normally trade since they are correlated through CAD.

Green horizontal lines on my charts are entry orders, red lines are S/L orders

GBP/CAD Daily:


GBP/CAD 4H:


EUR/CAD Daily:


EUR/CAD 4H:

Hi numbnuts, thank you for your detailed reply.
RBA's rate cut and monetary policy statement last week definitely indicate its dovish stance at the moment.
Exploiting divergence between central banks is a great trading idea.
I remember you've mentioned this style in your previous post some time ago.
Please keep posting and I wish everyone green pips!

I had a stop sell on AUDUSD at 0.733 which got filled. stop loss at 0.7405. take profit 0.695.

GBPCAD - Hopefully Gov Carney & BoE inflation report / interest rate decision doesn't stop me out prematurely..

I've taken the same trade .... Stop loss also at .7405 but my take profit is .7000. AUD/USD looks good right now on the daily, it looks ready to take off again ...

Maybe it will .... or maybe the report will send GBP falling again, who knows. The recent trend has definitely been toward downgrades in the BOE's inflation forecasts .... so long as your TP is further away than your S/L so you either lose a little or gain a lot, in the long run you should make more money than you lose from these situations.

This is a great thread thanks Numb!
All the best and wish you success.

cheers

Thanks Taz.