Category Archives: Forex Trade Journal

False Breakout Confirmed – Week Ahead: Fed Speak, Light News

Recap

Going into last week, we anticipated a pullback, bump and false breakout reversal back into the formation. We entered on the pullback to 114.50, rode the move up, but took no profits. Fear of missing out on a sustained breakout caused me to miss the powerful move back into the formation (and subsequent profits).

Lesson: Play offense, not defense. If fear of missing out on the breakout, set a contingency trade.

Monthly: Neutral; pullback to support at 111.35
Weekly: Bearish (retraced within formation); extended below MA
Daily: Extended below MA, flat MACD
4H: Heavily sold, due for a bullish bounce

Formations: Monthly & Weekly cup and handle formations in tact, threatening break below Monthly MA support.

Week of 2017/03/19

There is very little news expected this week other than lots of Fedspeak, including Chair Yellen on Wednesday. Thursday and Friday are news days. That said, Trump’s budget, which would include the Border Adjusted Tax, is what would move this pair out of the formation. It’s possible that we could be waiting until August for action on the budget.

Most Likely Course of Action (Projection)

From a technical standpoint, we’re right in the middle of the range. The post-Fed move was so aggressive, that we’re left extended on the Weekly and Daily charts, and due for a bounce. Interestingly though, the Weekly MACD is beginning to look like a bearish breakout is forthcoming, perhaps foretelling a lack of action on the budget and punishment for the USD until action is taken.

Given the absence of an opportunity in the middle of the range, we’ll play for a bounce off the bottom of the range and expect support from Chair Yellen on Wednesday. There is a possibility that she could talk the pair into a collapse and break below support. That could get ugly.

Trade

Buy limit 112.015, sell stop 111.26, profit target 112.98

Update

  • Monday, March 20, 9:17pm
    Theresa May, British PM, puts support under the dollar by stating that she will trigger Article 50 on March 29.
  • Tuesday’s speakers include New York Fed President William Dudley, who speaks at 6:35 a.m. in London, while Boston Fed President Eric Rosengren speaks in Bali, Indonesia. Kansas City Fed President Esther George speaks on the economy at noon and Cleveland Fed President Loretta Mester speaks at 6 p.m. ET on the outlook and communications. I expect this to provide further support for the USD.
  • House Republicans are expected to vote Thursday on the Affordable Care Act’s repeal and replacement. This signals the first of many necessary steps for fiscal reform as directed by the Fed.
  • Weekly looks nasty and the Daily doesn’t look enticing for a long position. The 4Hr is oversold and may bounce to resistance at 113.30. If so, I’ll sell because it’s early in the week for a reversal, which usually occurs on Wednesdays. This could rally in time for a Wednesday reversal lower on Chair Yellen’s comments. While political risk is providing some support, Brexit is still another week off which provides time for a full retracement to Monthly support around 111.

Fed Week, Budget Submission + Debt Ceiling

Recap
Monthly: Bullish
Weekly: Bullish (closed above formation resistance and averages)
Daily: Extended above MA, possible pullback to MA early week
4H: Slightly Bearish; closed below resistance, modest pullback

Formations: Monthly & Weekly cup and handle formations in tact, both still near bottom of handle and poised for breakout.

Most Likely Course of Action (Projection)
Expect a hike this week since the market now fully expects it. All eyes will be on their dotplot forecast regarding the rate of future hikes. I expect the Fed to put the onus of future hikes on Congress and the Trump administration for substantial fiscal reform.  Chair Yellen’s comments will provide cover for fiscal reform on Medicare and Medicaid, and the Administration will have the summer to push those measures through as part of the Budget Reconciliation Process. Social Security reform, a top priority for the Administration although they’ll never admit it, cannot be passed as part of the Budget Reconciliation Process.

Since the market already expects the hike, we could argue that the currency has already priced in the move. Given the fiscal uncertainty, I expect a pullback to the Daily MA early followed by a move to resistance at 115-115.50 and a subsequent drop when Chair Yellen puts the fate of future rate hikes on fiscal reform.

That said, in the case that Congress chooses to push through the Border Adjusted Tax, the American version of the VAT used globally, we should expect a dramatic appreciation in the USD. For that reason, I’m inclined to raise my profit target above monthly resistance until it’s clear that no vote will happen this week.

Trade
Buy Limit @ 114.50, Profit-target 115.50 or better. Stop loss at 114.

Update: Tuesday, March 14, 10am

  • Monday
    • Pullback to MA as expected
    • Entry within three pips of the bottom at 114.50
  • Tuesday
    • The market expected Theresa May to announce that Britain had executed Article 50 to exit the EU. The announcement instead was to reiterate that Article 50 will be triggered by the end of the month, with emphasis on “end”. This resulted in a selloff of USDJPY due to relaxed political risk.
    • Additionally, the news cycle is setting the expectation of a more hawkish decision on Wednesday. I expect the opposite. We’re looking at a hike that prompts a selloff rather than a bounce.
    • To that end, my stop loss is moved to break even.
  • Wednesday: Fed Day
    • I was right about the false breakout and drop back into the formation. Unfortunately, I played defense instead of offense and did not go short. The pair is now firmly back in the formation where I expect it to remain for the next couple months until Trump’s team can get business tax reform through Congress.

Fed Punts to Congress on March Hike

In the last two weeks, traders have dramatically shifted their views on the likelihood of a March rate hike. Just two weeks ago, the chance of a March hike was around 20%. After today’s much anticipated speech in Chicago, expectations surged to 97%, according to Bloomberg.

Two weeks ago and until today, I was in the “go” camp for a March hike. I still think it’s possible, but if it happens, it’ll be because President Trump and the Republican Congress delivered something phenomenal to address job growth and reduce long-term debt obligations.

In the past few years, Chair Yellen cited the economy, China, and Europe as impediments to rate hikes. In today’s talk, she went out of her way to explain that international concerns have abated and shifted the focus to Congress. Now, it appears, Congress is the only impediment to future rate hikes. Which means…

She’s punting. To Congress.

It should be noted that she has consistently pressed Congress on fiscal reform, especially in the past two years, however today she went out of her way to repeatedly mention Congress and express how “disappointed” she was that fiscal risks, which we’ve known about for “decades,” have been heretofore ignored.

With that said, I expect Congress to act – on a border tax, on Social Security, Medicare & Medicaid – in the next couple weeks – and without notifying anyone of their plans ahead of time.

What would prompt such wild and unlikely speculation?

March 15th is Debt Ceiling Day. The Office of Management and Budget (OMB) is now led by the former Tea Partying Congressman Mick Mulvaney who favors using the debt ceiling to win budget concessions.

To that end, anything dramatic, especially in the case of the tax code and entitlements, would have to occur within the first 100 days of his Presidency. After that, Congress shifts into campaign mode. Also, don’t expect to hear anything about this in the press. As President Trump has repeatedly said, the press is the enemy. At least in the case of actually enacting entitlement reform, he’s right.

So look out for some major changes by March 15, which means that you should be long the dollar at the market open, but likely short until then.

Here’s where we stand on the Daily chart for now. You can see that I’m short the USD.JPY and plan to be so for at least a few days or longer. Entry is at 114.10 with a bottom of the range target of between 112.02 and 112.82.

20130520 Aussie Monetary Policy Statement (AUD.JPY)

AUD.JPY Weekly 20130520AUD.JPY Daily 20130520[AUD.JPY 20130520 4hr

Situation

News

Support & Resistance

Formations & Trends

Weekly: 100.49 & 101.17
Daily: 100.73 & 100.95
4hr: 100.32 & 100.33
1hr: 100.31 & 100.35
15min:100.28 & 100.27

Mission – Gain A Foothold on 700 pip breakout

Direction – Long

Concept of Operations

Market order ahead of news with attached stop loss limited to 5 pips.

After Action Review

Screen Shot 2013-05-20 at 9.48.02 PM

Reducing risk exposure per trade by half to .5% per trade.

Standing Orders

Hard Rules

Rule #1 – Accept no unnecessary risk.
– Margin no more than 50% on the entry, just under 2% of equity at risk with a 5-10 pip trail stop of stop loss.
Rule #2 – Trade around news during the NY session for maximum swing momentum.
Rule #3 – Don’t over trade. Get in, get out and record your profits for the day.

Best Practices

  1. Assess the situation to determine mission: Scalp or Gain A Foothold.
  • This is called understanding the context of the trade, i.e. the price relative to daily and 4hr moving averages, pivot points, historical support and resistance lines. This will determine whether the move will be sustained or a volatility play.
  • Sustained move – part of a larger Elliot Wave Cycle and likely to maintain rather than retrace gains. Stop losses are used to cap losses at acceptable levels and allow for continued price action.
  • Volatility – extended beyond moving averages on Daily or 4hr charts results in sideways action and retracements. Trail Stops are used to lock in gains and cap losses at acceptable levels.

2.   Utilize Elliot Wave Cycle to choose direction ahead of news.

3.   Attach risk control to order: trail stop or stop loss depending on mission.

20130515

Hard Rules

Rule #1 – Accept no unnecessary risk.
– Margin no more than 50% on the entry, just under 2% of equity at risk with a 10 pip stop loss.
– Use stop loss or trailing stop.
Rule #2 – Trade around news during the NY session (usually at 0830 EST) for maximum swing momentum.
Rule #3 – Don’t over trade. Get in, get out and record your profits for the day.

Best Practices

1. Know the context of the trade, i.e. the price relative to daily and 4hr moving averages. This will determine whether the move will be sustained or just a volatility play.
2. Trail stops lock in profit.
3. Elliot Wave cycle is useful for choosing direction ahead of news.

Result: Win

I chose the correct direction and closed a gain for the day, but failing to use a trail stop cost me 3%. Instead, I closed for the day with just a 1.05% gain.

20121228 After Action Report

Screen Shot 2012-12-28 at 7.30.31 AMScreen Shot 2012-12-30 at 8.16.25 PM

Bottom Line Up Front (BLUF)

Sometimes the best trades are the ones that you don’t make. When I rose this morning to check the charts, I found that the pair traded downward as I thoughtmight happen and was pleased to see that my trade didn’t trigger. The first chart shows that had I placed the entry just above PP, I would’ve lost 2.25%. Instead, the trade triggered later after the pair gained enough momentum to move through the 4hr MA. It’s now trading above the pivot (PP), but at the 4hr MA ahead of the news at 10am. If we get a strong number, then it’ll trade up. If not, it’ll pull back and I’ll take a loss.

Update: 1845 – The pair closed higher as anticipated. This time I held on.

Update: 20121230 2011 – Closed position for 20 pip profit on anticipated pull back to break even.

Daily target = 1.6450 within a couple weeks.

The Good

A Buy Stop Limit entry placed above the pivot point and 4hr MA prevented the maximum loss from occurring. After the retracement, the cable gained enough momentum to break through upside resistance and continue upward closing near the high for the day. The 4hr chart points towards a continuation of the move. I expect this trend to break upside resistance of 1.6300 next week.

Room for Improvement

The question must be asked, if I had a bullish daily bias with a short term bearish bias, why then did I not place a buy limit order below the market on an anticipated pull back? A combination of fear and greed, as usual. I was fearful of being wrong that the weekly trend line would fail to provide support given the bearish daily trend, which would have been akin to trying to catch a falling dagger. However, I should have been greedy at that level knowing that I’d be able to hold over night more easily. Practice will improve my comfort and familiarity with placing similar trades.

20121228 Trade Plan

Screen Shot 2012-12-28 at 1.37.32 AM Screen Shot 2012-12-28 at 1.35.15 AM Screen Shot 2012-12-28 at 1.32.20 AM

Hard Rules

Rule #1 – Accept no unnecessary risk. Risk no more than 1% on the entry {unless there is a 2:1 reward ratio}.
Rule #2 – Plan the trade in off-peak hours: Pair’s Most Likely Course of Action (PMLCOA), Profit Target and Reversal Trade.
Rule #3 – Be fearless. Play to win. Play “Eye of the Tiger” for proper mindset.

Best Practices

1. Play the 4hr in the context of the daily. Enter on the 15 minute chart.
2. Don’t chase the breakout. Enter on the wave 2 pullback or ahead of the breakout.
3. Execute according to the plan.

Enemy Situation

News

Friday: 10am US Pending Home Sales
Saturday: Market closed
Sunday: Nothing significant

Support & Resistance

Price & Time: 1.6119 as of 20121228 0046
Daily MA: 1.6155 & 1.6181
4hr MA: 1.6123 & 1.6129
R2: 1.6259
R1: 1.6179
PP: 1.6123
S1: 1.6043
S2: 1.5987

Formations & Trends

Monthly: Flag with an long bias.
Weekly: Bearish – Pull back to weekly trend line. Reversal candle last week.
Daily: Bearish – Multi-months long cup & handle formation. Daily breakout regressed to weekly trend line after hitting reversal target at 1.6300.
4hr: Neutral/Bullish – Possible reversal signal. Over-sold.
1hr: Bullish
15min: Bearish

Pair’s Most Likely Course of Action (PMLCOA)

The hourly is looking to break above PP, but will hit resistance at R1, which coincides with the Daily MA. I’m torn between two COAs (Course of Action) once the cable hits R1. Because I anticipate a strong move breaking upside resistance at 1.6300, I’m watchful for a reversal of the downward daily trend. The pull back to the weekly trend line yesterday may be that reversal. That said, the daily chart continues to trend bearish towards the zero line of the MACD.

Risks: Planned headline risk at 1000. 4hr MA resistance 7 pips above PP. Daily MA resistance between PP and R1.

Risk Mitigation: Entry just above 4hr MA and seven pips above PP with planned profit targets at R1 and R2. Trail stops have been set to move the stop loss to break even as the pair approaches the Daily MA. Should it reverse at 1.6155, I have zero at-risk capital. If the 4hr lacks conviction and reverses off the MA, the trade will not trigger.

At-risk Capital: 2.25%
Reward Range Position 1: 45 pips
Reward Range Position 2: 120 pips
Total Reward Range:
 45 to 165 pips (2.25% to 8%)

Mission

Maximize gain on the hourly uptrend while cognizant of a likely reversal off Daily resistance and R1. Be prepared to participate in further gains should the 4hr reversal reverse the downtrend on the daily.

Scheme of Maneuver

If Break above PP at 1.6123 and 4hr MA at 1.6129

Position 1

Pair: GBP.USD
L/S: Long
Formation: Break of PP on 1hr
Time Frame: 1hr, possible 4hr
Target: 45 pips
Size: 50k
Entry Strategy: Buy Stop Limit at 1.61305, break of PP & 4hr MA
Exit Strategy: Market If Touched (MIT) at 1.6175
Stop Loss: 20 pip trail stop
Risk: 20 pips
Reward: 45 pips

Position 2

Pair: GBP.USD
L/S: Long
Formation: Break of PP on 1hr
Time Frame: 1hr, possible 4hr
Target: 120 pips
Size: 50k
Entry Strategy: Buy Stop Limit at 1.61305, break of PP & 4hr MA
Exit Strategy: Market If Touched (MIT) at 1.6250
Stop Loss: 25 pip trail stop
Risk: 25 pips
Reward: 120 pips

Take Profit note: If the 4hr gains steam and blows through Daily resistance then the daily uptrend is likely to reverse. In this case, we’ll take profit at R2 and play again on Monday.

Fed & Formation Breakout After Action Review

20121219 1700 GBP.USD Daily

As you can see from the chart, I accurately called the breakout and the target. Any of you who held on throughout made a pretty penny. Unfortunately, I did not. In fact, I broke a series of rules. I regained lost profits to the tune of 7% and was on pace to finish positive for the month until today. My stop loss wasn’t tight enough and I gave back all my gains and then some. So instead of doing less and gaining more, to the tune of 20%, I did more and gained less (-20%).

Yes, that’s right. I traded my account down 20%.

It’s time to simplify my trade plan and put in place some hard rules and best practices.

Hard Rules

Rule #1 – Accept no unnecessary risk. Risk no more than 1% on the entry.
Rule #2 – Plan the trade in off-peak hours: Pair’s Most Likely Course of Action (PMLCOA), Profit Target and Reversal Trade.
Rule #3 – Be fearless. Play to win. Play “Eye of the Tiger” for proper mindset.

Best Practices

1. Play the 4hr in the context of the daily. Enter on the 15 minute chart.
2. Don’t chase the breakout. Enter on the wave 2 pullback or ahead of the breakout.
3. Execute according to the plan.

Next Steps

Well, now you’re asking, “Way to go, Joe. You can call a trade, but you lacked the conviction to see it through? Now what?”

Touche. Time to regroup and take one day at a time. It all comes down to one simple truism: “If you’re not taking profits, you’re taking losses.” It’s time to get aggressive taking profits and playing the reversals.

20121216 Fed Week After Action Report

20121216 1615 GBP.USD Daily chart

Bottom Line Up Front (BLUF)

The pair broke out as anticipated, however I closed only 2.5% gains rather than what could have been more than 7% due to an as of yet ill-defined trading strategy. More research is needed, but I have one rule to implement as a result of the pair running beyond the upper pivot and still failing to take profit.

Summary

I ran unrealized gains to 7%, beyond the upper pivot point, and didn’t take profit. My intent was to hold onto a daily breakout, but as the gains erased, I sold for a negligible gain. The following day the pair pulled back as the 4hr chart showed it would. News sources reported that traders read into Chairman Bernanke’s speech as indicative of affording an early out to their monthly purchasing program, however purchasing $85 Billion per month in treasuries and mortgage backed securities can only properly be viewed as inflationary, hence the bounce back the following day. I re-entered the market on Friday and rode the move to the first pivot for a 2.5% gain while traveling.

There was plenty of opportunity to close well over the initial 7% run, but in order to do that, I need to settle on whether I’m playing a daily breakout and holding or playing the micro-moves as well.

Rule Update

  1. In the event a pair runs beyond the upper or lower pivot, apply a trail stop to lock in gains. A brief look at price action history shows overwhelmingly that the pair will retrace below the pivot resulting in an opportunity to get back in at a lower price while locking in gains from the initial move.

20121212 Trade Plan – Fed Day – GBP.USD

20121211 Recap: Holding position ahead of the Fed announcement tomorrow at 1230 EST.

Trade Plan steps:

  1. Plan and publish the trade plan to this blog before trading.
  2. Using the Forex Calendar, identify news events which could affect trading.
  3. Evaluate trends on the Daily, 4hr, 1hr, 15 & 5 minute charts.
  4. Draft PMLCOA relative to pivot points, moving averages and trends, both prevailing and counter.
  5. Prepare orders to include limit entry, stop loss, a half-position profit stop, and a half-position trail stop, all around pivots and moving averages.
  6. Assess plan for risk, reduce and execute.

Situation

20121211 1237 Daily GBP.USD 20121211 1255 3Y Daily GBP.USD 20121211 1249 4hr GBP.USD

Support & Resistance

Price & Time: 1.6117 as of 20121211 2215
Daily MA: 1.6085 & 1.6077
4hr MA: 1.6102 & 1.6092
R2: 1.6154
R1: 1.6134
PP: 1.6101
S1: 1.6081
S2: 1.6049

News

Monday: 1215 EST – Bank of England Governor Mervyn King speaks at Economic Club in NY. – No text released. No impact on the market.
Tuesday: 0830 USD Trade Balance report – Steady move north. Little volatility.
Wednesday: 0430 GB Unemployment, 1230 Fed Statement & Rate decision, 1400 Fed Economic Projections, 1415 Fed Press Conference
Thursday: 0830 US retail sales and unemployment
Friday: 0830 US Core CPI & Manufacturing
Saturday: Market closed
Sunday: Nothing significant

Formations & Trends

Monthly: Flag with an long bias.
Weekly: Start of Wave 3 with a long bias.
Daily: Multi-months long cup & handle formation. Ready to break out of Daily & Weekly formations.
4hr: Uptrend, wave 5 – waiting on news to break out.
1hr: Sitting at upward resistance of Daily & Weekly trend lines
15min: Regressing toward zero line of MACD, no price regression

Narrative

Steady movement up throughout the day. British unemployment at 0430 and a Fed announcement at 1230 mean I’ll be up attending to the chart at 0300.

Mission

Between the hours of 0200 and 1100 EST, while risk minimal capital, position for a breakout of the formation or reversal within the flag.

Execution

PMLCOA: The pair is poised for a breakout, sitting at the trend upper line on the Daily and Weekly formations. I expect news at 0430 and 1230 to push it out of the trading range into breakout territory.

Risks: News at 0430 and a Fed announcement at 1230 could make for an interesting trading day.

Risk Mitigation: Stop loss moved to below S1, which includes two pivot points, a fibonacci level, and both daily moving averages. This stop loss provides plenty of room to wiggle before an expected breakout.

Con-Ops

Holding for breakout

Pair: GBP.USD
L/S: Long
Formation: Break of upper Daily and Weekly trend lines at 1.6117 on all time frames.
Time Frame: Daily & 4hr
Target: 250 pips
Size: 100k
Entry Strategy: Limit at 1.6110 for Position 2 (60k), averaged price of 1.6103
Exit Strategy: Profit Stop at 1.6300 on breakout
Stop Loss: 1.6074
Risk: 29 pips (2.9% at risk)
Reward: 250 pips (26.8%)

Take Profit note: If a reversal candle occurs north of the breakout, be prepared to take profit and buy back at a lower price.