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2018.10.15 Forex Trade Plan

Legend

  • POTW: Plan of the Week
  • Red: High impact news
  • Orange: Medium impact news
  • OCO: One Cancels Other trade. More than one trade entered. First one to trigger cancels the others.

Calendar

News Schedule

Monday: 0830 USD, 1030 CAD
Tuesday: 0830 CAD
Wednesday: 1400 USD FOMC Minutes
Thursday: 0830 USD
Friday: 0830 CAD

Upcoming

  • Bank of Canada, Wednesday 10/24

Watch List

USD.CAD

Decade-long Cup & Handle formation
Weekly zoom in on handle
Daily showing breakout
4Hr showing entry point

Ignore the chart showing entry at 1.3040. I had to close and reopen the position from 1.2797. The position is up over 200 pips.

ACTION: Add to the position ahead of Wednesday FOMC Minutes.

USD.JPY

Monthly Cup & Handle
Weekly pullback to support
Daily entry point nearing

USD.JPY also shows a decade-long cup and handle formation, one of the most reliable trading patterns.

ACTION: Let the Daily settle and seek entry between 111 and 110 for a long term hold. Same strategy as USD.CAD.

GBP.JPY

High base formation
  • High/low base breakout is one of the highest probability trades.
  • I believe this is a bullish continuation pattern.

Trade:

  1. Limit entry at the bottom of the base with a tight stop below the breakout point.
  2. Sell stop OCO at the breakout point in case this runs bearish.
  3. Buy stop OCO entry at the bullish breakout point to double the position on breakout.

Analysis

Fundamental Bias: Strong USD

I believe that the Fed and Trump Administration are orchestrating a strong Dollar policy that will play out over the coming years at the expense of emerging markets worldwide. We can expect a restructuring of US healthcare and Social Security, the return of a strong middle class due to automotive, defense and high tech manufacturing especially including steel, aluminum and 3D printing.

Technical Bias: Strong USD

The charts show strength in the USD against both CAD and JPY. USD.JPY is still correcting. Both charts show one of the most reliable patterns, a cup and handle formation, on a decade-long monthly chart. Timing the entry on multi-time frame trades is always tricky. On CAD, we’re in. On JPY, we’re waiting for the Daily to settle or smooth before entry. We’ll re-evaluate USD. JPY ahead of Wednesday’s Meeting Minutes.

To that end, I will look to add long-term leveraged positions to USD.CAD and USD.JPY, and take shorter term opportunistic trades in other pairs such as GBP.JPY.

Trade / Results:

Open Position: Long USD.CAD
Entry: 1.2927
Target Exit: Long-term hold, 1.47
Exit: Open
Gain / Loss: +200 pips

Update 10/18

USD.CAD appears poised to break out of the handle as the election nears.

Update 10/23

USD.CAD is consolidating in a 50 pip band between 1.3079 and 1.3132. Stop loss moved up to 1.3075. If the pair reverses, it’ll be only for a 50 pip move before moving sharply higher on anticipated Bank of Canada dovishness. 50-day support on the 4-hr chart is at 1.3035. Re-enter at that level, a full measured move south.

Action

Be prepared to take profits on tomorrow’s 0830 CAD news with a tight stop and reverse position through Wednesday’s BOC decision of next week.

After Action Review

Lesson Log

  • Maintain tighter stops on charts that are elevated well above the Daily MA in order to lock in gains or seek to enter on pullback.
  • The Administration is working in concert with other officials to actively manage the currency and prevent aggressive breakouts. Enter positions at pivot points .
  • Patience. When a pair is extended and you anticipate a pullback, set the ambush and wait to trigger. De-lever and allow for room to move so as not to be stopped out.
    • Huge measured moves that seemed highly unlikely have occurred on two occasions, both of which, had I set the ambush entry and waited patiently would have yielded enormous gains. Set the ambush and wait.
  • On light news days, play the 5 & 15 minute chart with a News Trail (10-pip trail on a 20-pip trigger).

Fed Week

Situation

Calendar

This Week

Monday:
– 0900 EUR Draghi speaks
Tuesday:
– 1000 USD Consumer Confidence
Wednesday:
– 1030 USD Crude Oil
– 1400 USD FOMC Rate Decision
– 1430 USD FOMC Press Conference
– 1700 NZD Rate Decision
– 1800 NZD Press Conference
Thursday:
– 0830 USD Core Durable Goods & Final GDP
– 0930 EUR Draghi speaks
– 1630 USD Chair Powell speaks
– 1745 CAD Gov Poloz speaks
Friday:
– 0830 CAD GDP, US News (medium)

Pending News

  • US & Canada NAFTA talks pending resolution
  • Fed Decision, Bank speak every day

Next Week

  • New monthly candle on Monday
  • Friday news for USD and CAD

Indicators

Formation Status

USD.CAD
  • Monthly – Pullback to support
  • Weekly – MACD showing bearish bias, possible breakdown below 50-period support and retracement to the 1.2500 area.
  • Daily – 5 waves complete without a reversal candle, possible 7 wave cycle
  • 4HR – pending breakout either way

News Sentiment: USD NEUTRAL
– No significant news bias

Price Action: Formed a new 4Hr triangle for 60 pips at 1.2920. This could break down to 1.2840 or pop to 1.3000.

Analysis

The FBI and Fed are engineering a Democratic takeover of Congress in order to have Democratic ownership / buy-in on the changes to healthcare and Social Security. (These legacy programs are the greatest threat to our financial stability. I believe Trump was elected specifically to address this budget problem. GWB couldn’t get it done with a majority. Trump has pulled the carpet out from enough Dem programs to give them bargaining chips to run on when then inevitably concede ground on healthcare and Social Security.) With that in mind, polls are showing the Dems with a 12-point lead, more than the Republicans had in their 1994 takeover or the Dems had in 2006. With that in mind, I expect the Fed to apply pressure on the Congressional purse strings over the first few months of next year in order to force Congress to deal on legacy programs. However, in order for this plan to work, the Dems need to win. So, because the economy is humming along and voters are loath to change with good economic news, I expect the Fed to come out hawkish ahead of the election this week in order to manifest a market pullback on a higher USD and an inverted yield curve.

Adjustments

I added a News Trading button, that adds a 10-pip trailstop with a 5 pip stop loss for planned news trades.

Key Questions:

  • The Weekly chart shows a USD sell-off against CAD. Does this reverse or follow through?
  • How will NAFTA news be used to manipulate price?
  • How will Fed and BOC speak affect the market overnight on Thursday and Friday?

Scenario Plan: Bracket trades may come in handy this week.

Trade Plan

Monday: 0800 No news, trade the 4Hr
Tuesday: 0830 news ahead of FOMC; expect light reaction, use the trail stop.
Wednesday: 1030 news, 1400 FOMC; expect little action ahead of 2pm meeting
Thursday & Friday: Look for follow through

Action:

Trade / Results:

Position: Long USD.CAD
Entry: 1.2927
Target Exit: Trail
Exit:
Gain / Loss:

Position:
Entry:
Target Exit:
Exit:
Gain / Loss:

Weighted Average Result:

Update:

The 5 & 15 minute charts showed a short, but I expected 4Hr support to prevent a large move so I went long. My stop was appropriately placed, so the position is rallying, but in the future on light news days within a formation, I’ll play the short term direction for a 20 pip gain.

After Action Review

Lesson Log

  • Maintain tighter stops on charts that are elevated well above the Daily MA in order to lock in gains.
  • The Administration is working in concert with other officials to actively manage the currency and prevent aggressive breakouts. Active management is required.
  • Patience. When a pair is extended and you anticipate a pullback, set the ambush and wait to trigger. Allow for enough room to not be stopped out. The pair will likely regress too fast to get the ideal entry without the ambush limit entry order.
    • Huge measured moves that seemed highly unlikely have occurred on two occasions, both of which, had I set the ambush entry and waited patiently would have yielded enormous gains. Set the ambush and wait.
  • On light news days, play the 5 & 15 minute chart with a News Trail (10-pip trail on a 20-pip trigger).

Trade Plan: 2018/09/16 — USD.CAD back in handle, GBP.JPY breakout

Situation

Calendar

This Week

Monday:
– 0830 USD Empire Mfg Index (medium)
– 2130 AUD Monetary Meeting Minutes
Tuesday:
– Evening JPY Rate Decision
Wednesday:
– 0430 GBP CPI
– 0830 USD Building & Housing (medium)
– 0900 EUR Draghi speaks
– 1845 NZD GDP
Thursday:
– 0430 GBP Retail Sales
– 0830 USD Philly Fed Mfg Index (medium)
Friday:
– 0300-0430 EUR news
– 0830 CAD CPI, Retail Sales & more

Pending News

– US & Canada NAFTA talks pending resolution
– $200B in new China tariffs

Next Week

– Federal Reserve Rate Decision (Wednesday)

Indicators

News Sentiment: USD BEARISH, GBP BULLISH
– China tariffs (Bearish) are the lead story; expect Chinese tariff talk (USD currency management) to step up after the FOMC
– Article on Bond Market Betting on Hikes mentions deficit spending (Bullish), a key topic that I expect to see more of following the election. Fed has signaled that deficit spending is a threat to our economy. I expect the Fed to raise rates until Congress has difficulty paying the bills in order to force hard decisions on healthcare and Social Security.
– GBP headlines, Sterling Benefits on Lack of Bad News, is begging for bad news on Brexit

Formation Status:

USD.CAD

Breakout on the handle failed. Price action is back within the handle, poised for a second breakout in anticipation of a hawkish Fed.

GBP.JPY

Price Action: Sitting just below upper handle trend line resistance at 1.3036. Weekly chart shows another possible drop to 1.2850. Monthly chart sitting above 9, 20 & 50 period. Daily is neutral. 4HR appears bullish.

Key Questions:
– Will China news be enough to push USD.CAD lower to the bottom of the channel in a week light on data?
– Will Wednesday’s GBP data push GBP.JPY through resistance or will headline risk sink it?

Scenario Plan: Play the formations and expect headlines to reverse breakouts.

Trade Plan

Monday:
– GBP.JPY – High base on 4Hr
– 0830 USD.CAD, Bullish setup on 4Hr
Tuesday: No news. Scan the 0800 4HR
Wednesday to Friday: 0830 News

Action:
– GBP.JPY Short at 147.90
– USD.CAD Short at 1.3080

Trade / Results:

Position: Short USD.CAD
Entry: 1.3070
Target Exit: 1.2850
Exit: 1.3069
Gain / Loss: Breakeven

Position: Short USD.CAD
Entry: 1.3062
Target Exit: 1.2850
Exit:
Gain / Loss:

Weighted Average Result:

Update:

2018/09/19 Larry Kudlow signals entitlement reform is coming, as we stated earlier this week in this post. Read more here. Success on entitlement reform will be enormously bullish for the USD.

Analysis
Coordinated currency management on part of the US, Britain and Europe through headline manipulation. Both USD and GBP should be higher, if not for headline risk.

After Action Review

Lesson Log

  • Maintain tighter stops on charts that are elevated well above the Daily MA in order to lock in gains.
  • The Administration is working in concert with other officials to actively manage the currency and prevent aggressive breakouts. Active management is required.
  • Patience. When a pair is extended and you anticipate a pullback, set the ambush and wait to trigger. Allow for enough room to not be stopped out. The pair will likely regress too fast to get the ideal entry without the ambush limit entry order.
    • Huge measured moves that seemed highly unlikely have occurred on two occasions, both of which, had I set the ambush entry and waited patiently would have yielded enormous gains. Set the ambush and wait.

Crypto Update: Bitcoin Reversal?

(Disclosure: Mr. McHugh owns XRP and XLM. This is not a recommendation to buy or sell any currency.)

Bitcoin (BTC)

Bitcoin corrected, but held steady at weekly support of $12,000. If BTC closes above $14,550 today, we’re looking at a bullish reversal which bodes well for the rest of the crypto market. If it closes below $14,550, which is trendline resistance, it’s possible that we may still be in for a sell off. Depending on the direction of the breakout, I expect a $6,000 move to $8,000 on the bear side or $20,000 on the bull side.

Bottom line: A close above $14,550 is a bullish signal.

Ripple (XRP)

It’s been a great run since buying on the breakout of 80 cents. I’m holding strong waiting for an inevitable Coinbase listing, which should spike XRP nicely.

New Position: Stellar Lumen (XLM)

There is room for competition in most markets. Stellar is the Google Android to Apple’s iOS or Microsoft’s Windows. Both Stellar and Ripple should prosper in the coming year.

 

Trade Record: +2080% (since October 28, 2017)
– Fund forthcoming

– Key trades:
— BCH buy stop at $401
— IOT buy stop at $1.11
— XRP buy stop at $0.80
— XLM buy limit at $0.000036

The Christmas Crypto Crash of 2017

2017/12/28 Update:
After a run to resistance on the daily chart, #Bitcoin (#BTC) has begun to sell off as expected. We now have a head and shoulders top, which points to an extended sell off and a break of support at $12,000 and $10,700.

 

2017/12/24:
Watch out below! Everything will soon be on sale. Raise cash now and get ready to shop at a discount!

Charts are showing a sell-off in Bitcoin. The FUDers will cry foul, but the charts will be the ultimate arbiter of truth.

I’m in cash waiting for the carnage to settle. Buffet says to buy when there’s blood in the streets. Bring it on.

(Disclosure: I own XRP and USD. This is not a recommendation to buy or sell any currency.)

Fool Me Once, Shame On You; Fool Me, Can’t Fool Me Again

Bitcoin Cash’s momentum was so great that it became their worst enemy. Like a deft move from a Bruce Lee movie, Cash’s momentum came to a screeching half as Coinbase repeatedly halted BCH trading as if they were NFL referees reversing touchdowns.

Well, I paid attention during the Bush years (GWB), and I learned not to be fooled more than once. This time, I’m betting with The Man, and The Man likes XRP.

 

(Disclosure: I own XRP and USD. This is not a recommendation to buy or sell any currency.)

Crypto Market Monday: Bitcoin Gold & Market Pullback

(Disclosure: I own BCH and USD. This is not a recommendation to buy or sell any currency.)

The market is extended. I’ve raised 80% cash and will wait for entry on Dash, Ripple, and Iota at a lower price. If Bitcoin Gold maintains formation, I’ll buy in for an upside breakout.

Bitcoin Gold (BTG) Set to Breakout

BTG is set to break out. If it breaks higher, we’re looking at a 100% potential bump, from a breakout price of $320 to a target of $650. Conversely, if it breaks lower, this could get ugly.

Bitcoin Cash (BCH) is breaking formation for a pop or drop of 25%.

Update: BCH regained the trendline and shot upwards on Roger Ver’s YouTube talk.

I love Dash, but it’s too extended to enter. Entry point was last Monday. I’ll wait for a pullback, which we should get some this week.

Ethereum (ETH)
– Weekly: Extended

Iota (IOT) pending breakout from a triangle like the rest. Could break up or down.

Ripple (XRP)
– Stopped out for gains at $0.70
– Seeking Re-entry at $0.55

Buying Bitcoin Cash (Bcash)

I’ve been wanting to experiment with crypto assets lately. So here’s a quick chronology of where I started and where I ended up.

  1. Opened account with Coinbase and funded my accounts with a credit card. It’s easy to do and actually kind of fun.
  2. I became uncomfortable with the price action on both Bitcoin (BTC) and Ethereum (ETH). Also, Coinbase is not a trading platform. They have a 5% fee every time I make a change to my portfolio. Clearly that wasn’t going to work.
  3. I heard about Coinigy’s charts, which I love, so I started there.Here’s an example of a chart I made using Coinigy: https://www.coinigy.com/s/i/59f4fc9b9ed32/
  4. Coinigy is connected to what seems like all the exchanges, which meant researching exchanges. As a trader, liquidity and access to markets are important as well as security. While GDAX interested me because of the investors and FDIC-insured accounts, I settled on Bitfinex for the moment. They’re UK-based, don’t allow for much leverage to Americans, but they seem like they really have their act together.
  5. After seeing the charts on BTC and ETH, I realized that I wanted out. I did some reading on Bitcoin Cash (Bcash or BCH), looked at the chart and set a buy stop above resistance.

In crypto, there are two types of assets that matter and knowing which is which is important. The first is a speculative coin and the second is a coin with utility. The latter is what was expected originally of Bitcoin. Some transaction limitations have opened the door for other currencies. In parts of the world where Bitcoin adoption is gaining steam, processing time matters and that’s where Bitcoin falls short.

Bitcoin Cash, on the other hand, boasts a faster processing time and still includes the same supply limitations as Bitcoin (classic), meaning as more users come online, the price will increase in value.

Ultimately, as this technology matures, there will be a number of forks and opportunities for change and volatility. And that’s good if you’re a trader like me.

Stay tuned!

Profit & Loss: Tough Lessons Learned

The last post, on March 9th, called for a short with a target of 112.98. The trade ran well past the target and I stayed in through the revised target of 108.50. That is where the good news stops.

As a result of failing to stick to my routine and treat trading as my business, I didn’t take profits, gave back the profit and proceeded to lose as I fought the market, stubbornly refusing to acknowledge the the trend had reversed.

Lesson #1: Commit to the Routine

Trading is a business. Fail to treat it as such and opportunities will be missed. At a minimum, I must post weekly. Failing to do so caused me to miss the obvious, that the trend was turning at 108.50 and that I should have reversed positions. Also, since I didn’t post the subsequent weeks, I missed additional reversal / entry opportunities.

Lesson #2: Be Clear of Mind

Personal issues have a way of dominating brain share. When those issues are unresolved, brain power tends not to be available when you need it. If, for example, these issues lead you to deviate from your program and routine, the results can be costly, as they were in this past month.

Lesson #3: Be Flexible and Adaptable

When the market shifts, acknowledge it and go with the flow. Don’t fight it. If you do, you’ll lose every time.

USD.JPY Observations – Double Cup & Handle

When making observations about a chart, I do my best to leave judgment aside and only observe. On the Monthly chart, I see one of the very best chart formations for extended, aggressive breakout: the classic cup and handle formation.

Diving into the next time frame, Weekly, I see the same formation; I’ve never seen a double cup and handle before. This could get interesting – or it could be a perfect setup for nothing to happen as a result of currency manipulation on part of the Trump administration.

(In case you’re wondering, President Trump, not China or anyone else, has taken center stage on the currency manipulation front.)

On the Daily chart, there is less conviction: a mild melting up that really could go either way. The last few days of uptick are a 50% retracement of the down move from Wednesday to Friday of last week when gains were taken after Fed Chair Yellen’s remarks about a possible March rate hike.

I’m long, as evidenced by the green on the chart. The USD.JPY (Dollar Yen pair) will strengthen aggressively this year, but the question is when. Traditionally, tax reform, which the Trump team has promised, takes some time as it weaves through the House and the Senate. However, the new Omnibus Budget Director, former South Carolina Congressman Mick Mulvaney, is the Tea Partier who led the push for a 2013 government shutdown over refusal to lift the debt ceiling. He’s also a proponent of overhauling Social Security and Medicare in order to permanently set the nation on a fiscally sustainable course. To that end, any changes to the tax code, such as the Border Adjustment Tax or to Social Security are likely to come through the Budget Reconciliation Process, which requires only a simple majority, limits debate and requires that all measure be revenue neutral. If this administration has the gumption to actually do this, and I believe they do, the currency will rocket higher just as Brexit prompted the British Pound to drop like a ton of bricks.

More to follow on this. It’s a matter of timing.