Oct 28, 2009 - Riding the D-Train

• Point and Click to Enlarge

• This is my hard right edge indicatorless chart. Whether or not this fails we may not know for a few weeks but at this point.
• This last week of Oct 2009 we see a turn in the grey zone, an area we expected the top to complete. 
• Unless something dramatic happens tomorrow and the rest of the week, the downturn has began, and next two weeks we'll be sure when our fractal forms.  As long as we don't go higher than 1.5063 next week, we have our top.
• The strength of the downward move will first be tested at the 38% level which is a sizable 500 pip move.  If we have a good bounce here, the Euro bull move is relatively intact and I'll cover.
• If 38% gets taken out with momentum then we expect a test of the 50%. Even if we get to the 50% level, it's a substantial move a good 1000 pips and I wouldn't complain.
• This chart alone will let us know how much(if any) the S&P and Dow will crack
• Just from viewing this chart, we can at least be cautious not to be Long Euro for now, and take advantage of grabbing some pips on this next wave down. 
  

Penguin Power

Last news filled NonFarmPayroll week was a no trade week for me so I spent the majority of the time tweeking and twittering with my computers. I normally use 1 desktop and 2 laptops, but as always, that can always change depending on what's working and what's not broken.

Since the early 1990's, when the early versions of the Linux(namely Slackware) operating system came out, I've dabbled with this OS throughout my college days. I was always a Unix junkie programming on Sun computers with C++ and other stuff to do my projects. I'm happy to see how Linux has come so far with their desktops. Back then, and even just a few years ago, the typical PC user just wouldn't be able to use this OS,it was just way too over the top with complexity, and with MS Windows so dominant and user friendly, Linux was just not going to be a player on desktops. I have to admit though that I was a rebel against the Microsoft machine . I hated that most of the software I needed to use was Windows only. I honestly would not use MS Windows if I didn't have to. Though I do respect Apple and Macs very much(Apple and Atari were my first computers in 1980), I'm not a big fan of their prices. So for this short article and rant, I'll just discuss why I keep a Linux powered machine available.

As you can see(point click to enlarge) the desktop is pretty slick. This desktop uses a Windows manager called IceWM. I'm sure Microsoft will eventually weave this idea into their future OS's, they love to borrow great ideas and call it innovation, just ask Mac users. With many Linux desktops, particularly Ice, you can flip through several desktops. This particular session I had 4 desktops. Usually I keep Metatrader on desktop #1 along with News sites. Desktop #2 I'll have non-Fx websites(naughty and nice, haha), desktop #3 I may have music or DVD's when the market is doing nothing and I want to slack off and do nothing.

Let me list a few of the new exciting things that Linux systems have included in the past few years, things that I believe have made it more useful.

• Metatrader 4.0 works- Yes hurray! What FX user doesn't like Meta? I've used it for a few years. It's small, compact, fast, used by many brokers, the charting is great, and at least to me, there aren't many other applications better. Meta's only flaw is you can't access it unless you have it installed on the computer you're using, and unless you have a version of Windows. With the developement of Wine though under Linux, some Windows applications do run under Linux. In the past, Wine was very shaky, it could crash at any time, and it made trying to run Windows programs rather annoying. Things have improved though, and I'm glad to say Metatrader works pretty well on my Linux machine, just as it does on my Smartphone. It looks and feels just like the Metatrader on my Windows Vista computer.

So why would I waste time running and installing Linux when I'm going to trade with Metatrader that was made only for Windows? Well here's the other cool thing Linux has come up with the past few years, and why as a once upon a time programmer, I really lost respect for MS Windows. I can make a copy of Metatrader on a Thumbdrive and using a Thumbdrive or a copy of Linux on a CD, I can run Linux on another computer without having to install it.

Here's a simple example/scenario: I'm away on a holiday with a buddy of mine fishing. I don't have my laptop and I love seeing the FX markets with a Metatrader chart. My buddy has his laptop with internet access. Instead of downloading Metatrader and having to install it on my friends computer, I just carry a Thumbdrive (1Gig or 2Gig) with a copy of Linux and Metatrader on it. Try copying Windows XP or Vista on a Thumbdrive. I can store a complete Linux Windows Operating system with my fishing lures, how crazy and cool! The power of Linux is how small it is, and how robust it is compared to MS OS systems, which is just a massive memory eating beast. An almost full featured desktop with many Internet applications can be loaded into just 512MB or RAM. I could even run that laptop without a harddrive because the OS is loaded into memory and doesn't need to access the harddrive to function. So now with just a Thumbdrive, I can run and trade with Metatrader. My desktop is there as well, my Browser has all its FX bookmarks, some of my movies, spreadsheets, anything I can store on that Thumbdrive I can access along with some nice Linux applications. I haven't tried any Metaexperts and autotrading with it, I don't usually need them, and in the past I only used them for fun, I don't doubht they'd work just as well with Linux. I could run Meta with Linux for hours without my problem, no blips, drops or anything disruptive.

My other main beef with MS Windows is Security. Lets be frank, MS OS Securty sucks, my 2 year old nephew can break a Windows system by just deleting a few files, wipe out those files and you have blue screens of death or bootup issues galore. It shouldn't be any surprise that when you surf the web and you get redirected here and there to shadowy websites, you are picked apart by hackers. Yes Linux crashes too and it can have its own quirks, but I'll wager I can go to websites which will inundate a Windows computer with spyware, malware and crapware and almost be bulletproof with my Linux. I'm sure hackers probably can use a virus to lag computer memory,but unlike Windows, with Linux, you just reboot the machine and you're cool, no trace of the virus will be in memory, and most important, the harddrive doesn't get wrecked by the virus, because Linux will be run on RAM, not necessarily the harddrive, and above all, most of the viruses out there were designed for Microsoft, probably by geeks who like me, aren't too fond of MS.

Flash: For ThinkorSwim traders, I'm pleased to say that TOS's fine trading platform also works under Linux, without much tweaking. So here's another great addition made available to the Linux platform, there are probably others, it's just Meta and TOS I use more on a daily basis.

I can go on and on, but in simple terms, I can trade with a non MS Windows machine now thanks to the wonderful developers of Linux, who really developed software for the love of it. The support in the Linux community is great, it's almost like some FX communities, where people put their heads together to try to solve a problem. If you're adventurous with computing like I always have, there's new systems and updates all the time with Linux, every few months, sometimes even weeks, developers put a new desktop sometimes an entire operating system out there to download for free. If you want to wait a few years, say about 10 or so, that's probably when you'll see other Operating systems come around and be more mainstream. I'm just glad that the computing world is becoming more open to alternative operating systems.

The Euro Picture-It's all about Divergence

1. Simple chart how I see the short to medium term trend. As mentioned the Bullish Divergence has been forming for close to a month. This pair has been consolidating since with unspectacular moves.
2. Ideally I would probably stay out of this trade next time. I've been bullish on this pair a few weeks because of this divergence.
3. Currently holding some Euro longs @ 1.2600 with some lots added along the way.
4. The cross at 13ema was significant, the next biggie is the 50ema which hangs near 1.300. A good push through and I see a good move upwards.
5. The weekly chart is particularly telling, it is possibly signaling the end of the strong move down for the Euro. Of course that can take months to confirm. Too many trades till that point so lets keep it simple, and stay cautiously bullish short term, medium-long still slightly bearish.  Lets see what the 1.300 reveals and take it from there. 

Uncharted Territory Micro Management

1. First point, this is posted as a result to some offline email exchange debates I had with an anonymous somewhat newbie trader buddy I know through some forums.
2. His obsession with funding huge amounts,leveraging to the hilt and wildly punting trades without any technical or fundamentally sound reason is why I just said, screw the chart(even though this has been already charted on this blog) it's about numbers, results and risk management.
3. This is a live statement, not a churned, curved fitted after the fact , hard right edge demo.
4. Highlighted are the stats that matter most to me. The position size averages about 4 micro lots, yes there's 2 trades that are 1.5 mini in size, but you can see, there are trades as small as 1 teeny weeny micro that made hundreds of pips, so more bang for your micro bucks.
5. The statments stats are typical of other statments I can pull out the past 6 months, the most important stats to me I circled and is what I look for in a nice robust methodology.

Back to the important points:

• You'll notice that the timeframe of the trades is about a week or so, not a whole lot of trades. You certainly have to pick your points, you don't get more money for trading more, more than likely you'll get clipped especially with high volitility. This particular week wasn't real high vol, but it wasn't a cakewalk either.
• The profit factor is usually what my eyes see first, a 3 or 4 is considered great by most people, I'd be happy with 4 and there is no doubht over time a 4 factor will grow your account, a 17, well who wouldn't love that, but realistically, to maintain this 17 factor ain't gonna happen over time, so take a 3 or 4 and be content, and run with it.
• Drawdown, to me under 10% is pretty good, I've averaged less than 5%, but again, I don't day trade and am very selective if I choose a breakout.
• Notice most trades are shorts, well that was the trend.There were a few countertrend longs that made a pretty profit.   
• Notice that the Open Trades are Long Countertrend trades.  Sometimes you have to take these risks, I personally don't like countertrend. When you're trading against the trend, you have to really have to be on top and be able to bail or scale down, even if you're too early.  Bottom line, pile on the position when the trend reveals itself, in a countertrend, you'll know whether you're right in a very short period of time. If you're wrong, it's like jumping off of a train, the momentum will build and you'll get hurt even if u jump off.
• I trade CAD, AUD sometimes, but mainly stay with EUR, GBP and JPY. CAD could have some huge moves sometimes, but the trend could flip on a dime and drive you nuts. To me all pairs do not behave the same, I believe this, so trend is what you have to see in any instrument.
• Finally, consistancy. Being 50% correct is just not good enough for me, even with a pretty good profit factor, being only right 1/2 the time would just affect the mental aspect of my trading, I'll flip a coin if I want 50/50 odds. I want 70% or at least strive for that, and that's been about my average through many statements Ive cycled through, if i approach 50% then I knowI'm out of wack, whether the account reads profit or not, sometimes I don't even look at the profit, I look at how limited I made the risk, and how I rode the momentum when it revealed itself and confirmed the trend.
• 100% return account I thought was impossible to achieve, especially a small account, it's possible if you don't give back profits, I've personally seen 300%, but like many good traders you'll hear, the more you make, you still need to be carefull of leverage, notice the margin on these trades, not particularly high.
• Ok, that ends my debate rant, so remember to always ask who you debate with to show you the results, not the demos, the predictions and assumptions.
• Finally, small ain't always bad, if you can grow a micro, you can grow a mini, and a  standard, of course the stress level will be different, so trade according to your blood pressure. If your broker snarls at you for converting your mini to micro, please don't yack at me, haha. Good Luck.

Week 1 Feb 2009 ECB & BOE Non Farm

• A news packed week where we saw good movement in the Pound and Cad. No surprise from the ECB and BOE with respect to rate cuts. Rates came in line with what was forecasted, however unlike the Pound, the Euro really floundered and did not take a dive as you may have expected.
• Not being a big fan of trading fundamentals, I think there are 2 important things I've observed. 1) The Euro is moving(though not perfectly) with equity markets. The uncertainty of the Stimulus shows on the charts. We didn't have a definitive outcome as to the details of this package, and as the Euro approached key support levels, the momentum fizzled. 2) Gold had a few days where it lost double digits, however at $900+/ounce, it is suprisingly resilient considering the Dollar has been strong.
• Getting back to the technicals, though my medium term bias is still bearish for the Euro, for the short term, at least early next week, there is some upside potential. The 1.2700 handle should have been taken out but held firm, as risk aversion subsides, we'll have a few good days with the Dow and Euro getting a pop upwards, then when reality sinks in and the feel good spending subsides, the Dow and Euro will tank again, great opportunity for selling this rally.
• For the week we are near break even, currently holding a small long position on the Euro, I will hold this position until I get a short signal, which usually happens on the 3rd, 4th or 5th day.
• Overall a lot of news, some missed opportunity on the Pound and Cad, and a very uneventfull day of waffling for the Euro.

Week 4 Jan 25 2009 Fed Week at the Forex

• Remaining shorts from previous week have been covered today. It's possibly a little too early to exit, but we certainly are entering key support.  We're almost where we left off from the beginning of the week with the USD seesawing from bear to bull in a span of 5 days.
• It remains to be see whether momentum through the weekend and early next week can breach approaching support.
• This month can be summed up as a continuation of the bear move that started last month. The USD has stayed strong against most of the majors because the uncertainty that the markets can't and may not shake off in the near term.
• Though not 100% correlated, the equity markets and sentiment will determine when we have a true reversal with EURUSD. For now it's selling the rallies, and if we do have a pop Long, it's taking the profits as soon as we have a bearish signal.  Overall, a great profitable month, 11 more to go. 

Euro Week 2 Jan 18 2009

• Our dead cat bounce from last Friday appeared to show it self this week.  The Eurozone and UK are reeling from horrible banking news, specifically RBS of Scotland.
• The pressure on most European currencies continues.  AO has navigated the shorts well, and we'll cover when the we see the first color change. 
• Pay particular attention by the failed bounce confirmed with the up fractal, and the confirmations of AO. 
• There could be continued pressure on the Eur for the rest of this week. My concern is the momentum of the drop.
• Some correction is due, unlike last week, I will not hesitate to take some lots off the table. We recovered a large part of last years bad trades and we're off to a terrific start for 2009.
• Updated: covered a very small short position late afternoon, but reentered with similar size, so new entry is currently profitting.
• We've clearly popped through the 1.3000 handle finally with authority, 1.2900 is out and we expect some further drop this week if the miserable banking news continues.
• I would expect significant consolidation approaching 1.2500's and if this pans out, I'll unwind a good amount of positions, right now it's bad news, and great momentum, and we're on course.