Where is DXY (Dollar Index) headed now?

Our favorite monthly NFP has just been released 2 hours ago, with actual figures beating both estimates and previous month’s figures.

But the strange thing is that the USD didn’t seem to move in line with the data release.
Discrepancies in the markets like a deviation from an expected norm should raise some caution among traders.

Here on the DXY Daily and H4 chart, we can see that it is currently in a textbook ‘rising wedge’ pattern:

Have a closer look at what happened during the hour of NFP release:

It should act as a telltale sign that something is not quite right with the USD.

Extreme caution should be taken when trading USD pairs, especially with the Federal Funds Rate next Thursday morning at 0200hrs Singapore Time.

My personal bias would be a downside breakout for the USD as it doesn’t seem to have sufficient bullish momentum to sustain its uptrend, not even outstanding economic data could support it.

 

Running out of trade opportunities?

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I’m sure every trader reading this has come across this problem – the lack of trade setups.

Perhaps you’re used to trading on the H4 or Daily chart and ideal trades don’t come by that often.
Then you start to consider options such as:

  • Maybe I should jump down to the shorter timeframes to find more trading opportunities
  • Maybe I should eliminate some of my rules to increase the probability of finding a “valid” trade
  • Or maybe there is just something wrong with my system that is not picking up enough trades

Sounds familiar?

But today, I’ll share with you a technique that helps me to find more trading opportunities out of my system, without breaking my rules.

Ever heard of the term – correlation?

According to dictionary.com, correlation means the degree to which two or more attributes or measurements on the same group of elements show a tendency to vary together.

In FX trading, being directly correlated means the two currency pairs tend to move in the same direction. Being negatively correlated means the two currency pairs tend to move in the opposite direction.

For example: Given that EUR/USD and AUD/USD share a highly positive correlation – this means that a fall in EUR/USD will also lead to a similar degree of bearish action in AUD/USD

You can find out more on the correlations that the different pairs share through this tool: https://www.oanda.com/forex-trading/analysis/currency-correlation

Note: This is NOT a sponsored post. It is a tool that benefitted me in understanding the relationship that the FX pairs share.

However, today we’re not talking about the correlation between different currency pairs. We’re talking about 1 currency versus other currencies. Which means when we’re looking at AUD, we’re looking at AUD/USD, AUD/CAD, AUD/CHF, AUD/JPY, AUD/NZD, EUR/AUD, GBP/AUD, etc. – everything that has an AUD in it.

Perhaps an illustration would be clearer:

If we’re watching a nice setup forming on AUD/USD, but hey, all of a sudden, it starts to run further and further away from your ideal entry price. Now, the risk to reward has started to diminish, making it less attractive to get in the trade.
Does that mean you’re all out of options, having to look for new setups in the market again?
Heck no.

Now, you start looking for possible setups in AUD/CAD, AUD/CHF, AUD/JPY, AUD/NZD, EUR/AUD, GBP/AUD, especially those that have yet to move much, and hopefully they present a reasonably attractive risk to reward ratio too.

Instead of having just 1 setup, you now have another 6 more chances at finding an entry to go short or long the AUD, based on which pair you choose, all without breaking your system rules!

Remember I mentioned at the start of the week I had a bias in shorting the AUD/USD?
(AUD/USD – Ready for Next Move Down?)
AUD/USD ran before I could enter with my trade rules.
I found AUD/CAD and netted a cool +2.81% gain on it, which was yielded the same effect as AUD/USD.


By learning to bend the circumstances in your favor, trading isn’t so boring after all now, ain’t it?

A Mini Strategy-Crafting Guide

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If you’re just starting out, this article might be useful to you.
But if you’ve been trading for a while now and have a profitable strategy, then this should bring back some warm nostalgic feeling.

Sure, everyone wants to have a system that is profitable. We want a system that we can rely on all our lives so that we might, one day, not have to work in future and let our money work for us.

But does trading work that way? If so, your friends and family – everyone of them would be billionaires sitting at home right now.

In order to succeed in trading, it takes more than reading a Dummies guide to Technical Analysis, or watching Bloomberg.
You need to have serious PASSION for this, because when the drawdowns hit, it is the only thing that keeps you going.
You need to develop a strong interest in the markets – economic news, brokers, TA, FA – learn everything as widely as you can.
You need to know that there will be psychological challenges throughout your journey, even for the most experienced – not just a simple keying in a buy or sell.

If you think you’re ready for it, then here goes.

Once you have developed a level of understanding of the markets and basic TA, it is time for you to start demo trading. Do not start on a live account until you’re consistently profitable on your demo

1) Your character
Do you think you’re a really patient trader and can wait for a potentially large profit?
Or are you someone who prefers taking multiple trades per week?
Or are you an extremely daring person, willing to take trades multiple times in a day?
Once you find out the type of trader you are, this determines the time frame you ought to be looking at.

2) The nature of your trades – your trading style:

  • Trend Trader
  • Swing Trader
  • Breakout Trader
  • Mean Reversion Trader

Each type of trader looks at different things on the chart and uses different indicators or charting tools to help them.

3) Indicators and Chart Tools
There are tons of trading indicators out there that can aid you in crafting your first trading strategy.
RSI, Stochastics, Pivot Points, Bollinger Bands, etc.
Find out the function of each one and see how it suits you as a trader.
For example, if you’re a mean reversion trader looking at taking reversal trades, perhaps Bollinger Bands might help you in that area.

Most importantly, what you choose must be relevant to your strategy and you must have a full understanding of your tools.
Although some experienced traders might beg to differ that they can trade on a naked chart, this is only gained through experience. For starters, this would be a good way to get started.

4) Entries and Exits
Are you going to wait for some candlestick pattern to form before entering?
Are you going to wait for a certain level to break before entering?

Have well defined entry and exit rules, not click buy and sell whenever you “feel” like it.

5) Backtest
Now, put them altogether and start trading on your demo account.
Create an Excel spreadsheet to keep track of your trades – entries, exits, even screenshots of your before/after taking the trading.
The screenshots of your trades are the only visual evidence you have of your mistakes and success when doing a strategy review.

 

If your new system is consistently performing well for around 3 months, feel free to take your trading to a live account.
Start with a small sum first, then if you’re feeling more confident and the results of your strategy is kicking in, that’s the time you can start thinking of depositing the actual amount you’re willing to invest in your trading.

But if your system turns out to be unprofitable in demo trading, have a look at your screenshots and find out what the issue is.
Most likely, you’ll need to do some tweaking to your system specifications – whether or not it is an indicator problem or emotionally-charged entry, only you know the problem yourself.
Rinse and repeat till results are ideal to you.

 

And there you have it, a strategy tailor-made for yourself.

What I can say is that having a profitable strategy does not automatically turn you into a profitable trader. It requires an acute sense of discretion when analyzing potential trades, strong emotional control, strict risk management and last but not least, experience.

 

AUD/USD – Ready for Next Move Down?

We just had the release of the AUD cash rate half an hour ago, which was maintained at 1.5% – no increase, no cut.

AUD pairs spiked upwards shortly after but don’t look upside-convincing to me.

Shall observe what happens after London Open.

If it heads south, these are the next support zones to watch, based on simple price structure:

S1: 0.75385
S2: 0.75066
S3: 0.74552

Once these 3 support levels are cleared, its pretty much free-fall zone for AU till 0.7310 before we see some support.

Weekly Focus/News Trading Strategy

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This week is going to be one that will yield great volatility in the FX markets.

We have our monthly famous NFP, AUD interest rate and ECB meeting/bid rate on the calendar.

(All in Singapore Time, GMT+8)nfp

I personally love such events as with great volatility comes great trading opportunities.

Very often you hear of advice being thrown around, such as:

Don’t trade when there is high impact news as you can get stopped out when price whipsaws.

And next thing you know, you’re seeing things like:

Captured XXX pips from XXX/XXX

Ironic, you may think to yourself.

How these traders profit from such large moves by major news events is actually pretty simple:

  • Have a bias of where price is likely to push into
  • Time your trade such that the stop loss is reasonably distanced from entry price and provides a good risk to reward
  • If price doesn’t move in your favor much within few hours from time of major news release, close out the position at breakeven or at a small loss.
  • If price moves starts to move in your favor progressively, time to start shifting your stop to breakeven
  • Wait for news release

The idea is to position yourself well before the news actually occurs, with the exception of black swan events which no one can predict.

Now there will be two outcomes to this:

If news is favorable to your FX pair, enjoy rolling your profits – you’ve successfully achieved your objective.
If news is unfavorable to your FX pair, it would be best to close out immediately to protect your profits instead of waiting for it to hit your stop-loss at breakeven.

Either way, you win.

Manage your risks accordingly and trade safe!

“Weekends are for analysis, weekdays are for execution”

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It’s always a good idea to have a plan in advance when it comes to trading.

 

Here are some benefits why you should do so:

  1. Allows you to focus only on the pairs that qualify under your ‘radar’
  2. Be on alert for relevant news events that may impact your trades
  3. Weekends are for analysis, weekdays are for execution

To be honest, it is true that you’re supposed to be doing your analysis on the currency pairs during the weekends, when the markets are shut and there is nothing in the market that can distract you.

Ever wondered how they all do it?
Banner advertisements of traders claiming: “I only spend 15 minutes a day to trade”

Now you know how they do it.

Because during the weekdays, there is only time for order-setting and execution of trades.
The rest of the time goes back to doing daily things in real life – going to work, going to school, doing your household chores, etc.

 


 

On the side note, for this week, I am generally bearish on the AUD, bullish on the USD and particularly bullish on CHF.

Let’s see if the market serves up something good this week.

Have a safe and great trading week ahead!

 

Seize Control of the Trader in You

 

Yesterday I mentioned that GBP/JPY was on my radar for a short position.

Price indeed made some pretty good downside moves from the London open, but I wasn’t in the trade. Why?
Because it simply did not fulfil my requirements at first and since price has already ran, I wasn’t interested in chasing after it.

It is very common advice that you should never chase after a trade, as a result of the FOMO syndrome – the Fear of Missing Out.
It is true.
When one goes full on FOMO, the trader puts himself in a scenario where he is not trading in an optimal manner, instead choosing to settle for lesser confluences in his favour and a panicky heart hoping that price will go his or her way.

There is a saying that you “shouldn’t give up the entire forest for one tree”.
Similarly in trading, you shouldn’t get too hung up over that one trade that ran because opportunities are aplenty if you know how to look for them.
It doesn’t matter if the trade that you missed ended up to be a 3R or -1R profit or loss.
There will be another homerun trade another day.

Its all about learning how to let go and think in perspective.

Apart from this, I took a short position in CAD/JPY which yielded a small but reasonable gain. I was anticipating a breakout to the downside but the market was extremely stubborn and unwilling to make a decisive move.
This concludes 3 profitable weeks in a row with a gain of +9.6%.
You’ll never go wrong with taking profits at uncertain junctions, either way you’re making a winning move with profits in your pocket.

Breakdown of AUD

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Today was the day many traders were waiting for, including myself.

AUD/USD finally broke out to the downside (mentioned in “There is a time to go long. There is a time to go short. And there is a time to go fishing.” – Jesse Livermore and Weekly Watch)

 

Another one that just came up on my watchlist is GBP/JPY.

A nice symmetrical triangle that has the potential to pop downwards for a huge move.

Shall continue to monitor in the meantime.

All about timing

Trump’s speech is finally over.

As expected, volatility was generally wild across the FX market.

The charts are currently in a messy state, negating most of the pairs on my watchlist.

 

As irritating as it may seem, there is a good side to it.

Why do I say so?

When big moves happen, it usually creates more trading opportunities in the near future and that is something worth looking forward to.

Compare that to a range-bound, low volatility FX pair, I’m pretty sure the former would be more attractive, especially its risk-to-reward ratio.

 
Meanwhile, will wait till some order is restored before hitting the charts again.