Uncategorized

Update ::

Youtube Video Explaining Trade Plan:  

Blog Article: EUR/CAD Trade Plan off a Harmonic Butterfly

Start moving positions to breakeven… at this point you should be up about +232 pips on the first lot and possibly if your second got hit around +351 …  we were a few pips off from getting our second lot triggered but heard some of you took it a bit early so would advise you move both at this point to breakeven and lets see where this euro/cad can take us…

From now on its all about money management since the “risk” management was executed.  Now its all up to you on if you want to use trailing stops or manual stops or targets.

Good work guys!

Here’s a decent little harmonic play for those not wanting to stare at the charts every day to watch this move.  Its on a daily chart and it took pretty much 6 months to be formed.  The good thing is that the more candle sticks it takes to form, typically you get better structure out of the pattern which can lead to a more probable trade.  So lets get right down to it an analyze this trade:

EUR/CAD Daily Butterfly Pattern

Stop: 1.4420

Entry:  1.4813, 1.4713, 1.4555  (avg, 1.4706)

Targets:  1.5206, 1.5974, 1.6069

Risk vs Reward:  1:2

Holding Period:  ~3 months

So we have this nice little butterfly with a pretty long prz.  Be sure to adjust your risk based on the height of this prz.  We are currently moving around just outside of the area of highest probability of a reversal so we’ll have to see at this point if we can get some sort of indication that we will be reversing.  But with that being said, ivar (hurst exponent) has tanked and were now seeing some anti-persistence in price.  We are also seeing this potential reversal zone line up with support and resistance which gives us added confidence that we have a statistically higher probability of this trade working out then it not working out.

The only thing you have control over in the forex are your losses, and every trade you place you should assume that its a losing trade before you place it.  Reason being, you need to accept that trade mentally as a loss so that you don’t get so emotionally caught up.  This trade plan are for people who don’t care if they see about -200 pips on their statement to see an expected payout of over +800 … but it will take some time to get there and we’ll have to let it work itself out.  At the point that it would hit our stop would also give us valuable information which is why our stop will go there to start.  But this pattern also agree’s on the weekly time frame which we are still within the boundaries of the prz.  You could try to time this buy looking for harmonics on 1H and 4H timeframes as well to try to increase your chances of a reversal.

Over all, not a bad trade setup for a daily timeframe!  Want to get alerted to more of these patterns, you can join us in the trading room here: http://www.fxinstructor.com/eng/rooms/fxgroundworks.php

Good day, the article comes early today !

Due to the unpredictable availability of internet access, i figured out that i better work on my koala article now since i have it!

The EUR/USD did receive some bullish relief, testing 1.4000 in the process and easing off for now.

As the S&P 500 is closed currently, lets take a look at gold instead. This is interesting as gold continues to slip lower. On the contrary the US Dollar has weaken since.

Oil remains around $73.

***

Ah, in case it has not come across your mind, we are indeed in tough trading times. Only yesterday the meal of the day was risk aversion and today, risk seeking !

One of the main star of this will be the German business confidence which increased to the highest in 17 months in December. Risk seeking speculators simply love to hop onto train rides like these. This definitely seems to be more attractive than the low / no yield of gold and hence say goodbye to gold! Now that our economic releases have been pretty much served for the week, we may see no major moves unless any unexpected news pops up. One thing we may need to watch out for is the usual profit takings on Fridays for the pub drinking fund!

Bullish pressure may retest 1.4400 while bearish moves may bring us to 1.4365+ again.

***

How are you folks preparing for the xmas? Feel free to share with me. I love hearing about happy stories of families and friends celebrating xmas. Now let us not forget the unfortunate! An act of kindness a day makes the world a better place! Koalas should be kind and nice

Take care and trade well.

Read more Forex Articles and Views by The Koala at www.thegeekknows.com

Follow me on twitter

The U.S. is suffering from the worst job market in decades and by every credible economic projection that I have seen, high unemployment is likely to be around for years. Starting up the job market again is kind of like starting a fire by rubbing 2 dried pieces of wood together-you have to rub hard, you need plenty of tinder and you better be prepared to rub for a long time.

The two pieces of wood, so to speak, and the only two pieces of wood that are available now, are government incentive programs like cash for clunkers. This government incentive, temporary though it was, was effective in adding about 1.2% to 3rd quarter GDP on an annualized basis.

So, what’s needed now is many more of these programs, and I’d like to offer up a few ideas. And aside from the issue of whether global warming is happening or not, I would like to see these incentives tied to anything that will help the environment because less pollution is a good thing that will only help everyone. Old, worn out energy-inefficient devices should be exchanged for new, energy-efficient models.

1. Cash For Appliances
2. Cash For Computers
3. Cash For Heating and Cooling Systems
4. Cash for anything that makes buildings more energy efficient (windows, light bulbs, insulation, etc.)

On the tax side, because boosting consumption will help boost the demand for workers, the government should allow a deduction for a portion of interest expenses on purchases made with credit in the same way that mortgage interest is deductable for homeowners.

Putting more money in the hands of workers will also boost consumption, so certain allowing deductions for expenses involved with their job will also likely have a direct effect on how much people spend. Businesses can take deductions for business expenses so why shouldn’t this be available for ordinary workers as well?

So, deductions should be allowed for transportation, clothing and other equipment people need to do their jobs.

These programs need not be permanent. But since the jobs market is likely to stay weak for years to come, government needs to step in now and do everything possible to get the “fire” going because at this point, government is about the only game in town.

From a global perspective, boosting jobs and consumer spending is incredibly important if the U.S. is going to be able to meet its fiscal obligations. As economist Paul Krugman said the N.Y. Times today, “expenditures will consistently grow faster than revenue, eventually leading to a debt crisis,” due in large part an increase in the costs associated with Social Security.

Krugman is arguing that reigning in health care costs with heath care reform legislation is going to be essential in accomplishing this and I agree with him. But the facts are that no matter what happens the U.S. will always remain a big borrower, which implies that there will be a dependence on foreigners to purchase Treasuries.

Governments like China need to do this because they require a safe place to park their reserves. Those reserves exist because U.S. consumers buy their exports. If the U.S. consumer spends less, there will be less need for exporters to buy Treasuries and help fund U.S. debt.  And while the U.S. needs to decrease its dependence on foreign governments to fund a portion of the debt, “pulling the rug out’ could lead to a debt and currency crisis that would make today’s unemployment rate look tame in comparison.

While global stock markets plunged (and the dollar rose) in the wake of Dubai World’s effort to reach a standstill agreement with its creditors, one has to keep the most important fact in mind. Technically, at least at this time, there is no default nor is there likely to be one. And although there could be some restructuring of the $80 billion stockpile of debt accrued, the impact will likely be but a short term, a knee-jerk reaction that will soon be forgotten by investors.

Dubai World, which is controlled by the government of Dubai, did however have something that was very important to investors; an implicit guarantee from other United Arab Emigrate nations (especially from oil-rich Abu Dhabi) that the debt would be repaid.

Background

Abu Dhabi and Dubai are two members of the United Arab Emirates (UAE), a federation of seven small states that was formed in 1971. Abu Dhabi is by far the richest of the seven because it has the bulk of oil reserves and is the federation’s capital. Since the 1980’s, Dubai has been intent on diversifying its economy because it has little or no oil and it’s main thrust has been a huge infrastructure expansion in support of a global financial hub. The states of Dubai and Abu Dhabi are ruled by royalty and there are long-established merchant family relationships between them.

Dubai has experienced cash flow problems since the collapse of Lehman last year and it became necessary to do what many governments do when cash appears to be running short-issue more debt. In February, the UAE central bank subscribed $10B out of a proposed $20B bond program issued by Dubai. On Wednesday, two Abu Dhabi banks subscribed a further $5B to the program, leaving another $5B yet to be issued. Then something strange happened.

On Wednesday, the Dubai department of finance made two statements, saying first it had raised the remaining $5B and then two hours later asking for a standstill until the end of May on payments due from Dubai World.

The Reaction

As is typical with any debt crisis, the credit default swaps protecting the bonds rose dramatically in price. Investors in Asia and Europe (U.S. markets were closed Thursday for the Thanksgiving holiday) fled risky assets (stocks and any currencies other than the dollar and the yen). S&P futures declined as much as 3% in overnight trading but by Friday morning had pared the loss to around 2.5%.

The (Likely) Result

Investors in the region (primarily banks like RBS and Barclay’s) will need to reassess their risk premiums in future transactions, since the formerly implicit sovereign guarantees seem to be less so. But by global standards the amounts are relatively small and in any event, much (if not all) is likely to be repaid. What this sets up then, in my opinion, is a chance to once again “buy low,” or to partake in what Warren Buffett refers to as being greedy when others are fearful.

Now, doing this of course involves a bit of risk in that it’s extremely difficult to time the best entry correctly. Even Buffett himself failed miserably at this when he made his famous Goldman Sachs investment (announced on September 23, 2008) which came months before an actual bottom was seen in the stock although at this point, he’s billions of dollars ahead of the game.

Of course, if the data next week should surprise to the downside, Dubai will be viewed as a tipping point. There are a number of important reports such as Chinese, European and American PMI numbers due for release next Monday and Tuesday and of course, we’re in the holiday shopping season so reports on sales will obviously be very important to investors as well. I’m looking for the data and sales figures to continue the trend of improvement as the global economy continues its modest rebound from the worst financial crisis since the Great Depression and if all works out as planned, the Dubai effect will recede to the backrooms of the banks involved.

Using the fundamentals to set up set up a trade goes beyond the regular economic reports. Comments from officials, especially in this environment, can be used with upcoming data releases when all point in the same direction. There was a good example of this seen on Sunday soon after the forex market began trading.

On November 20, ECB President Jean-Claude Trichet discussed plans for the ECB to exit its quantitative easing strategy, saying that “gradual and timely phasing out” of Quantitative Easing (QE) measures would become necessary as the situation became more “normal.”

The ECB could even detail plans for phasing out its quantitative easing at the December meeting.

QE basically involves printing money to supply liquidity, which the ECB has been doing in unlimited amounts in terms up to one year. Implying that such measures could begin to be phased out requires a re-balancing of the supply-demand equation, with the key being reduced supply. Hence upward pressure on the “price” of the euro was bound to be applied by market strategists.

Next, comments from St. Louis Federal Reserve President James Bullard on Sunday supported expectations for low interest rates and weighed on the dollar. Bullard also said the Fed should keep alive its mortgage-related assets purchase program beyond a planned end date in March 2010 in order to help stimulate the housing market and therefore, the overall economy. Dollar negative factoid number 2.

Finally, it was a pretty good bet that sales of existing homes in the U.S. was likely to beat low-ball market expectations, especially because the $8000 tax incentive program had been working so well. It’s common to see traders “price in” this type of news way ahead of the actual release, which is pretty much what happened since the dollar reached its low of the day just about at the time the report came out.

Of course, once the dollar started weakening, oil and other commodities began to rise along with the S&P futures market. All of these intertwined assets basically feed on each other and each can cause the other to move. In this case, I would suggest that it was the overall bearish implications for the dollar which got the other two heading higher. Of course, if negative fundamentals regarding oil would have occurred, the dollar would have gone higher while S&P futures declined. And if there was something nice and positive regarding stocks, rest assured you would witness the dollar decline as oil, copper, etc advanced.

To those who may have started the week with a bullish bias on the dollar based on a continuation of the three day of stock market decline from the previous week, let us always remember that asset markets are for the most part forward looking mechanisms. So the idea in trading is always to lean towards discounting future value which, in plain terms, means to trade where the market is going and not where it’s been.

Don’t forget to leave your comments below, I would love to hear back from you guys and your own experiences about your journey and the most valuable lessons you have learned over the years.

I have often talked to people on the phone who have just lost a bunch of cash in the forex market.  One comes to mind of a gentleman who took out a bank loan of around $120,000 USD and within one year had his trading account up to 250,000.   Although, this wasn’t a success story because as he starts telling me how he got the account that high, you could hear his voice start to change as you just knew what he was going to say next.  And then he said exactly what I was expecting… “But this last year has been horrible, I’ve given all my profits back and now I only have $1,000 left in my account.  Its only now I realize that I know nothing where before I thought I knew it all”.

One of the worst experiences a forex trader can go through is actually making money at the beginning.  Reason is, you develop a pretty big ego, you think your smart, you gloat about your winnings, and you have zero respect for a trade plan, because you think you know better.   So for those who started off this way, its going to probably take you 5 times as long to undo all those old habits before your able to take a clear approach to the market and be successful over the long term.

Now, for those who are losing money, or in the process of losing money, there is hope for you.  That’s because you’ve already been to the bottom and hopefully you will see this and bounce.  If you still are not changing what you are doing and chasing after the market while your taking over leveraged trades and not managing your risk, then perhaps you have a bit more learning to do, or money to lose… but at some point, deep down in each and every one of us, you can change, but for some, the losses need to be bigger for us to get the point.  But more importantly, you will gain respect for the market!

So no doubt I’ve ruffled some people by now, and I apologize, my intent is not to make you seem like conquering the forex is impossible, hard , or to justify your losses.   But there should be a few key take away items that I want you guys to really think about over the weekend:

1)  Have I hit bottom, so low, where changing the inner thought process of trading is actually possible?

2)  Can you go on in your trading career realizing no matter what method you trade,  taking to much leverage will kill your account and not managing your risk (because that is the only thing you can control) will ultimately lead to your failure.

3)  Have you learned to respect the market?

And now that I’ve gone through most of the hard news… for those of you that have been here, that have probably seen a lot of truth into this post… congrats!

But for those of you who aren’t quite there, most of the people that trade the forex give up before they have an opportunity of success.  They go to a system, try it for a month and expect to be an expert.  Don’t give up… part of why the statistics of a forex trader are so high is NOT because people can’t do this, its because they give up before they are able to be successful!

You have chosen a hard road, but one I believe many of you can accomplish, and the rewards will be plenty!

Chris
Harmonic Trader & Mentor @ FXGroundworks

Good day!  So I thought I’d post an update to some of the trade calls and discussions that we do here on the blog.  We had managed to get filled on the USD/CAD (green line)  pair and hit our target (yellow line) before hitting our stop (red line).  This was outlined on our previous post:

Can You Expect The Unexpected?

We had successful turned out of the PRZ zone and headed up to our first target in which we took our first lot off … we then continued to hold a lot hoping to reach the higher targets but we got stopped out at break even on our last lot.  So total pips taken from this trade was 182 pips.

Now, lets get a few things straight.  I didn’t know this was going to happen… but, the odds, and the probability of us being right was higher then being wrong.  So with that in mind, we take the trade knowing that over time we are going to be more right then wrong.  And isn’t that the whole point?  So congrats for those of you who play harmonics and took this trade… you did well.

182 pips secured from the USD/CAD trade

Better than expected earnings from companies like Apple, Amazon, Goldman Sachs, JP Morgan, American Express, Capital One and Amazon are buoying the S&P and helping to drive the dollar lower as investors grow more tolerant of risk.

For example, Apple blew analysts’ expectations out of the water on Monday with fiscal Q4 earnings of $1.82 a share vs. the $1.42 consensus expectation. Its shares surged more than $12 (6.4%) to over $200 in afterhours trading that day. The report showed that Apple sold 7.4 million iPhones in the period, a 7% improvement over the previous quarter.

Capital One said on Thursday after U.S. markets closed that Q3 earnings were $425.6 million, or 94 cents per share vs. the 14 cents a share analysts had expected.

Amazon shares, already up 83% this year, gained another 9.2% after U.S. markets closed Thursday to $102, the stock’s best level since December 1999. It reported fiscal Q3 net income increased 69% from a year earlier to $199 million, or 45 cents a share, vs. the 33 cent per share estimate. The company expanded its foreign presence and said eBook reader Kindle was its “No. 1 bestselling item.”

The dollar has been getting absolutely pummeled as global stock markets improved. Since the S&P 500 hit bottom on March 9 it’s lost 19.61% to the euro, 20.84% against the pound, 46.63% to the A$ and 53.96% vs. the K$. For forex traders, it’s much more valuable to look at these currencies separately rather than looking at the dollar index, which doesn’t include the Australian and New Zealand currencies in the basket.

In other news, it’s being speculated in some circles that Chinese officials could start to reign in its fiscal spending and begin to urge Chinese banks to slow the pace of lending, but don’t believe it for a second.

China is in the process of rebalancing its economy to be less export driven and more dependent on consumer spending, reforms which likely will take years to implement. For one thing, China is spending massively on new power, highway and rail systems, projects which figure to last well into the next decade. And to boost spending (which naturally demands a decrease in the savings rate), the government will need to rebuild its social safety net system more in-line with U.S. Social Security.

To a certain extent this is already taking place; Chinese GDP expanded at an annualized 8.9% in the third quarter even as year over year exports declined over 20%.

One way to explain what’s happening in global markets that may paint a clearer picture is by making an analogy. Let’s for a minute imagine that  the global economy is a cancer patient, that Central Banks and governments are the team of doctors, and that the various liquidity injections, emergency lending facilities and government stimulus programs are the chemotherapy being used as the treatment.

Cancer is an appropriate metaphor in this example, especially if you consider all the consumer debt and toxic assets on bank balance sheets that built up over the decades to be like tumors that grew unchecked. And much as a person with cancer, the economy survived and even thrived for a time but eventually, as the malignancy gradually displaced more and more  normal tissue, serious symptoms began to ensue.

Left without treatment this patient would surely have died, much as the economy would have if not for all the emergency measures which have been implemented since the onset of the financial crisis. And make no mistake about it; the world as we know it came frighteningly close to ending after the collapse of Fannie Mae, Freddie Mac, AIG and finally, Lehman Brothers.

Now, here’s the thing about chemotherapy-it’s actually a poison designed to kill living tissue (healthy and malignant). Of course, the goal in administering it is to kill off the bad tissue at a faster rate than the good but unfortunately, that isn’t always possible when for example the malignant cells are widely dispersed among the normal ones.

There’s something else about chemotherapy as well-even when it works as designed, no patient can stay on it forever. You can only take so much poison into your system before it becomes overwhelmed. But with luck, the chemo kills the cancer while leaving enough normal tissue intact and from there, the patient can begin the recovery process (which essentially means regenerating more healthy tissue to replace what the chemo destroyed).

I already mentioned that as far as the economy is concerned, the chemotherapy that’s been administered consisted of liquidity injections, special lending facilities and government stimulus programs (in the U.S. alone, it’s estimated that about $11 trillion has been either lent, spent or guaranteed). However, I left out one crucial element in all this-Bernanke’s infamous 60 Minutes interview on March 15. To my way of thinking, the Fed admitting on national television that it was    (“electronically”) printing dollars was the strongest form of treatment that could have been given. Not only that, I’m firmly convinced that Bernanke said what he did out of sheer desperation.

Why? Because all of the emergency measures had been put in place months before the S&P bottomed at 666 on March 9. To that point, everyone had been watching to see if the November 2008 low would hold and when it didn’t is when I believe that Bernanke decided to drop his biggest bomb.

So, the purposeful depreciation of the dollar is the real chemotherapy that has gotten this patient turned around. But just as with the real thing, dollar depreciation has the potential to kill a lot of healthy tissue as it seeks out and destroys the malignancy. And just as it’s important to withdraw this type of treatment from a patient at the right time, it will be just as important for the Fed and other Central Banks to gradually remove the excess reserves that have been created.

In the meantime, the big question is where things are headed to from here and as you might have guessed, I have an opinion on that. As far as I’m concerned it seems obvious that the next target for U.S. stock markets resides at the levels they were on just prior to the collapse of Lehman on September 15, 2008 which for the S&P is just above 1200.