July Behind, August Ahead

At risk of jeopardizing positive momentum, I’ll say it anyway: July was a great month.  The final two weeks brought the incline of my primary account’s equity curve back to a more reasonable angle, but were still fantastic weeks.  Overall, the preceding 6 weeks have been an amazing streak that have more than doubled my equity from mid-June.

Perpetuating success means looking around for failure.  Bad habits go away, making room for others or become dormant only to return more forcefully than ever.  I’ve elaborated some on what I feel I’ve been doing right in previous posts; but what have I been doing wrong?  Well, the usual answer: ineffectively managing risk.  My win ratio has been through the roof across this 1.5 month period (well, what I regard as “through the roof”: 70-80%), but those times where I have been wrong, especially one instance of multiple pairs on together with a correlated risk profile that I didn’t properly account for, I’ve taken hits that I think are unacceptable.  A related issue is volume: “high probability setups” is just fine, but when you’re taking quite a few of those and managing them a little more shoddily than you’d like because quantity overwhelms your patience, availability, etc., then there is a problem, “high probability” be damned.

This month, I’ll be concentrating on 1) moderating trade volume.  No quotas or that kind of nonsense.  2) In tandem with that, evaluating trades-in-progress (TIP) a bit more rigorously.  I usually time stop any TIPs two times a day (once around 7-8 a.m., the other around 12 p.m-1 p.m. ET) whether in profit or not, but there is always the occasional trade I regret letting go of because of further potential.  Sure, I’ll dip back in later if variables align, but fewer trades and less analysis for re-entry would follow from letting those “winners run”.  Or maybe I shouldn’t screw with a good thing.  We’ll see.

In other news, a randomly answered question over the weekend about fibonacci retracements and extensions rekindled my interest in their application to my own activity.  I’ve never been much for mucking around with indicators, methodologies developed and peddled by others, systems (automated or not).  My toolbox has accumulated odds-and-ends over time, but is relatively lo-tech, simplistic and without novelty.  Thankfully, innate temperament has always dissuaded me from hopping on the custom indicator/EA/method-o’-the-week hamster wheel.  Fibonacci – and Ichimoku – is, really, about as “sophisticated” as gets, and I realize I’ve missed how my use of fib studies complemented those tools I more typically use.  My plan is to use retracements, projections, extensions and fans more extensively, and if I’m inclined I’ll get back into some Gartley and other harmonic patterns.

GBP/JPY: Double Top?

Maybe.  Or not.  I emphatically declare that I am not calling a double top.  But, for the first time since…well, for a couple of weeks anyway, I’m cognizant of short-side potential beyond the quick flick of a countertrend throwback.

In favor of a top we have:

• A rapid return to the 78.6% retracement level of the entire decline from 160 to 147 that played out over the first two weeks of July.  This area around 157 yielded a brief hesitation 07/03-07/06 (holiday weekend ranging?).   A first occurrence last Thursday moved back to the 61.8% before being batted upward once more.
• The 07/23 and 07/27 swing highs occur within pips of each other on a closing basis, creating a violation of the series of 4 higher highs in place since 07/09.
• The Modified Schiff Pitchfork (MSPF) in green (Points: 1) the perpendicular of the 07/22 low and point 3, 2) 07/23 high, 3) 07/25 low) cuts a median line through the 78.6% retracement level where price topped today: confluence reinforces resistance.

In opposition to a top:

• The momentum of a 6 month (still corrective) uptrend favoring further upside.
• A Standard PF (1) 07/17 low, 2) 07/20 high, 3) 07/22 low) with a lower forkline tested unsuccessfully on two and now potentially 3 touches that…
• …looks to produce the lower ascending trend line for an ascending triangle that would break just above 157 (and very soon, I’d add)
• The price objective for the Adam & Adam Double Bottom of 07/08, 07/13 comes in around 158.60ish

But, the converging MSPF median line and Standard PF lower fork line are producing a rising wedge of sorts, which could produce a bearish move down.  Hmm.

(continued below)

Assuming a short confirms: A close below the Standard PF blue line targets the lower MSPF fork at 156, then the 61.8% retracement/07/23-07/25 bottoms at 155.25-50 to move out of a horizontal congestion scenario there.  Also, that would mean a break of the lower ascending trendline for the correction from 07/13, which is itself part of a corrective rising wedge.  Then 154.  And, the price objective measuring peak to trough of the potential double top is ~245 pips from the breakout, coming in right at the 07/22 low in the 152.80 neighborhood.

For now, I watch and wait.  Though I trade against the trend with regularity, dedication to those trades are subject to whatever contingencies arise and are usually cut off if they turn adverse with little leniency.  This trade, if it did fire off would likely play out over a swing timeframe and require a little more perseverance than I’m presently accustomed to.  As usual, trade timeframes open up or contract as each trade evolves.

Brief Note

I’m in and out, but mostly out this week on vacation doing shorter trips than typical because of the little ones. Posting will resume with the coming weekend.

Still haven’t crunched the final numbers for last week, but it was arguably the best week ever in terms of net return – wouldn’t have thought that would come in mid-July…. I’ve learned enough to never offer myself unmitigated congratulations (there’s always some imperfection to point out in routine), but after eight years trading actively I do know the difference between hubris and pride in legitimate achievement. So maybe I’ll have a cold one for a job well done.

In other news, I scaled out of my token crazy leveraged fun ETF position (BGU) today at 37.58 for about 7 points. May look at getting back in there if I see something suggesting a breakout above the S&P 950.

Until the weekend….

EUR/USD: Symmetrical Triangle

This is a symmetrical triangle perched at the top of the larger symmetrical triangle I talked over here. Featuring a downward tilt and located at the top of a region dense with upside resistance, I think probability lies with a downside break. In fact, there was a breakout on the 0800 ET 1H candle, but that has peeled back into the pattern. A great example of why setting stops to straddle a triangle breakout isn’t an infallible or even effective tactic.

EUR/USD: Triangles within Triangles

And speaking of the all pervasive H&S, there may be one in the making with the left shoulder and now head mid-yesterday already put in…neckline would be the lower ascending trendline of the larger yellow triangle.

Why I Hate EUR/USD, and Where I Think It’s Going

That’s a little on the melodramatic side.  But, I do stay away from EUR/USD.

It is the most often-analyzed and highly traded pair by volume, making technically pure comprehension of its chart more difficult.  Fundamentals are interesting for their own sake, but I care little for them day-to-day and they are never decisive for a trade aside from avoiding event risk.  EUR/USD is covered heavily by pundits, analyst bloggers, talking heads on Bloomberg TV and CNBC.  I like to stay mostly clear of that ick but don’t find my way around it entirely, so the excessively-discussed and regrettably sullied EUR/USD suffers from neglect by association.

And usually I don’t like EUR/USD’s price action, probably because it doesn’t seem to have the technical insularity of some other pairs.  This is my own subjective perception, also reflecting an appetite for greater short-term volatility than EUR/USD typically experiences.  Through experience, I’ve found I have better fortune elsewhere, so I rarely lend much scrutiny to it.

Lately I’ve been following the pair, though, tracking the symmetrical triangle evolving from the beginning of June, denoted with red and green diagonal lines here.  The triangle has very good uniformity and clarity; touches are nicely spaced and the distance to the apex suggests a breakout is approaching.

EUR/USD Daily: Symmetrical Triangle

The second chart has a lot of things going on (trend line saturation point!).  The yellow horizontal lines resembling a trident are an Andrew’s Pitchfork.  Notice how price is support by the lower fork line, while the rally stops short of touching (or breaching) the median line at 1.4162.  In Pitchfork (PF) theory that usually (over-simplification, but not by much) presages a fall, which in this case would probably extend back to 1.3915, which coincides with the 50% fibonacci fan extending from the February low ~124.50 (above) and the lower ascending trend line of the triangle itself.

The upside has two major immediate barriers: 1) the .786% retracement at for the 06/03-06/15 range of 143.38 to 137.48 @ ~141.90, tagged on 07/01.  Next, 2) the top of that range itself: 143.38 .  I’m not looking for a return to these levels until another low has been put in, at least.

One other, contrary item I see is the craggy yet conspicuous inverse H&S: left shoulder at 07/06 at 138.77, head 07/08 at 138.33, and right shoulder at 138.78 on 07/10.  The neckline is drawn in white, to which you’ll find a return move in the early morning hours today.  If that pattern doesn’t fail, it targets ~142.50 as an initial price objective, which is the level of the left and right shoulder of the H&S top set in early June.

EUR/USD 3H: Pitchfork, FibRet, Inverse H&S?

Maybe, just maybe, I can persuade myself to take a position….

Overnight Trades for 07/14/2009 Closed

Entries for these trades were listed over at Twitter in the middle of the night.  Here’s how things shook out:

Short:

EUR/GBP @ .8594; closed at .8576

EUR/AUD @ 1.7777; closed at 1.7686 (entry not given on Twitter; entered in two legs at 0406, 0417 ET)

Long:

GBP/JPY @ 151.04; closed at 152.04

CAD/JPY @ 80.68; closed at 81.38

AUD/JPY @ 72.87; TP @ 73.87 at 0752 ET

AUD/USD @ .7837; TP @ .7887 at 0716 ET

GBP/CHF @ 1.7629; closed at 1.7676

GBP/USD @ 1.6243; closed at 1.6326

EUR/JPY @ 130.26; closed at 130.37 (lost ground here while asleep on ZEW disappointment)
Except as noted, I closed all trades just after NY open at 0807 ET.   Will reevaluate and reenter, probably after US equity session opens.

Overnight Trades for 07/13/2009 Closed

The carnage I mentioned will have to wait for another set of trades: those four trades I threw up on twitter went as planned, more-or-less.  By that I mean: my only regret is money management on exits in this instance: late at night and tired, I settled for generic stops on two of them, rather than evaluating S/R more closely to determine appropriate objectives.  I decided to close  out the remaining two (G/J and E/G) bleary-eyed and groggy this morning, giving little time to evaluate but preferring to take profit to flatten things out.  Left some pips on the table in both cases as a result.

In the order placed:

• GBP/USD: SHT 161.50; TP @ 160.50. +100 pips
• GBP/CHF: SHT 1.7527; TP @ 174.27.  +100 pips
• EUR/GBP: Long .8640; closed manually @ .8689: +49 pips
• GBP/JPY: SHT 149.09; closed manually @ 147.71: + 138 pips

Not a bad night.

Calling Trades

More than once I’ve considered and then immediately discarded the idea of logging my trades as I make them here, mostly because of the impracticality of logging dozens of trades every week along with their rationale. Impractical for me, at any rate: I have to work on blogging at all before I can commit to 50 times per week.

So, instead of attempting that and failing spectacularly, I’ll log trades here as they occur as I can with some detail and charts; while I’ll call the majority of what goes down over at Twitter. Staggeringly novel idea, tweeting trades. But I intend to call them as they happen, and will note when it is otherwise.

Now that I’ve committed to that, this is sure to prove an abysmal week. Looking forward to the carnage.

The Week in Review

“Week In Review” – I remember having very good intentions about this at the beginning of the year. My adherence to that commitment has been…minimal. So, in the spirit of all those reviews I did not blog in the past, here we go:

07.05.09 – 07.10.09

A few statistics:

• Trades: 100 trades; 50 round trips (round number not by design)
• Pairs traded (in order of frequency): GBP/JPY, EUR/JPY, GBP/USD, CAD/JPY, GBP/CHF, EUR/GBP, EUR/USD
• Win ratio: 37/50; or 74%
• Max. drawdown occurrence: 3.4%: caused by 3 simultaneous trades that stopped out as a basket with adverse GBP exposure (GBP/JPY, GBP/USD, GBP/CHF)
• Net return on equity: 23.1%

Stream-of-consciousness reflection:

Unreality? I’d like to succumb to the idea that too much went right too easily for the week to be much more than fluke. But these weeks do happen, and I can’t pin all or most of what goes well on happenstance and the stars aligning. When just about everything goes off well and you’ve been trading for years, not weeks or months, you know whether it was you or not: this week it would be a lie to say it was not me. Most trades went into profit without looking back, and losses were cut on those that didn’t with a dispassionate acquiescence rather than lots of torturous back-and-forth. Diet, sleep, contentment at home and a feeling of accomplishment in other areas is very helpful.

Maturity. It’s easy to speak of maturation as a trader in a great week. But, I don’t mean adherence to methodology, trading without emotional dissonance, etc. What I do mean: accepted losses without regret. Willingness to take profits without giving in to my nagging compulsion to achieve round numbers (I’ll take 98 pips off the table rather than waiting against my good analytical judgment for 100 pips). Patiently trust the legitimacy of my own analysis, waiting for the market to come to my orders rather than rushing out to meet it. These are behaviors and attitudes with which I struggle. Positive momentum early on can derail or reinforce: in this case, it was the latter. Now, if I can learn to reiterate those psychological habits every week, rather than almost randomly, that would constitute significant progress.

Singularity of analysis? I have deep respect for a handful of trader-bloggers and analysts online. TLT comes to mind, especially after his recent interview. Actually, no: the interview has nothing to do with it (just a plug); but his intelligence, holistic approach to the markets and level of organization do. However, our trading styles are very dissimilar. Then, Kathy Lien comes to mind as a trader-analyst: very insightful and trades (actually trades!) well as a result of it.

I find them (just two examples) helpful to read because they do what I do but nothing like the way that I do it. Ideas and analysis that are too close only muddy the waters; but where ideas and analysis are in the same universe, I find they edify. And that’s good, because I’ve always worked best where there’s camaraderie and autonomy in equal measure. So, I ignore just about everything that goes on around me (this goes back to that primary v. secondary source distinction I made here).

Off to enjoy what remains of the weekend outside with my family. Check me out on Twitter in the meantime….

The Fizzle Point

I fizzled out in early March: inexplicable, terribly sudden disappearances are a bad habit of mine. But really, it’s tax season, though it isn’t about my own taxes. I’m not a CPA, and I do not work at an accounting firm. I’m not a quasi-CPA, bookkeeper, in payroll, etc. All the same, though…. Anyway, I think my spate of early-Spring sinus infections has ended, and my blogger batteries are recharged. So, until they die again….

This is a bit different: every now and again, I dip into the equity side of things, especially as there is occasion to call a reversal and gratify a barely latent desire to prove I’m right that is constantly nagging at me. Well: that’s only half-true.

A few things of note:

The next round, psychological markers occur at 850, 900.

Fibonacci Projection is the topic of the red Fib levels on the right side of the chart (ignore the blue fib levels, though they are an example of the same thing). The red fib lines in the middle, from 800-933 (real body low – real body top) measure a swing low to swing high. The red fib lines are a projection that correlates to the previous move: in fact, you’ll notice 681-816 (again, real bodies, on the weekly) is almost exactly the measurement of the previous swing. Taking the symmetry of those moves as an embarkment point, we can project likely reversal points on this move by measuring 127.2% and 161.8% of 133 (or 135) points. These projections hit at exactly 850 and 900.

AFP registers lower forkline resistance at ~850, median line resistance in the 900 neighborhood.

And (not pictured here) 78.6% fib retracement for 875-666 comes in at 830, a couple points away from where the index topped out Friday (that correlates to 7920 on the $DJIA).

There are a few positive divergence-type items around that make this a little tentative (the time to get very uneasy is when all points of your analysis are completely unanimous), but I do think the best staging point for bears to bring supply back in falls between 830 and 850-900. That’s a broad range, so if pressed I’d collapse it to 830-850ish. Unless there’s significant dislocation to the upside, this remains a bear market rally that I think is just about spent. Above 900 would cause some real head-scratching, and the corrective scenario isn’t really called into question until 1015+.