Friday wrap...

MARKET NEWS

 

The week opened without much a theme across the markets. With London closed and the US calendar filled with only fourth-tier data, EUR/USD was held in a 40 pip range at the beginning of the week. The week didn't get any better for the greenback and its counterparts as traders take a breather before the Jackson Hole summit to ascertain the Fed's stance on additional quantitative easing. Interestingly, Draghi has cancelled several meetings in the coming week so all eyes will now be on US data. USDCAD experienced some volatile swings as the effect of Hurricane Isaac took its toll on the Oil markets, as well as comments from the summit stating '[they] are watching the Oil markets closely'. The drop in US consumer confidence to 60.6 from 66.6 had no real effect, neither did the upwards revision of US Q2 GDP to 1.7% from 1.5%. The real action was in the commodity currencies as traders looked to bank profits from the previous rally on a string of negative comments coming out from Australia. Chatter about the end of the mining boom and the collapse in iron ore prices all effected the Australian Dollar and New Zealand Dollar. Also the heavy overweight shorts on EURAUD will be short covering on any type of hint that Spain will be bailed out which may lead to the AUD being dumped. The Italian bond auction went relatively well as yields fell back in Spain and Italy, however, so close to the end of the week the market preferred to stay range based while these key news announcements are released.

 

TOP TRADES OF THE PAST WEEK

 

1. GBPUSD - Ascending Triangle Retest Long 28.08.2012 Cable broke out of its ascending triangle and retraced back to support at 1.5770. Trading the higher low double low test bar off the support level resulted in +2%

 

2. USDCAD - Inside Bar Breakout Long 29.08.2012 USDCAD double bottomed off the horizontal level at 0.9850. The inside bar provided the entry for this trade which is still running, up +0.5%

 

3. NZDUSD - Pivot Bounce Short 29.08.2012 This pair is in an aggressive trend down and trading intra-day levels of resistance has provided some decent trading opportunities. Selling on the pivot retracement with the previous days low and 50ema resulted in +1.5%

  

5. GBPNZD - Pivot Bounce Long 29.08.2012 Capitalising on the sell off in the NZD, trading the bounce of the pivot with a stop protected by the 50ema just below S1 resulted in +1.5%

 

EFFECT OF THE NEWS LOOKING FORWARD

 

Price Action from the Jackson Hole summit will be key to trends going forward. Look towards Gold as some direction for the US Dollar. Fed Chairman Ben Bernanke is known for his dovish stance and eventually many are forecasting another wave of QE will come, in which case the US Dollar will most likely fall and Gold rally. If some clearer action on the ECB ESFS bond buying scheme is released then we could see some aggressive US Dollar selling. Seasonally, Gold has a bullish run mid-September due to various religious festivals and the run up to Christmas so we could see an aggressive rally depending on the outcome of the Jackson Hole summit and/or September 13 FOMC statement.

What does Rocky and a Trader have in common? A real rags to riches story....

The market has settled down slightly as we approach the Jackson Hole summit where traders are looking for key decisions surrounding QE3 from Ben Bernanke. Interestingly, Draghi was due to speak at the summit but has cancelled so all eyes will be the USD and Gold. If there is no hint of QE3 then expect USD longs to recoup some ground.

Trade update: Still long on EURNZD from 3rd August, still long on Cable and short NZDUSD! Have also entered USDCAD long on the double bottom inside bar.

Whilst the markets sort themselves out towards the end of the month I wanted to share an incredible story with you. It is a reminder to everyone that no matter what circumstances you may find yourself in, there is always a way to turn things around if you're committed. I've known about this persons life story for a while and it is one of the most motivating and inspirational stories I know off. It shows how anyone can achieve their dreams with incredible belief and perseverance. The story is of Sylvester Stallone, the Hollywood actor best known for Rocky. The perception to most people is that actors live a glamorous lifestyle and life is easy, which is partly true. However, their journey to that level is one of the hardest there is. I know actors and the sacrifices they make to achieve their dreams are just incredible. Trading is no different. The perception of a trader is a life of financial freedom, which again is partly true once you have earned it and worked for it. Everyone's life can be amazing if they are willing to make a small sacrifice for longer term rewards. This story inspires me every time I read it and I want to share it with you all. Feel free to comment or share any other inspiring stories:

The Sylvester Stallone story is a true rags to riches tale. He rose from an almost impossible situation to the fame and fortune that he now enjoys.

Stallone attended school in Philadelphia where he first started acting. He then spent two years instructing at the American college of Switzerland in Geneva. When he arrived back in the United States he became a drama major at the University of Miami where he also started to write. He left before graduating and moved to New York to pursue his acting career. He auditioned for almost every casting agent in town with no success. He decided to turn more towards writing and started to write screenplays while waiting for his acting career to take off.

His first break was in 1974, the lead in "The Lords of Flatbush". He also received his first writing credit for additional dialogue on this film. Despite this small break he struggled to build momentum. He kept auditioning with one rejection after the next. He started writing more screenplays and received similar rejection.

Stallone had run out of money and was living in a desperate situation. He could barely even feed his family. Then one day he was walking through the streets of New York and he wandered into the library to keep warm. He started reading books from writers such as Tolstoy which gave him an extra edge in his writing.

However, he was in desperate need to get work but wouldn't take an average job as he knew he wanted to be an actor and that was it. He resorted to things like selling his wife's jewellery!

Whilst sitting at home watching a fight between Weppner and Ali, where the underdog Weppner was getting slaughtered but kept getting back up, did he find his inspiration for Rocky. He wrote for over 24 hours straight and had written the entire script to Rocky.

He tried to sell the screenplay to many producers with rejection after rejection. This went on for months and he ended up so poor he had to sell his best friend, his dog. Stallone waited outside of a local liquor store asking everyone if they wanted to buy his dog. Someone eventually bought it for $50.

He persevered with trying to sell the story and eventually someone loved it and agreed to buy it. However, Stallone wanted to play the part of Rocky. They declined and told him he was a writer not an actor. Stallone disagreed and told them he was an actor. Despite how broke he was, he declined their offer of over $100,000. Weeks later they contacted him with an even higher offer but Stallone still insisted that he play Rocky. Once again they declined. The offer kept rising as they were desperate to buy the film without him playing the part of Rocky. The price eventually reached $400,000 and he still declined. He believed he was an actor and there was absolutely no compromise.

Eventually, they offered Stallone $25,000 (from $400,000!) just in case he was an acting flop and the film didn't do well. He accepted and the first thing he did was go back to the liquor store to buy back his dog. He waited three days for the guy to come by. He offered the guy $150 to buy back the dog, the man declined. However, Stallone kept pursing his goal and eventually ended up paying $15,000 and giving a part in the film to get his dog back, who is also in the film.

What happened with the Rocky film? It won an Academy Award for best picture in 1976 and went on to create a successful franchise with four other films in the series. At the awards ceremony Stallone read out all the rejection slips from those who said the film would be sappy, predictable and a film that no one would want to watch.

This just goes to show that we all have the resources needed to overcome any obstacle and achieve any aim we have in life, no matter what your age, background, colour or gender is.

Anything is possible. Our imagination combined with persistence and direction will ensure we can all live the life we dream to. Just ask Sylvester Stallone, he knew his outcome and persisted; now he is living his dream.

Watchlist

Happy Bank Holiday to all my UK readers!

I'd like to thank all my readers, all over the world, for your comments. They help me to understand what helps and drives us as private traders and hence, making this blog more relevant, applicable and useful. Any comments on any posts are much appreciated!

Below is my watchlist on Forex as well as US equities:

FX

CADJPY - Trading with the higher highs and higher lows of this uptrend, price has retraced to July's high which is the intermediate high of this bullish move. The shallow retracement to the 38.2% Fibonacci retracement of July's low to August's high also indicates bullish momentum. The inside bar provided the price action entry to this trade and a potential target is above the previous swing high to continue the up trend. CAD could be well supported by the bullish Euro and Stock Indices move due to its high correlation with Oil and, subsequently, growth.

GBPUSD - After the Ascending Triangle break of 1.5780 resistance level, this is now support along with the 50% Fib retracement from 16 August's swing low, which was the last leg up before price broke through the resistance level. The buy zone is from 1.5790-1.5768, so intra-day traders looking for an earlier entry have to bear this in mind. Daily traders will look for strong price action reversal in this zone. Potential target of 1.6000 round number.

US Equities

Trend continuation stocks:

Intra-Day Gaps - Measuring/Runaway or breakaway gaps depending on cycle

Friday wrap...

MARKET NEWS

The beginning of the week saw a risk on breakout of an otherwise range based market. The Euro grinded higher on hopes of ECB bond buying. Whilst the German government and their member of the ECB are in favour, the Bundesbank have been holding out. The move was further escalated by heavily overweight short positions on the Euro banking profits on positive Euro announcements, such as rumours circulating on Thursday that Spain will formally request a bailout. Much of this week's price action has been based on this expectation, as that is the only time the ECB will initiate their bond buying scheme which will put a cap on Spanish borrowing costs and allow the macro picture to play out. However, the main focus of the week was on the FOMC statement and the Fed's stance on additional QE3. The main points led to the prospect of additional quantitative easing at the September meeting, unless the economy picks up significantly. This is in response to the Fed's view of risk to the downside due to Europe and fiscal cliff. This caused a sell of in the greenback and further fuelled the Euro and British Pound rallies. However, the New Zealand Dollar and Australian Dollar have experienced lower volatility as weak data and negative economic news announcements come out of China. USDJPY caught the brunt of the FOMC statement as it got obliterated on the news announcements and wiped out five days worth of gain in one hour. 

TOP 5 TRADES OF THE PAST WEEK

1. EURUSD - Ascending Triangle Break Long 22.08.2012 The higher lows on the daily chart supported a break of 1.2440, trading the retest of the break and waiting for price action reversal (4hour low test) this trade is currently up 1.5%

2. EURUSD - Pivot Long 22.08.2012 As price broke through near term resistance, trading this phase two pivot resulted in +2%

3. USDCAD - Power Pivot Phase 2 Long 21.08.2012 Low Testing of a horizontal support level at 0.9840, as well as its oversold condition this trade is still currently running and up +1%

4. GBPCAD - Double Inside Bar Power Pivot Long 20.08.2012 Extreme indecision at horizontal support 1.5500, trading the breakout and this trade is currently up +2%

5. DJIA Stock Index - Engulfing Reversal Bar Short 21.08.2012 Reversal bar off a four year high, this trade is currently up +1%

EFFECT OF THE NEWS LOOKING FORWARD

All eyes are on Spain's formal request for aid, to activate the ECB bond buying scheme which will be short-medium term Euro bullish (although much is being priced in already) and key US news announcements to provide an additional edge over the Fed's decision on additional QE3 in September. Next week's US GDP numbers on Wednesday and the Italian 10year bond auction on Thursday will be useful indicators if price action supports the move. As always, let price action lead your analysis as most things tend to be priced in. Regardless of what you think should happen, trade what you see is happening now as that is what counts. As a trader we have to adaptable and change with the wind.

FOMC meeting...

FOMC meeting summary:

• Major decisions left to September meeting
• Fed views risk to the downside due to Europe and fiscal cliff
• Many believed new asset purchase program could boost recovery by lowering rates

The Fed set the stage for additional QE unless the economy picks up significantly, making the meeting in September a key date for traders. In the interim, we have the ECB meeting, the German court decision on the ESM and if it is constitutionally allowed. Should make for a great September after the recent ranges!

There are some key seasonal patterns in September on Gold and other commodities. I will be sending out a watchlist over the bank holiday weekend. 

Trades I'm currently in: EURNZD long, Equities and Stock Indices long....these have been going for some time.

Markets I'm currently watching: USDCAD (after talk of potential rate cuts from BOC Carney's; CAD sold off), GBPUSD long @ 1.5791, EURCAD short @ 1.2461, Gold/Silver long, AT&T long.....more detail to follow.

Of course this is an indicative watchlist, some of these trades may not trigger or I may not take them depending on factors needed for me to place a trade. This is just the Selection stage, the next two stages are Timing (waiting for the confirmation of buyers and sellers) and Management......once all three line up correctly then that is the trade to take. 

Weekly wrap....

Slightly earlier than usual but wish you all a great weekend!

With mixed economic data released across most western economies, the majority of currencies have ranged against the Greenback. Momentum and volume has been relatively low, which can be typical this time of year, with volumes in the US stock market at 5 year lows. However, UK retail sales surprised the market on Thursday with a rise to 0.3% against an expected of 0%. Traders covered the move in an otherwise lacklustre market with GBPUSD rallying to a 100 pip move. The MPC meeting minutes from the BOE on Wednesday further added some support for the British Pound as several members stated that more QE is still on the table. With a European holiday midweek, and light mixed data from the EU, traders looked at the bond market for clearer direction. Spanish 10 year yields were at a one month low which helped underpin Euro into a 140 pip range for the week. In Asia, the JPY has sold off aggressively against most major currencies as US 10 year Treasury yields increased. Higher rates in the US tend to support a stronger USDJPY as Japanese investors look for higher yields than at home.

Next week's FOMC statement on Tuesday will be watched closely by traders to ascertain the Fed's stance on more QE3. Ben Bernanke set the market up for action in September's meeting, depending on the economic data released during that period. However, with rumours circulating that the ECB will enact its bond buying scheme once Spain requests a bailout, the US Dollar may see some volatility going forward. However, we can never predict news and most is generally priced in. Always follow price action as a leading indicator as that is how we make money right now, rather than something that may or many not happen a few months down the line.

Elite Performance - similarities between Usain Bolt and Steve Jobs

The past week has been extremely enlightening for me with the unity that the Olympics has bought to London and my work at The Prince's Trust. Watching athletes who train for four years for that one moment of glory and working with individuals whose purpose in life greater than themselves. The similarities were that they are doing what they love and happen to be very good at it. This made me think how I have progressed as a trader and hence what creates a great trader. I have been asked this questions many times and the same people keep on asking me the same question looking for a specific set of technical answers. Of course, we have to know about the technicals (price action, risk management, etc) but that is only 10% of developing as a trader. The path to elite performance is the same in any field no matter what the medium or goal is but the questions is how to get to that point? Is it an innate ability? Is it a developed skill?

Some interesting psychology work of Sandra Scarr, was reviewed by Brett Steenbarger, a trader and clinical psychologist. What she found was that genotypes shape phenotypes; people with inborn characteristics seek out particular kinds of environments which cultivate those characteristics. Thus, brighter people seek out brighter peers to stimulate their intellectual growth. The less brighter people never seek out such environments so tend to lag behind their more gifted peers. 

As with traders, we see young traders who pick up markets and technical information a little quicker. These individuals tend to get snapped up by asset management companies and big banks and are positioned in a more stimulating environment and successful trading environments. I have three friends who are several years younger than me all working as traders for big institutions, trading capital and making bets that will make most people burn out in a day. The average retail trader, most of the time never experiences a stimulating environment and progress at a modest pace. 

Talent and environment are not enough: 'It is how your talent or skill set brings you to superior environments that stimulates and motivates you to create exponential learning curves and elite performances'. 

For example, Usain Bolt. There is a huge debate on the different genes that African-Americans/Afro-Caribbeans have compared to Caucasians. After all, out of the 80 individuals in the whole world who can run 100m under 10seconds, only one is white. However, Michael Johnson, made an important point.....in most of the countries where these fast sprinters come from, sprinting is the national sport. Usain Bolt and such likes are role models, it's the same how young kids in the UK aspire to become a Premiership footballer. In some of those countries sprinting is just as big as rugby or football here in the UK. It's the environment that helps bring out the talent. 

For those of you have read Steve Jobs Autobiography, he talks about something based on the same principles. He was known for being very aggressive with his employees and would sack people with no emotion or sympathy. However, what was his reasoning for this? He believed that A team people only want to work with A team players as they stimulate each other's intellectual growth. As soon as a B team player comes in, they bring the group down to B level standard and so on. This obviously proved to work very well as Apple are currently one the most innovative companies in recent years. 

So how does this relate to my own personal trading? Well, my own trading dramatically improved once I found an environment of like minded people that bought out the best in me. I was stimulated to be the best trader I could be and the motivations were all similar. This is why it is so important to find someone who motivates and challenges you, be it a mentor, a partner or trading friend. How has The Prince's Trust helped me? Well, everyone is there for the same specific person....to give back. Sitting in a room training with CEO's and multi-millionaire business owners was inspirational in itself but it was what the group bought out of each other that was the most interesting aspect. Most people came out feeling more satisfied and inspired than they did walking in at the start of the day. 

Sometimes, we do not have the ability to find such like minded people so I believe it is important to follow this mantra, which I do on a daily basis: 'Be a better person before you go to sleep every night'. Whether you've learnt something to make you a better trader, whether you've spent time with your kids and left a long lasting impression with them or whether you've finally finished that chapter of that book your reading.....have a sense of achievement every day. Just like trading, little and often helps build an account.....little and often makes us a better person. 

FX, Equities Watchlist - Bullish on US stocks

Below are a few charts that I'm currently looking at. Whether the reversals on Friday were due to short covering before the weekend or the start of a bigger move (which weekly divergence on the Dollar Index suggests) remains to be seen. This is why I'm not looking to get into too many positions right now but rather wait for price action to confirm what trend the market is in. Remember the first rule of trading is to: Not Lose Money.  This is Warren Buffets number one rule, his second rule is to follow rule number one!

Over the last few months I have been posting about the US stock market and how it is in for a seasonally bullish period due to the US elections. I know some of you have caught some of the rallies in the stock indices, so congratulations. I've added some US equities I am currently looking at. Remember that anything other than price actions is a potential bias and additional edge.....price action has to support our decision making process as that is what is happening right now.

Good luck!

AUDJPY - In the middle of a 3 year range, price has broken through a level of resistance 50% of the range. Potential target is to the upper range around 88.00 and an additional bonus is we are the right side of the carry.

AUDNZD - I've put this chart up a few times stating that this currency is poised for a potential break. Some of you have already positioned yourself for the break as have I. However, look for a break of resistance at 1.0350-1.0380 to target the next highs. 

DJIA (Dow Jones Industrial Average) - Bullish low test engulfing bar suggests a potential break of this year's highs. 

KO (Coca-Cola) - Strong cyclical uptrend, buy on dips to levels of support (moving averages, previous highs, etc)

XOM (Exxon Mobil Corp) - This looks poised for a break through resistance at 88.40. Target the all time highs at 95.00. This is in line with a potentially bullish bias on the US stock indices.

Friday wrap...

The markets opened quietly at the start of the week with EURUSD held in a two day 100pip range. Traders paused whilst analysing the volatile price action from Draghi's comments last week. The US Non-Farm Payroll also provided a mix picture as although more people found employment during last month (163k against a forecast of 101k) the unemployment rate rose marginally higher (8.3% from 8.2%). However, traders were looking for some type of commitment for the ECB and ESFS bond buying scheme for the Spanish and Italian markets. They were disappointed as it now looks likely that no decision will be made until September 12 when the German constitutional court rules on the ESM. The greenback rallied against most of its counterparts as investors shied away from risk. The JPY experienced whip-saw type price action fuelled by a surge in US interest rates, fears of a Japanese ratings downgrade and political instability as new elections takes place. The AUD lost ground late in the week as the RBA Statement suggested a strong AUD will be a drag on growth as well as the impact of weaker Chinese data.  

For next week:

It seems as though European and US central banks are looking to September for any type of significant action, if any is to be taken. However, the BOE MPC Meeting minutes (Wednesday) and CPI (Tuesday) will be closely looked at as the Bank of England Governor Mervyn King heightened the possibility of a rate cut when downgrading UK growth to zero percent for the year. Whilst we can never predict news and most is generally priced in, be careful of intra-day volatility around these news announcements. Always follow technicals first and foremost as that is how we make money right now, rather than something that may or many not happen a few months down the line. 

Trades update

Hi all, sorry for the delayed posts but I have been working with The Prince's Trust the past week (post to follow on the inspirational and amazing things I've learnt and seen!) but due to a few emails from some of you here is an update on some trades I'm currently in, expired or currently looking at:

USDCAD - Although this stopped out on an end of day basis, the intra-day entry off the 4hour chart provided a decent 3:1 (reward:risk) trade

NZDCAD - My stop has been moved to break even and the intra-day entry off the 1hour chart has been banked at 4:1. The end of day scaled in entry is still running

FTSE 100 - This trade broke through the resistance level as I previously suggest would happen. The entry was the inside bar retracement on the 4hour chart. Looking to re-enter Long on a pullback

GBPCHF - Currently long on the re-test off the strong support level at 1.5110, 4hour entry and scaled in on an end of day inside bar entry

AUDNZD - Currently long trading at the bottom cycle of this ascending triangle, waiting for a break of the resistance level at 1.3100

EURGBP - Short off a retest of the 3 year low and 50dma

NYMEX Crude Oil - Potential false break of $90 as RSI diverging and 100sma crossing 200ema. Could also be an Elliott wave 4. Short off today's high test bar

Happy trading!

Friday wrap...

As mentioned last week, all eyes were on the ECB Press Conference and specifically Draghi's speech. After raising the bar very high last week, albeit too high without the approval of the Bundesbank, with the comment '[the] ECB is ready to do whatever it takes', traders were looking for specific details on what that means. At the minimum a rate cut was expected if not a commitment to buy bonds. However, Draghi lost his credibility in an extremely disappointing conference and traders called his bluff. Euro sank 270 pips in less than 4 hours. However, the main points from the conference were that the 'Euro is irreversible' and that each country is responsible for its own debt. Elsewhere, the FOMC statement was closely watched but the market did not react as traders awaited the ECB Press Conference and today's US Non- Farm Payroll. The Fed left rates unchanged but are still closely monitoring incoming information, especially employment figures, to weigh in on their decision on QE3. The UK Manufacturing PMI number fell to -45.4 a 36 month low which led to Morgan Stanley lowering growth forecasts and Prime Minister David Cameron to vocally support the Chancellor George Osbourne. The US stock market also took a hit on Thursday's opening in reaction to Knight Capital's algo going wild and distorting market volumes.


Today's NFP will potentially give some strong trend bias for the coming week. Next week's RBA statement could provide some volatility around the AUD and Gold, as it is the choice for hedge fund managers in search for yield. After such strong moves from key news announcements the markets will typically range for a while so it is important to trade with overall sentiment and be disciplined and patient at the beginning of the month.

Coffee futures setting up for a seasonal trade

The US Dollar experienced slight bullishness yesterday on the back of the FOMC statement which stated that rates will be kept hold until mid-late 2014 and that if the economic landscape progressively worsened, QE3 will be available. Commodities (priced in $) also rallied on the back of this. One trade in particular that looks interesting is Coffee Futures (KC). Seasonally, late July to early August is an aggressive bullish period, historically rallying up 2% before giving it back in a sharp move lower. Therefore, we have seasonals and price action (chart below) weighing on a bullish sentiment. Credit Suisse recently came out with a report (http://www.bloomberg.com/news/2012-07-31/credit-suisse-raises-coffee-price-forecasts-after-bottom-1-.html) which suggests that coffee traded in NY has found a bottom and it is currently trading around fair value which further supports a bullish case.

The above factors give us an edge in the market but is by no means a guarantee, it is important when learning to trade any market that you always think about risk management first and foremost.