On hearing the news I was thinking about shorting Euro/USD over the weekend to catch the gap Sunday night.
I have never put on a trade like that before,Although I see the market open down often on Sunday nights I was wondering what more experienced traders think on it?
Best thing to do is not to think about it at all.
Hi.
There’s very little doubt in my mind that EUR/USD will gap down. Problem: you’re obviously trading with a broker that allows you place orders outside of market hours. If you can place a STOP SELL order it will be slipped. In other words: it’ll be executed at the low of the gap and normally price will retrace after that. Basically: you’d be setting yourself up for an immediate losing trade UNLESS price gaps down and keeps going down but you would have missed a lot of pips in all probability. But you’re not going to get it executed at the closing price on Friday night. That you can count on.
There is one POSSIBLE solution for you and it can be found here:
Technical Trading Systems at TechTraderCentral - Clearing Up Price Level Trading Introduction
Essentially: it’s the total opposite of what it is that you’re wanting to do. If there is an opening gap down, you’d wait for the price to retrace to its open, and THEN short EUR/USD at market (or place a limit sell order at or around the opening price) and then hope that price starts moving down and continues to do so (continue the downtrend). Just make sure you manage your risk carefully because of a lot of the time this type of news is already built into the price (although given the severity and sheer number of these downgrades I doubt this is the case in this case). Remember also that I don’t trade Spot FOREX. Would I use this strategy on the Paris CAC40??? For sure.
So one of two things can happen: using the above strategy you do stand the chance of missing the trade altogether if price doesn’t retrace enough and simply gaps down and keeps going. If you place a stop order over the weekend: you’re going to get short at the first available price that is available to the broker which will be the lowest price made by the opening gap in all probability. If price retraces: you’ll be in a losing trade. But price could then turn and continue on its downtrend. You could POSSIBLE combines BOTH strategies. Place a limit sell order a few pips below the close of Friday and place a stop sell order at the same price. That way you’ll get in late, with any luck price will retrace, your limit sell order will be executed, and you’ll have halved your loss made at the open (or shall I say ‘average up’ your price). Then you’ve got hope that it drops from there (which I believe it will anyway).
That is what I would do if I were able to place orders outside of market hours.
The usual disclaimer applies: lose money it’s not my problem!!! LOL!!!
Regards,
Dale.
OH ye of little faith!!! LOL!!!
Regards,
Dale.
… and great wisdom.
O.
And the alternative is… It could gap up.
Play the levels, and don’t try to predict those kinds of things. Your account will last longer.
You know that it has already had a 100 pip move down on that news don’t you?
Don’t automatically assume the bottom will fall out of the EUR as a result of the S&P downgrade. The downgrades were expected and may have already been factored into the current price levels.
Sometime the FX market moves contrary to the current prevailing news. Some of the biggest users and market movers of the FX markets are multi-national corporations hedging currency exchange rates for the countries they do business in.
When EUR prices get down to levels where the multi-nationals start to see wonderful bargains, they will step in as big time buyers and turn the whole thing up side down.
Think about a corporation like BMW, German headquarters, manufacturing and a big market for sales in the USA, Rolls and Mini divisions in the UK, and huge sales all over the world. How would they be handling FX exchange rates? What would they be doing with EUR at these lower levels?
If you look at the COT options reports you will see corporate long EUR/USD contracts are at very high levels, maybe even record high.
And, S&P downgraded the USA back sometime in the summer, if you can, pull up a chart of the Dollar Index you will see a very nice USD increase since August 2011.
Don’t forget Warren Buffet’s advice, buy when there is blood on the street! 
Thanks for the info guy’s, I’ll wait to see what happens, maybe short after the pull-back!
Exactly.
Those guys aren’t in it for the trade, they’re in it for the true exchange. But they are easily some of the biggest market movers.
They leave piles of money on both shores, and wait until they can get the best bang for the buck to either repatriate, or re-invest.
Could you be kind enough to explain in simple word (Technical/Fundamental view) what WB said?
joynal2u,
My understanding of the term “Blood on the Street” means panic and fear on Wall Street, a big drop or crash in the markets. Buffet suggests that is the best time to buy quality stocks.
For example, in the fall of 2008 when the US market dropped Starbucks was trading down around $8 a share. Today it’s up around $40. If we had the courage to jump in back then, when it looked like the world was falling apart, we could have seen a nice return!
I hope that make sense.
PS I just googled “Blood on the Street” it seems Baron Rothschild, an 18th century British nobleman and member of the Rothschild banking family, is credited with saying that “The time to buy is when there’s blood in the streets.”
Here’s a link to investopedia for the rest of the article.
Buy When There’s Blood In The Streets
Good morning everyone.
Some very useful and insightful information posted here (my first post being a possible exception) so the thread starter should be grateful!!! LOL!!!
But (my fault) I think (in my case anyway) we’re ‘cross posting’. My sole interest in what happens to EUR/USD is based purely on my interest in (and the testing of) Adam Theory at the moment hence this thread ‘catching my eye’ and my posting here.
That being said: the eqity curve of that system detailed in FuturesMag is a trader’s ‘wet dream’. Unfortunately (fortunately???) it is specifically designed for the the E-mini S&P Futures (not CFDs). One of these VERY fine days: I’ll let you know if it works!!! LOL!!!
Regards,
Dale.
And by the way and just as a matter of interest:
While some of these quotes may or may not have credence: the question is WHEN do you deem there to be ‘blood of the streets’??? I’m not being my usual ‘coy’ self here. But as you know: I keep an ‘ever so watchful eye’ on Bank of America. When it was trading at $2 ‘something’ would that have been considered ‘blood on the streets’??? I only ask because somebody mentioned StarBucks at $8 which is now at $40 (I trust those prices to be correct i.e. I’ve not checked). Who knew that $8 for StarBucks could be considered at ‘blood on the streets’ at the time??? See where I’m coming from and why I’m asking.
Sorry to the thread starter: I know we’re (I’m) off topic (but still something to learn from this I think).
Regards,
Dale.
Just for the record, I don’t think that what you have written here is that accurate in what the COTs actually means and what commercial hedgers actually are. In fact I think a lot of people on babypips (not necessarily you) go on about COTs and commercials as if they are something that they are not.
Pfft Remember when it was trading at 1800 then down to 4-6 bucks then there was that brief moment of a straight shot up to 56 then slam back down to 5 faster than you can say lacucaracha
Could we please have your explanation on what the COTs are, and how that differs from what everybody else thinks.
Sorry but your comment is very vague.
People here seem to think that commercial traders are an entity who is trading in the fx market like a big stupid trader. What commercial hedgers are, are the people who have the ESSENTIAL role of taking physical delivery of the currency as you trade. So if you are shorting fiber (buying USD, selling euro), the commercials allow you to do so because they are taking euros from you and are giving you USD (there are steps in between such as the interbanks and your broker of course). But essentially as traders are going increasingly short on the euro, commercials are stockpiling actual euro currency (not a leveraged derived products, but actual currency you can buy clothes in).
They are not doing this because they are stupid, and have no idea what they are doing, but they are an essential part of the fx market. If commercials ceased to take long contracts on the euro, and traders continued to short, then they would have no-one to sell euros to, except other traders who don’t only hold leveraged cash positions, and the fx market would cease to exist. So when traders are short, commercials MUST be long otherwise the whole system would not work.
Commercials do not idly sit by with these physical euros. Unlike traders, they can actually use them, because they are physical. So they can use them to invest in the stock market, buy bonds, or loan out to companies or people on the street. So even though all these short traders are making money from the trade, commercials are also making money by loaning out. Commercials are the guys who are swindling banks on 7% loans, who then in turn swindle man on the street for 12% loans. So there can be slight differences because commercials can take money out of the fx cycle by putting it into non fx related business activities.
BTW, commercials are not people like Volkswagen, BMW etc. VW is a CUSTOMER of these commercials, they do not directly intervene in the fx market. The idea that VW are stockpiling euros is just ludicrous, do you actually think VW have been buying euros for the last 3 months?? For what purpose would that serve? They are not an investment company - they are interested in the price of car parts, steel, etc. The only people who could conceivably be stockpiling euros would be an international CUSTOMER of VW car parts who has primarily dollars and sees a bargain in euros.
Commercials can intervene in the market yes, because they are not about to make a loss on their physical cash. If they bought at 1.35, they are not going to stop out at 1.3 because they are physical, not leveraged, and can just stick the money in the central bank for interest if the worst comes to the worst (as indicated by this months ECB record high cash deposits). When the market turns for some reason, and trader shorts decide to close, or start going long, they are going to laugh at traders and want their 6-7% profits. So when traders start turning, then commercials are not going to be selling the euros back to traders at the same rate (ie if they bought at 1.35 they will offer at 1.37), and the market will switch up rapidly.
What I think most people here believe having spoken to people on chat and skype is that commercials are some highly stupid trader who is going long when everyone is short. Basically COTs can go on being record numbers as long as the traders are shorting. I have read here for the last few weeks that the price must turn because commercials are at record highs. Commercials are only going to start reducing their long positions (or stockpiles of physical cash) when traders start going long. And you will see that on your price chart, not COTs.
The alternative is that Volkswagen cars (a German company) is so popular that people are need euros to buy their cars, or so many people are going to Greece on holiday because the economy is improving that the millions of tourists need euros, or that people are beginning to borrow euros to start businesses in Europe, that commercials need more euros and start going long in the market. Of course, more car orders, more tourists, more loans means the economy is improving, so the fundamentals are causing a shift up in commercial orders which would cause a discrepancy in the COTs.
When people here talk about commercials I really think they are just making up what they saying from partially understood knowledge they have read from a blog or post and are just quoting what they have no idea about.
So in summary - COTS:
- Commercials are essential for fx trading because they take the other side of the traders trade allowing it to take place.
- Commercials use the cash for ‘real world’ demand from consumers
- Commercials long positions will always go up with traders going short
- When traders start going long, then commercials will start to close their long positions at a profit
- Alternatively, commercials can start going long in euro if euro economy improves as real world demand from consumers improves
So commercial long positions going up means either
- Traders are going more short OR/BOTH
- Real world demand for European products and economy is going up
So commercial long positions can go up and up until traders go long or economy improves, and the reading of COTs that most chatroom ‘experts’ give is a load of rubbish.
Now a lot of people are going to read this post and lie to themselves and say “oh but thats what I always thought what COTs was” but the reality is that most people who talk about COTs and commercials, as I gained the impression was that commercials were some dumb super trader who was snapping up a bargain in the euro for the last 3 months, trying to pick a bottom. Someone was saying that the price was going down because although most commercials were long, the biggest 5% of commercials were short and that’s why the price was going down, and no-one was questioning him.
If this post has enlightened your understanding about COTs, please ‘like’ this post. Hope you learned something and also makes you aware that not everyone on babypips actually understands what they are saying.
I usually find out that there was ‘blood on the street’ sitting on my butt, after having slipped on it, hehe.
O.
How can you even POST a post of that nature after a post of such high quality as that of goldenmember’s???
I too need to post a post here but thought I’d least congratulate him on that post and the information contained therein BEFORE I post my ‘junk’!!! LOL!!!
Anyway: nice post goldenmember. I’m 100% sure you’ve cleared up or made clear many things that a lot of (new and experienced) traders have been taking at face value and not really thinking about. COT reports mean nothing to me of course but I know (or have seen that APPARENTLY) many see them as ‘the keys to the kingdom’.
And by the way with that knowledge and understanding: you’ll have no problem being popular girls (sorry: I forget the exact title of your fantastic thread)!!! LOL!!!
Regards,
Dale.