Successful trader’s motto: Let your profits run, cut your losses small.
In week 37 review part 1 on EURUSD, i posted on why it is vital to your trading account to keep losses small. In this post, i am sharing why it is equally vital to your trading account to let profits run.
On Wednesday 12th Sept, i gave another live call to long AUDUSD when it touches the 3rd point to form the rising channel. See link.
This trade turns out to be a correct trade. It collected more than +100 green pips. See point 3 on the rising channel.
On hindsight, i could have let my profitable long trades on 07th Sept to continue running. But hindsight is 20/20. I cannot trade on hindsight. Successful traders trade with foresight. Now, i have a new mind game to learn. I have to train my mind to let my profits run even further! Trading is a mind game.
In my previous preview on USDJPY, i mention of the possibility of Bank of Japan (BOJ) intervening the Yen FX markets. See link below.
Forex Mind Games: WEEK 33 (13-17 AUG) TRADE PREVIEWS PART 1
Thus far, nothing has happened yet. However, i believe the intervention is near. Remember that Central Bankers has political pressure to maintain the stability of their country’s currency. Japan is a mainly export country. Think Sony, Toyota, Toshiba and Honda. Japan is a country which relies strongly on their exports, they would prefer to keep their currency weak. When the Yen strengthen too much, high-ranking government officials will voice their displeasures through the media. It is them telling the currency speculators to get out of my turf.
When the same rhetoric such as:
“Watch out and get out of the way!! I am going to do something soon!!”
is repeated multiple times by the Japanese officials, the market is fore-warned. We are the retail traders. We do not have the financial muscles to go against the markets. In the forex ocean, we are the shrimps, and we follow the whales. If BOJ does intervene, watch for a 200-300pips USDJPY bullish spike in a single day.
Potential intervention zone around 75.50-77.00. How to trade this intervention? Open a sub-account. Transfer a small amount of money to this sub-account. Highly important: you may need to hold this trade for weeks. So do ensure you have enough money in the sub-account to meet the weekend margin requirements.
Place a limit buy order anywhere from 75.50-77.00
Stop loss below 75.00
Target profit 80.00
Yes i thought of it. My trading methodology is such that i scale out with increasing profits. However, i do try to let the final 10% of my position run as much as possible.
The high for last week was set on Friday at 1.6250, about 50pips from the mentioned 1.6300 resistance zone. How was i able to call it in advance where GBPUSD is going to go? It took me about 3 years to learn this skill. I am not 100% accurate. But i am slowly improving. Trading is about understanding where price wants to go.
Let me illustrate. Imagine i have 3 children. After observing my 3 children for many years, i can make a rather excellent educated guess to how each of my 3 children will behave in certain situations. Lets say i bring to them to a zoo and the children saw a snake. Based on my past observations and my understanding of the temperament of each child, i know how each one will react to the snake. Child A got bitten by a snake before, and he will run away from one. Child B is more adventurous, he is not afraid of snakes and will stroke it. Child C is more cautious, he will hide behind my legs until he is sure the snake is friendly before touching it.
Now imagine Child A is EURUSD. Child B is GBPUSD. Child C is AUDUSD. After watching their behaviors and movements for many years, i had develop an intuitive feel for what they are going to do and where they are going to go. Train your mind to discern the movements of each currency pair you like to trade. For me, USDCAD is sort of a wild child. I have little success predicting its movements. As such, i tend to stay away from trading USDCAD.
The idea is this. Find currency pairs which you can predict the movements with reasonable ease and accuracy. And avoid those pairs where you just cannot make heads and tails of.
Short GBPUSD near 1.6300-30
Stop loss above 1.6350
First target profit 1.6000
I tried to let it run before. It went +100pips in my profit and i did not take it. Then it turn around and took out my breakeven stop. I felt quite dishearten when that happened.
To prevent it from happening again, i rather take profits along the way. This way, if the trade trends further, i make more. If it turns around and stop me out, at least i took some profits.
Reasons for taking this trade?
•Previous swing low 0.9800-20 on the daily chart on 30th April 2012.
•0.9800-20 should act as resistane level once USDCAD crosses below it.
•Any rebound up to re-test 0.9800-20 should be a good signal to go short.
I took partial profits and brought my stop loss to breakeven. Hope to let it run and hit my target profit price.
This post is becoming like a soap opera or drama serial. I have been posting continuously on GBPUSD for past several weeks. Before reading the rest of this post, click on link below to get a re-cap on GBPUSD.
In the link above, I shared that a good potential place to short GBPUSD would be around 1.6300-30. This week GBPUSD tried to push above 1.6300, but it found heavy resistance. Unfortunately, i entered my short order at 1.6315 and order was not filled.
For those who have shorted at 1.6300, you would have made about +70pips. With minimal risk as the highest GBPUSD went was 1.6310.
There are 2 concepts to understand in trading. One, market is forward-looking. It always looks ahead. The pertinent question to ask in trading is not “What just happened?”, The stock market usually looks ahead about 6 to 12 months. However, the forex market only looks ahead for the next 1 to 3 months. For example, the market has been looking ahead for ECB and FED to do 2 things since mid-July. EURUSD was expecting ECB to introduce some sort of bond buying for troubled countries like Spain. And for FED to unleash QE3 to help pull the US out of its doldrums. Both of these programs were unveiled in September, which gives the time lead of about 1.5 to 2 months. This explains why EURUSD formed an inverted head and shoulders and turn bullish on mid-July.
Two, because the market is forward-looking, the better question to ask is “What’s happening next?” So what is happening next? What is the next BIG news that the market is anticipating for? The next BIG news is for Spain to request for an official bailout. So the ECB’s OMT policy can be officially started. The market expectation for the bailout is a matter of when, not if. When is Spain going to ask for bailout? There is some news from the Obama Administration to delay the bailout request until after the US presidential election on 6th November. So it has to happen before or after the presidential election. From what i can gather, my best guess is either between 20-31st October or 12-16th November.
From the technicals point of view, EURUSD is in a possible ABC wave correction. The bailout request is consider to be bullish for euro. Watch for it to turn either at 1.2740-50 (38.2% retracement) or 1.2600-10 (50.0% retracement) BEFORE the bailout becomes front page news.
Waited for 4 days before the price reaches 1.2500 on Thursday. I went short at 1.2517. However, i felt uneasy about this trade. And i went in and out of this trade quickly. Reason being despite the recent rate cut for AUD, AUDUSD remained strong and trended up well. Looking at the AUDUSD chart, it trended up from Monday to Thursday. Only on Friday it went down after failing to break above 1.0300. With the price action for AUD being strongly bullish for this week, i decided not to fight against the trend. Always leave the trading account intact to trade another trade.
Trade summary part 2 - AUDUSD
One of the reasons for the uneasiness on shorting AUDNZD was this. I attempted to short AUDUSD twice this week. First attempt show me a small loss. Second attempt was a breakeven trade. These 2 trades give me a strong hint that AUDUSD is trending up, and it is not ready to go down. Maybe AUDUSD will be ready to trend down for week 42?
Cable has been kind to me for this week. I went short on monday’s opening. And i have been holding my short position for 5 days from monday to friday.
I took partial profits along the way and shifted my stop loss to breakeven. Decided to hold the trade over the weekend. The best trades are the worry-free trades. As these type of trades move immediately in my favour without going near my initial stop losses.
It is approaching 1.0050-70, which is a significant pivotal support-turn-resistance zone. From the 4hr chart, it is clearly visible that USDCAD turns at this critical S/R zone. Watch for it to re-test 1.0050-70. Go short if it fails to breaks above this zone.
Short 1.0050-70
Stop loss above 1.0100
First target profit 0.9900
