DailyForex.com Blog

I have mentioned before in this blog about watching the dow chart in order to trade the GBPJPY and the EURJPY currency pairs.  This method works great, it really shows how the market, US stock market and the forex market, is feeling about risk aversion at any given time.  As soon as I turn on my computer at 5am NYT, I am checking the dow futures chart.  This gives me an idea of where the yens pairs are going: up or down.  If dow futures up, then yen pairs most likely will go up.  Now, today was the interest rate decision, the Fed again cut the rate by .25%.  All morning long the dow was heading up and I continued to buy GBPJPY for about +110 pips.  I closed my trades prior to the news coming out, too risky.  After the news, the dow came back to close below 0 for the day.  I am thinking that this was partly due to profit taking as this was the end of the month, and amazingly the US stock market has made a nice retrace back up for the past month and a half.  So now I am wondering:  will the Dow continue up, marking its low in March as THE LOW, or will the market consolidate or possibly head back down?  Of course, I do not care that much which way it goes, as a forex trader, but it helps to have an overview to put some direction to the yen pairs.  Lately I have been trading the yen pairs exclusively, partly due to being able to use the dow futures as an added indicator.  Let’s see how May pans out.  Good trading.

I think the hardest part of trading every day and becoming profitable was when I finally, finally learned to love to take a loss.  It took a long time to change my thinking about trading and to bang it into my brain to cut losing trades quicker and to let winners go longer.  Sounds simple, I know.  Emotions ruled my trading at first.  I kept thinking that I could find the perfect strategy and not have to worry about taking too many losing trades.  I searched and searched.  I came across this quote that I keep in front of me while I trade every day: “Your losing trades do not diminish you as a person.  You are not your losing trades.  You are also not winning your trades.  They are simply by-products of the business that you are in.”  I had to take the emotional attachment out of my trading.  I kept holding onto a losing trade thinking that it could, should, might, hopefully turn around and go in my direction.  Well, at least half the time that does not happen, so I would end up losing more.  I learned to close losing trades as soon as I saw that it was a loser, whether that be a couple pips loss, 20 pips loss, whatever.  Move on to finding another trade.  Then likewise, hold on to winners longer.  I do like to take half profit when a trade reaches a first target or +50 pips.  Then let the remainder run longer and move the stop loss up to protect profits.  Once I learned to LOVE to take a loss and move on to another trade, I found that my weekly gains started to compound so much faster.  Trading is such a head game.  By predefining and cutting my losses short quicker, I am making myself available to learn the best possible way to let my profits grow!!  If you can change what losing trades mean to you and realize that getting out of a losing trade as soon as you define it as such, you will be able to release yourself from the stress that those losing trades probably cause you now.  Less stress, less fear of loss, more time to win!  Thats the name of the game.

There is a beautiful example of an inverse head and shoulders pattern on the DAILY GBPUSD chart.  It is unfortunate that I cannot post charts here.  But it is super amazing this particular pattern because price took out a trendline down from the 2.0340 peak three days ago, and then price retraced back to the trendline and then back up to create the right shoulder of the pattern.  So in order to trade this chart pattern, I will wait for price to break the neckline which is at 2.0024.  At that point, I will watch the price action, hopefully a move up then retest of that price then I will feel good about entering a BUY trade.  Since this is the daily chart, there is potential for quite a large move.  Measure from the head (1.9600) to the neckline (2.0024) and you get 424 pips for the target.  So that would put the target at 2.0448, but I see that the previous peak was at 1.0395, so I will be targeting that instead.  I do also see a trendline down from the peak at 2.1148 some weeks ago, it now comes in at 2.0135 area, so will have to watch how price interacts there.  Of course, with all chart patterns, nothing is 100%.  The neckline may not break to the upside or there may be a fakeout, so much will need to be taken while trading this.  But head and shoulders pattern do work nicely very often!!  Good luck.

Every day while I am trading I have CNBC business news channel on.  It offers some breaking news items but mostly I like to watch it for entertainment purposes.  Occasionally they will discuss the currency markets, they have some pretty decent experts talk about the USDJPY or the EURUSD, usually very basic and big picture.  Well, today was a different story.  Today CNBC interviewed an expert who was showing a chart of the US stock market, the dow index, next to a chart of the EURJPY currency pair.  He was showing how the EURJPY and Dow index move very closely together.  And, he pointed out, that EURJPY is very close to breaking an important level at 161.00, and if that happens and this pair continues up, he expected THAT to be a very good signal that the US stock market had indeed made a bottom a few weeks ago and would be heading back UP.  Wow, I was surprised and pleased that the media was trying to pay more attention to technical analysis, the media has for so long been strictly a news and fundamentals purveyor.  So there you have it, technical analysis has finally caught on with the media.  Hope that does not mess it up for all of us tech traders!

EURUSD has been heading back up again, came within 40 pips of the all time high today.  Since we have a double top in place at 1.5900, I continue to buy this pair up to this level, but as we get closer to it, I just keep taking profit.  I am wondering if price can actually break this level?  I do see a chart pattern forming, like an ascending triangle, which is a bullish pattern.  The weekly chart has been riding the 5ema for weeks now, and maybe there is some divergence showing up that may back this pair up again to the downside.  Tomorrow is the interest rate decision for EUR and also GBP, which could propel these pairs for some great trading.  Today was nice and easy upside pips on both GBPUSD and EURUSD.  As usual, I will wait until after the news data comes out for 5-15minutes before making any trades.

So today I snagged +50 pips on EURUSD long, and was lucky to get out before the subsequent fall of more than 100 pips.  Meanwhile my GBPJPY short went nowhere and I finally decided to close it with a minor loss of -14.  But now I have returned to check the charts before bedtime and look at most currency pairs are in tight ranges.  Tomorrow should be good pippin!  The 4hour AUDUSD chart shows all the major moving averages all bunched together within 50 pips.  This pair has been in a retracement down for the past weeks, it could be ready to start heading back up.  I certainly would like to buy it cheap!  USDJPY is also in a similar situation, ready to break out of this range.  Also EURUSD has been hovering near 1.58 for 4 days now, today an attempt at the high, almost made a double top before plummeting back down, and now I am seeing some divergence on the higher time frames for continued short bias.  So I am making notes on my trade cheat sheet with the break out levels that I will look for tomorrow to trade.  Since AUDUSD bounced off the 50% retracement at .9000 some days ago, I could probably buy this pair now, but I will wait for a break of the hourly 200ema.  On the EURUSD I have noted an inside candle on the weekly chart, so break of last week high should be good for continued buying.  Potential for shorts to start too, so I have noted a daily close below the 5ema and I will sell instead.   Also, with the start of the new month, I have noted all the new monthly pivot points.  The USDJPY weekly and monthly pivots are within 30 pips of each other, and price is working to break above it right now.  as soon as yesterday’s high at 100.17 is broken, I will be buying this pair up.

Remember when I blogged about inside candles some months ago?  Well, I have been testing the inside candle trade but on the 1 hour chart, with quite good results.  Here is a great example of the this trade from today:  Check the hourly chart on the GBPJPY.  At 10am edt a small inside hourly candle formed after a very large up candle.  This candle closed outside the hourly bollinger band.  Now, what I like to do is then switch to the 5 and 15min charts and watch for price to break the bottom of that small hourly candle, this was at 201.10.  Sure enough just a couple 5min candles and price begins to come down.  So I entered a sell trade at 201.08.  I also noted that the 50 ema on the 15min was pretty far down below where price was, about 100 pips away.  I made this 50 ema my target.  I was surprised at how quickly price started to fall, and it helped that the dow was coming down at the same time during this New York session.  I was able to take profit at the 50ema for about 100 pips, just in about 30 minutes time!  So far in my testing, this hourly inside candle trade works about 80% of the time, which is pretty good.  Typically I will set the stop above the high of the inside candle, just in case price goes against the trade.   It is important when trading this way to be aware of the hourly trend vs. the daily trend.  For example today, the hourly trend was up but the daily trend is down.  So I was thinking that there were more sellers waiting to sell the rallies, in order to trade with the daily trend.Â

Pretty interesting moves in the currency markets the past two weeks.  EURUSD has been shooting up the past two weeks and hit another all time high at 1.5900.  USDJPY also made new lows, along with USDCHF.  So today, with the big Fed rate cut decision we really saw some big retracement today, with USD strength (for a change).  So after a huge fundamental news announcement like this, I really have to sit back and reevaluate the market and conditions.  Big reversal time or is this merely retracements??  Commodities too came down in price today: oil and gold.  So now I may step aside for a day or two or just take smaller intraday trend trades and be quick about taking profits until I see a clear picture again of trend.  Its perfectly fine to stand aside and wait for the market and charts to tell me which way to trade.Â

Did you know that you can trade commodities in the forex market?  Gold is at all time highs near $1000 per ounce.  The australian dollar follows gold prices quite nicely (AUDUSD).  Check how this pair has been trending up along with gold prices.  Now, since gold hit $1000, it may pull back now, it is hard to say if it will continue on this trend.  But, since I like trading trending currency pairs, I am watching this pair closely.  The daily chart looks like it is ready to break up past its recent high at 0.9496, since it retraced to the 50% just a few days ago and has staged a nice rally back up.  If AUDUSD breaks this high and retests it and continues up, then I will keep buying this pair.Â

Today was fun trading.  This week I have been listening to the live trade calls at www.forexrazor.com just to test out their service.  This trader strictly trades the news, meaning, he waits for important economic data to be released and if the data deviates from the expectation he immediately will place a trade depending on the price action.  Pheww!!  It is fast and furious this type of trading, and usually is just going for about 10-20 pips.  Unfortunately his method today lost him a few pips on GBPUSD because the price action immediately after the USD ISM news release at 10am EST was so volatile.  I prefer to WAIT an entire 5 minute candle to close before making any trades after heavy news data releases like this.  The great thing about news trading is you can visit www.forexfactory.com to see the current list of news events scheduled and then next to it they give you the importance or expected volatility associated with it.  So today, for example, the US ISM non-manufacturing data shows RED for “very volatile”.  I personally like to trade JPY pairs for news trading, they move alot.  So precisely at 10:05am, at the 5min candle close, I entered a Long GBPJPY trade at 206.10 and took profit of 95 pips in about 15 minutes.  Not bad!!  after 3 candles of retracing, price started to continue up again, also following the US stock market index, the Dow.  So I reentered another Long GBPJPY at 206.80 with a target now at the hourly 200ema.  Another 80 pips in my pocket in 40 minutes.  Now here is another good trading idea that works often:  If price rockets up to hit the hourly 200ema and stalls, it will likely retrace.  So I entered a Short trade on the GBPJPY at 207.30 for 50 pips profit.  I probably could have gotten more on the Short by entering quicker at the hourly 200ema, but no big deal.  That was +225 pips today!  Today was all about news momentum and then retrace, pretty typical currency moves.  It helps to wait those 5 minutes after a new release to see the price action, then dive in.  Safer that way!