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Archive for December, 2007

euraud.jpg Anyone remember how we had looked at some recurring patterns on the CAD/JPY, a few weeks ago? The EUR/AUD is doing it too. Let’s see if we get a repeat performance¬† – although the CAD/JPY got the smack-down today and that run is over. Unsurprisingly the EUR/AUD’s major tops and bottoms align in the same time period as the CAD/JPY’s, but interestingly the commodities (AUD and CAD) are heading opposite directions. Let’s see if the pair bounces back from today’s fall, after it broke out yesterday.
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gbpjpy.jpg Hey don’t forget about the GBP/JPY‘s extra special super pattern it’s gradually forming. I’ve been saying for months it is better to avoid trading this pair (because it is a mess). That may be changing. If it breaks lower, enjoy the massive head and shoulders and a ride of hundreds, thousands of pips lower. Outrageous I know, but keep watching – remember this discussion 2 months ago?

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mixedsignals.jpgHeads up and head over to the Trading Psychology section up top, I’m finally working on that sucker.

I put a list of “top 10 trading mistakes new traders make” in there. There’s a history to this list. Eric Utley here at Investools emailed all us coaches over a year ago regarding what we see the top mistakes of new traders to be (so, I helped create this list). Honestly, you couldn’t go anywhere else in the world to get better answers. There’s a lot of us, we’ve taught traders for years, and we trade.

He promptly put it up on the stocks site. Some months ago they took it down. I asked Eric about it but the guy never saves anything. I wanted to find it to put it here … so I googled it. I knew with our gobs of students out there someone would put it on a site, blog etc. Where I didn’t expect was to find it is on a commercial site (Realmoney.com) with no credit due to us (credit went to some Jim guy). they even mislabeled it – it’s not the top 10 mistakes that traders make, but that new traders make. NEW, people!!! I don’t know any traders who have traded a while who keep making these mistakes and keep trading. Sort of pisses me off actually.

Anyway, horrendous rant/tantrum over. Most of you will recognize this stuff as what we say all the time, it definitely is our flavor or trading, some of you may even remember it if you’re a stock student too. Enjoy!

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fallingdollars.jpg Psst! Did you notice? Someone poked out of its channel yesterday.

Encouragingly, it closed near its high. The way to trade this: don’t hop in now, wait for it to calm and buy the bounce. A few hundred pips in the bank, anyone? …

eurusd4.jpg

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cadjpy1.jpg It’s not hard to look half-way smart when you talk about something (CAD/JPY) for weeks and then it happens, gloriously … when it’s a red-hot currency or currency pair. But let the real lesson not be lost: the lesson about picking battles and going for the best bets.

To be super annoying, let me quote myself (really, so I can just copy and paste and not re-type it):

Why not look for the obvious trade? A definite resistance break, a definite bounce off support in a great trend, etc.? After all, we can only manage a handful of trades at a time, so let them be the best.

The loonie just broke 400 pips higher against the yen. Depending on where you got in, you’d be up at least 300 pips by now. this also shows limitations of oscillators identifying overbought/oversold: for something super-hot, they scream wolf too much. Go here for an article discussing when to heed this and when not to, select the 11/09 archived article. Breakout situations like we just witnessed with this pair are often exceptions many traders make to “don’t buy when overbought/sell when oversold”.

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koruna.jpg If you’re sick of the sloppy, end-of-the-year shuffling a lot of the pairs have done, look no further than the Czech Koruna for an awesome trend. The thing remains on fire! The Czechs are pretty progressive for the old Soviet bloc, and they have a sound economy which has been outpacing most others this year.

The strategy here is pretty simple: short the GBP/CZK, thereby buying the Koruna, at an appropriate buying signal, preferably while the CZK is not overbought according to an oscillator.

This is a good trend-following type of trade, rather than a pure “swing” trade you hop in and out of. The spread on crosses like this can be hefty, meaning once you get in you’ll want to stay in for a while.

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yearendcomp.jpg Here is the year in review as a comparison chart (left, click to enlarge) comparing the major currencies, in this case versus the euro. The worst performing currencies, the USD and GBP, were down about 9% vs. the euro. The best, the loonie, was up about 9%%.

What happened this year?

The year had a lot of positives for most currencies: the global economy was booming, and so commodity currencies economies sold lots of stuff!

But this always only goes so far. Inflation ramped up, and central banks began lowering interest rates.

Then came the U.S. real estate mess.¬† Interest rates were higher than they were a few years ago, and lots of folks got hit hard as their short-term get-me-in mortgages forced them to refi at a higher rate. Many defaulted. Supply started flooding thet market and things slowed way, way down in real estate, didn’t they?

Not only that but bond portfolios related to all of this started going bad. Lots of funds with exposure to real estate and mortgages got hit hard. Banks started trusting each other less, making it harder yet to access cheap loans. Fear entered the market and the Fed lowered rates more, the dollar tanked, governments started diversifying out of dollars and into things like euros, economies started showing signs of flagging … ah, ’07!

180px-john_william_waterhouse_-_the_crystal_ball.jpg Looking forward:

Commodities still look strong. The dollar still looks weak, the euro strong. The carry trade – shorting low interest paying currencies such as the JPY and CHF – may only be just getting started in its unwind. As economies around he world slow, people start peeling their bets back, and many of the bets were paid in yen or francs, so that increases their value as they are bought back up. A little bit of discussion regarding the fundamentals can sure help shed some light on interpreting this comp chart. Remember, though, at the end of the day it simply comes down to following a good trend (ahem, looking for opportunities to buy euros) and using a simple method to time your entry into that.

¬†( “The Crystal Ball” by John William Waterhouse: scrying in crystal)

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