I wrote an article for the “Forex Project” blog which deals with over trading and offers some techniques I use to avoid unnecessary trades. If you would like to read it I invite you to click here or visit www.forexproject.com.

Along the topic of over trading Gary asked the following question in yesterday’s comments:

So how many trades have you made in August? I’ve made about 25 (I think I’m still over trading), somehow I think you’ve made significantly less. How many trades do you average each month? Just curious.

Thanks,
Gary

I made 8 trades this month, 7 winners, 1 looser and booked a total of 825.4 pips after all my lots had been squared. Six of the trades were blogged as they developed and judging from the emails I’ve received readers made money off those trades which is fantastic! I usually take 4 to 8 trades a month.

In my opinion over trading is a behavior trait rather than the number of trades you take. If you’re taking trades outside of your trading plan, after you have met monthly goals or because you are board you’re over trading is likely caused by a lack of discipline.

I usually only take one to three trades a week. I shoot for 50 to 100 pips a week and once I get that number, I am done for the week. One hundred pips a week may sound low to a trader grinding out 20 trades a day on a 5 minute chart but I don’t like to watch charts and low stress suits my lifestyle just fine.

I’d like to hear your thoughts on over trading. Is it a problem for you? What do you think it’s root cause is? Share your comments with us by clicking here.

I am really looking forward to the Labor Day holiday here in the U.S. and I hope you have a wonderful weekend in your corner of the world.

Ryan

The other day I jokingly told a friend if I didn’t take a loss this month nobody would believe my trading record for August. Coming into this week I had managed 100% accuracy for the month but fortunately my credibility has been restored when I took a loss on Wednesday, heavy sarcasm here.

In poker there is card known as the “kicker” which is simply the highest card in an otherwise weak hand. Players may bet into a hand when they have a high “kicker” and suspect their opponents are evenly matched. You may have heard someone say “He has a pair of sevens with an ace kicker” which describes their mediocre hand but at least the player has an ace.

When trading technical setups every other trader in the world is looking at the same chart you are so you need an advantage in order to make the difference between trading with strength and trading with mediocrity. I try to mix solid technical setups with fundamental strengths as my kicker card. The problem with using fundamental data as a kicker is you don’t know exactly when the kicker will be dealt. When the fundamental calendar has two major releases the market often waits for all the data to be released before making a big move, patience is a virtue.

First, the Dumb Trade

Yesterdays EUR/USD short was fundamentally flawed for two reasons:

1. I’ve never had luck trading trend line breaks inside channels. You’d think I would have learned my lesson by now, click here to see what I mean. I should have waited for the market to trade near the channel extremes which is a much better technical setup. In the middle of a channel is a no-man’s-land where anything could happen.
2. The durable goods data was great but the market was waiting for GDP data before the bigger move. I should have realized the fundamental kicker would come today and remained patient.

Second, the Genius Trades

Of course I don’t proclaim myself to be a market genius but contrasting the execution of this morning’s trades with yesterdays, it was pure genius.

GDP data came in very strong completing the fundamental kicker so I looked for an opportunity to get long Dollar. There were two pairs trading near the edge of channel patterns which were EUR/USD and USD/CHF.

The Euro looked particularly weak to me thanks to bad IFO numbers and bad data out of Germany all week long. Remember we are always looking to buy the strongest and sell the weakest.

I waited for candle stick patterns along the channel boundaries shown in the chart below before entering short EUR/USD and long USD/CHF. I realize these are correlated pairs and while effectively I may have been “doubling up on dollar” I liked the basket approach because Euro looked particularly weak, Swiss Franc tends to move on risk appetites and I believed in dollar strength. Additionally, there is nothing wrong with taking multiple positions as long as you’re not violating your account’s overall risk ratio.

“New York Hammer” trades are intra-day trades only, I do not hold them over night. I took 83 points on the EUR/USD and 81 points on the USD/CHF.

Although I wasn’t able to post these trades in real-time, I wanted to share the thought process I went through so you can learn from my one mistake and one success this week.

I hope you made some money today, it was a great market.

Ryan

This trade looked really good this morning after durable goods data was released; click here to see the original trade setup.  With GDP numbers scheduled for tomorrow I felt this trade had a chance to run Dollar to the bottom of the descending channel. Unfortunately the predictions of larger correction in Dollar seem to be holding true and the market found good support along the $1.4660 line.

I usually don’t post where I put my stop orders for three reasons:

1. I don’t want to influence you to take on more risk than your account can handle if my stop is to big.
2. I want you to create your own stop techniques, every trader needs their own style and there are many options for placing stops.
3. For me stop orders are the last resort in risk control, I don’t stick to them if other factors tell me to get out early.

This morning is a good example because my trade setup depending on the market holding below the trend line that had broke across the descending channel.  When the market closed above this trend line the trade was invalidated and I closed out my position early. There was no reason to wait around for my larger stop to take me out.

If you are new to my blog and wondering why I let a 50 point trade turn into a small loss I encourage you to read my recent post which discussed fixed stops vs. trailing stops. I’d love to hear your opinion on it.

This week has been somewhat frustrating because I missed the NZD/USD long off the ascending channel around .6950 and right now the pickings look slim. We still have two more trading days so stay tuned!

Ryan

I like trend line setups with fundamental strength behind them and this morning I’m shorting EUR/USD on the back of the U.S. durable goods data which was very strong.

A lot of folks think the EUR is good for one more swing up to around $1.49 before heading lower but I think the fundamental picture is ahead of that game now. The chart above tells the trade’s story and I will keep you posted as this trade progresses.

Click here for a run down on the durable goods data.

Best of luck,

Ryan

I feel like the bad blood between me and the Canadian Dollar has been temporarily repaired thanks to this nice drop.  This morning I speculated the pair could reach $1.0440 and sure enough, it stopped right at that profit target.

I think the pair could reach $1.0380 but frankly I’m not willing to let 180 points float for the potential of gaining 60 more when Ben Bernanke is scheduled to speak tomorrow morning. I took the 180 points on my remaining lots tonight and I am calling it a week.

-Ryan

Yesterday I was quite concerned about the success of this trade, especially when $1.06 provided support two days in a row. If you want a refresher, the original trade setup is here. The Canadian retail sales report was bullish CAD but reflected for the most part an increase in energy related sales, not consumer activity per say. So if I ‘m being honest I’d have to say I was jittery about this trade.

Fortunately this turned out to be a classic example of being patient and letting the market do it’s thing. Ahead of the Canadian CPI report this morning it paid off with the pair falling to the bottom of the channel for a cool 93 points.

I’ve taken half my position off as profit and protected the other half with a break even stop order at $1.0625. I think this pair could fall to the $1.0450 area which would be the 38.2% pull back zone of the big dollar rally. That is what I’m targeting with this 2nd lot.

I hope this trade was a good example of finding a technical setup and combining it with potential fundamental kickers.

Take care!

Ryan

This morning I got short USD/CAD based on the original setup I posted here. The bearish engulfing four hour candle was enough to get me short at $1.0625. I had to wait for the pull back to minor resistance as shown in the chart image above. Don’t ever sell into the bottom of a rally, get the best price you can.

I think this trade is in good shape for the following reasons:

1. Canadian data continues to be strong with wholesale sales m/m increasing by 2.0% vs. an expected .07%.
2. The U.S. is dogged by more financial sector worries and oil is finding support around $113.
3. Wholesale inflation for the U.S was higher but new home starts were stale, not convincing for a rally.
4. Check out this article: “US bank to fail within months“, hearsay but effective.

Tomorrow’s retail sales report from Canada will make or break this trade in my opinion. If the number is very positive that could take whatever wind is left in the sales of this Dollar rally out for the short term.

Overall the sentiment for dollar seems bearish and I expect further consolidation down to the $1.0550 zone.

Loonie is a volatile pair so be patient with it and don’t trail to closely with your stops.

Best of luck, stay tuned.

Ryan

Many readers have asked me how I “read” market sentiment so today I thought I’d try to explain how I do it with a sell idea on the USD/CAD.

In my opinion “market sentiment” is simply the collective mood of the market when weighing two currencies together. Since each spot transaction consists of a buy and a sell position you really need to ensure you are pairing a weak currency with a strong one in order to buy strength and sell weakness.

The hard part about gauging market sentiment is that it plays out in real time and changes over the course of a trading week so you must keep up.

You need to understand what the market is expecting and what they are getting as economic data is delivered throughout the week so fundamental reports are key to getting a grip on market sentiment for a given currency pair.

Generally I pay attention to four things:

1. Price action, where is the market trading right now?
2. What fundamental data is arriving this week?
3. What is happening in the correlated markets right now?
4. 4) The position of institutional speculators on the Commitment of Traders report.

This list isn’t in any particular order just the top 4 things I scour data on when looking at a potential trade. With those indicators in mind, let’s take a look at the USD/CAD.

Where is the market right now?

The dollar has been on a 750 point rocket ship against the Lonnie since the 15^th of July but it appears the market may be building a top to this rally, why do I say that? I’m glad you asked.

The rally represents a breakout from the nearly seven month long range that began in December, 2007. If you measure maximum width of the trading range you will find the amplitude is about 660 pips. Breakout traders usually use the width of the trading range preceding the breakout as their profit target so from a technical point of view it makes sense the rally is consolidating around 700 pips.

As a channel trader, I like the descending channel but we have to be careful. The consolidation range may be a bull flag.

What fundamental reports are anticipated this week?

When I consider fundamental data I like to find a pair that is not evenly matched with fundamental data over the course of the trading week. You put the odds in your favor that one currency will beat up the other currency if its data is good and is unchallenged by data on the other pair.

So far, the U.S. isn’t starting this week off very well with equity markets falling on bad financial sector news today. Loonie has plenty of opportunity to beat up the Dollar this week including:

1. Tuesday: Wholesale Sales
2. Wednesday: Retail Sales
3. Thursday: Core CPI

Basically I’m looking for more bad news for Dollar and more good news for Loonie with a bearish bounce off the descending channel before I will short the pair.

Stay tuned and good luck,

Ryan

Following up from last night I am happy with how this trade ended up. Tonight the market is trading near the top of an ascending channel which is our profit target for this USD/JPY long.

On my original post I speculated this trade would make a nice long back up to the $110 level and I just closed the trade at $110.28.

Not a bad week overall. With only one trade we did 90 points on the 1st half and 164 points on the second half of the trade.

I am going to call it a week and wish all of you a wonderful, relaxing weekend!

Ryan

Every once and a while you catch a rally from the very bottom and ride it to the very top. I think I can count the number of times I’ve done that on one hand but it sure is fun when it happens. I got long USD/JPY following the retail sales numbers when the pair failed to break below the support levels I pointed out in last night’s post. Click here to see the original trade setup.

I decided to lock in some profit at 90 points and moved my stop order to break even on the remaining lots.

The Dollar rally was interesting in the face of soft retail sales numbers and rising oil so if my stop survives the London session this should get interesting when the CPI numbers come out tomorrow morning.

If you read my post on the FOMC’s statement (click here) you know I believe the Fed is turning their attention to the “inflation factor” so a strong CPI number may boost the Dollar.

Additionally the Yen is looking weaker tonight as the numbers have been soft all week and tonight’s Tertiary Industry Index missed the mark lower as well.

Overall I feel this trade is in good shape with 90 points booked, a break even stop and a positive interest rate carry.

On a personal note, I was very pleased to read the comments by Bernard and Bill this evening. I blog because I like to help people learn to trade and make some money. I’m glad to read I was able to do both with this trade. I’m also very thankful you take time out of your day to read my blog.

Best of luck!

Ryan