With the fall television season opening this week I hardly expected the most entertaining show would be on Fox News. I watched the House of Representatives debating (glorified public speaking, if you want a debate watch the British Parliament) the bailout, excuse me, Economic Intervention Plan live on my iMac this morning.

I figured the bill would pass easily until one Republican express concern it may not during his speech, at which point I thought things may get interesting.

The crown jewel of today’s “debate” was Nancy Pelosi’s speech in which she pondered:

“How did it sneak up on us? So silently, almost on little cat’s feet.”

Indeed Madam Speaker, this one was a mystery. Who would have thought there was something inherently wrong with the “system” when a bland tract home sporting concrete counter tops would sell for $850,000 in an area where the median annual salary barley cracked $50,000 and those already financed were pulling equity out of said “American Dream” via their HELOC’s at historic levels year after year after year?

I’m not an expert like those smart guys on Wall Street or the “esteemed” and “distinguished” folks in the halls of government but come on, little cat’s feet?

If Pelosi needs an analogy, how about this one to cover the warning signs that were available:

I’ll never forget suggesting to a friend of mine in February of 2006 to delay buying a home in California because the bottom was about to fall out. He told me I would miss out if I kept “waiting on the fence.” He bought two homes and lost more than $100,000 in value within the first two months of closing.

Look I don’t want to see people lose their homes but let’s get real here. The growth and prosperity of the past few years was financed and resold at leverages up to 60:1 and it is time to pay the piper.

I think the most interesting shot of the day was a split screen between the house vote and the Dow Jones big board on Fox, the image below says it all.

Enough commentary, let’s get back to trading!

Ryan

Since most bloggers are pontificating on the coming congressional bailout I thought we could look at a lighter topic for today’s post.

My Favorite Trading Tool

Every trader has a favorite tool or indicator to enter a trade but what is your favorite tool to keep your mind off trading while a quite market bores you to tears?

In the corporate world you are rewarded for daily output and many people have a hard time adjusting their work ethic to include doing nothing day after day when a trade just isn’t there.  Consistent waiting can drive some people mad and many relieve the stress by forcing a trade when they shouldn’t so I am curious, how do you prefer to break the monotony of a slow or volatile risk filled market?

I keep a bass guitar by my trading desk and when I am not spending time with my Wife I play the crap out of that guitar. I also find it useful for keeping me away from the market once I have a trade open so I don’t take profit to early. Even though I’ve been trading for years, I still take profit too early sometimes.

How do you avoid making stupid, unnecessary trades just because you are board?

Share your thoughts or comments by clicking here.

What about that USD/JPY short?

I had to laugh this morning when I saw Rich’s comment about my USD/JPY short. He thought we hadn’t made money on that trade proclaiming “yall got screwed on that one”. Reality is by using proper trade management a lot of you, including myself, made plenty of money on that trade.

The only mistake I made on this trade was not taking 400 points I had floating ahead of the Fed interest rate announcement last week. I really thought Dollar would fall further but I was wrong and my trailing stop was tagged.

I had a 125 point trailing stop ahead of the Federal Reserve rate announcement so I made 200 points on the first half and 125 points on the second.

When will I trade again?

While this kind of volatility is sought by some traders I prefer to stand aside and watch the fun which is why you haven’t heard from me in a couple of weeks. I’m not going to trade when I read liquidity is so bad some financial institutions actually shut down their FX trading desks temporarily.

I haven’t taken a trade since the 10th of September and I plan to stay flat for a few more days. Once Congress hammers out this bailout plan and the world has time to absorb it we should see better trading conditions. I’m not going to ramble on about the financial meltdown or the actions of Washington except to say it boils down to a stunning failure by people who know better to manage their risk.

This should be a good lesson for all of you trying to make a buck through trading:

Regardless if you trade mortgage backed securities, currency, soybeans or Bennie Babies risk is the only factor you can determine when you enter a trade, understand your exposure at all times and be merciless when cutting a loss short.

Let’s start watching for some good trades in September post bailout!

Have a great weekend!

-Ryan

After Friday’s close I was afraid I might have been early selling the USD/JPY but what a difference a weekend makes. I expected to close the position with a small loss tonight but instead find myself 200 points in the money.

Who knows what will happen next with this pair so I took profit on 1/2 my lots and moved the stop to break even on the other half. I’ll let the other half ride through the Fed announcement on Tuesday assuming I’m still in the market.

Big news of the weekend is that Merrill has cried uncle under the weight of their mortgage paper and has been bought by Bank of American for $50 billion. Lehman’s deal has fallen through and they are expected to be insolvent come Monday while AIG has called the Fed for some emergency funds.

Check out these articles for more information:

http://news.yahoo.com/s/ap/financial_meltdown;_ylt=A0WTUfn75c1I0vcASwms0NUE

http://news.yahoo.com/s/nm/aig_dc;_ylt=AiXPcE3SL4DD7lWonAa30R5v24cA

I’ll be looking for some good trades following the Fed announcement this week so stay tuned. I will also update you when I take profit on the other half of this trade.

Best of luck,

Ryan

I was 100% correct on Dollar weakness going into Thursday and Friday unfortunately I picked the wrong pair. Initially we got a good drop but the $106 level is providing very good support. For a stronger profit I should have sold USD/CAD or bought GBP/USD. Hindsight is always profitable eh?

While I was content to give this pair time to fall it is unfortunate the market closed back inside the channel Friday which invalidates the sell signal. I will look at closing the trade when the market opens next week.

I’m glad to read emails from people who took a bit of profit early; Ryan from Texas booked 97 points and Doug from MI got 121 points which is fantastic! Helping you trade better and make money is what my blog is all about.

Have a great weekend!

Ryan

Yesterday I posted a channel breakout trade on the USD/JPY in which I sold the pair at $107.54. Dollar has been on the march across the majors so Michael wonders if I have lost my marbles by selling the Greenback as he comments:

Hi Ryan. Good to hear from you again. But this trade setup u made today makes me wonder. Considering the fact that dollar is very strong across board, then what is logic that will make this pair go against the dollar. Just want to know if u have any other thought that will validate this trade. Thanks

I realize this trade is contrary to the current trend but I’ll layout my logic in this post and you can sit back and watch the fun as it unfolds.

First, the big picture of USD/JPY weekly chart is a downtrend. The recent bullish Dollar move has really been a pull back into the 50% Fibonacci level of the larger Dollar sell off.

Second, the daily chart channel has failed. A second channel has formed which is weaker than the 1st and it broke out of the 1st channel last week. While the pair recovered following the bailout news it has broke down and closed below the channel yesterday and today. This is a bearish technical sign in my point of view.

Third, US Fed Fund Futures have begain pricing in a 19% chance for a .25 bp rate cut.

Fourth, regardless of Dollar strength the fundamental picture for the U.S. is terrible and I believe it is starting to catch up to the Dollar bulls.

This will be a longer term trade than I usually post. I expect to have this open at least a week, probably two.

Best of luck,

Ryan

The NFA released FCM financial data for the month of July today. This information is released monthly and offers you some insight into the financial health of your broker. I encourge you to keep tabs on this data and note significate changes in their net capital vs net captial required.

The data is available at this URL:

http://www.cftc.gov/marketreports/financialdataforfcms/index.htm

Rich, publisher of the Forex Project blog also maintains a great site called Broker on Top which tracks the data for you.  Check out that site at  http://www.brokerontop.com/

Ryan

The U.S. Dollar broke out and closed below the long established daily chart ascending channel yesterday. This morning we are testing previous support and I like a short around $107.60; personally I am short at $107.53 following a stupid blunder where I bought at $107.60 instead of sold! Argh! I hate that!

My initial profit target is the $104.80 level although I will keep a close eye on Friday’s low of $105.50.

If this is truly a breakdown of the daily chart channel, we may see as low as $103.50 over the coming weeks.

Be patient with this one and best of luck,

Ryan

Last week I didn’t post a single trade for a couple of reasons. First, the volatility in the market made it tough to select a high probability, low risk trade to share with you. Second, my internet connection was off and on Wednesday and didn’t work at all Thursday, Friday and Saturday so here I am while I still have internet access!

We saw some big moves today as you might expect on the first trading day after Fannie Mae and Freddie Mac were taken over by the government, the street loves a good bail out. Frankly the behavior of privatizing profit and socializing losses makes me sick.

The see-saw action has made it difficult for a support and resistance trader such as me to find decent trading opportunities so perhaps this week we can settle down and find a direction again.

September’s Trader Survey

I started blogging to help you trade better and hopefully make some money in the process. I’d like to learn more about my readers so September’s Trader Survey asks the question “Do you work full time?” I’m looking at ways to make this blog more useful so your input is very much appreciated.

Hopefully some good trades will come later this week, stay tuned and stay patient!

Ryan

Patience is probably the hardest discipline for traders to master. When you’re used to working for yourself, in an office, or you’re just an “A” type personality it can be frustrating to wait for a setup.

Never take a trade because you think you should be doing something, anything, in order to be a “trader” every day when the opportunities are thin. When you trade longer time frames several days may pass between setups and patience is crucial.

This week the market seems edgy while it digests multiple fundamental reports, central bank announcements and every trader’s favorite spectator sport, the Non-Farm Payroll report.

Currently I don’t have anything on my watch list but that may change as the week rolls on.

Stay tuned, and good luck!

Ryan

Photo credit: Point-Shoot-Edit