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

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