Market turmoil in China is big news for the last week or so, also falling commodity prices. I’m going with a “RISK OFF” theme this week, which means my stronger currencies are the safe havens of USD and JPY, with EUR and AUD and CAD serving as the weaker side of my pairings.
Here is the link to my charts, along with ideas for Entry, Stop Loss, and Take Profit.
Just some quick updates on my last few trades. Only brief analysis here.
The first is my AUDUSD sell from August 31.
AUD weaker than USD. Plan from Jarratt Davis was to sell AUD on rallies. Good data on Building Approvals from Aug 31 sent AUD rallying. Sold at 0.7134 and closed in the morning at 0.7029.
Next is GBPJPY, also from August 31.
GBP is a bullish currency right now. Plan from Jarratt Davis was to buy GBP throughout the week, expecting good data to support the pound. Data was not stellar, and some huge risk-off sentiment sent JPY off to major gains. GBP was getting killed, and I held on for the BOE Bank Rate vote till Sept 10. Learned my stop loss lesson again, for like the third time in 2 months. This one should have been allowed to fail at 50, maybe 100 pips, instead of dropping over 500 into the hole, and miraculously climbing back out. Stupid trade management here. Maybe I’ve finally learned to put in hard stops.
Most recent trade was USDCAD from Sept 9.
USD is strong, while CAD is on the dovish side of neutral. I took a short position the night before the BOC rate decision. My plan was, should BOC cut the rate OR hold steady, CAD continues to weaken. Took profit shortly after the announcement to keep the Interest Rate at 0.50%. A Double Lot strategy would have worked well here, to lock in partial profit and let another position run.
I have no active trades right now. This is a good time to report on performance.
This week began with a review of Jarratt Davis’ weekly Risk Events video. I’m watching the news events and the corresponding market action as much as possible, and getting a feel for price action following an event. Knowing the schedule in advance, in my time zone, is absolutely necessary.
I like the concept of watching the market flow, and then riding the waves. For years I tried to identify signals based on confluence of several technical indicators, and never felt as in-tune with the markets as I do right now. Last night I scalped the Aussie.
At 7:30pm my local time, the RBA released the minutes of their most recent policy meeting, where they held Interest Rates at 2.0% on July 7. I waited for the information to come out, looking for any surprises. The information was in-line with Fundamentals and Sentiment, and so I made Entry Orders to sell (2) lots at 0.7368. My mental stop was 0.7400, and physical take-profit at 0.7352, just above major support at 0.7350. The risk-reward may seem a bit off, to risk 32 pips per trade just to make 16 pips per trade, but I wasn’t looking for huge gains below the major low, and my stop was high enough to prevent getting whipped out.
Market Sentiment
Market is expecting no new details, and possibly some dovish hints from RBA
Market Fundamentals
Trading Plan: if announcements are in-line with bearish bias on AUD, sell AUDUSD for small gain. Expect to hold position very short term.
Result: RBA minutes confirmed that their current policy is appropriate, and would be data dependent. Also that Q2 production would likely be slower than Q1, and that a weaker AUD is necessary for economic growth. I watched the action for a few minutes, waited for any spiking up, didn’t see it, and set my entry orders. They both filled, and both hit my targets about 2 hours later.
Comments: I’m happy about being in the moment with this trade. I had Sentiment in-line with Fundamentals, and monitored the important Technical levels to keep from getting greedy. The Double Lot strategy wasn’t really necessary here.
The results are ugly.
Based on my analysis from March 20, I kept USD and GBP as the strengthening currencies, and EUR, AUD, NZD, and then CHF (instead of CAD) as the weakening currencies. These are the positions I tested:
Short EURUSD
Short EURGBP
Short AUDUSD
Short NZDUSD
Long USDCHF
Long GBPCHF
Long GBPAUD
Long GBPNZD
All (4) short positions went up in value after March 20, and all (4) long positions went down. Not encouraging. Screenshots are listed below to start pin-pointing where the strategy is going wrong.
Short EURUSD
An entry would have been made to get short at 1.0700. Within a few days, price was above 1.1000 and would have hit a stop.
Short EURGBP
Price was at about 0.7250 on March 20, and within a few days climbed to 0.7375, opposite to my expectation. Stopped out.
Short AUDUSD
An entry at 0.7750 climbed to 0.7875 in a few days. Stopped out.
Short NZDUSD
A short entry anywhere near 0.7500 would have been stopped out by March 23 at 0.7625.
Long USDCHF
Would have gone long on USDCHF at about 0.9800, and then surely stopped out by March 25 when price hit 0.9500.
Long GBPCHF
A long entry at 1.4500 on March 20 would have been stopped out on March 24 near 1.4250.
Long GBPAUD
Would have gone long with GBPAUD at about 1.9250 on March 20, and in two days the pair dropped below 1.9000. Stopped out.
Long GBPNZD
Long entry near 1.9750 on March 20, and in two days the pair dropped under 1.9500. Stopped out.
Problems and Next Steps
Similar to my analysis from February, here are my assessments for each currency, done on March 20.
EUR (interest rate 0.05%)
USD (interest rate of 0.25%)
GBP (interest rate 0.5%)
JPY (interest rate 0.10%)
CAD (interest rate 0.75%)
CHF (interest rate -0.75%)
AUD (interest rate 2.25%)
NZD (interest rate 3.5%)
Backtesting on the price charts to follow.
Currencies are traded in pairs. The first currency listed is given its value in terms of the second. As in, EURUSD at 1.1411 means that a euro is worth 1.14 per US dollar.
My strategy trades strengthening currencies against weakening currencies, and the great thing about forex trading is you can easily take both long and short positions. Being long means I expect the pair to rise in value, and being short means I expect the pair to decrease in value.
Based on my analysis from February 12, I’ve selected USD and GBP as strengthening currencies, and EUR, CAD, AUD, and NZD as weakening currencies. These are the positions I would have taken:
Let’s look at screenshots of price action to see how these trades may have turned out, had I taken positions on or recently after February 12.
Short EURUSD
Price held around 1.1400 for nearly 2 weeks, but on Feb 25, it started a drop of about 900 pips to 1.0500 by March 15. The trade would have stayed alive if my stop was set above 1.1500, but I would have needed huge patience to wait 2 weeks for it to start moving, and to ride it down 900 pips for another 2 weeks. Direction moved as expected…eventually.
Short EURGBP
Price held around 0.7400 for a few days and then started dropping. Same as the EURUSD trade, this one needed patience to ride the move down to nearly 0.7000. May have worked quite well.
Short AUDUSD
Price was around 0.7750 on Feb 12, and hit nearly 0.7875 about 2 weeks later. This trade moved against me before it dropped, and possibly would have been stopped out before it moved down closer to 0.7500. Price did eventually move down, but only after it went up quite a bit. Hard to say if this position would have been a winner or not.
Short NZDUSD
If I took a position around 0.7400 on Feb 12, I surely would have been stopped when price moved above 0.7500 a few days later. This one was wrong.
Long USDCAD
On Feb 12, price was at about 1.2500. It dipped below 1.2500, but the position might have held if my stop was near 1.2400. Again, patience was needed to let this trade cook for nearly 4 weeks. Price hit about 1.2750 on March 17. Hopefully I would have been wise enough to take profit.
Long GBPCAD
With price at 1.9200 on Feb 12, this one needed to survive a drop of 200 pips to 1.9000 by Feb 16 before it climbed back up to 1.9500. I’m not sure if I would have used a stop that large to make this trade work. Probably wrong on this one.
Long GBPAUD
On Feb 12, price was at about 1.9850, but never climbed higher and just sank and sank. Most certainly this trade would have been stopped out. This one was wrong.
Long GBPNZD
Price was near 2.0700 on Feb 12, and then dropped like a rock. Would definitely have been stopped out. This one was wrong.
Conclusions
On February 12, I reviewed the recent economic data releases from the calendar on ForexFactory.com, and read linked articles on Bloomberg and Reuters. The following analysis summarizes my assessment for each major currency, and sets down my outlook as either UP, DOWN, or NEUTRAL.
After establishing an outlook, my next post will identify opportunities for trading strength against weakness, and then look at screenshots of actual price history to backtest the strategy.
EUR (0.05% interest rate)
USD (0.25% interest rate)
GBP (0.50% interest rate)
JPY (0.10% interest rate)
CAD (0.75% interest rate)
CHF (-0.75% interest rate)
AUD (2.25% interest rate)
NZD (3.5% interest rate)
My strategy will be based 95% on the fundamental outlook for a currency, and 5% on technical analysis to identify entries and exits. The plan is designed for “swing” trading, or holding positions for days, possibly a week. I’ll take both long and short positions.
I’ll be using only major currencies like US dollar (USD), Euro (EUR), Japanese Yen (JPY), Canadian dollar (CAD), Australian dollar (AUD), New Zealand dollar (NZD), British pound (GBP), and Swiss franc (CHF). For conducting research, I’m using the economic calendar on ForexFactory.com and the linked articles (usually Bloomberg and Reuters) that accompany each important data release.
Reading articles is the heart of my strategy. This information will help establish an outlook for each currency by (1) watching the same economic figures that a Central Bank is watching, and (2) assessing which figures are being prioritized by the Central Bank.
Here is how I’ll be identifying the fundamental strength or weakness of a currency based on Interest Rates, Inflation, and Quantitative Easing (or “stimulus”).
INTEREST RATES
INFLATION
QUANTITATIVE EASING (“STIMULUS”)
Next, we’ll review some recent data figures and formulate outlooks for each major currency, then backtest the strategy.
My name is Michael and I’m an amateur currency trader living in Canada. This blog will detail my efforts to become profitable by trading online with my FXCM account, starting with $100. The finish line for this goal is when my account has reached $1,000 from profitable trades (I’ll be posting screenshots of account reports that show deposits, withdrawals, winning trades, and losing trades). I have no idea how long this will take.
Some background.
Over the last six years, I’ve traded demo accounts and blown-out a few live accounts. All of my knowledge about forex trading is from books and online resources. No need to itemize all of it. I’m reading the same stuff you’re reading. All past attempts at using a trading system relied exclusively on Technical Analysis. I’ve used Moving Averages, ADX, Bollinger Bands, RSI, MACD, and several others, always thinking I could identify patterns and signals for entering trades. Every technical strategy has failed.
I have taught myself everything, learning through trial and error. As of today, I agree with the notion that Technical Analysis shows where price has been, but cannot predict where it will go. My strategy kept in this blog will be based 95% on Fundamental Analysis, or Economic Indicators like Interest Rates, Inflation, Employment, and other data that Central Banks use to formulate the monetary policies of their nations. This is my first time using Fundamental Analysis and Economic Indicators as a strategy.
I’ll start with some backtesting, and move into live trades soon.
Why the blog? Partly to document activity of a new method. But mainly because my life coach challenged me. She suggested that I’ve failed in the past (and procrastinated and made excuses) because I don’t believe that I deserve the reward of success. I trust that she is right. This time it’s different, because this blog is for my wife and children, not for me, and I would never fail them.
More to come.
Turning $100 into $1000 