NZDUSD Trade – Aug 4 2015

The NZD is considered a weak currency right now, and this week Jarratt Davis suggested trading into some employment and labor figures from New Zealand. I took a short position about 15 minutes after the Global Dairy Trade price index data release, and held through until the employment figures at 4:45pm my local time. The trade was helped along through the afternoon by some bullish comments from US Bank of Atlanta President Dennis Lockhart.

There were actually (2) lots on this trade, but the first cleared out before I could get a screenshot. At 8:15am my local time, the Global Dairy Trade price index fell by 9.3%, and milk powder price index fell by 10.3%. This data does not support New Zealand exports and growth, and so I entered my short position. Bullish sentiment on the USD pushed the NZDUSD pair lower through the day, and I took profit of about 30 pips on my first lot. The employment data was a slight miss at 4:45pm, and right after the data release I took profit on my second lot for about 60 pips, which was about 60% of the 100 pip daily range.

Market Sentiment

• Dropping prices in the GDT index
• Employment figures that are weaker than or in-line with expectations could build selling pressure in NZD

Market Fundamentals

• RBNZ cut Interest Rates to 3.25% on June 11, and cut to 3% on July 23
• More interest rate cuts from RBNZ are expected in September
• Further weakness against USD is expected
• US Federal Reserve planning to raise interest rates in September or December 2015

Trading Plan: position for NZD weakness after GDT price index data, and heading into New Zealand employment data. Trading against USD which is the fundamentally strongest currency long-term.

Result: The weak data from New Zealand helped build selling pressure in the NZD, and Market Sentiment really pushed up the USD. Atlanta Fed president Lockhart is known more for a dovish stance, and his bullish comments about a September interest rate hike as being “appropriate” really invigorated USD.

Comments: The favorable Sentiment for USD was unexpected, but I was on the fundamentally correct side of the currency pair to enjoy the surprise. The Double Lot worked well in this trade, to lock in some initial profits and then let the second lot cook. In subsequent trades, I’ll consider using a trailing stop on the second lot, and let it run indefinitely, or hit the stop. For this trade, I’m satisfied with getting 30 pips on one lot and 60 pips on the other when the daily range is about 100 pips. No reason to be greedy right now.

GBPJPY Trade – July 23 2015

I made so many mistakes on this trade, that it’s comical.

On July 23, Retail Sales from the UK reported -0.2% growth compared to an expected +0.4% growth, and the GBP sold off against other major currencies. Jarratt Davis’ blog identified any pullbacks in GBP from recent highs as good buying opportunities, because GBP is one of the fundamentally strongest currencies right now.

I entered a buy trade with only a vague concept of what I wanted, no hard targets for taking profit or stopping loss, and the next 6 days were torture.

Here is the GBPJPY trade:

Bought (2) lots at 192.85, after falling from a recent high near 194.00. This pair can move up to 200 pips in one day, and I noted 191.75 as a mental stop level.

Market Sentiment

• GBP is near long term highs against many currencies, pullbacks are buying opportunities
• Recent hawkish comments from BOE governor Carney, and also hawkish comments from a more dovish member, David Miles
• All 9 MPC members recently voted unanimously to keep interest rates the same (although some members have “finely balanced” this decision)
• During this trade, an 8.5% drop in the Shanghai index (the largest one-day drop in about 8 years) put huge steam behind risk-averse currencies like JPY

Market Fundamentals

• Interesting jobs data recently – unemployment increased for the first time in 2 years from 5.5% to 5.6%, and average earnings came in at 3.2% vs. an expected 3.3%, but this was the biggest increase in wage inflation in 5 years
• Data is missing expectations, but is not derailing plans for tightening in Q2 2016
• Slight miss on Retail Sales caused a sell-off in GBP

Trading Plan: buy GBP on pullback and position for continued fundamental GBP strength. This was a medium-term trade that I expected to hold for several days, possibly a week or more

Result: The pullback to 193.00 kept pulling back, nearly touching 191.00 by July 27. I let this trade blow past my mental stop, reminding myself that Market Sentiment may be Risk-Off at the moment, but my trading plan was for a longer-term fundamental move. I was gripped by doubt the entire time, and was begging for the trade to crack into positive territory again so that I could close it immediately. Shortly after closing the trade, GBPJPY shot up 100 pips. My emotions were out of control, and I took detailed notes.

Comments: The key problem was that I did not have defined targets for loss or profit. With those levels in place, my trade is transactional and the outcome does not matter. Without a clear plan, there were too many cracks to let the doubt seep in.

I fell into some of the most common psychological trading mistakes. In the spirit of keeping a trading journal, these are the things I noted:

• Fear of being wrong: Was my entry too early? Was my mental stop loss deep enough? Why am I waiting and hoping for price to come back in my direction? What if I bail on the trade and then it turns around tomorrow or the next day?
• Fear of losing money: When should I admit being wrong and cut losses?
• Risking too much per trade: Risking 200 pips per lot equaled about $20 risk per lot, $40 total risk, on my $100 account. On July 28, I woke up at 2:30am for the UK GDP numbers. My position was about 160 pips (from 2 lots) underwater at the time, and I remember thinking, “If preliminary GDP is less than 0.7%, my account will get destroyed”. Was I being reckless? Stubborn? Or was I riding out the storm? So much doubt, about everything.

Lessons learned:

• Market Sentiment moves currencies in the short term. Sentiment can move oppositely from Fundamentals. If I’m sticking with a long-term Fundamental trade, I’ll need a risk management strategy that can accommodate short-term volatility and larger capital risk.
• Trades are more optimal when Sentiment and Fundamentals are more clearly aligned (with evidence).
• Hard targets for Entry and Exit help remove emotional attachment from the trade. I can “set it and forget it”.
• When trading more on Sentiment, use tighter targets.
• When trading more on Fundamentals, use much wider targets.

NZDUSD Trade – July 22 2015

The RBNZ Rate Statement was the biggest news event of this week, and I made a plan to trade it. This turned out as a losing trade, but my plan was sound and I’m not disappointed. Also, losing trades are fantastic learning opportunities.

At 3:00pm my local time, the RBNZ was expected to announce another Interest Rate cut. Probably due to a successful trade with USDCAD last week, I decided to trade INTO this event and take a short position before the announcement. At about 1:30pm my local time, I made (2) market sell orders at 0.6585. The Interest Rate cut of 0.25% (25 basis points) was announced, and the NZD immediately rallied, which was a big surprise for me. I managed the position to reduce loss as much as possible, and then set to work figuring out what happened.

Market Sentiment

• The market expected a 25 basis point (0.25%) cut
• Some analysts suggested a 50 basis point (0.50%) cut was possible
• NZD has fallen 8.5% since last cut in June
• Any RBNZ actions may already be priced in over the last weeks, but further dovishness should add to overall currency weakness

Market Fundamentals

• RBNZ cut Interest Rates to 3.25% on June 11, and more cuts were expected
• June 11 action was the beginning of an easing cycle
• Lowered Q1 2016 GDP forecast and Q1 CPI forecast
• Global Dairy Trade (GDT) auction prices fell to 6-year low
• Recent CPI came in at 0.4% vs. expected 0.5% (which is well off the inflation target of 2.0%)

Trading Plan: position for continued RBNZ easing policy and more NZD weakness from expected Interest Rate cuts. Take Profit above Support at 0.6500, and set mental stop higher than the 0.6650 Resistance.

Result: The RBNZ cut the Interest Rate by 0.25% as expected, but the NZD rallied. Although RBNZ governor Wheeler said that further easing is likely, he omitted a previous statement that the NZD was at “unjustifiable” levels. Although the Fundamentals support NZD weakness, the Market Sentiment was that the RBNZ positioning was not dovish enough.

Comments: I was wrong on Market Sentiment, but the Fundamental data supported my plan, and my Technicals were sound. The mental stop beyond the obvious short term resistance at 0.6650 saved me from being stopped out immediately after the announcement, and let me trim the loss a bit. Sentiment is more important than Fundamentals for short term trades. The weakness was already priced in, and I could have waited until after the announcement to gauge market reaction before taking a position.

My emotions are in check. The loss is no big deal. We are moving on.

AUDUSD Trade – July 20 2015

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

• Low commodity prices (metals, iron ore)
• Slowdown in China
• Other commodity currencies are cutting interest rates (CAD, NZD)

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.

USDCAD Trade – July 14 2015

I had this trade running at the same time as my GBPJPY trade, which presented a problem. I’m trading with margin, meaning each position locks up a portion of my account. My account size of $100 does not allow for a large number of open positions, especially if they all move against me at the same time, and drawdown the whole account. With a small account and multiple open positions, there is a risk that available margin can dry up when the market moves against my positions. In this case, I would get called on all positions by FXCM and they would automatically close everything out at market rates.

This is called “blowing out your account”, and has happened to me once or twice in the past.

Again, the reasoning for each position was sound. I was confident, but ready to be wrong.

Here is the USDCAD trade:

On July 14 at market open in Toronto, I bought (2) lots at 1.2760, near major resistance at 1.2800 (third approach at this level in 2015). The daily range was about 100 pips, and intraday was about 50. I put a mental stop at 1.2640, and a mental take profit at 1.2990. The entry, stop loss, and take profit numbers all came directly from Jarratt Davis’ blog.

Market Sentiment

Same as the GBPJPY trade from July 14.

Market Fundamentals

• USD: the Federal Reserve is expected to be the next Central Bank to raise Interest Rates (possibly Sept 2015); FOMC wants to see data on the economy improving, and the global situation could push back plans for Interest Rate hikes; near long term highs against many other currencies; the most bullish currency right now
• CAD: poor GDP data in April, and 4 months of contraction; half of analysts expecting an Interest Rate cut on July 15 from 0.75% to 0.50%, or at least some more dovish tones; new oil supply from Iran is not a huge factor until their production and distribution are fully functional, but sentiment is heavily against CAD right now and traders are looking for a reason to sell it

Trading Plan: position for CAD weakness on BOC Rate Statement on July 15, against USD strength on meeting data expectations and maintaining plans for Interest Rate hikes this year.

Result: USDCAD was near a 4-month high when I bought on July 14. Later that day, USD had a slight miss on Retail Sales figures, and USDCAD dropped about 40 pips against me. Then on July 15, at 8:00am on the dot, the Bank of Canada cut Interest Rates to 0.50% and USDCAD shot up above 1.2900. I found out later that Fed Chair Yellen was testifying at the same time, re-affirming Fed plans to proceed with Interest Rate hikes this year. Both of my USDCAD lots were 150 pips in the money by 8:01am, and I closed them both immediately.

Comments: It may seem like gambling to “bet” on the effect of a data release. And if I were blindly guessing at an outcome and relying on luck, it would indeed be betting. This is the best trade of my life so far. Agreed, it was Jarratt’s idea in the first place, but I understand every speck of Fundamental, Sentiment, and Technical strategy in this position, which is what this blog is about.

GBPJPY Trade – July 14 2015

On Monday July 13, I reviewed Jarratt’s video post for scheduled news events this week. In this video, he outlined the expectations on the high-impact events, along with his ideas for trading plans. The ideas I liked best were for trading INTO a risk event (before the data is actually released).

The reasoning for each position was sound, which gave me confidence in each trade. If they turned out wrong, no big deal, I would still be satisfied that I made the right decision.

Here is the GBPJPY trade:

On July 14, I bought (2) lots at 192.77, near a 6-week high and possible resistance at 193.00. The daily range was about 200 pips, and intraday range was about 100 pips. I put a mental stop at 191.70, and a mental take profit at 193.70.

Market Sentiment

• Greece is currently negotiating a third bailout with the ECB, and Eurozone uncertainty has backed off a bit.
• Iran has signed a deal to curb their nuclear program in exchange for oil sanctions being lifted – they have the 4^th highest global reserves and will soon be a major supplier.
• The People’s Bank of China (PBoC) has taken steps to protect their recent market selloff, and yesterday had some positive GDP and Industrial Production figures.
• Less fear in the market today.

Market Fundamentals

• GBP: Hawkish comments from BoE; possible Interest Rate hike in mid-2016; inflation data today was in-line with expectations; very bullish currency right now, near long term highs against many currencies
• JPY: strengthening recently in safe haven flows from Eurozone uncertainty, but the uncertainty has eased off; no surprises expected from BOJ Monetary Policy Statement on July 15; QQE will stay the same, and possibly be increased

Trading Plan: position for GBP strength on meeting or exceeding jobs/wage figures on July 15, against JPY weakness from sustained Quantitative Easing and increasing market risk appetite

Result: I didn’t really like buying at the “top”, but was confident the Fundamentals and Sentiment were behind me. When the BOJ policy statement didn’t move the market very much, GBPJPY was already up by about 40 pips. I closed the first lot for 40-pip profit, and entered a physical stop loss near my original entry of 192.80. This method lets the second lot run its course, either up to more profit, or down to the new stop for zero loss. The BOE data came out slightly worse than expected on July 15, and GBPJPY hit my stop loss (then later carried on higher).

Comments: I’m fine with being cautious and taking 40 pips. In hindsight, I could have ridden the GBP strength for another day and possibly booked 100 pips or more. Very happy with assessments on Fundamentals and Sentiment.