Thursday, January 19, 2012

Weekly Trading Update (January 20, 2012)

“Remember, the definition of effective trading is not solely connected to profit and loss, but to consistent execution. Profit that is not associated with a plan and follow-through of all of your rules is profit that is not helping you become a better trader.” – Dr. Woody Johnson


Forex trading is nothing other than speculation on certain price developments. It’s not a prognosis. One has to be careful with market predictions, yet a negative trade shouldn’t cause consternation, provided it’s being handled by an experienced trader. It often takes a lot of time and effort to analyze a situation or individual instrument. We learn thru this and increase our knowledge but this also leads to the assumption that a situation would have a likely or an unlikely outcome. Human nature leads us to choose the probable outcome and wager our socks on it. And that’s the inborn shortcoming. It’s important that we don’t take the analysis as a reality. We can speculate on the possible outcome, but we’ve to be aware that this is just that: pure speculation. Using a big position sizing because you think a particular trade must go in your direction can push you into a quandary. Risk has to be carefully considered. If you’ve analyzed something and have studied the situation very carefully or believe a story that you’ve read, you’re already in a precarious situation. Any time something looks like a too sure thing you need to step back and examine the situation again. There aren’t 100% chances in the market. You can do risk-to-reward assessment for every trade and determine a ratio but it’ll never be 1:0. Therefore you eventual success is contingent on cutting your losses and riding your profits.

Below is the summary of some of my trading activities this week.


Primary Trend: Bullish

The bullish trend still continues but the market has been caught in an equilibrium zone. A break below 1.0350 may cause a turn in the trend while a break above 1.0450 might cause a renewed bullish strength. You should have the gumption to see the right direction and go with it.


Primary trend: Bullish

The trend remains bullish, and it’ll be nice if one buys a dip in price as soon as one spies a rally after the dip. But if this approach fails, one would need to orient oneself with the bears. The first change of direction earns the most profit, but it’s very difficult to be first.


Primary trend: Bearish

In the current bearish scenario, one might need to continue to sell every rally as it’s true of the recent historical data. The RSI 14 is still winding around the level 50. The Stochastic 14,3,5 is heading to the overbought region, paving a way for a sell opportunity. Only a trader with desultory attitudes would trade without a clear-cut plan.


Primary trend: Bearish

In the currently massive bearish scenario, the market seems to have bottomed at 1.2870 and has rallied by over 200 pips since then. Could this be the beginning of a new lease of bull market or an opportunity for traders to sell higher? These possibilities apply to both long and short trades – only in opposite directions.


Primary trend: Bearish

The outlook on this cross is similar to that of the EURCAD. The SMA 50 is far below the SMA 200. The ADX 20 is very close to the level 30 – supporting a possibility of some new bullish power. +DI is above –DI. Only time would tell if the present rally would hold out long enough.


Primary trend: Bullish

The bullish trend is now seriously threatened, and if this threat continues, the trend may change completely. The CHF has gotten some renewed strength, so one would need to adjust accordingly, rather than using gut feeling. How important rally is gut feel? Did your grandpa or great grandpa ever sell tickets on the Titanic?

Conclusion: Joy and fear in trading are very easy to describe but very hard to deal with. Simply put, you should only trade if you can watch from the side lines. Any joy, fear, greed or excitement will disrupt your analytical behavior. If you are convinced that there is only one direction, it is best to trade something else. Emotions are a terrible trading companion – especially in currency trading.

I’d like to conclude this article with quotes from Dr. Brett N. Steenbarger:

1. “We pursue short-term pleasures (and avoid short-term discomfort) at the expense of longer-term rewards… It’s difficult to tolerate even normal drawdowns unless you have confidence in your methods.”

2. “These include trading slumps and increased personal expenses that change how traders trade and lead them to place P/L ahead of making good trades. By worrying too much about how much money they make, traders can no longer follow markets with a clear head.”

Your questions and opinions are highly welcome.

Thank you.

With best regards,

Azeez Mustapha

Forex Signals Strategist, Funds Manager &Coach

Senior Analyst

FX Instructor, LLC


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NB: There is risk of loss in trading, but it is possible to be a successful trader.

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