Thursday, January 26, 2012

Weekly Trading Update (January 27, 2012)

“It’s important for a trader to have a solid approach and clear setups, which he then trades consistently without giving much thought to each individual trade. Since we’ve developed and internalized these setups, we can trade consistently.” – Philipp Schroeder


The currency market’s incredible growth has done little to change the ratio of winning to losing traders. The majority still lose most of the time, and they still don’t have to. Reading some books, buying a charting program, opening a brokerage account and starting to trade isn’t a trading business plan. Random reinforcement (as it relates to harmful trading practices) occurs when a trader attributes a random outcome to skill. It’s especially harmful if a neophyte who wins a few trades, without a plan, continues to trade without realizing the losses until it’s too late. Sorry, this is not to sound bumptious or cast aspersion on beginner traders. Emotions and ego make it difficult to change our behavior patterns. As I’ve talked about it before, the art/science of trading can be broken down into three key components: 1.) A set of high probability indicators/strategies that generate high probability trades. 2). Consistent execution of those trades. 3).Successful management of those trades. Speculators ought to carry out the foregoing with unflinching pertinacity. Whether you’re developing your own trading system or following along with a successful trader, using stops and safety parameters will help you develop good trading habit.

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


Primary Trend: Bullish

Yes, the outlook on this pair remains bullish. The market has moved tremendously to the upside. It pays to wait for a price retracement before entering long. As the price is retracing right now, I’m looking forward to entering long at a support level. Guess what that level is?


Primary trend: Bullish

Like its AUDUSD counterpart, the movement on this pair is also bullish. I placed a ‘buy’ order earlier this week and it’s now positive (having achieved a 130-pip movement). The stop was moved to breakeven – in case something drastic happens in the markets. Bad news can be another hint. If the relevant currency was affected by good news in the past, but suddenly there’s bad news. That as well could well mean the end of an existing trend.


Primary trend: Bearish

This bearish cross isn’t looking attractive right now, and I’ll have to stay out of the market as a result of this. The SMA 50 is below the SMA 200, while the price is hovering around the former. The RSI 14 is still winding around the level 50. The Stochastic 14,3,5 didn’t get to the overbought zone in it’s recent move and is heading down. Sitting on the fence remains the best decision for now.


Primary trend: Bearish

The bullish movement that started last week still continues – something that threatens the current bearish outlook. You shouldn’t be beguiled by the price moves! This market is consolidating at this moment; plus I might set a Buy Limit pending order in an attempt to buy low. Even if there’s another slippage, my position can still go positive. Slippage is the difference between the price at which we wanted to have our order executed and the price where it actually did get executed.


Primary trend: Bearish

In the presently consolidating move that has resulted from a minor bullish correction, the market seems poised for another major leg down. The SMA 50 is far below the SMA 200 while the price is hovering around the former. The ADX 20 is around the level 15 – showing a directionless market. +DI and –DI are intertwined. This gives no conspicuous direction, but it’s clear that the strength of the Euro can’t withstand the strength of the New Zealand dollar at the moment.


Primary trend: Bearish

The threat to the previous bullish scenario prevailed eventually. Those who sell higher are in for a nice ride down. But the level at 1.4300 looks like an adamant support. If price is able to break that level, the bears’ stamina will be renewed. Just play safe, ride the trend and avoid a margin call. Someone said that his kids and their husbands and grandkids have all managed to stay out of jail all their lives. Have you ever managed to stay away from margin call in your entire trading career?

Conclusion: Extensive observations of historical data have revealed that it isn’t unusual for market efficiency to diminish at times. This usually occurs when there’s high insecurity, and the market needs some time to collect new information before prices properly reflect the changed condition. However, this uncertainty can only offer high rewards to traders who’re willing to take risks, especially in the near-term. But note that without a professional trading plan and conservative risk control measures, there’s no chance for long-term survival in such ever changing market ambience.

I’d like to conclude this article with a quote from Sam Seiden:

“The day someone decides they are going to pursue a trading career, they are typically making that decision because of the potential financial prize. In other words, they are making that decision because of the perceived benefit. What most people don't understand, let alone consider, is that they are about to step into a "mine field" of traps that have the potential to drain and destroy your bank account and your self-confidence all at once. When I look at the traders who do well and those who don't, there is an obvious observation. The group of traders who focus on the prize tend to lose money and never achieve their goal. The group of new traders that focus on the traps and risk tend to succeed and reach their goal. As always, it's one group providing income for the other; that's trading.”

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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