Sunday, January 15, 2012

Weekly Trading Update (January 9 - 13, 2012)

“To me, this is a no contest. I want to be liberated from watching the screen for hours on end on those days where the market goes nowhere. I also want to avoid psychological stresses as the market swings up and down. On good days, price moves directly to your target with barely a flicker. On other days, it gets there through a series of price gyrations. If you watch every move, your emotions are on a roller coaster as your paper profits expand and contract. The temptation to exit a trade early is sometimes huge.” - David James Bennett


On the battleground of the financial markets, this year’s battle has already begun in earnest and I’m determined to fight gallantly. Nevertheless, things don’t always go according to plan. You know that statistics gleaned from small samples are of little value, and also that strategies with a good expectancy are almost certain to have bad runs of several losses in succession. Such runs are simply random fluctuations in a series of results which will revert to the statistical norms in the long run. Because bad runs are to be expected, you must anticipate them when determining the amount of capital needed to play the game… An important part of any strategy is the opportunity to profit provided. A good strategy which provides few opportunities may well be a lot less profitable than a mediocre strategy which provides a lot of opportunities. Hope isn’t a strategy. Think about the casino owner, or your local bookmaker. They do not berate themselves if one of their clients has a big win. They do not change their entire business plan if they have a few unprofitable days. They do not tinker with the rules of their games after a few losses. They know the odds are in their favor, and in the long run their profits are assured. There is a difference between a marketer’s illusion and the real world. The sometimes mendacious price moves have no regards for your feelings. The percipient speculator isn’t necessarily subjected to pusillanimity. A better understanding of the currency market helps traders to manage risks associated with trading leveraged markets. Learning how to manage the use of leverage is difficult for most and many professional traders trade small size (less than 1% of the account value per trade) to minimize risks.

Some market patterns may be illusory. Most of the market participants may see a head-and-shoulders pattern where it’s not. That’s because most of them don’t know the precise definition of this pattern. Many market patterns that graphically resemble long-term patterns aren’t valid in the short-term. Patterns are valid only if certain fundamental and psychological requirements are fulfilled. For example, if a big investor wants to carefully exit at a special price, then the classical patterns develop in the daily and weekly charts – for instance, the head-and-shoulders pattern. These patterns aren’t valid intraday because there are too many false signals.

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


Primary Trend: Bullish

This pair fell a little before finding a support at 1.0230. The general trend remains bullish but traders would need to find a good entry price lest they’re stopped out before the price moves in the forecasted direction.


Primary trend: Bullish

Like its AUDUSD counterpart, this pair retraced a bit before finding support at 0.7860. This may provide a good buying opportunity. One may even put one’s stop around the support line 0.7800 if one is to go for position trading. This line is an important level that won’t be overcome that easily.


Primary trend: Bearish

The market rallied by around 130 pips before being pushed down by a supply level at 1.3040. The RSI 14 went above the level 50 and then fell below it. The Stochastic 14,3,5 reached overbought region and is now headed down. This is a clean sell signal. However, some may want to assume a bullish position (If the Stochastic later falls below the level 20, it would add more to the bullish argument).


Primary trend: Bearish

Is the price move on this cross really nefarious? Not so. The trend has continued to be bearish, and it pays to sell every rally. Traders who’ve been doing this would’ve made several successful trades. But as far as risk control is concerned, one mustn’t do anything feckless.


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 reached level 82 before moving down; providing a good opportunity for short sellers. –DI, which was dominated by +DI, regained its supremacy, showing that the bears remain in control. A bullish move may be specious.


Primary trend: Bullish

This instrument experienced a serious southbound move last week. It fell by over 250 pips, breaking a few support levels. The price later hit a major support zone and is now trying to move up. The primary trend remains bullish. In the present scenario, immature traders will take profit the moment they start making profit or they’ll stay in a trade long term when they start making losses thinking it’ll recover.

Conclusion: Do you remember a trade where at first you have this small adverse movement against you, before the trade finally takes off? I think every trader knows what I mean. In fact, when you open a position, costs are incurred, putting the position in the red from the start. If you can picture that, then the trade where you get stopped out before it materializes isn’t hard to imagine either. Wouldn’t it not just be cool if we could do something about this?

I’d like to conclude this article with the quotes below:

“Too many traders are not getting the results that they want, and they need to "change" something (thoughts, emotions, behaviors) in order to get different results.” – Dr. Woody Johnson

“Think of Las Vegas. Have you ever realized how much money a casino loses in a day? The number is huge, but they don't care because they know they have a plan that ensures the gains are greater than the losses, so the most important thing for them is to trade their plan.” – Sam Seiden

“One of the best ways to enforce good discipline is to ensure that when entering any trade, there are always predetermined stop and take profit orders entered and that the amount of capital you risk is at least as much as you aim to win. The only adjustments that should be made after that should be to trail the stop tighter (to minimize losses/guarantee profits) while extending the profit target. Once the action starts, you can be sure the trade will succeed or fail within the reasonable risk-reward criteria that were decided with a cool head. What’s more, when relying on orders and not staring fixedly at every tick on open positions, trading becomes a much less stressful and emotional experience.” – Elizabeth Gregory

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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