THE BIG PICTURE
“You need a clear, regular method – that’s the difference. Only then do you have a feeling for the market that helps you survive. Everything else is analogous to the spawning behavior of salmon which swim against the tide in their quest to reproduce. Only about 10% arrive at the spawning grounds, the rest die on the way.” – Linda Raschke
Hello:
This is an update on some of the yearly movements in the markets. An actively traded instrument with good volatility will usually offer many decent opportunities in every year. A trader who uses a good approach with carefully followed trading plan taking disciplined losses can do well. However, why not consider waiting to take trades until there’s a strong directional conviction on a higher time horizon? For instance, if the higher horizon is very oversold and making a potential double bottom in a support zone, then why take intraday short setups? Ignore the short set-ups based on the bias from the higher time horizon and only take long signals. The latter would have a higher probability of working out and also give the potential for the trade to have legs (run in the trader’s favor for a long period of time). Looking at the Big Picture, I believe, can give the trader higher octane trades. We can even check what’s happening to other types of markets to have a deeper insight into the currency markets. Falling oil prices imply a weakening economy which is bad for some currencies. Over the past few years, an inverse correlation has developed over the falling US Dollar and rising global stock markets. An upturn in the greenback recently (and especially during September), however, has coincided with sharp downturns in global stocks. Remember such trading debacles as Long Term Capital in the 90s, or, for that matter, every rogue trader that’s been in the news over the last several years. What they all did was to go from bad to worse by increasing their bet sizes too aggressively, which they tried hard to get back to even after a losing streak. In this process, they all shifted their trading goals from maximizing profits in the long run to showing any type of profit as soon as possible – preferable already by the next period or trades.
Below is the summary of some major market movements in the year 2011:
AUDUSD
Dominant trend: Bullish
In the year 2011, this pair opened at 1.0207 and closed at 1.0228. It reached a peak of 1.1081 and a low of 0.9387. From January to July of the last year, it moved up by over 1200 pips before falling by over 1600 pips. Nevertheless, it regained approximately some of its losses before the end of last year.
NZDUSD
Dominant trend: Bullish
Last year, this pair opened at 0.7761 and closed at 0.7783. It reached a peak of 0.8844 and a low of 0.7116. The price movement on the weekly chart is similar to that of the AUDUSD. Ride the price to your target if you’re right and cut the trade if you’re wrong, for no other trading style shows more resilience than trend-following.
AUDNZD
Dominant trend: Bullish
In the year 2011, this cross opened at 1.3129 and closed at 1.3127. The SMA 50 remains above the SMA 200, and the price has ended the year being currently above the former. The RSI 14 has been situated constantly above the level 50, which means the bulls are still in power. The Stochastic 14,3,5 has been in an overbought position for a long time and seems to be poised for a journey below the level 80. The price can’t be in an overbought situation forever, so I’m also poised for a serious bearish run, which may happen anytime.
EURCAD
Dominant trend: Bearish
Last year, this cross opened at 1.3271 and closed at 1.3181. It reached a peak of 1.4377 and a yearly low of 1.2793. The outlook on this market remains bearish. The fact remains that the bearish run still has much energy in it. I’d just take bearish entry signals thru a pre-built template. Pre-built templates facilitate the choice of a strategy.
EURNZD
Dominant trend: Bearish
The price movement on this cross is almost identical to that of the EURCAD. In the year 2011, its price opened at 1.7185 and closed at 1.6617. The SMA 50 is far below the SMA 200 and the price has fallen below the former. The ADX 20 is at level 14, showing a steamless but moving market. -DI is above +DI, indicating a domination of the bears. It looks like the bears still have much room to run earlier this year.
GBPCHF
Dominant trend: Bearish
Since the year 2007, the GBP was a victim of the Swiss Franc’s hegemony. In the year 2011, the GBPCHF price opened at 1.4548 and closed at 1.4586. It reached a peak of 1.5690 and an annual low of 1.1465. From January to August, 2011, price fell by thousands of pips and has moved up by over 3000 pips since then. Which way would the price go from here? One must make critical decisions often, even though one can’t see the future.
Conclusion: Experienced traders know how fast things change in trading. In spite of the changes in the markets, do you believe in your trading system? If so, how do you handle its drawdowns? At least among the trend-following traders within the managed-funds world it’s been a long-time ‘truth’ that the time to invest is when things are looking the worst and the system actually is losing money. The reasoning has been that the equity stream of a trend-following system follows a so-called ‘mean-reversion pattern,’ which stipulates that after bad times, good times always follow. Another way to put this would be: The worst things look the better they actually are, if you can only overcome your fears of investing with a strategy that currently is doing poorly. After a losing streak, a winning streak comes round the corner.
Let me conclude this article with quotes Anton Kreil:
1. “I’ve been trading since I was 16 years old. I’m 33 now and so obviously that’s over half my life. That’s longer than any company I’ve ever worked for, longer than any girlfriend I’ve ever had or house I’ve lived in. Trading has always been there and will always be there. One thing I’ve learnt over the years is that people, careers and possessions come and go, but the markets will always be there on Monday morning. For me it’s truly the gift that keeps on giving.”
2. “Success in the long run for me is defined as consistently positive returns with consistency for never losing too much money when things go wrong. For those starting out I think it’s very important to develop a trading strategy that’ll stand a very good chance in working thru all business cycles. The world looks very different now to what it looked like in 2006, 1999, 1991, 1982 and is forever changing. Trading strategies that depend on a certain market environment will always be found out when the market environment changes. As a trader you want to be trading from now till the day you drop dead.”
3. “These are the mistakes that retail traders make all the time and professionals are guilty of it too. I’ve seen careers ended by traders who’ve been trading on professional basis 15 and 20 years because they were in one situation that destroyed their year all because they wouldn’t cut a position. It happened to me many times in my younger days. It’s an awful feeling having to cut, but you just simply have to do it.”
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
Email: amustapha@fxinstructor.com
Yahoo! Messenger ID: saazalmu
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