Thursday, March 1, 2012

Weekly Trading Update (March 2, 2012)

“The journey to investment competence is a challenging yet potentially rewarding path, and we may see things of beauty along the way. It is inevitable that traders will experience loss and fear, frustration and self-doubt; but it is how these events are perceived and managed that determines a place among the 90-percent majority or ten percent of profitable traders.” – Mike Elvin


This is an update on some of the movements in the markets and what I’m doing about them, plus my losses and profits. The analyses are based on 4-hour charts, looking at the overall price actions on the charts. My preferred leverage is 1:100 and my position size is 0.01 lots for each $2000 or 0.1 lots for each 20000 cents in a cent account (making it 0.5 lots for each 100000 cents). The risk per trade stands at 0.5%. The Stops are my insurance policy. For trading purposes, I’ve decided to do only trend-following; and only trend-following I’ll do. This kind of trading approach has stood the test of the time. I make my money somewhere in the middle of a trend. I open primary positions with a risk-to-reward of 1:2, riding the trend until the target is hit or I’m stopped out. The value of patience will forever be emphasized. As long as I stick to my rules and keep my risk low, I’m immune to fear.

Whenever a price is involved, supply and demand will dictate valuation at any point of time. If there’s more supply than demand, what’s to happen to price? It must fall. If there’s more demand than supply, what’s to happen to price? It must rise. If there’s a balance between supply and demand, what happens to price? It stays within a stable range. It then becomes a matter of simple logic to realize that if price enters into a strong demand area, it must rise. Likewise if price enters into a strong supply area, it must fall. Going back to a ranging market, it develops during a market phase where there’s a little uncertainty among market participants and neither bulls nor bears take the reins. It’s identified by a saw tooth pattern, because it fluctuates between support and resistance. In general, there’s a lack of important news, which would break one of these resistance/support levels. Both parties wait for the triggering signal. A range-speculation method has a very high hit rate and a very low stop level in general, but a low profit level as well.

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


Primary Trend: Bullish

This pair is still in the bullish mode, but one would need to go long at a reasonable price or else one stands a chance of being stopped out even if the forecasted direction is right. The price is currently bouncing up after a short-term sell-off.


Primary trend: Bullish

The upward bias on this pair is long-term. But long-term trends are usually accompanied by declining volatility. In order to reduce the possibility of being stopped out in a right direction, it’s good to buy low. Does this sound tart? No, it simply means it’s good to buy cheaper in the context of the present bullish trend.


Primary trend: Bearish

In the present bearish scenario, the price keeps on edging higher and higher. The SMA 50 is still below the SMA 200, but the price has broken the former to the upside and is very close to the latter. The RSI 14 is above the level 50, supporting this view. The Stochastic 14,3,5 is almost in the overbought area. This could be another opportunity to sell short. However, if the price should break the SMA 200 to the upside, then it could be the start of a new trend.


Primary trend: Bullish

The price on this cross has fallen by over 300 pips since the beginning of this week. If this continues for a few more days, the bullish bias would be rendered invalid. This brings out an interesting point in the mechanics of the market. Whether it would be the last cycle of the trend that started last or not is still to be seen. Let’s hope the cycle of the strong bearish sell-off and panic isn’t followed this time and that the readjustments caused by this epic change in the price mechanics is as smooth as the fall of the Soviet Union in 1989.


Primary trend: Bearish

The previously bullish trend on this cross is no longer valid. The SMA 50 has crossed the SMA 200 to the upside, and the price is above the latter. Nevertheless, the ADX 20 is far below the level 20 – showing a currently quiet market. +DI is trying to go over -DI. Yes, this could be the beginning of a new trend.


Primary trend: Bearish

There’s presently a strong rally in the context of the current bearish bias. If this rally fails at an important resistance level, say 1.4400 or 1.4500, it may be a signal to sell at an expensive price. Expert traders know when to hold on and when to let go. You’re implored to stick to trading: you’ll soon find yourself in a position of an expert.

Conclusion: Humility is essential. The line between conviction and stubbornness is so fine that it’s often invisible. Once crossed, the damage can spiral quickly out of control. This is why humility should be the essence of any trade. It’s okay to admit when you can’t figure out what the market is doing. The goal isn’t to trade more and trade everything. Quite the opposite, it’s to trade less for more gains. Quality overrides quantity. Humility is liberating because it takes the pressure off and relieves tension. It’s a misguided belief that you must know what’s happening at all the time. The first thing any trader needs to acknowledge is that they’re just a midget, in a land of giants. The dinosaurs move the markets. Dinosaurs don’t walk in the sand without leaving footprints. Knowing when the environment is worthless is how you gain an awareness of when an environment is fertile. It’s the contrast that you intuitively have to be able to spot.

This article is ended by quotes from Mike Elvin:

1. “There are very few occupations that require the determination, strength, courage and integrity of beliefs as does trading. Traders have only their knowledge and courage – in essence, we are on our own before the computer screen.”

2. “Having discussed the downside of market investment, there is also an optimistic and rewarding element. There are many traders who make regular profits from their homes and brokers who are highly skilled and committed to providing a quality service. A common attribute of successful traders is their belief in the successful trading rules – and the personal responsibility they take for all investment decisions. Trading success requires a set of skills that enables traders to think clearly under stressful conditions, to make intelligent decisions devoid of perceptual and emotional biases and to keep control of money in their account. The successful trading rules make explicit the requirement of self-awareness and self management, two important (yet neglected) domains of emotional intelligence.” – [paraphrase]

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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