Friday, March 9, 2012

Weekly Trading Update (March 5 - 9, 2012)

“Trading is not a problem without a solution. Trading is a game that you need to become skilled at.” – Peter Davies


In one of his former articles, one trading educator explained that the dream of easy success has been sold to people throughout the ages, and the current boom in sales of software and investment courses holds disquieting historical parallels. In Amsterdam, Holland, during the sixteenth century, there was an accredited course in alchemy from a respected center of education. An historical ancestor of the British, Dr. John Dee – mystic, astrologer and advisor to Queen Elizabeth I – is reputed to have researched alchemy there. No one had ever turned lead into gold, and we now know that turning lead into gold does not fit the facts of empirical quantum mechanics and inorganic chemistry. Regardless of the lack of evidence, it did not change the fact that people believed it could be done. This belief existed for almost a thousand years. Great halls were filled with people, and if you could convince somebody that you had done it once, people would pay large amounts to learn the secrets of alchemy… Perhaps the strongest evidence in support of intelligent life existing in some distant corner of the universe is that they have not contacted us. Traders lose money by repeating mistakes time and again and view these blunders as business expenses on the road to market mastery. They look to self-professed experts for guidance, some of whom hold no qualifications apart from a certificate in audacity and the ability to convince people that they hold esoteric knowledge providing a conduit to wealth and prosperity. Who can question their integrity when the very nature of investment is based upon an unpredictable market open to interpretation? The corner shop vendor will tell you of his trading profits with an anecdote regarding earlier failures, adding realism to the events. However for some, trading mayn’t be that difficult. Some people can do it and some people can’t. The problem for the retail trader is the sea of bullshit you have to wade through to get to the point where you can trade.

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


Primary Trend: Bullish

The recent southward dive on this pair has nearly rendered the bullish outlook on it invalid. The price seems to be moving up but it mayn’t be possible for the pair to reach its recent high of 1.0857. If the current weak rally fails, then it would signal another opportunity to sell.


Primary trend: Bullish

The outlook on this pair is closely similar to its AUDUSD counterpart. A downmove was followed by a rally attempt. Things look tricky at this point, but it’s what happens to the USD that’ll determine the next move. There can at any time be someone stepping into the market that will move it in a way you could not have anticipated.


Primary trend: Bearish

The AUD is weaker than the NZD at the moment and I’ll prefer to trade accordingly. The past bullish effort was rejected at 1.3048 and the price has fallen by over 160 pips since then. The SMA 50 just moved above the SMA 200, but it may be improbable for this to last long. The RSI 14 is below the level 50, supporting this view. The Stochastic 14,3,5 is now in the oversold area, but this kind of indicator can be in an oversold area for a long time.


Primary trend: Bullish

A bullish bias here? This bias is under potentially serious violation, and if the EUR continues to be weakened against the CAD, then the bullish bias is over. This might be supported by the widely held notion that the market tends to drop 3 times as fast as they climb. There’s certainly some truth to the fact that bearish markets tend to be more volatile, with greater snapbacks. Depending on individual’s bias, this can be enough of a threat to make people stay away for now or provide an excellent opportunity.


Primary trend: Bullish

This cross, which is in a notable correction, is currently hesitating before finding the next line of the least resistance. The SMA 50 is still above the SMA 200, and the price still stays above the former. Nevertheless, the ADX 20 is far below the level 20 – showing another trendless situation. -DI is precariously situated above +DI. Expect a great move soon, probably to the upside.


Primary trend: Bearish

The primary trend remains bearish on this instrument, though the price is attempting to move higher. This can only hold if the resistance level at 1.4400 is successfully breached – without reversal. Markets will tend to seek out pockets of liquidity. It gives you some general guidelines on where you expect the market to go. Still, that is not the end of the story. You could have two markets that follow these guidelines and yet behave very differently. One market could reach a point of resistance and turn around at that exact point; another market could blow through by 15 pips before reversing. Their charts would look different, they are behaving differently but they are both following the same guidelines.

Conclusion: How can you create money from nothing? There are winners and losers of the zero-sum games. It’s especially successful traders who contribute to more efficient pricing as well as to the supply of liquidity and in return for that contribution collect their trading profits. The origins of these profits – how could it be otherwise – are the book losses of other market participants. When a majority loses in the markets, the money hasn’t gone, it’s just changed hands. Those who stick to basic trading rules and use a professional strategy with an expected value that’s positive can withdraw money from the market in the long run. Those who don’t meet these requirements will accordingly put money into it. It’s much better to imagine the cycle described and remember that the mistakes made by the other participants will fill the pockets of the professionals in the long run. So follow basic rules of successful trading and play the markets conservatively and for the long term. There’s no other way for you to be among the real winners.

This article is ended by quotes from Peter Davies:

1. “Trading is not a game for the weak-willed. Don’t start buying into the theories that day trading is mathematical and that it has a [magic] solution. It’s like more a game of poker. Sure, probabilities play a part but so do psychology and game theory.”

2. “There is much to learn about trading but there is no point in trying to learn it all. In fact, you could read thousands and thousands of pages on the different products and ways to trade, yet still come no closer to making any money. If you don’t want to trade options, then there is no point learning the intricacies of the Black-Scholes pricing formula. If you do not plan to hold stocks long-term, there is no need to understand discounted cash flow. If you plan to make money trading, then you need to focus on a specific area of trading and become good at it. If you wanted to become good at a ‘ball’ sport, you would not approach this by playing Tennis one week, cricket the next, soccer the next and pinball the week after. There are many games to play and you will only make money by becoming a good player. Just like any sport, this takes practice.”

3. “Any trade can fail; any individual trade will either win or lose. That’s it; your next trade will be a winner or a loser. It’s largely irrelevant which for any individual trade. Accept it and move on. You should certainly not be changing the game based on one loser or even a string of losers. Nor should you change based on a string of winners.”

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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