Knowing Which Style to Play and When to Play It Part II

As per my previous post on this topic title I mentioned that I had and am still continuing to face some rather monumental difficulties in my life and in my "career" as a currency trader (aka, foreign exchange operator). I am small time, an account less than 10K (growing though), with some memorable wins and some gut-wrenching losses in my past. My pattern is usually one of two or three steps forward and a step or two back, but at the moment I am progressing. Part of my problem at the moment is the fact that I cannot support myself through this activity alone, but I am looking forward to the day when it will be possible - I was on the cusp of it approximately three years ago, had an account just shy of 10K > grown from 1K a year prior, with an equity curve that I consider impressive considering I was working for someone else full time, with a combined commute of one to two hours a day thrown in to suck extra time away.

Then I got desperate, my work situation was - less than ideal and growing worse by the month, and I decided, and I chose my words carefully - fuck it, I loaded up against GBP/JPY sold 100,000K into the wickedest rally that I ever saw on this pair - a pair which for the most part I loved to buy low and sell high on. I threw myself against a brick wall, and refused to give up - being honest here. I lost, in the end $4500 on the trade when on Boxing day of 2013, the markets gaped above my stop loss - or did I run out of margin - no matter - I was stupid, and I was stupid for a period of a couple of months where I kept thinking I would come back, and I kept selling on the way up to add to my woes. Plain and simple I was an idiot, running into a brick wall repeatedly, thinking, soon it will retrace and then return to the range, and I'll earn my next 10K in a matter of months. I cannot stress the utter stupidity of the initial decision, but also the continued stupidity of what I continued deciding as the days wore on and I lost more ground to this trade, never mind the -ve carry on this sucker.

It takes a special kind of idiot (me at the time) to allow the feeling of desperation to overwhelm my normally good judgement (and cold blooded trading style), to interfere with my analysis, my money management, and my damn case money.

Never mind the fact that less than a year later, I did this again with the AUD/USD (during the shocking interest rate cut), this time I went long, and continued buying on the way down. lost only 1.5 K on that one, and in my defense, it was my home life (roommate, whom I sure meant well, but was extraordinarily harsh to be around), that was the distraction and the negative influence, so much so that on the month that I moved, I wrote this this piece on the importance of a good environment when attempting to work magic, to employ a craft, to build something of lasting value.

I am now here, just under a year later, and while it has definitely not been a cakewalk by any stretch of the imagination, I feel that my instincts for the trade are somewhat returning. I am nowhere near the level that I was back in the first 3 quarters of 2011, where for three or four solid months, I was earning more money trading than I was at my day job, while working my day job, while commuting, while sacrificing precious time in the present for the future, but I am still playing, and still making gains.

What did I do when I realized I had to fix my brain, especially in regard to how I operated? I stepped back, after a few mistakes, and took things slowly, also my broker started allowing microlot 1K positions to be taken, so I started trying to think like an institutional trader, which means I began to take my business more seriously and enter into deals more cautiously, and more slowly, building positions gradually - which I recommend to anyone who has lost the magic touch of instinctively finding tops and bottoms (which is what I used to do) and playing their whole hand right at the reversal point; which is a bit of bull, it is not magic, and tops and bottoms are generally speaking only a matter of time and perspective (quarterly, monthly, weekly, daily, 4-hour, 1-hour, 15-minute, 5-minute) i.e. which chart is being looked at.

While I have played a few hard and fast trades and done it well on occasion, I traded small for the most part and gradually improved my instincts to the point where some of the fear (and chain-smoking) diminished, and started to have a bit of fun. I realized this step back in intensity and focus allowed me time to heal, and time to look at other aspects of my life sorely lacking...

While I do not think I was quite at the breaking point, I really did feel almost no reason to continue trying, in trading and in life - it was that bad. I am not now in a much better position than I was a couple of months ago, my environment is not great but it is for the most part stable, my day job leaves a bit to be desired but the people there are great, and though I am still way more solitary than I am used to (I miss my old friends badly because I shut them out), I did make a few new friends when I stepped back and just feeling some sincere and meaningful human contact can work wonders even when the world seems to be collapsing around you.

EURCHF Update, Potential for Intervention, 240 Minute (4-hour) Chart, Analysis, Order Plan, News, and History

I have been reading and studying possibilities based on my latest idea, buying (long) EUR/CHF above the 1.20 level. The first and foremost fundamental reason for this trade is the theoretical "floor" that the SNB (Swiss National Bank) has set for this currency pair. The premise of this floor is that in order to maintain (inflation / deflation?). The last time 1.20 came into play, this currency pair touched a low of 1.2012 in June of 2012 (numerically poetic?). This happened on June the 9th, of 2012, at 1:02 pm. The Swiss National Bank promptly intervened by selling their own currency / purchasing foreign currency thus driving the exchange rate higher on the pair.

Over a period of weeks, several interventions, to keep the 1.20 minimum exchange rate in place, the last occurring in September of 2012, the pair had a sustainable rally.

After a period of 9 days after the last intervention, the pair touched a high of 1.2180. Over a period of two weeks, once the rally was over, the pair retraced down to 1.2037 over a period of 10 weeks. After which additional movements led to the EUR/CHF pair to move up to 1.2571 (peak) on January 22nd, 2013, and later to 1.2648 on June 22nd, of 2013 (which was were to take profits if you were long this pair at that time).

Obviously, the profits on the successive movements for this pair, occurred well after the last intervention, where patience would have been the key to getting the most out of the investment (months).

My idea on this pair (I have already started purchasing) and laying the groundwork and conditions for additional purchasing (with a small fraction of the margin I have available) is to scale into the investment. Rather than purchasing at a set price with my entire allotment (the cash/margin) I intend to use, I am placing several orders to purchase as the price drops closer to the 1.20 "floor". I have started purchasing as of 1.20562 on August 28th at 06:04. I have additional contract orders to purchase in increments of roughly 10 points below said purchase price down to the 1.20 area.

As illustrated in this 4 hour chart, my pending orders are placed and will not be activated unless the price visits those levels, whereupon additional contracts are added to my position. Should those areas not be touched, my risk level remains even, and the potential reward is also remains even. Should intervention occur successfully, additional contracts could be purchased as the currency pair moves higher, but this would have to done carefully. My stop loss is established, but fairly lower that the 1.1950-1.20 mark where I imagine stops placed by other institutions and traders to have them, (my policy is to not publish my exact stop so that I do not feed the algorithmic traders/black boxes).

So why the floor of 1.20? According to a press release the risk of deflationary pressure on the Swiss Economy increases below this level. Fair enough.

There is a rumor that the SNB will introduce additional measures to maintain their exchange rate with the Euro. First, the possibility of negative rates where the SNB imposes negative interest rates to discourage foreigners from holding Swiss Francs (CHF). This has been done already, during the 1970s. Such an event would make holding Swiss Francs more expensive, and thus encourage other currency pairs to appreciate vs the Swiss Franc over time.

Another rumor is that the SNB will raise this line in the sand from 1.20 to 1.25 or even 1.30...raising the possibility of a profit of approximately 500 to 1000 pips just for buying at or near 1.20, mind you it is just a rumor, and the amount of CHF selling that the SNB would need to manifest a move like that and maintain it is staggering, but again, trading is about ideas followed by action, with no guarantees.

The other side of this trade probably has a mess of Stop-loss orders on the EUR vs the CHF below 1.20 where positions would be liquidated, thus driving the currency pair down even further below 1.20. Should intervention not occur as planned or even fail, I have skimmed one academic paper that states that the currency pair would be trading about 1000+ points lower, say at 1.10 or lower.

This is a game of patience, and it is not for the faint of heart.

I am looking at one chart currently, EURCHF on the Weekly

I have not posted in several months, but it is not a matter of lack of ideas or even lack of trades, just a matter of the lack of time, but I find myself with a few hours in the midst of a couple of days of, I am enjoying a coffee and free wi-fi at a starbucks and the sheer gravitas of this situation merits a post. I wish I could have posted more over the last few months because most of my ideas have paid off.

Nevertheless, the chart:

I will be writing and adding some analysis on this in the next few hours, but I have posted a couple of comments (the other comments and articles are of interest as well) on forexlive.com:

The theme, plan on buying somewhere in the vicinity if you have the margin, and are able to absorb any potential shocks, but be careful

http://www.forexlive.com/blog/2014/08/28/swiss-national-bank-on-the-bid-in-eurchf-circa-1-2050-29-august-2014/

http://www.forexlive.com/blog/2014/08/28/trading-ideas-european-session-28-aug/

my comments are listed under my name, Jason Macko

Good luck and be careful on this one

GBPNZD Is that a touch of Negative (Bearish) Divergence I see?

Possibly, if you compare the tops here (provided the price does not move significantly higher). Seeing the two red dots I have painted on both the RSI below the price action and the price chart. As a bonus, both 240 minute Bollinger Bands have been pierced, which to me, means possibly a heavily overbought situation on the pound vs. the kiwi.

I am now holding with a stop above, and my target would be lower by a couple hundred pips, but is subject to change, as with the stop loss. As this would be a positive carry trade, the risk reward has an added bonus of earning daily regardless of price action. Price at the time of this writing was 1.9633/40 (where the dot is approx).