Mentoring a New Trader

For those who can impart the basics of trading and the psychology of market behaviour, helping someone learn how to trade can be as rewarding personally as it is for the student. For the student, a careful and disciplined application of their new skill set can change their life. For the teacher, the rewards are many. First, there is a reinforcement of the skill they have already honed in the market. Next, the teacher's own trading rules and respect for the market will be relearned and reinforced. Finally, there is a satisfaction to improving someone else's life.

Direct trading advice (as I have learned from my own mentors), should be avoided; a consistently successful and established trader should be able to spot their own opportunities for the duration of their trading careers. In addition, direct trade advice will carry with it, the possibility that the trade will go badly, and potentially sour an otherwise good relationship. Part of learning how to trade is learning to take both responsibility for ones losses and personal satisfaction for one's success. Trade ideas on the other hand can be given freely but with the disclaimer that results are not guaranteed. Often, the best way to teach someone about operating in the market is to show examples of market behavior, and extrapolate possible outcomes.

Much can be learned about trading by direct observation and the very action of taking a continuing series of trades; there is no substitute for direct experience. Researching from a variety of resources including books, forums, and encyclopedias can help tremendously, however, often the most interesting lessons can be learned directly with consistently successful and established traders. While this last source of knowledge might seem out of reach for those students who do not know anyone personally or cannot afford a trading coach, the knowledge is obtainable with some effort. Many recorded webinars and videos can provide a trader with a non-interactive source for this information. Topics include everything from technical analysis to market psychology to building trading strategies and everything in between. Furthermore, many brokers and several websites provide access to live and interactive webinars hosted by traders, analysts, and other experts for a whole host of topics relating to the market.


Finally, a newly minted trader, with a fresh perspective, can show their teacher new information and ideas obtained through their own research and experiences. As with other skills in life, you never stop learning.

An additional note of caution, be careful about choosing who you share knowledge with, trading is a full contact sport and carries with it risks both financial and psychological...

Trading Again after a Break

Some things change, some things stay the same. Since last updating my blog, I have been through quite a few changes in my life. A new job, two moves, and a serious reduction in my trading activities for a spell; this did not and could not last and I find myself trading around my career, working towards the time when I can trade full time. This blog has also been neglected for about two years because I have had nothing to add. I will be making the odd post here, when I have time, but it is not a priority. I would rather be trading, than writing about it. This morning I found myself with a bit of time, a very good run on my positions and I had something to say.

CFTC New Proposal for Regulation of Retail Forex

In regard to the proposal to limit leverage to 10:1 for individual investors in the Forex/spot market with US-based accounts. These are my views in the matter.

To whom it may concern at the CFTC:

In regards to your proposal to for new capital requirements, in the Forex/spot market, for US based traders.

First, in previous rulings, you have decided for me which contract I would need to close first (FIFO), if I had multiple contracts in one trade - this one is a nuisance because it makes it difficult to maintain a position throughout a trend, where the idea is to leave one contract at the very bottom or top, and allow it to gradually increase in value, while using the other contracts to chase price much more closely, thereby generating short term income. This also makes adding to and subtracting from a position a lot less flexible. I am still adjusting to this rule, and find it to be without merit.

Next leverage was lowered from 400:1 to 100:1, this was acceptable to me as I rarely abuse leverage and rarely violate my own account percentage/per trade rule.

Now, with the new proposal, leverage is to lower again, this time to 10:1, "to protect the client."

What this does is dramatically reduce the amount of flexibility for any open position, for a limited capital trader. This change seems (in my opinion) tailor made for large institutions that have the capital that we (as limited capital traders) do not, which means they will have much more relative flexibility. Trading is a full contact sport and as such small capital investors will be even more dramatically outclassed, and much more vulnerable.

The claim of protecting the small investor is dubious at best. An undisciplined and reckless trader will liquidate their account regardless of the margin they are allotted, 400:1, 100:1, 10:1, 5:1, 1:2, whatever; leverage is irrelevant if someone is exposing more than an acceptable percentage of their account (This would be a less terrible idea in fact - a regulation to limit the total stop loss setting on any particular trade as based on your account size, and it would actually protect a newer trader). However, I'm am opposed to any additional regulation that affects investors because I do not think that government should dictate what I do with my capital or what you do with yours. Apart from regulation designed to limit or eliminate fraud, please refrain from deciding my level of safety in the market.

The only way to protect new traders/investors is to have them to learn how to operate in the market, invest with discipline, instruct them to limit their exposure, or tell them to invest elsewhere.

This also serves to limit the gains of small investors that have learned to use leverage carefully and only when the proper opportunity appears. Leverage is a means making the most of a trader's careful study and account management. This proposed leverage reduction makes it more difficult to start with a small amount of capital (as I have) and increase the size of said account to the point at which it can be used to generate steady income. Do not be under the illusion that this will help small investors in the United States; rather, it will act as a barrier for newer traders to the Forex market.

I'm trying to imagine what comes next if this one goes through, other than the massive sucking sound of cash leaving the States as all the small players transfer their capital offshore ~ my broker has a UK division. At this time, I am already watching the currency market for an opportunity to convert my USD into GBP, and you can wager that other traders are thinking along the same lines. In fact, many traders have already moved their capital, from what I have read. As a result this proposal will damage and possibly eliminate the retail Forex industry in the United States, which is a shame because I enjoy the (relative) stability and safety of the United States Dollar.

Jason Macko, January 27, 2010

If you disagree with the CFTC Proposal to restrict leverage across the board to 10 to 1

leverage, you may submit your comments to

secretary@cftc.gov

Include “Regulation of Retail Forex” in the subject line of the message and the identification number RIN 3038-AC61 in the body of the message.

Also, with the identification number RIN 3038-AC61, you can submit your comments by any of the
following methods:

• Fax: (202) 418-5521.
• Mail: Send to David Stawick, Secretary, Commodity Futures Trading Commission, 1155, 21st Street, N.W., Washington, DC 20581.
• Courier: Same as Mail above.

All comments received will be posted without change, including any personal information provided.

My Forex Trading Success Keys

Along the way to a moderate amount of consistent success (by my own modest standards) in forex trading, I have found a few keys to successful self-management as a would be forex trader. These tools can be used for any type of trader, and in any market.

Research

This should be second nature to a trader in my opinion, as with any mentally intensive field. Even before I started demo trading, I was reading as much as I could, watching as many videos as I could, and organizing my thoughts and observations about trading. Learning is what keeps our minds young, and expands our horizons, so it should be something a trader enjoys. Throughout the course of this blog, I will provide some of my best sources of data, and some of my methods to organizing that data.

Trading Plan

Having a plan is an ideal place to start if you are just new to trading, and even if you have traded for a while, it can be a worthwhile endeavor. Where have you been, and where are you going? A good journey often starts with a plan or outline. Sometimes it is thrown together last minute, sometimes that plan is loosely sketched in broad strokes, and sometimes it is planned with extensive attention to detail; regardless, having at least some idea of why you trade and what you plan to achieve is a good idea.

Rules and Strategies

Assembling and improving your tactics is one of the most important aspects to trading; if a trading plan is your outline, then your rules and strategies can be considered your blueprint for constructing a trading business. The blueprint is an abstract concept and is open to change as circumstances change. For example, when I was starting to trade, I primarily used visual analysis, with my main indicator being the bollinger bands. To me, buying low and selling high or selling high and buying low was intuitive and seemed natural. I was even successful for a while, constantly earning, no matter what. However, as the market changed tone, I was slow to notice, and I allowed habit to dictate the course of my trades, which was damaging to my bottom line. I had to expand my strategies, so I researched and I experimented. While I still make use of bollinger bands, that one strategy is only a single tool amongst the many in my tool box, applied when the circumstances indicate their usefulness. Some important considerations for a traders strategies are answers to basic trading questions:

When to enter the market

For me, I tend to trade mornings, during the European/London trading day, and early American times, and occasionally, during the American afternoon. The reason for this is because price action tends to be the most active during these times, which means that if my trades are good, my potential for profit increases. I will occasionally trade outside these times, but rarely.

What conditions are needed to begin trading

I need to at least have the potential to earn money, which means that I need to see opportunities that present a high probability for my strategies to succeed. Also, I need to be in a reasonable state of mind, with a decent night's sleep behind me, usually an hour or so after I have been awake; at this time I am at or near the peak of my alertness and energy levels for the day. I need to either be in a good mood, or on my way to being in a good mood otherwise I will stay out of the action. Everything else in my life is preferably on hold, an out of mind.

When do you avoid trading

Typically, I will avoid trading when the market is erratic. Some people avoid big news days, but since some of my strategies revolve around news, I have learned to adjust to the price action that happens during large news events. I tend to avoid Friday afternoons (16:00GMT and onwards), Sundays, holidays, and periods of low liquidity. The only way that I can describe trading on a holiday is that the price action is extremely erratic and that price can move in a choppy fashion that makes me uncomfortable.

When to open a trade

Obviously this one is subjective, because entries are defined by strategies. The rule here is that the probability of the trade working should be in my favor. I almost always have mental stops placed even before I open a position, and assign them as soon as I hit the buy or sell.

When to close a trade

Again, this is subjective, but with every trade I try to exit when my position is in profit, with the idea that even a partial profit is better than earning nothing or taking a loss. In fact, my profit target is rarely hit, but I have managed to continually improve my equity on the basis that I am always moving my stop loss inside profit at the nearest opportunity when price goes in my favor. In most cases, I have the philosophy of letting my winners run, which means that I give a profitable position a chance to run higher; I use my stop-loss to lock in profit, and then move it up as the market moves up, usually allowing for a decent amount of retracement. Occasionally, I leave a large amount of money on the table if the price swings against me, but sometimes, this has allowed me to take a 1:3-5 risk/reward on my trade when the market has moved heavily in my direction. In terms of losses, the issue is even more subjective. In the first few months, I would take some losses needlessly because I did not understand enough about support and resistance, so I would often set my stop loss incorrectly. There is nothing more frustrating than watching your stop get taken out, and then watching the market swing back in your direction and hit your target. Sometimes, you have to look at larger time frames and determine major areas of support and resistance. If you are too slow to get out of a negative position, it is sometimes beneficial look at a larger time frame, where you can spot a new area of support, place your stop below and apply some patience. This is not for everyone, because it is hard to see a -100 or -150 pip position on your account; but if you have the fortitude of will, the margin, and some solid evidence that the price will move back in your favor, or at the very least, to a break even situation, then you can avoid a loss. The key to this tactic, is to not apply your full commitment to a position at first, where you keep plenty of margin in reserve to absorb a negative balance, and look for other opportunities in the meantime.

The lesson is that the market does change behavior, and when it does, so must the tools. As with strategies, rules must change to suit the market. In my first few months of trading, I would assign stop losses and profit targets based on an arbitrary dollar amount, but as I learned something about resistance and support, this became obsolete. Yet, having and following a set of rules is the only thing that a trader can control, and can save a trader from ruin and guide them to success on regular basis.

Trading Journal

Having a diary is great tool for any trader; I've read or heard this tip in at least a dozen places and I don't think I'll stop using mine for as long as I trade. In fact, this blog is part of that journal. How you use the journal or what you write is your business. Some people like to write down all their trade ideas before they execute them. For me, trading is all a matter of successful analysis, planing and timing so I usually do not have the time to write all of my ideas down; by the time I've written it down, in some cases, I've missed my entry, but I do it when I can afford the time, i.e. when the market is moving slowly. I use my journal to write out my ideas when I'm not in the market, most often when I am away from my office, and enjoying a coffee. Being away from the action give me the chance to look at my activities with a more relaxed perspective; I can review my issues, my successes, my opportunities for improvement. I can make plans, go over my goals, review my rules and strategies, and I can be honest with myself if I have adhered to what I have written.

Goal Setting
 
Setting both long term and short term goals is a very good thing to do on a regular basis in order to measure your progress. In my opinion life is about the journey rather than the destination, which means that the bulk of life is spent getting somewhere and the arrival is only a sliver of the whole experience. However, if you have a destination, you have a direction and a purpose, and the impetus to start the important part, the journey. If you have regular goals, you can measure your success by your own standards in time. If you are exceeding your goals you can start increasing your goals. Having progressive goals is one way to give you a motivation for improving your game. If you are missing your goals, or not getting close to them, then you can start to examine why missed those goals; perhaps your goals were unrealistic, or perhaps you had some issues outside your trading activities that forced you to lose some time and productivity, or perhaps you need to identify what you are doing that is holding you back from your potential. Another means of setting goals is to do it visually, both in the mind, and with a goal board. If you want to use your trading proceeds to fund a vacation, put up a picture of where you want to go, or if you want a new car, put that up on the wall.

Positive Thinking

In my experience, having a good attitude goes hand in hand with goal setting; if you enjoy trading, then it makes the process that much easier. I have found that while I may not always be winning, having a good attitude is key to staying in the game and prospering. Even taking losses can be viewed in a positive light, if you understand that losses can be powerful lessons for your future trading success. If you believe in the Laws of Attraction, as I do, then you can apply them to your trading as well, with often surprising results.

Self-Review

Something that most successful people will do on some level or another is to monitor their activities to measure their progress in life. I can't verify this fact because I haven't spoken to all or most successful human beings, but I do notice that many successful people write about their exploits as either trade books, or biographies which are form of self-review. This is where you can be honest with yourself regarding your activities as a trader. Did you follow your rules? Did you break them? If you broke them, did you do it for a very good reason? Perhaps the rule needs to be changed. You can review your activities daily, weekly, monthly, yearly, but regardless, it is a good idea to go over your performance because it is a great opportunity to spot areas where you can improve your trading.

Equity Curve

At first when I started using a graph and spreadsheet containing my profits and losses, I experienced difficulty stopped using it for a period of a few months. I was being dishonest with myself over the fact that for a time I was taking on more losses than gains, and it was painful to commit to a document, and also because, I needed to focus on improving my performance rather than documenting my lack thereof. Nonetheless, even though the losses are painful when they occur and ugly dips in an otherwise increasing curve, I update my equity curve at the end of every trading day to remind myself of what I am doing correctly and what I am doing incorrectly. This provides me with a reality check when I need to improve, and it also shows me graphically the sum of my work over the course of my career. In so doing, it gives me a visual representation (other than my available margin reading on my trading platform) of what I need to protect when I'm in the market; it is an additional pause button for my mind before I think about taking excessive and less-probable risks. Before I open a position think about the other side of the deal, where I may be wrong and I may need to document a drawdown at the end of the day, as a result. This is also helpful in that I have a few built in formulas calculating certain percentage amounts of my available margin, daily. Many successful traders have a rule where you expose a certain percentage of your account on each single trade, some of which apply this to all deals at any single point in time. This percentage varies depending on who you talk to or listen to, it can be as low as 1% or as high as 10%, I've even heard of cases where some traders expose their entire account when they trade, but I imagine they are crazy or that they really know what they are doing and extremely focused and disciplined. Regardless, my spreadsheet shows what the value, in dollars, of 1%, 3%, and 5% of my total margin. This is the amount of exposure to the market I am willing to take in most cases. I have violated the 5% rule on a very small percentage of my total trades, but I have had good reason to do so in these cases; sometimes I have paid the price of a very ugly drawdown, but in most cases, the calculate risk paid off rather well. One argument for going over this percentage might be when you are in a progressively improving trade (but not a progressively diminishing one), you increase your position, or so argues Jessie Livermore. In any case, I have accepted responsibility for each trade before entries, and after exits, regardless of whether or not they were at a profit or a loss.

Although I have found some success with these tools, I am always on the lookout for improving my game, learning new tactics, and overcoming weaknesses and improving my strengths; as with life, trading is not about achieving perfection, but constant attempts at improvement.

Bad News Eases Presure on the USD

That catalyst I mentioned previously killed off all my positions - but in healthy if not excessive profit; my trading platform got very laggy as the data came out and I had a rough time closing out my positions in time to rescue my profits. I didn't catch the best of it as the drop was nasty and sharp, but I did manage to move my account size up by another big figure which takes care of July's monthly goal; I am now a couple weeks behind on my summer goal schedule due partly to a bad RAM problem with my PC, and couple of weeks where I could not bring myself to trade so I could work on some of my trading discipline issues.

Although I am sure that the market will rally post-fix, and I'll be kicking myself for ending the day early, but I have a reluctance to buy into risk at these elevated levels when the shorts now have some ammunition with a string of bad data including the lousy Retail Sales figure. As I figured, they were waiting for the opportunity to strike. If I'm really lucky, the price will be pushed down to more buyable figures.

Yesterday's FOMC Statement - Perfect Storm for USD and JPY

No time for editing and posting my charts today. The big news this week is that the FOMC (the Fed) kept rates at present levels and set the expectation for low rates for the foreseeable future as they must or the U.S. economy will tank before it even begins to recover. The news every currency trader was waiting for was the Fed's purchase plan, and they decided against ending their purchase plan prematurely and even extending it, and acknowledged that the economy has stabalized out of it's free fall - well, we knew that last May, but they have to be conservative with their assesments. Equities futures are pushing up over yesterday's gains, Light Sweet Crude is up on the day over 71, Gold is back up above 955, and positive GDP figures came out of Germany and France. The only thing left to discuss is the data coming out at 12:30 GMT for the US, including Import Price Index, Retail Sales, and Initial Jobless Claims.

Seems like the USD is about to slide a bit today, but we'll see. The contrarian in me tells me this is not going to happen and will reverse at some point, but when you see a trend, resistance lines broken, and the probabilities point in a direction, you go with it. I do think a correction is going to happen, but waiting for the right time is crucial as optimism abounds. My advise regarding a potential reversal if you have the cajones, is to wait for a -ve catalyst (bad news) and to either have very tight stops or a lot of unused margin to absorb the push up and wait for the bounce. If I were very smart yesterday and on Monday, I would be long on both gold (was but lost $40 in a matter of seconds when the 950 support gave way down to 943) and silver (Jim Rogers play from weeks ago - I should have just bought weeks ago!), but I'm already abusing my margin as it is; I'm long in one of the Yen crosses, and some other risk currencies including AUD/USD (an indirect gold play), with an emphasis on GBP (contrarian reversal play from last weeks BOE extension of quantitative easing and the recent lows of this week), but I'm still slightly skeptical as always, and I need to do more research on precious metals trading...sounds like a project for a couple of weekends.

GBP/USD Soars past 1.7000 and looks set to go beyond

Sometimes your wrong; but when it's obvious that your wrong, it's important to have tight stops. I refused to take a small profit on the GBP/USD short several times, and when it refused to go below 1.6900 after three very solid attempts. I should have liquidated, but often I start to think a little less clearly when I've been watching the charts for too long. The USD/CHF deal is still on and it seems to be holding above 1.06 exactly where I left it last night. I think I'm going to be devoting a little more time to my trade setups and reserve my blogging here for the weekends.

Contrarian Plays for the USD in seemingly oversold conditions = Buy Low, Sell High

Sold 2 mini-contracts of GBP/USD at the 1.6930ish (downtrending resistance on the hourly) as the cable seems to have overextended it's reach; that and a double top at the 1.70ish area. Bought 1 mini-contract of USD/CHF which I almost never play, but seems very oversold on both the 1-hour and 4-hour charts, and appears to have based out at or near 1.06/1.0610 where I bought. Last week was an amazing week for risk, so there is the possibility that we get the usual correction or consolidation. I'm going fairly light this week because there is hesitation both ways right now, which means it's not the time for aggressive and heavy positioning. I would like to have both of these positions turn into swing trades, but I'll have to see what the mood of the market is in the next few hours to see if I have confirmation. Although the S&P has cleared the 1000 mark, there is hesitation in the afternoon to carry it higher, and the USD selling has paused. Nontheless I am fully concious of the trends, and I am hoping to move myself to break even on both deals at the first reasonable opportunity. If I have some spare time later, I'll show some charts on both pairs.

EUR/USD Mid-Asia Session Update

Slept through half of the New York session to wake up and have lunch with old friends, after which I watched the afternoon price action which was about as exciting as watching paint dry; from the moment I crashed (after the German data came out) to when I woke up, the price had moved against me by 50 pips and then bounced back to my break even.

I notice that lately Asia seems to be the catalyst for what happens and has been leading with trend establishing moves that are followed in the other two sessions; a demonstration of the economic power shift, or the normal Asian session break-out tendancy re-emerging? A bullish move on risk assets has manifested now in Asia, but price is now hesitating at present levels. EUR/USD moved up above the key 1.4100/1.4110 to reach a high of 1.4132 before being pushed back down to 1.4120/25 where it is now loitering. Short of my first target I have unloaded one of my contracts already, and moved the other 3 in such a way as to lock in enough pips to make this my first 1000 pip (what can I say, I think in round numbers like most people) monthly gain. I will trail my stops manually if we get another squeeze higher, but I anticipate the trading day to be characteristically nutty for the end of the month flows and option plays, so I imagine that my stops will be taken out at a profit soon. In light of the mixed fundamental data from Europe, the IMF declaring that the euro is "overvalued", and of course Goldman Sachs advising the closing of all Long positions in EUR/USD, I think any further upside may be capped at either 1.4140/50 or 1.4180/90, but I cannot predict the future. Part of being a consistently successful trader is knowing when to lock in profits at levels where you are comfortable, leaving a bit of wiggle room for additional gains, but not leaving so much that a reversal will leave you shaking your head about the money you left on the table. As a swing-trade and a contrarian play, this has already worked out nicely. I now wish I had done my usual EUR/USD and GBP/USD long combination play, as I would have done much better. Regardless, I'm only going to be watching my positions from now till the weekend, without any intention of initiating new plays as I will be sleep-deprived once the wackyness starts. Crossing my fingers for another squeeze higher!

S&P 500 Bull Flag...but...Looking Exhausted

Classic Bull Flag on the S&P 500, but with momentum all but ground to a halt, the price is currently looking exhausted or in consolidation. I have a hunch that trader sentiment is overall bullish, and that it may move to test 1000/1010 in the next hour of trading. If there is a strong rejection of this hypothetical attempt, 990 seems to be key to the downside short-term, and 970/972 seems to be providing a base since the break to the upside on July 23, 2009.


Still holding EUR/USD Long, and it has barely moved in the time when I went to sleep last night after the German unemployment figures and woke up late this morning. The relief rally seems weak at best, but I'll have to see what Asia and early London have to say. It seems that a solid break of 1.4100 is key to the upside, and failing that, a downward correction may finally crack the 1.400. Playing this one closely now because the US GDP number is out tomorrow, combined with the end of the week and end of month usual craziness, it may not prove wise to be holding risk.

EUR/USD Late Asia Session Update

It appears as though risk was down, but not quite out, and there may be a bit more upside in the next few hours. Rumors of a 1.4000 barrier option, and some comments from the Chinese contradicting their tightening of lending policy has begun a tentative risk rally yesterday afternoon. I tried to sleep, but when price started moving up, I found that I couldn't so I guess I'm going to watch early London. In the meantime, here is a 15-minute chart of the EUR/USD.

Buying EUR/USD Near Up-Trend Support Zone / July 29, 2009 Beige Book is Less Worse

The Fed's Beige Book came out today, and although the expectation was for a very downbeat tone, the actual contents are - as I expected, less worse than expectation.

"Reports from the 12 Federal Reserve Districts suggest that economic activity continued to be weak going into the summer, but most Districts indicated that the pace of decline has moderated since the last report or that activity has begun to stabilize, albeit at a low level. Five Districts used the words "slow", "subdued", or "weak" to describe activity levels; Chicago and St. Louis reported that the pace of decline appeared to be moderating; and New York, Cleveland, Kansas City, and San Francisco pointed to signs of stabilization. Minneapolis said the District economy had contracted since the last report."

Full report:
Beige Book

Playing the contrarian angle, I am currently long for several contracts for the EUR/USD, which is trading at lows (so far) of the session and in-and-around the support zone I discussed in my last post, in anticipation of some (hopeful) short covering in the next 24-36 hours after the less-than-apocalyptic report that just hit the wires. Mind you, that I still need to do a bit more than skim the report myself. The consensus seems to be that major support comes in at about 1.3750/1.3850, and that short term support is near 1.3980-1.4000 which has held as of this posting. My stops are well below major support in anticipation for the usual risk aversion that has characterized the Asia session over the last few weeks. I fully anticipate more downward movement but so far as of 18:54 GMT (14:54 EST), the selling of EUR/USD has moderated but the risk is still palpable with the S&P hovering near 970. I am hoping to ride this as a swing trade over the next few days, with modest targets of 1.4180, 1.4220, and possibly another attempt at the 1.4300, but subject to change as always. I will be watching the chart for the next few hours to see the end of the New York session and I will be updating again soon.

240 Min (4hr) EUR/USD, 5:00pm GMT July 19, 2009

This is my 240 minute chart study of the EUR/USD, made in preparation for the upcoming trading week of July 20th-24th. Clicking on the image will make things more clear. To start off, I cannot say where the currency will be in a few hours, or days or by the end of the week, but I do have some ideas and areas of price interest. Before I get into the details of my analysis, you may want to check out this wonderful support and resistance webinar by Triffany Hammond courtesy of fxstreet.com.

Support Areas

Up Trending Support zone. Notice the pair of red trend lines starting at the bottom left hand side of the page, these start at the low of about 1.3823 reached on May 17th, 2009, and extend up to where they were tested and held on the July 8th Monthly low of about 1.3834. The reason I have used double lines for my support and resistance up-trend/down-trend lines is to include both the wicks and the tops/bottoms of the low/high candles of these zones; the idea being that support and resistance are better thought of as zones rather than specific price points. The interesting thing about this zone is that it has only been tested once unsuccessfully and has not been approached with strength since July 8th; in fact, if you look at the candles approaching this zone from July 8th onwards, you'll notice that they have very long wicks pointing down. This means that there was an attempt to drive the price down, but it was successfully repelled within the 4hr candle itself and at increasingly higher levels. This would indicate that long interest in the EUR is gaining ground and pushing support progressively higher.

1.3423 Might be considered as a potential bottom on a potential serious move to the downside, seeing as how this price held after the breakout to the upside - and resistance often becomes support and visa versa. This was also the start to the creation of the very large consolidation triangle that has formed since.

1.3775-1.3750 Should be as strong support zone. This zone starts at 1.3775 which is the 61.8% Fibonacci level of the previously mentioned breakout support starting at 1.3423 to the high of 1.4349 achieved on June 3rd which has yet to be approached since. I would consider the zone bottom to be at 1.3740/50 which is the June 15th monthly low.

1.3880-1.3910 Includes a number of interesting levels, where we have the 50% retracement from the down move from the 1.4339 to the June 15th low of 1.3748 which is 1.3896. Also there is the 50% retracement level from the 1.3423 to 1.4339 top which comes in at 1.3881. 1.3910 is included because no 4-hr candle body has successfully closed below since we came off that July 8th recent low.

1.3975 is a 38% retracement of the 1.4339 to 1.3748 June low.

1.4075 has held very nicely in the last couple days of trading on the week, and is a 50% retracement for the up move from the June low of 1.3748 to the July 1st (candle body high) of 1.4184.

Resistance Areas

Naturally we have the high of 2009 thus far coming in at 1.4339, which will probably make more sense on a daily chart, as I'm sure it's near an important Fibonacci level. This is the top of our triangle. This is also the begining of our complimentary down trendline in the double blue lines (which are actually black in this screen shot). This resistance zone was tested once and held the candle body at 1.4184 on July 1st but the wick extended up to peek about 1.4200 before being pushed back down again with strength. So far this has held but barely it seems, because once we get into the second half of July, this zone is violated repeatedly and we have even had 3 candle body closes within the resistance zone and one even above it before the price was chased back to the bottom of the zone in the last few hours of the trading week.

Key zones of resistance to the upside of the triangle:

1.4140 we have not had a 4 hour candle body close above this level since July 1st.
1.4180-1.4200 we have not had a 4 hour candle close in this zone since the early June highs. I have heard and read that this is the level to break for an indication of a return to long-term bullish momentum for the EUR/USD
1.4320-1.4340 we have not had a 4 hour candle close in this level since July 1st since 2008. This in my mind would be the zone to beat to make sure that we haven't turned the triangle into a rectangle - which I suspect is one scenario we might see until earnings season is over or the rest of the "summer correction" (I keep hearing about it but not seeing very much from the bears) is finished.

The Theme here is an ever higher series of lows with the main line of support strength being the uptrend line support zone which makes up the base of that triangle that most traders have been watching very carefully over the last month and a half. I would be able to say the same about the highs being lower, but the last 2 days of trading this week has the price action working fully inside the resistance zone and even above it for significant periods above it. To me and to a lot of traders out there this looks like a bullish pennant, but I've seen many of these fail on different timeframes, so caution is advised for either short or long positions. I'm favouring a break to the upside based on the balance of data and charting analysis, but waiting for confirmation (before going long at what seems like the range highs) is a good play, i.e. waiting for a close above 1.42 on the hourly. Another play might be what I have been doing since June, which is to buy very lightly near the bottom of the triangle, in an attempt to set up a swing trade, which has the potential to turn into a break out trade if the long term bullishness resumes. Regardless of what happens, the week should be intersting, and possibly very choppy. Keeping an eye on oil, the DJIA and the S&P would be a good idea as well.

Trading and Being Your Own Boss

Unless you work for a firm, trading for a living means that you are your own boss. For some, especially entrepreneurs, this concept is freedom and is part of the reason they are in the market. For others, the idea of being self-employed is frightening because you work without supervision and without the benefit of a structure composed of other individuals; you work alone, and you survive by your own wits. There are benefits and costs, in either case, and I'll front-load the good:

1) You decide your own hours and days

• Enjoy working Monday to Friday like everyone else, with regular hours if you wish. This is great if all of your friends and family operate on this schedule, but not all people have this luxury in this day and age. Many businesses and places of employment operate at either odd hours, on shifts, or 24/7. I've done all these schedules, and while my trading activities have me occasionally trading outside my ideal of Mon-Friday 6am-3pm ish, I trade outside these times when I want rather than when my company tells me that it is required.
  
• Hit and passed your goal and feel like taking the rest of the day or week or month off, you can do so.
• Find that second wind coming on and you are not tired at the end of the session, or you have some deals that are still gaining, you can keep going for as long as you are still effective (but be wary of overtrading of course)
• Find that you are more productive and more profitable at certain times of the day, well you can work those times.

2) You work as hard or as soft as you want

• Part of working for yourself is having the right to work at your own pace, as opposed to working at your boss' pace. For some this might mean more slacking off, but for others it means working harder and more effectively. Personally I've noticed my own work ethic improved dramatically when I started to take my trading seriously and treat it as a full-time job rather than a part-time hobby.
• You are able to balance life and work easier, with some care and planning. At some workplaces, your social networking is seriously curtailed, i.e. no facebook, or personal emails, or phone calls. If you trade for yourself, you can do all the above on your own time, provided you keep track of your work while you're doing it.
• Get it done when it needs to be done, rather than waiting for approval from up above. When I worked in technical support, there was often the problem of upper management questioning what middle management was doing, and on down the line. Often those in the middle and on the bottom are on the ground so to speak, and if they care about what they do, they will usually know what needs to be done to fix a problem for either the company or a client, but would end up with a solution on hold until approval came from above. Precious time was wasted and productive hours were lost when there was a serious lag in communication. As a trader, you have an idea as to what needs to be done within seconds or minutes of a critical decision moment, and the only approval you need come from your strategies, your rules, your equity, and sometimes your gut.

3) You enjoy the full fruits of your labour

• Because you are working for yourself, your profits and losses are yours rather than shared with your company. In many places of employment, often the most productive people carry the rest of the department or organization. In my understanding, this is true downside to communism (which operates on the principal that the all humans are pretty much the same and that the human spirit can be forged to follow a universal set of ideals) and improperly managed corporate structures. Taking realistic human nature into the equation, when everyone in society, an occupation, or a position is paid the same regardless of effort or results, the end result is usually the lowest common denominator of productivity; in other words, why should I work harder and more effectively for the same pay as the slob who only makes the effort of appearing to work hard when he/she is being monitored by a superior?

4) Job security

• No need to worry about downsizing, off-shoring, or closures.
• You are not likely to replace or transfer yourself due to workplace politics or business needs.
• In fact not having to deal with workplace politics really is a complete benefit in and of itself.
  

While the positive aspects seem logical, there are cons to being an independent trader:

1) You need to provide your own work ethic and motivation

• Don't quite feel like trading, but you have yet to reach this week's or last week's goal, you may need to suck it up and start looking for opportunities and deals.
• This doesn't mean trade when there are no opportunities, but you do need to put in a certain amount of time and effort to achieve anything of value (well other than winning the lottery or having a rich uncle that favours you in their will), and this includes being a successful trader.
• This is a profession like no other, but it is still a profession.

2) You need self-analyze your productivity

• Something that many employees either dread or look forward to is the monthly/yearly review, and as a trader you should be tracking your progress.
  
• You will be doing this for yourself, taking extra time out of your day when you are not trading.
  
• This might actually is a benefit for people that are able to objectively criticize themselves and either work around their weaknesses, or overcome them. For others, I recommend learning to do these things very quickly.
  

3) You are responsible for your bottom line

• As an employee, if the company is not profitable one month, you still get your bi-monthly pay, and you will most likely not need to worry about your pay and benefits over the long term. With trading, you are earning money based on the consistent success of your performance.
• If your bottom line dips, or goes in the red, you need to figure things out pretty fast.
• You take care of your own overhead, i.e. paying your rent, power, keep your credit clean and open, pay your Internet connection, and for some traders pay for news/chart feeds, which means your overhead needs to be taken care of in a timely manner or you will not be able to work and earn money.
  
• You are also responsible for maintaining sufficient capital to continue operating your business and your life, even when you are off your game. For most traders, this means planning ahead or having a future-time-orientation, and keeping sufficient savings on hand as case money. Having as much liquid capital as you can amass is key here.
  

4) In many cases, trading is a solitary activity

• Many traders trade by themselves (I do) and sometimes I do miss the back-and-forth with coworkers, having lunch with the gang, the camaraderie of sharing work, being part of a team, and of course the never-ending string of jokes and pranks that I used to enjoy at every half-decent place I've worked.
  
• On the other hand, you can always see your friends and enjoy that time much more when your are not supposed to be working.

All of this comes into focus when you realize that as a self-employed trader, half of your business is to analyze the market and take calculated risks to generate profit on a regular basis, the other half is to analyze yourself before, during and after your trading activities. I find that I will usually devote an hour to a couple of hours on the weekend to serious self-analysis regarding my trade activities, but I usually do as much as I can away from my office so that I can have a fresh and hopefully obejective perspective. Excellent self-management of your trading can make the difference between consistent success and erratic results, so it is worth your time and effort.

RIM down to 77

Back in May, I did an analysis on RIM and, while it has taken a couple of months to unfold, the analysis is holding true (for now). Yet, I remain bullish on RIM in the medium to long term and
apperantly, I'm not the only one that thinks this:

http://www.globeinvestor.com/servlet/story/RTGAM.20090708.escenic_1210405/GIStory/

According to the article, support rests at 75 (the high after the breakout), but in my opinion, 70-75 is the "support zone," because resistance and support is hard to pin to the exact decimal until after the fact. There is a downside, so please read the article fully if you are holding, selling or buying.