Days to remember

Just a quick note to remember my extreme trading experiences I had today - probed the market twice and leaving the secong shor trade around the high area of the trading range as I sensed there will be unwind - this was true due to the Easter holidays in US, England etc..

Anyway >>> TREND FOLLOWING is the main theme right here.

Seems I got skill to carch reversal points but I now see the major success actually comes with trend following as there is the best profit opportunity.

I increased my trading leverage to 5 Standard lots in the last 3 days -- opportunities were ceased but I lackes the skill to follow the major length of the moves and I now will focus even more rigorously on this area.

Taking LOSS & Important points

Here's a good example of how to cut loss at the very first indication that one is not right.

Here are some of the arguements:

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I opened those 2 longs while attending a class and thru my mobile phone on the back of the rising US indices. The trades were entered as I felt too emotionally attached to the market performance and I felt I am missing something.

> I guess I just did it because of boredom and that was the first thing to make me think twice!!

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Other thing is that I longed 1 standard lot in EURJPY but due to some mistake I longed 2 standard lots in GBPJPY which doomed this trade from the outset.

> Next thing I didn't cut exposure in GBPJPY immediately and left emotionally vulnerable.

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Well the rest is history - but what makes me feel uncomfortable is that I was CONFIDENT that FED liquidity injection (200 bio USD - matching a 75bp rate cut on 11.03.2008) was just a short term cure for the financial sysytem and the TREND was DOWN.

I entered LONG on the assumption that the short covering would extend also today but on the charts I see I actually hit the exact top both in S&P and DJIA and the EURJPY & GBPJPY. Well if I had my seat comfortably looking the charts unfold I wouldn't venture into sucha a stupid act!

***

One thing to be ahppy about is I didn't HESITATE to take the loss (36 pips in EJ & 52 pips in GJ).. Well, I could have cut both positions once I saw on the mobile phone that things didn't work as expected but this I take as my MISTAKE - as I procrastinated to take the loss immmediately I had a signal that I was wrong.

///

That's all - trade with the trend - run the profits and cut the loss immediately.

GBPUSD - 10.03.2008

Today I actually got into this trade by chance as I saw the strange reaction to the UK Manufactoring data. It came just a bit better and thus gave some credit to the Infaltionary fears but as the price oscillated around the 2.0200 level it shoot up to 2.0217 where it hit the roof and came straight down under 2.02.

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I actually made 5 trades before letting it run. Here is my actions:

First I shorted 2.0188 - doubled up on Stop & Reverse to long at 2.0207 > shorted the same amount at 2.0192 >>> reversed the same amount to long at 2.0211.

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Well finally I saw the European indices all were liquidated - thus EURJPY and GBPJPY were under huge pressure of unwinding. This was mainly done thru the USDJPY strengthening below the 102 mark.

>>>

The hourly GBPUSD chart was also looking very toppish with an uptrend begging to fall under its own weight --- the upmove made too much in too short time and MAs were giving signs of reversal.

>>>

TWEEZER TOP - Daily candle shows reversal>

The Daily chart also added to my conviction as RSI and Momentum were also at very high levels. I actually assumed the YEN crosses unwind would drag also the majors which were too high already.

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So my final trade was Stop and Reverse to Short the whole position at 2.0201. Then added 1/3 more at 2.0211 averaging the price to 2.0204. Then I left it and covered before midnight at 2.0094 for +110. An hour later it broke down to 2.0040 and it will possibly go much lower.

***

I want to mark this ride because of the large leverage involved (3). It made me remember the ultimate joy when I rode a GBPUSD long for 120 pips with 1,2 standard lot position - how romantic those early days were.

EURJPY -> SAR trade - 05.03.2008

ok - I got a nice reversal today - starting lightly probed the short side as indicated by the red lines I sold EJ at 157.17 & GJ at 204.93.

However my conviction in those shorts was deeply undermined by the strange divergence in the DAX soaring at +1% and FTSE almost flat. The answer came from the surge in EURGBP an hour before the EZ Retail Sales data that came in slightly better than expected.

Anyway my first entry was based on the breach of this diagonal lines - which was rather vague argument. That's why I cut my Short GJ rather soon with a 3 pip loss before it broke down to 204.50. It soon after reversed and went straight back.

What I did is focus on the less volatile EURJPY since EZ retail data was good; DAX was doing rather good >>> last piece of info came that big shorts in USDJPY from 120/117 were unwinded - which would boort the USDJPY higher giving strength to the EUR cross.

As I had a short at 157.17 I reversed the whole position as soon as I saw it breaking the intraday highs around 159.35 - long position was established at 157.37.

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I was a bit scared and shaken as the first initial leg after the Retail data to 157.42 actually reversed - however my conviction in the fundamental factors kept me in and I also added some when I saw 157. 17 again.

> After 2 hours I covered at 157.76. Bollinger Bands didn't suggest strong continuation so I decided to keep the profit.

EURJPY & GBPJPY scalping - 04.03.2008

Just a quick reminder of a swift SAR trade on EURJPY and GBPJPY crosses - again I didn't capitalise enough on the trades but I'd like to remember the principle underpinning the successful outcome.

*** What doesn't come up > must come down! ***

I longed both crosses at indicated on the charts with the assumption that the Support trendlines in Green would offer a very good R/R ratio as price was very close and I would reverse if they didn't hold.

As Nikkei 225 closed flat I expected crosses would gain some momentum but at 7:00 GMT London traders just took the highs and started unwinding again.

>>> Once the Support TL were breached I Reversed to short and then averaged lightly above the initial reaction prices which actually gave me a better trade location and I could exit recoupling the initila trade losses + gaining an average 20 pips on each trade.

*** Again this could have been executed much better and the EURJPY actually descended to the BLACK trendline Support where I could have enhanced the outcome. However I would like to mark the underlying principle in ana attempt to reinforce my conviction in the technical significance of broken S&R TLs.

EURJPY 29.02.2008 - Anatomy of a missed opportunity..

* This is here to mark a great missed trade I had planned but failed to execute.

Given the AB = CD measured move - it's obvious that the first move 152 - 159.50 yielded ~750 pips -- so original idea was to short the second move that started at 154 and its measured target TURN level was 161.50.

>> Actual High was 161.40! So much in hindsight. Missed opportunity that is.

* The 4-hour EURJPY chart confirms the strong resistance by the Descending Resitance trendline.

__________

The Daily USDJPY chart presents the other missed trade which is based on the failure to hold above the 20 dayMA.

This is reinforced by the breakdown of the Bearish flag consolidation inside the major downward channel - nicely outlined in the chart!

__________

Finally a word on LABOURED move >>> EURJPY initial move 152-159.50 was a swift one -- then in contrast the 154 - 161.40 move came in a slow and LABOURED manner.

My initial response to the chart was hesitation! When in reality is should have been a dramatic reinforcement of my CONVICTION in the feasibility of this trade.

Then I got the answer in the wisdom of a friend I regard as my FX trading mentor who was generous enough to share his knowledge with me! Here is in short what a LABOURED move represents:

***

> means trapped longs - not willing to turn round

> yes the shorts capitulated and become longs

> now they will buy all the way down and have stops at each new low

> yes it is an unwillingness by which ever side to acknowledge what is happening - then a the very moment they should be operating they get stopped out and reverse -- it becomes the if only ....;..

> easy to describe but hard to enact -- the opposite side

> have to let the mkt breathe sometimes

*** So much trading and psychological wisdom in so few words!

The revelation for comes after I find these words quite clearly describing my own reaction. The rationale of this missed trades/opportunities is >>> Have a plan and execute it!

EURJPY scalp trade - 29 February 2008

I just got out of this trade here at 00:00 GMT - 2 AM o'clock local time.

A pretty nasty selloff in the Yen Carry crosses induced by the breach of the 105 Exporter defended level -- the rumored stops sub 105 / 104.90 were triggered leading to an extended plunge of the pair to 104.70 in a swift manner.

Playing with the drop in EURJPY I decided to enter a swift counter trade at the previous Resistance level around 159.50 - which coincided with 50 day MA on 4-hour chart.

My Initial idea was to get out fast if I see a breach there.

Well so much for discipline and cutting loss early :>> I averaged down at 159.30 level --- here by mistake I was trying to buy 1 standard lot but I actually sold I one and took some little 20 pip loss but the dynamics of the trade were going even lower.

Then I checked the Daily chart presented above --- the 159.22 stood for the 50 day MA which I started to believe that will make the drop at least stall or pause (no matter it would reverse or continue even lower).

***

I want to make sure I never forget this insane scalp trade as it was ultimately risky and it exposed the whole week's labor at a plain collapse. Actually the whole equity was at stake.

***

My view that I still could exit at least at Breakeven led me to add more longs at 159.23 >>>

a that point I guess I touched the largest leverage I ever used - 7 standard lots with average trading location at 159.35.

I swiftly covered 3 lots at 159.43 at the first bounce. Then it broke sub 159.25/29. So on the next quick bounce I saw 159.42 I immediately squared the last 4 standard lots and went flat with a little gain to make up for the emotional strain and clearly irrational use of leverage.

......... .......... .......... ............ ...........

What is worse is that I had an excellent trade location around 160.70 at the start of the European session - I closed it with 30 pips since it was a bit sluggish - but I should have locked in initial profit and run stops above clear level indicated by the Descending Triple top formation quite evident on the 4-hour chart -- Daily is seen as 3 candles with lower highs.

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So this is just a mark to remember that good trades demand CONVICTION, PATIENCE, PROPER MANGEMENT and certainly stop and limit. Those 30-40 pips with 1 standard lot are nice but what makes trading professional is going with a trend and managing the trade properly - otherwise it is plain gamble - let's face it!

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:: After it bounced to 159.42 it went straight down to 158.70/80 - it would have just wiped me out completely!!!

>>>>>>>>>> Now regarding conviction - this is what Stanley Druckenmiller recalls:

Soros came into my office, and we talked about the trade.
"How big a position do you have?" he asked.
"One billion dollars," I answered.
"You call that a position?" he said dismissingly. He encouraged me to double my position. I did, and the trade went dramatically further in our favor.

Soros has taught me that when you have tremendous conviction on a trade, you have to go for the jugular. It takes courage to be a pig. It takes courage to ride a profit with huge leverage. As far as Soros is concerned, when you're right on something, you can't own enough.

>>>>>>>>>>>

And another classic - this is from the Interview with Paul Tudor Jones in Market Wizards by Jack Schwager:

JS:: What are the trading rules you live by?

PTJ:: Don't ever average losers. Decrease your trading volume when you are trading poorly; increase your volume when you are trading well. Never trade in situations where you don't have control. For example, I don't risk significant amounts of money in front of key reports, since that is gambling, not trading.

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If you have a losing position that is making you uncomfortable, the solution is very simple: Get out, because you can always get back in. There is nothing better than a fresh start.

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Don't be too concerned about where you got into a position. The only relevant question is whether you are bullish or bearish on the posi­tion that day. Always think of your entry point as last night's close. I can always tell a rookie trader because he will ask me, "Are you short or long?" Whether I am long or short should have no bearing on his market opinion. Next he will ask (assuming I have told him I am long), "Where are you long from?" Who cares where I am long from. That has no relevance to whether the market environment is bullish or bearish right now, or to the risk/reward balance of a long position at that moment.

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*** The most important rule of trading is to play great defense, not great offense. ***

Every day I assume every position I have is wrong. I know where my stop risk points are going to be. I do that so I can define my maximum possible drawdown. Hopefully, I spend the rest of the day en­joying positions that are going in my direction. If they are going against me, then I have a game plan for getting out.

*
Don't be a hero. Don't have an ego. Always question yourself and your ability. Don't ever feel that you are very good. The second you do, you are dead.

*
Jesse Livermore, one of the greatest speculators of all time, report­edly said that, in the long ran, you can't ever win trading markets. That was a devastating quote for someone like me, just getting into the busi­ness. The idea that you can't beat the markets is a frightening prospect. That is why my guiding philosophy is playing great defense. If you make a good trade, don't think it is because you have some uncanny foresight. Always maintain your sense of confidence, but keep it in check.