Gold, we’re in long. Broker charges for the week were a credit of £9.48.

Our target is in the region of 1212; this is in-line with the COT, and if the present bull continues it will nicely form a trend long. However, as we have seen this week, the market remains volatile.

Of the other trades we considered earlier in the week:

Silver moved down lower than expected, did not provide a price at a level I could determine. So no trade.

NZDUSD remains a possibility to go long briefly. But it is presently stable below its low of recent weeks.

GBPUSD, having been quite stable through the initial turmoil of the week, just blew down. It may turn at the 15350 regions or continue down to as low as 15190. I’m less convinced of this trade. It has, for now, become choppy which always makes for a difficult read. The COT is still a buy but is weakening, we do not have a recent trend, although the intermediate trend remains long. Only excellent (daily) price will convince me to take GBPUSD at the moment.

EURUSD is approaching our predicted bounce point. However, the COT is about to turn, and we are all aware of the volatility presently associated with the EUR. My thought is that the bounce could happen, but briefly. Price may turn down again before the previous high thus continuing the trend short.

WTI, or crude oil, bounced off its lower stop this week. This move has the support of the COT, but nothing dramatic for the time being. Too early to decide, but it is on the watch list.

Finally, the S&P and FTSE have moved up slightly, but the roller coaster might not be over yet.

As I’m away for a few weeks, the next diary will be 26th September.

Difficult times in the trading business for the longer-term investor.

Excellent opportunities for short-term swing traders, if we get it right.

I sat on the sidelines as the markets slipped recently. Unable to take advantage of shorts (trading the market to go down) as it all happened so suddenly. The large dips in FX (foreign exchange pairings) occurred, in those, I monitor, within a minute.

There are aftershocks, so timing any recovery is unusual. Those that I will consider are:

At some point soon Silver will rally. However, the recent bear trend means we wait for a clear signal.

NZDUSD is firmly down on the long trend. The COT is a buy, but we have to be careful with the COT signals when the COT is going against the longer trend; the COT, in this instance, still often works but can be short-lived. There is a possible buy opportunity here.

I’m looking for a buy in gold at about 1125 price with a good buy signal. Catching the signal with the correct buy: on-market, on-limit or on-stop is vital.

GBPUSD has been relatively stable over the last few days. A retrace to the 21-day moving average (MA) is worthy of consideration. It may happen quickly, if at all.

EUR might strengthen again soon against the USD. Unless I get daily, or, at a pinch, 4-hour price action at a support level, I will not take this until about the 1120 level.

Finally, the S&P 500. Difficult to judge. With the recent dip, the S&P could provide a useful gain on a bounce. A buy in the region of 1836, but could go down further to the 1770 area. Good price action, or whatever is your chosen price criteria, is essential here.

Lower trade values and full stop positions are considerations when volatility is high.

Here are the ups and downs of this week:

Pace PLC loses £294. AUD/JPY lose £770. Silver gain £363. USD/JPY gain £115. EUR/GBP gain £523. Broker cost was a gain of £18 (the increase was interest earned as we were up with USD/JPY for several days).

Net for the week was a loss of £45.

The (unexpected) last minute strength of JPY took away a potential two grand gain for this week. That is how it stood financially. In ‘how well we traded’ terms I was pleased with this week. We called the market correctly in everything but a late dip against JPY. That is the nature of the business.

The central area for improvement is the risk/reward amounts. We didn’t manage better than 1 to 1. To make money consistently, this needs to improve to an average of 1 to 3. That is winning need to be, on average, three times bigger than the losses.

Take AUD/JPY above for example. Our stop was 110 points (often called pips) away. That means I felt that the trade had the possibility of going up at least 330 pips. Three times the risk. Or, 3R. If I didn’t, I more than likely would not have taken the trade. It’s a necessary filter to keep the risk-reward balanced in our favour.

The critical reason for this is simple. At 3R we can lose some 60% of the time and still make a profit. Okay, it will make it hard work, but a profit none the less. We aim to have the statistic the other way round and win 60% of the time. Importantly, however, if we are not achieving an average win of 3R – we lose long term.

So keep an eye out in future for the ‘R’ which I will post after each actual win/loss. If you see 1R consistently on the wins, you will know that we are not cracking it.

From this week’s charts:

We know from the COT (commitment of traders) report that gold and silver were ready to buy. We had to be careful however of the long-term trend against both of these commodities. Therefore we waited until, in this instance, silver went long and retraced to provide a long opportunity in the direction of the COT.

Very nicely done. I came out – correctly – at only 1R because the overall trend was still too strong on Silver. We may get another opportunity to buy this coming week.

Gold, on the other hand, did not retrace and I was left watching it go up – even though I knew it was going up. There are strategies to jump onto the train and, influenced possibly by Silvers retracement and thinking gold will do the same; I missed one.

There are positive buy signals above. And signs to jump on board. Hindsight remains wonderful!

Sometimes we can do better. I’m pleased with that EUR GBP to buy above. It was an excellent call; if I say so myself, however, I came out way too early. At only 1R. You get the picture. Why did I come out at 1R when the market for EURGBP was going so strong? That, as we have already mentioned, is the area for improvement.

I had a buy order in place with EURUSD and missed a great buy by only a few pips, the chart then zoomed up. But I’m happy with that as the trade (although missed marginally) was correct.

USDJPY above, was this sell instinct? I bought USDJPY on a retrace, from a recent Up, on the one hour chart (chart above is the daily chart to show the week). I was looking for a 3R with this one, and we sat at 1R all week. I noticed the move down (unexpected strengthening of JPY) and sold with a small gain of £115 (all week the profit had been £600).

The interesting thing about trading is the necessity to detach yourself from profit. Regarding ‘pips’ is better. If we’re emotionally attached to money amounts – up and down – we cannot trade emotionally detached or to the best of our abilities, consistently, over the more extended period.

Worth a mention about S&P below and FTSE.

For those in traditional funds, they would have taken a battering this week. The FTSE is a similar picture. I realise that those in managed funds, for the long term, then this is only a 20% blip downwards. However, I would like to take the 20% back up, without having suffered the down bit.

Some excellent opportunities in the foreign exchange pairings (FX) this week.

I am more and more concentrating on the FX market rather than the stocks and shares market. Particularly the major currencies. And my real angle is FX that is in association with the USD.

For instance, GBPUSD, EURUSD, NZDUSD and AUDUSD. Gold and silver, priced against USD, and WTI (light crude oil) as they are all on the COT watch-list.

I can take advantage of the information from the COT report, providing the ‘C’ of my C.U.P. abbreviation (see ‘how I trade’).

Is the COT that important? Anything that helps us trade with an advantage is essential to my mind; there are enough variables in the market not to take notice of any apparent areas of influence.

Silver gave a buy signal (retracement to the 21-day moving average) that we caught this week. Don’t chase this. However, this signal has gone for the time being – possibly.

With COT support, but be careful of the trend:

You may have noted that JPY not included in my primary watch-list. However, we do trade JPY against other major currencies, but without the support of the COT. We are currently in USDJPY and AUDJPY:

 

In both these trades, we bought with the ‘C’ being the significant trend only, and not the COT.

The COT, I find, does not play well with JPY.

Here are our cashed-in trades for week 31: Healthcare Partners Inc + £89, GBP/USD + £687

IG is our broker, costs for the week were – £25.17

Let’s take a look at GBP/USD.

Conditional: this is a graphed COT (commitment of traders) report giving us a buy condition.

This graph represents several months so gives us the condition only, important as that is. From left to right, the first arrow is against the trend. Therefore we would not take that as a favourable buy opportunity. However, the second arrow and second buy indication are right as it is with the recent trend. The buy condition should remain if the blue line on the chart continues to descend to a new low.

The COT report completed for the previous week on the following Tuesday, published on Friday. It is therefore about two weeks old by the time we get it. However, it is like the oil tanker analogy where you move the rudder, but it takes several miles to turn. Often that is the case with the COT. Even though it is old information, it gives us a solid hint at the conditional.

Once we have the conditional, we need a recent matching trend. I’ll talk more on the (elusive) trend in follow up blogs.

After trend, we concentrate on price – in other words, a buy signal. Here is our buy signal for GBP/USD this week. The first graph is in daily bars and the second is the same trade from bottom to top but in 4-hour bars. The second chart gives us a different view as to the dynamic of the trade.

You may have noticed the S&P. Here it is today:

Knowing what the S&P is doing is not a trading conditional for individual stocks (or shares in the case of the FTSE). That would be too broad a statement. Interestingly, the movement however of the S&P was more or less mirrored by the stocks on my short list. Even being confident of the future progress of my selected stocks I still missed most of them. ‘How is this possible?

Below is an example of what happened.

Boeing. We notice by the date that the bottom (blue arrow) coincides with the predicted bottom of the S&P. This pin, at a 50% retrace, is a significant buy signal. (Again, we will cover price in more detail in future blogs for those that are interested).

If we choose to: buy on-market, that is at current price – or a buy-stop order, that is at a (higher, in this example) future price – or a buy limit order, that is at a more favourable price. And one, on this occasion, I got wrong. You will notice that the bounce was so hard that after the pin the next days opening price gapped up. Only a buy on market would have worked. I went for buy on limit and missed it. “C’est la vie.”

This was the same this week for four trades that I set.

For the coming week we are keeping a sharp eye on gold. The commercials (that is the COT report) are warming up nicely to a buy signal. Beware of the trend however and remember, as well as recent trend, we also need the price or more accurately price action. But more on this later.