Tag: USDJPY

A three-pointer, bar by bar

I played a lot of basketball as a young adult. A sport relatively new to the UK at the time, I consider it the one major factor that gave me the confidence to go on and achieve my career aspirations as a pilot.

The shot on the left from sometime in the early 70s and the reunion (good to see there is little change!) last week.

How to relate this to trading. Well, sometime in the 80s the basketball three-point rule was introduced. This is a lower probability shot taken from beyond the three-point line, a designated ark surrounding the basket.

Thank goodness they introduced this, as our opposition last week were younger (obviously), fitter, bigger, stronger – we had little chance of getting near the basket for the more probable closer shot. However, our long-range (low probability) shots, and particularly from the little bald guy on the left, were excellent.

The equivalent in trading is a trade taken at an inflection point, where the probability is low but the reward can be at least three-times the risk.

Here’s an example: a bar by bar trade taken yesterday morning.

(Before I do so, I must explain that due to the uncertain volatility to sterling from Brexit negotiations I’ve dedicated myself over the last couple of weeks to being familiar with the currency pairing USD/JPY. You may recall that previously I favoured GBP/JPY. The former has, in general, smaller bars, however, the spread is correspondingly small.)

For a couple of days the chart has been in a broad trading range. From the higher timeframe chart (not shown) the upper channel of the range is higher than bar 1 marked on the chart. However, as the higher time frame chart is always in short it would not be unusual for a decrease in price at this point. From the close of bar 1 we only have a moment to decide. I enter the trade short.

We are aware that the close of our entry bar has engulfed several of the previous bars and closed below the 20 bar exponential moving average. However, significantly the bar has not yet crossed a change in premise line (marked by the red arrow). In basketball terms, a weak two-pointer.

The next bar (bar 2 on the chart) goes against us. It closed higher than previous closes but is still below the recent wick marked by the green arrow.

Another bar higher, a close beyond the wick and the likelihood of at least another move higher (and probably up to the channel line of the higher time frame chart). We’re out of the money with this trade. But we’ve structured the trade so that we have a distant stop position.

Price starts to show some bearishness again and after a slight pull back we set a limit order to short at the high of the previous bars which gets filled from the wick of bar 3. (A low probability three-point basketball shot!) We are now entered short twice – once at the close of bar 1 and again from the high of bar 3. (Our stop for both is at least a measured move above the last leg of bar 2 and its subsequent bars).

Hurrah, we get our anticipated short which puts us back into the money with our initial entry and in good profit with our second entry. The doji at bar 4 puts uncertainty back into the mix, and I exit both trades.

This was correct as the market then went long. The purists would say that bar 5 is a good probability long…..however, after a ‘three-point bounce off the ring and in manoeuvre’ I wait, stay flat and gather my thoughts.

July 1, 2017
Slow Trader Diary – week 34

Here are the ups and downs of this week:

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

Net for the week was a lose 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 main 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. Or, as we term it, 3R. That is: wins 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. Its a necessary filter to keep the risk reward balanced in our favour.

The important reason for this is simple. At 3R we can lose some 60% of the time and still take a profit. Okay, it will make it hard work, but a profit non 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 longer 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 (nice as it is to have a win) that we are not cracking it. However, an average of 3R is plain sailing.

From this weeks 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 up and retraced to provide a buy opportunity in the direction of the COT, but also with a recent Up (a recent trend up).

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

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

Sometimes we can just plainly do better. I’m pleased with that EURGBP 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 profit of £115 (all week the profit had been £600).

The interesting thing about trading is the necessity to detach yourself from profit. Personally (although I’m background aware, of course, of the profit) I never look at ‘up or down’ in terms of money (I don’t even have the money amount showing on my broker page) but only in terms of ‘pips’. 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 longer 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.

August 22, 2015
JPY does not play well with the COT

Some good 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.

This is because, with this selection, 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 important to my mind; there are enough variables in the market not to take notice of any obvious 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.

This buy was supported by the COT, but be careful of the trend:

You may have noted that JPY was 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 big trend only, and not the COT.

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

August 19, 2015
Slow Trader Diary – week 33

With USDJPY we are several hundred pounds up this week, and still in (but as I’ve mentioned before we cannot count these until they’re cashed). Small down of £100 with NZDUSD. Small up of £35 with DTE Energy Co. And, IG (our broker) costs for the week of £3.28.

As an aside, how this affects you (the fund investor) personally will be shown as we move into overall profit. Until then it is pointless. Your initial investment into the fund is guaranteed. Okay, it is sensible to allow a few years for a fund to grow but, like me, with patience, we are all wanting a massive gain.

This has been an exciting week for me in terms of being comfortable with goals and strategies. I am gradually completing my ‘how I trade’ page which will soon give you the strategies that I use. These strategies will seem simple to the novice trader, but execution takes time, dedication and effort to do properly and consistently.

I’ve coined the abbreviation CrUP, meaning: Conditional, recent Up and Price. Each part is equally important. Missing any one and we are at a greater risk of getting the trade wrong. Each aspect of CrUP will be covered in detail soon under ‘how I trade’.

One aspect, however, under Price, that cannot be learned is the method by which we buy or short. We have three choices: on market, on stop or on limit. Again, these will be covered in more detail in my ‘how I trade’ section, but in the mean time I will show you an example from this week. Firstly, the reason it cannot be taught is because it needs instinct, or gut feel.

Above is GBPUSD, which I narrowly missed. You may recall that we caught the last swing up of GBPUSD the previous week. Looking at a chart in hindsight makes it seem obvious. To get the trade right, however, takes understanding (instinct) of ‘how to buy’, i.e. on market, on stop or on limit. My buy was on-limit, at the exact lower pin position (the arrow marked ‘buy point’ shows this). However, the spread is a couple of pips (these are points up or down measured by the right hand axis, the spread is the brokers profit and if we don’t allow for it then we don’t get in). In my case I had allowed for the spread, so it was my buy position, my instinct, that was out). Having missed this, the following day provided an equally, arguably better, buy opportunity with a retrace down from the previous days close.

I appreciate that those not familiar with this form of trading then the explanation is double dutch. However, it is a diary for me as much as for you so you will have to allow me this one.

I have a couple of other examples from this week where, similarly, the buy was either too ambitious (in the case of GBPUSD) or not ambitious enough – hence the £100 loss in NZDUSD.

But as I said at the start, noticing this outcome and being able to gain from the experience is what counts for the future. And the future is this week coming with great opportunities looming.

I mentioned a watchful eye on gold. Both gold and silver have climbed against the long term trend as indicated by the COT report. I’m waiting for a retrace of the price before buying. Also, NZDUSD could be in for a move upwards. Sharpen the instinct!

August 15, 2015