Tag Archives: usdjpy

Trading on Rumour (Part 2)

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Well this second trade on rumour just proves that to me loud and clear, to stick with the technicals. It’s good to have a general ear on the fundamentals, but quite often the market will do the opposite of what you expect it to do. There were rumours that the BoJ were going to do something significant to weaken the Yen to help exporters today. So I went long the USDJPY at 77.20. This did not happen, and as the market realised nothing was happening, the USDJPY sank and stopped me out at the lows. I don’t like “puking the lows” as I feel like a complete idiot, but it had to be done this time to get out of this trade.

This trade was taken with very low risk – I only risked 2.4% of the account on this so the damage was very limited. A good lesson though.

 

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How far back should one go?

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I’m interested in the USD/JPY pair at the moment with significant news coming out of the US coupled with the BoJ worried about the strong Yen. I decided today to have a look at the daily chart from the beginning of 2009 to the present and mark out areas of support and resistance on the chart.

USDJPY Daily (click to enlarge)

Am I going back too far? I guess it depends on the timeframe that one is trading. If trading the M15 to H1 TFs, is this level of analysis necessary? I don’t know but it seems to me from looking at the charts that the market has a memory of about one year and not much beyond that. So levels to watch now on the USDJPY would be the 76.50 area, which if reached could draw out the Bank of Japan again. Perhaps they already have a thick bid in mind if prices break 76? I don’t know, just thinking out loud again. We could see a range developing on this pair between the recent highs and lows, between say 76.50 and 80.50. Trading failed break-outs and break-downs may yield some profitable plays. However, one needs to be one-step ahead. For example there may not be a failed breakout or breakdown, the market may simply break out hard or break down hard. Without knowledge of the amount of liquidity in those areas, it’s almost impossible for the retail trader to judge. What if the big boys stage a failed break-down and it becomes a fake failed break-down with the big boys soaking up sell market orders with a thick bid?

I am finding at the moment that I have moments of clarity and then the fog closes in again. Like a boat lost at sea trying to find land, the fog clears and a glimpse is seen, and then a thick dense bank of fog clouds vision once again. Perseverance, tenacity, asking the right questions and diligence are needed to overcome the vacillations between the joy of discovery and the despair of realisation that actually, one knows pretty much next to nothing.

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Another spanking

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Dear Readers,

I am posting all this up here so that you can benefit from my pain. I don’t know why I’m doing this but I like the thought of helping people. I took a trade on the USDJPY yesterday half a freaking hour before the FOMC statement. What the hell was I thinking? Of course the market bought dollars like they were going out of fashion and I was short. To make it even worse I did not exit the position. I waited a bit longer (hope) to see if the market would turn around (a classic newbie trading error), but it didn’t. The market kept moving slowly but steadily against my position.

I took off half my position for a 1% account loss and left the other half open in the hope (see, it’s that word again) that the market would come back down and I could get out for a small loss, breakeven, and possibly even a small profit. It didn’t happen. Overnight (in my time zone) the market kept moving against me and hit my stop loss for a total of a -2.4% account loss.

Now, two things have come out of this. 1) I’m getting pretty sick and tired of taking huge losses like that, and I want to stop it happening, so: 2) I’ve created a checklist that I am going to print out and stick to my face when I open a new trade.

Check list

* Look for a reason not to take this setup
* Does the setup appear after an extended move?
* Look for nearby support/resistance that could impede favourable movement. Round numbers, horizontals
* Price action good? Do not want lots of wicks and shadows
* Near home base? Best setups occur near home base (sorry, a MAX term)
* Important news within the next two hours?
* Check angle, order and separation (another MAX term)
* Check the bollinger bands – are we in a CZ? Are they contracting or expanding
* Check the TTs – think twice about entering beyond 2nd TT (sorry, another MAX term)
* Do indicators confirm the price action setup?
* What are general market conditions? Volatile? Ranging? Trending?
* Check Risk:Reward ratio in terms of S/R – must be greater than 0.25

I am trying hard to learn from my mistakes and not repeat them and I am taking actions to mitigate the same thing happening again. I have also just bought Brett Steenbarger’s latest book, The Daily Trading Coach. Let’s hope this book can sort out my psychology. I have the drive, I have the persistence, the tenacity and the determination to see this through. It’s a struggle, but then if forex trading was easy everyone would be a billionaire.

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