This Week’s Trading Review And Thought’s For Next Week; 18th February 2012

This Week’s Trading Review And Thought’s For Next Week; 18th February 2012

This Week was pretty manic in all aspects. Many great looking trading set-ups developed some of which gave the appearance of major reversals across some trending markets. Indices on Wednesday were most obvious with gap up opens and large bearish engulfing reversal candle’s by the day’s close. If there’s one thing that can nullify a bearish engulfing daily candle, it’s a bullish engulfing candle the following day! And that is exactly what happened (at least if viewing just the candle bodies alone).

I’ve seen this happen a number of times before, and bearing that in mind I was very careful in my chosen overnight positioning on Wednesday as detailed in the mid-week update.

Turns out I was right to be conservative in my trading positions during this time, though I still hold USD:CAD which is now below my original stop loss area and I’ll explain more on my thinking behind this in a moment.

In regards to this Week’s Swing trades, I closed GBP:USD after the gap up open on Sunday night based on the analysis I posted at the time. This netted a relatively quick 39 pips profit which I’m happy with for what was a counter trend move from support at the time.

Finally closed the EUR:CAD short position from last November netting a fantastic 757 pips profit and taking the prize for my longest ever holding time of a swing trade at 3 Months to the day.

Following on from Monday’s Yen analysis, Tuesday morning gave quick confirmation of the break-out direction and I entered long on USD:JPY and GBP:JPY with the latter taken as a day trade so as not to have too many eggs in one basket. I closed GBP:JPY within 24 hours and decided to run USD:JPY as a longer term swing trade but in reality of the 2,  GBP:JPY has outperformed. Still, 4 solid up days from USD:JPY is more than I initially expected and I’ve now got to the stage where I’m constantly logging in to check on the profits. When I find myself doing this it can be a good signal to get out of the position but if you draw a line at 80.264 on the Weekly chart that area becomes a tempting initial upside target.

Now for some of my thinking on the markets going forward.

To put it bluntly, I don’t like what I’m seeing across risk-on markets. I’m not comfortable on the bullish side of equities, GBP:USD or EUR:USD at this moment in time, and I’m not comfortable with the bearish side of USD and other risk off currencies right now. The reasons aren’t necessarily technical, it’s partly gut instinct and partly based on similar patterns I’ve seen previously that have unexpectedly failed spectacularly just as everyone is jumping on the band wagon.

For example, Indices closed at or near Friday’s high’s, whilst NZD:USD, GBP:USD,  EUR:USD and many more “risk-on” trends finished well below their respective daily highs.

A quick snap shot at a few charts confirms in more detail:

GBP:USD is rejected by a retest of the daily 200 MA to end Friday well off it’s highs:

EUR:USD rejected from it’s 61.8% retracement with an unconfirmed bearish reversal pattern on the 4 hourly time frame:

DOW, like other Indices closed near the day’s highs. But beware of this possible (usually bearish) megaphone top pattern. I find this an incredibly difficult pattern to trade and they can break out to the upside, but be cautious if trading this:

There is also something that many people forget all too quickly. Wednesdays sell off in Indices which carried on through the Globex trade was a sign worth taking note of. The bearish engulfing was a signal that some big players wanted out of the long side of this market. Their actions may well be proven wrong, but to me it suggests not all is well. It may suggest that some smart money is starting to unwind bullish positions, whilst dumb money keeps chasing the market higher. Friday afternoon’s low volume, zero volatility rally was probably algo’s or HFTs at work levitating prices higher through “hot potato” dealing. Humans don’t trade like that, after all, they had all gone home early ahead of the long U.S Weekend.

In conclusion I’m just saying, don’t be too keen to jump on the bullish side of these market’s until we see further confirmation. The appearance of buying strength might be there, but as the charts above show, things aren’t quite adding up at the moment and this is why I’m hanging on to the USD:CAD position a little longer.

  • Fxplane
    Posted at 12:48h, 19 February

    Hi RS2OOO,
    What is your stop loss for USD/CAD and where is your potential target for the pair? Thank you.

  • RS2OOO
    Posted at 17:53h, 19 February

    Hi Fxplane,

    First I must point out that the USD:CAD long is the one trade where I’ve broken the rules.
    Initially I planned to stop out on a daily close below 0.9979 but due to the fact that it hasn’t actually printed a lower low on the 4 hourly time frame yet, and due to other analysis detailed in this post suggesting the rallies in Indices and EUR;GBP;NZD:USD pairs are showing signs of fizzling out, I’ve chosen to run the USD:CAD long for another couple of sessions and will probably stop out on a daily close below 0.9925 unless intraday action shows strong signs that I should get out before then.

    Initial upside target would be in the 1.0180 area, after which I could re-evaluate the setup to decide whether to run it further.

    • Fxplane
      Posted at 20:35h, 19 February

      Thank you for the information. I like that you trade by not sitting and staring at the computer screen all day long. Take care.