Why Forex trading SHOULD always be extremely profitable

Even though this account is doing very well (see one reason why)...I think I should be doing so much better.

By nature, I am an impatient person, so intermediate trades (where you have to learn to deal with positions that are down for a while OR where your positions are somewhat profitable, then down before being profitable again) require a great deal of patience.

This is why I have two accounts...one short, one medium term. But sometimes, I wish I could create a password to the intermediate account that wouldn't allow me in for at least three weeks! WHY? Because I have identified entirely too many trades since January that, had I waited three or four weeks, the profits would have been much more.

Here are two examples of trades that I identified a while ago that fall under this theme. I just did a little review...and there are a few more. Go to your charts to see where these pairs are today.

1. Sterling/Euro
2.Canadian Dollar/Yen

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Gold closed above $930 oz. I am pretty sure that is bullish. (My charts.)

Gold

WE WILL NEED TO CLOSE ABOVE 930 IN GOLD for me to be convinced by this rally.

Why We Spend Coins Faster Than Bills

This is a terrific piece on humans and money from Planet Money. It's also very, scarily true!

Apple Vs. RIMM

Interesting way to trade tech. We mostly do Forex in this account, but occasionally, we will stray. Here is a cool video on Apple Vs. RIMM. Excellent way of trading I've never seen before, using the FUNDAMENTALS of the companies directly with the technicals. Really...it's an artificial hedge.

By the way, if there is any doubt that Adam and his trade triangles work...Gold is now around 932 oz. Adam told us to buy it two weeks ago (I already owned it.) Try his software free...it really works, I did...and my account is rocking partly because of him.

Update euro and gold

---CPI numbers were flat to slightly higher.
---Numbers out of Europe last night were awful.
---Gold and commodity currencies hanging in.
---NY State Manufacturing index. The index had the second consecutive month of impressive improvements and rose sharply from -14.6 to -4.6 and is now way above March's low of -38.2.

Stay tuned.

Basic Strategy

I will probably not partake because I have large positions in both Gold and the AUD/GREENBACK pair, but it's pretty simple. Tomorrow morning, the Consumer Price Index number is published. If we have a decent hike in the number, say 0.3%...the Dollar will be crushed (EUR/USD will take off.) If it's less then expected, the opposite will happen.

I'm in the first camp. The solid channel I was so high on when I wrote this entry was seriously breached, and even though I refuse to believe this market will keep going higher, below's breakout didn't occur for no reason. I am a technician first. Fundamental analysis is a distant second place for me. (Clicking on the chart gives you a clearer view):

A case for Gold?

As I have mentioned from time to time, I am a big Kathy Lien fan...I own her book. She is very knowledgeable of the history and the factors that went into the Forex market we see today. Definitely knows her stuff. What she thinks about the Dollar short term, is what she thinks about it long term. Bearish...

Interesting, because this portfolio owns Gold in case of some crazy economic event. This is short, succinct and compelling:

At the same time, this past week, a number of arguments have surfaced questioning the long term viability of the U.S. dollar. On Wednesday, the Financial Times carried an Op-Ed piece about how the U.S.’ Triple A credit rating could be at risk which if true would crush the confidence of foreign investors. Today, the NY Times carried its own Op-Ed piece by Nouriel Roubini, aka “Dr. Doom” about how the Renminbi could challenge the dollar’s reserve status. Although he does not believe that the Renminbi would replace the U.S. dollar as the reserve currency within the next 10 years, he does argue that the U.S. government’s aggressive spending and borrowing habits puts the dollar’s status at risk. He also lays out why he believes the U.S. is following the path of Britain, whose currency was once the dominant reserve currency before losing that title to the U.S. after becoming a net debtor and a net borrower nation in World War II. We also believe that the dollar will not be “replaced” in the next 10 years, but central banks will start increasing their holdings of other currencies at the expense of the U.S. dollar.

WSJ Survey

According to a survey conducted by the Wall Street Journal, most economists expect the recession to end in August of this year. They expect the unemployment rate to climb to 9.7% by the end of the year, with two million more jobs lost over the next 12 months, even as growth returns to the economy (2% in the first half of 2010.)

Can't remember this English guy's name, but he is always so sure of himself when he comes on CNBC. For a while now, he's been saying that he thinks we'll see Dow 1000 before it's all over! They basically laughed him off the set after that. Who knows. I keep thinking of that evil (as my children call it) Elliot Wave chart that Jamie Saettele drew at the end of April.

Misc.

Interesting day in equities. The S+P closed at 893 today, up about 8 points...but the volume was light and I didn't see much conviction. Also, check out the 'Hanging Man' from a couple of days ago.

It is not a classic Hanging Man, but bearish nonetheless. Some might describe it as a 'Long-Legged Doji', I guess. (Clicking on the chart gives you a clearer view):



Nothing surprises me about this market any more, but I think we have more to go down (which is what equities need anyway.)

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My AUD/USD trade has become an intermediate trade because I see the pickup in Gold. I have made some great profits with the USD/CHF pair, which was my hedge when the trade became intermediate. I am looking to get in again. See updated account.

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Kathy Lien of FX360 sees the opposite of what I see. She sees more Dollar weakness ahead, which is positive for oil and stocks. I discussed the break in the trendline a while ago, but I stubbornly remain bearish to equities!

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When you go to this page, you will see one of the biggest reasons this account is doing so amazingly well.

More on equities

There is definitely evidence that the recession is flattening. But, that doesn't mean that equities should just go up in a straight line...that's unhealthy.

Here is the chart that Adam discusses. There are two trendlines converging...DECISION TIME!

Remember, the bigger trendlines take precedence over the shorter ones (clicking on the chart gives you a clearer view):

We need banks to lend so that...

...we can get out of this recession. So, this excerpt about Libor is very encouraging:

Dollar LIBOR/OIS 3-month spreads on Wednesday were at their lowest level since June 16, as the grind tighter continued. Sterling spreads also narrowed again, although they are yet to get back to the levels seen prior to the demise of Lehman Brothers in mid September last year.

Is this the end?...Part 2

Time to take another look at the SP 500 again. You all know what I have been saying about this crazy market...

The SP 500 index is caught between two trend lines that are the dominant technical indicators right now for this market. If either gives way, it will point the direction of the next major swing.

In addition to the two trend lines that Adam graphically illustrates in this short video, he also showed two other tech indicators that flashed important signals on Tuesday.

Please enjoy it and give your feedback on my blog.

Hedge

I still hold the Ozzie/Greenback, so I am now hedging with a Long position in the Greenback/Swiss Franc. Looks like the Swiss government will not be letting the Greenback get much higher here. They are an export economy and can not have a strong currency.

Gold again

A little over an hour since I was gushing about Adam and his Gold prediction, Gold just took off. Ironically, my Ozzie/Greenback trade started moving at the same time. (This pair is a commodity currency because Australia is a huge producer of Gold...so something's up.

Good Prediction by Adam...GOLD!

I have said it many times...one of the reasons this account is doing so well, is because of my trade triangles. I run my trades through six or seven indicators before I make the trade, and the first indicator I use is my excellent trend-determining software (which you can use for free for 30 days.)

Most of you know I hold Gold (and puts) as an account hedge. Now we are starting to see some activity, it might be worth it for you to see this short video by Adam (creator of the above software) because he said this recent move was going to happen six days ago.

We have closed above 920, so watch to see what he says will happen now. It is UNCANNY how he sees markets. I also think this is the best video he has done to date. (I had a feeling that the trendline break was false, but I don't know why.)

New trades open and closed

Bought a combined 3 Lot position in the Ozzie/Greenback and sold 1 of them for a nice profit. You will also see the other profitable trades that I made too.

(It's not the way a trader is supposed to think...but I am trying to replace the losses I made on the EUR/USD the other day. Remember, we were at an account high.)

Out of trades with profit

I am out of US/Yen (short) trade and also two additional EUR/Yen (short) trades that I made. Tidy profit and now I have gone long the AUD/Greenback. The charts look very good here.

This could get healthier and healthier for equities

Just shorted a small US/Yen position. Nikkei is down, and this pair is just plain showing weakness...(clicking on the chart gives you a clearer view):

This is a trade I made because I think we will correct a little more in equities. I also shorted the EUR/YEN because of the equity weakness that I see. Remember, all Yen crosses do bad in down markets...especially the US/Yen.

So what!

I was just thinking about these two shorts that I covered for a loss in the Euro/Dollar. Yes...the trend has changed significantly, and I had to adapt. But was it too much of a loss? Could I have avoided it?

Then I did a little reading and I came to the realization that it didn't matter. Did it matter that I took these losses? NO! There are good trades and bad trades. What mattered was that my account balance told me how I was doing. And I have been much more right then wrong.

However, I have tweaked my trading plan a little, and I am pretty sure we are going to see this account increase at a faster rate...we'll see what happens.

As for the trend I discussed changing...we will see how fast it happens. Remember the bullish engulfing candlesticks we discussed a few days ago. They are extremely bullish...but they are on the monthly chart, and the trend break may take a little while to develop. Take a look at this post I made many moons ago, where I discuss the double trendlines that (had) existed. (Reason 2 is the one that is most pertinent for this discussion.)

After reading this, I think you might agree that this recent pop we had in the Euro/Us was extremely significant.

More EUR/USD...Part 1

It is looking more and more like the Euro/USD is going to go up significantly over the next few trading sessions. One of the reasons I covered my (losing) short positions was because of the 10 year note yields, which rose to 3.38% last week. That's the highest it's been since November...even though the 3.38 was the top of the Bollinger Band (3 mo. chart) and we may see that correct a little first.

Here is the yearly chart...and it looks very much like an uptrend in the yield to me.

Fed could get very aggressive and continue bond purchases because the sole purpose for doing all this buying in the first place has been to keep interest rates down. (If you are a newer trader, price and yield work opposite.)

So, a rise in Euro/US is related to how much the fed increases their balance sheet (quantitative easing.) When they expand their balance sheet, the Dollar weakens.

There are three or four other reasons, which I will talk about in the next few posts.

Just be careful

Remember the video I posted on the stress tests?

Now check out this interview with Meredith Whitney who, as most people know, is considered the bank guru. The one non-government and non bank source that everybody listens to...(no BS, no different agenda, just the facts, ma'am.)

Remember, just like the fed, bank sources may not want to tell you everything. As it is, CNBC trots out someone every day who says that bank transparency or knowing a bank's numbers can be detrimental. (What that means, I have no idea.)

Now harken back to what Jamie Saettele of Daily FX says will happen to equity markets after they get back to 10,500.

Out and waiting

I decided it was not worth the risk to hold these shorts...all traders have losing trades....move on. I am completely befuddled by this market and I am not going to fight the trend.

On the currency side, Europe has had nothing but bad news, but the Euro still does well. I am pretty sure this is Trichet and his excellent ability to manage bad news. Maybe they get there ideas from the Fed...

State of the Account

First, the (temporarily) bad. I am short a couple of lots the Euro/USD and have thus put myself in two intermediate trades that were supposed to be short term! My next post will discuss strategy.

We are well into May and here are the quick account updates.

Remember, we are holding Gold as portfolio protection...and we are holding June Gold puts as protection to the Gold!

My main Forex account, which contains my inflation-protecting gold, is up close to 64 1/2% since the beginning of January.

My intermediate Forex account, which is up 16% since January (Zip file.)

My options and equity account, which are titled in my children's names, so I can only recreate the trades. Here are the account particulars:

--My Sprint trade (which I closed at around 13%)
--My Zion Bank trade. (26%)
--The Puts I bought (and sold) to protect my gold, the first time around. ($11,000 profit)