Moving forward with the same general theme that has been discussed here for the last few weeks – it appears that the dollar is now (after a considerably drawn out correction upward) finally on its last legs. Overnight action has seen the EUR take a bit of a pop, and across the board accelerated dollar weakness is really starting to take shape. Gold has essentially traded flat, and U.S equities have formed a large “V type correction” but as well, are more or less at levels seen two weeks ago.
I have begun my first “set” of currency trade purchases short the U.S dollar (and even smaller buys short the Japanese Yen) against my beloved commodity currencies – the Australian Dollar, the New Zealand Dollar and the Canadian Dollar. So to recap – I am now getting “short” USD/CAD and entering “long” AUD/USD, NZD/USD as well long AUD/JPY, NZD/JPY and CAD/JPY.
With consideration of the volatility in currency markets – a common strategy of mine is what I like to call “buying around the horn”. Meaning – I will place smaller orders several times throughout the coming days as price action moves in the desired direction – as opposed to a larger order at one specific price level with the expectation that I’ve “nailed it” exactly.
This strategy allows me to enter the market with very little risk (with smaller orders to start) and affords me the flexibility to add further to these positions at areas of support (should price dip) or add when momentum picks up (by placing orders above or below current prices) – looking to catch momentum in said direction. If price action stalls or trades sideways – I have only committed a small amount of capital and can relax knowing that I have ample dry powder when things really do start moving.
It is very possible (and even quite likely) that the dollar could move against these “preliminary trades” in coming days – but in approaching it this way – I welcome it! Any further strength in the dollar will only provide additions to my current plan – with a final “averaged entry price” being as good as anyone can expect.
Regardless – the most important element of this type of trade being your commitment. I don’t expect to get it right here this morning, not in the slightest really – but I have initiated a sequence – with firm belief in its outcome.
I am committed to the trade.
Kong,
I think today’s move in dxy is a headfake and the whipsaw should promptly follow as soon as tomorrow. I would expect strong dollar this week and going into next. Good luck!
Good for you tfinavia.
Having an expectation of where you “imagine” price to go moving forward is an important part of successful trading.
As per the post – you understand that I have absolutely no concern/expectation of price action within a 24 hour period – as it is meaningless to my plan. As well…and perhaps some further learning for you – the $dxy tracks the dollars movement against a range of individual currencies (57% of that being EURO) so ….do you see dollar strength/weakness? – or in reality is it the EURO that is on the move?
Food for thought – and as always – go go go .
Kong,
Sorry I meant $usd. My trade is short precious metals but could have also been a pair of long $usd and short metals. Fortunately shorting metals is profitable to my surprise even $usd is lower for this third trading day now. Still hoping a rebound in $usd and a strong one.
With gold down a wopping 24 bucks overnight – and the dollar breakdown clearly being for real…I can’t suggest staying short the metals for more than another hour or so….but hey – that’s what makes a market!
Clearly something large is going on – as these two assets generally trade opposite one another. I have a hard time believing that gold can go much lower , but every belief that the dollar is well on it’s way to complete and totally tanking.
Good luck out there
P.S……and perhaps of even more interest to you – as seen in the post.
I am not trading EUR/USD at this time….as it is seen largely a cash rake in the forex community / laden with broker stop runs / low pip spreads / marketing to the inexperienced in my view. It also looks completely overbought – so…no trade there for Kong!
Will close on realizing full potential of the downward move. Gold could reach 1640 along with lower drift in SPX to 1380 area. Then I will give it another three days or so. Hope dollar gets stronger and I am confident it will. That will be another blow to Gold. Gotta ask the bulls where’s the damn inflation?! In another words, I am in no rush. It could wiggle a little but my overall target is 1640 on it. So goes for Silver. Good luck to you too.
It’s always nice to hear/view others strategies and views on the market – however opposite.
My technology would look to enter long $spx – like right now….as commod currencies are solid as rocks.
Have you consider the headline risk / fundamentals in being caught short on announcement of the fiscal cliff agreement? Could be tonight/tomorrow/any minute really. I’d hate to be on the wrong side of that one.
Hi FK,
Interesting.
These are risk related questions – just curious how you go about this: do you have a stop in mind with every currency pair trade? If so, when you are all scaled in into one currency pair – what is the risk per currency pair as a % of the overall trading capital? And how many currency pairs do you put on as per this scenario, at the same time, e.g. what would the total maximum risk be of all those currency pairs combined, as a % of the overall trading capital? Do you vary this risk, or do you keep this risk % constant, no matter what the market condition is?
Thanks!
Wow – Ok.
I don’t have a stop in mind on the initial buy (well….lets say like 500 pips), but eventually do build positions with closer stops – although in general I hate stops and rarely have them anywhere even close to the current price action.
I indeed do treat each currency pair different, in that those that exihibit higher volatility get smaller position size, and have no set “per pair risk allocation”. Often when specific news is driving a specific currency – I will concentrate on it moreso – and step on the gas. At times I’ve had up to 15-17 pairs on at a time – and usually average 10-12.
As another general guidline – I rarely (if ever) expose up to 33% of total capital – so margin calls are completely out of the question as I would have enough capital to completely double total exposure – and god forbid – could actually do it again.
You can see by the entire week that I’ve stayed in cash (and missed absolutely nothing) and that as of this morning have started entry again – already 40 pips up on AUD/USD etc…that entries (via my technical system) are usually quite accurate).On Friday morning I posted at SMT I was going to get short the buck – as I already knew I would enter the market around the close on Monday. So…here we are!
Kong,
You’re right and I might be labeled as greedy in coming days if PM rebounds but my expectations on fiscal cliff solution is that the drama will continue until last minute when we might have a solution. If not, January will provide outlines of democrats plans. See echos of my sentiments here:
So, I am not worried on a bang on a definite solution. However, market can rally in anticipation anyway. A couple of other analysis makes me remain bearish till at least 12/11
Super cool Tfinavia – I completely respect your conviction – and do wish you all the best with your trading.
This damn U.S malarky is truly a pain – as markets just hate indecision….it just drags on and on and on…..
One way or another…it will be great to put it behind us.
here comes your 1680 in gold – great call!
Thanks FK!