Month: December 2012

Learn To Trade Price Action – The Swing Low

Forex Kong 2 Comments

A good friend of mine asked me the other day to expand a little on the trade term “swing low” – and to outline it’s significance/importance.

If you are not at all familiar with Japanese Candlestick Patterns – I strongly suggest you take the time to read up and learn to recognize these “formations” in your sleep – as they provide excellent graphic representation of price over time, and are invaluable to successful trading.

You can learn more here.

In any case – the swing low. I’ve included the following chart of SLV (a silver ETF) with hopes of pointing it out. Let me try to explain this in as simple a way as I can.

A “swing low” occurs when the “high of a given day” – takes out (or surpasses) the “high” of the previous day in a recognized down trend. So the series of “lower lows” and “lower highs” is essentially broken with the recognition of the “swing low”.

Lets look:

Swing Low

I  Swing Low

I know I know…..”lower highs” and “higher lows” all sounds a bit confusing,  but if you just take your time and work it out candle per candle you’ll see it. A “swing low” is suggestive that the current down trend may be ending as the high of the day is now “higher” than the high of the previous day! Indication that price action is likely shifting from down  – to up!

 

Hope it helps.

 

 

 

 

AUD/USD – Risk Set To Explode

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Often currency traders will look  at the Australian Dollar as the ultimate “risk related” currency. Not because the currency is in any way “chancy or risky” unto itself  (in fact the complete opposite) – but more so because of its direct correlation to the price of commodities, and its direct exposure to Asia – as Australia is the world’s second largest producer of gold, and a key trade partner of China .

Australia has substantial gold resources which are located in all States and the Northern Territory but predominantly in Western Australia, South Australia and New South Wales. Approximately two-thirds of all production comes from mines in Western Australia. Gold is one of Australia’s top 10 commodity exports and is worth about $14 billion per year.

When the Aussie Dollar moves, you can almost guarantee that “risk itself” is also on the move – as dollars pour out of safe havens (USD and JPY) and into those currencies/economies where a better return may be realized ( NZD and CAD as well).

With even better than expected employment numbers out tonight – and a relatively rock solid banking system – I see the Aussie above 1.05  – looking to move much higher – MUCH HIGHER.

Aussie looking to move much higher

Aussie looking to move much higher

I am already well in profit on trades long the aussie dollar via AUD/USD as well AUD/JPY – and expect these pairs to continue upward as “risk on” soon hits the markets.

Forex Kong 4 Comments

I hope no one minds but…..I wanted to quickly post this again as it may have been overlooked. I hear more and more of people’s discontent – with the thought in mind that their U.S Dollars are soon to be worth considerably “less” – and have put forth suggestion , to get motivated, dig in – and find ways to prosper by this – as opposed to just watching your purchasing power shrivel up and die. A simple currency trade “short the dollar” and possibly long CAD or AUD….or even the EUR could fit nicely and in a sense “hedge” your net worth/U.S dollars no?

Bank Of Canada Remains Hawkish

Forex Kong 5 Comments

We’ve briefly touched on a few of the “animal characters” you will encounter during your trading career. Bears, bulls, gorillas, snakes and wolves. Here’s a bit on Hawks.

Hawks carefully monitor and control economic inflation through interest-rate adjustments and monetary-policy controls. In general, hawkish investors prefer higher interest rates in order to maintain reduced inflation.

The Bank of Canada today announced that it is maintaining its target for the overnight rate at 1 per cent. The Bank Rate is correspondingly 1 1/4 per cent and the deposit rate is 3/4 per cent.

The global economy has unfolded broadly as the Bank projected in its October Monetary Policy Report (MPR). The economic expansion in the United States is progressing at a gradual pace and is being held back by uncertainty related to the fiscal cliff. Europe remains in recession. Chinese growth appears to be stabilizing. Commodity prices have remained at elevated levels since the October MPR and global inflationary pressures are subdued in response to persistent excess capacity. Global financial conditions remain stimulative, though vulnerable to major shocks from the U.S. or Europe.

In Canada, economic activity in the third quarter was weak, owing in part to transitory disruptions in the energy sector. Although underlying momentum appears slightly softer than previously anticipated, the pace of economic growth is expected to pick up through 2013. The expansion is expected to be driven mainly by growth in consumption and business investment, reflecting very stimulative domestic financial conditions.

This should bode well for long Canadian Dollar trades moving forward as a rise in interest rates is generally seen as good for the currency.

 

Forex Entry Strategy – Kong Size Commitment

Forex Kong 13 Comments

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.

 

 

 

Plan Your Trade – Trade Your Plan

Forex Kong 11 Comments

I was recently asked to do a photo shoot for the newly released “Gorilla Glass 2” from Corning – but with the realization that an entire Sunday would be lost primping and posing etc – I immediately declined. Having a plan is absolutely essential to trading success, and Sunday afternoons are sacred. I will generally look to clear my head, reflect on the week gone by , peruse my charts and take stock of the current news headlines and general investing environment.

Trading without a plan is literally – trade suicide. Anyone expecting to just casually pull up a chart, or catch a tidbit on CNBC… or even a call from their broker with thoughts of placing that “winning  trade” –  will more than likely (and quite readily) be parted  with their hard-earned cash as fast as a 2 dollar hooker and her….

You can’t trade without a plan.

If you have no idea where a given asset has been (price wise) and even less idea of where it may be headed – then what makes you think you have any idea at all that “now” is a good time to buy? Longer term charts (weekly charts) give you an idea of where price has been, and equally important to your plan should be some idea of where you plan to exit (where price may go). You can’t honestly think that just pushing the “buy button” and going on vacation is a plausible trade plan no?

With currencies I take time on Sunday afternoons to study/read up on current monetary policy from country to country.I review my charts and look to identify areas of strong support and resistance. I plan “buys” at found areas of support – and equally – plan “sells” at found levels of resistance. I know what I am going to do BEFORE I DO IT. It’s called trading with a plan, and frankly….anything less, and you might as well just hit your local casino.

You’ve heard it a million times, and you will likely hear it a million more – plan your trade………and trade your plan.

I called a buddy and he took the gig with Corning – here are a couple of  shots. I dunno…..I think he could have “used his angles more” and perhaps done a little more with his hands.

Forex_Trading_Photos_Kong

 

Forex_Trading_Photos_2_Kong

 

 

USD/CAD – Currency Move Expected

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The U.S Dollar and the Canadian Loonie  have been dancing close to parity for quite sometime now. Looking back over the last 2 full months the pair has been ranging within 150 pips or so – and has been a real pain to trade. For the most part this pair “should” be relatively easy to figure out, as the two currencies are generally viewed as opposite in most traders eyes. The U.S Dollar representing a safe haven currency while the Loonie is more often seen as risk related and “commodity related”. As per my general guidelines one would look to buy U.S.D and sell CAD in times when risk is off, and opposing – sell U.S.D and buy CAD in times when risk is on. Interestingly my risk barometer (the SP 500) has taken quite a dip during the same time frame – but has ultimately bounced back to almost exactly the same level as the beginning of October.

So there you have it. Little change in global risk appetite over the past few months.Little change in the difference in value of the U.S Dollar and the Canadian Loonie. Not to mention that often currencies of similar geographic region do tend to “range” more so than they “trend” and are often difficult pairs to trade. Take for example AUD/NZD or EUR/GBP – two other geocentric pairs that I rarely choose to trade.

I do expect a move in USD/CAD is coming very soon, and firmly believe that come December – Fed policy should start to weigh heavy on the U.S Dollar, coupled with accelerated global appetite for risk compounding buying interest in the commodity currencies. These two factors in combination (not to mention the strong economic numbers that we continue to see out of Canada) should bode well for the Loonie likely headed for 1.05 – 1.06 in relatively short order.