trade strategy

Big Price Moves On Low Volume – How?

Forex Kong 10 Comments

If you think about price itself being the “mind” of the market – consider that “volume” is the heart.

Try to think about volume as the amount of people behind a given move, or even the “emotional excitement” (or lack there of) surrounding  moves in a given asset. Volume measures the level of commitment in a move, and lets you know how many people are behind it.

When an asset makes a considerable move in price on very low volume ( as USD has now done over the past two “holiday” days ) we deduce that very few traders /investors  are actually involved (relatively speaking) – and that the movement lacks the commitment one would like to see when looking for momentum.

Simply put – if there are only buyers (and in this instance to “few” sellers) an asset can make considerable leaps in price with little actual participation. One could argue that on low volume days markets aren’t exactly balanced, so it’s not at all uncommon to see dramatic movements in price – even though fewer people are actually involved. Counter intuitive yes. Glad you’ve now got it under your belt? Excellent.

A valued reader asked me just today,  if I was considering throwing in the towel on my USD shorts. A valid question considering the giant leap in price we’ve seen here today. Hopefully,  now that you as well have the ability to factor “volume” into your analysis – you’ll be able to ride out a couple of these instances and stick to your guns / trust your instincts and not let the market push you around.

All good in Kingdom Kong – I haven’t even blinked.

Have a great weekend everyone.

Kong…..gone.

 

Japanese Candle Sticks – Get To Know Them

Forex Kong 7 Comments

Every trader has their own “favorite type” of technical analysis to apply when viewing charts, and that’s great. However it’s been my experience that having only one “go to analysis tool” is generally not enough to get an accurate read on things – technically speaking.

You need to see things from several perspectives and apply your knowledge of at least a couple different methods of analysis in order to make sense of it all.

I follow price action almost exclusively – and have very little in the way of other “indicators” on my charts short of the “Kongdicator” (my proprietary short term tech tool) which “does” essentially follow pure price action.

Japanese candles are a very large part of my “graphical / visual” evaluation of markets action as with a simple glance, one is able to deduce:

  • The high of the given time frame
  • The low of the given time frame
  • The opening price of the given time frame
  • The closing price of the given time frame

*and even more importantly – the “difference / variance” in price over time – purely in a visual context.

So when you see a candle ( your eyes get so used to identifying them over time) that suggest to you “hey! in the last 4 hours price has jumped dramatically (or perhaps the inverse) – you take notice!

Google’em – there are piles of excellent websites outlining Japanese Candles – and how to use them!

Sideways Trading – How To Survive

Forex Kong Got something to say?

You can pull up a chart of virtually any JPY cross but lets look specifically at USD/JPY on a 1 hour time frame.

Looking back from  June 20 to present ( so lets say 5 or 6 full trading days ) you can clearly see that price has ranged “sideways” within a very small range of around 100 pips. If you’d have been lucky enough to “short” at the exact top of the range….or gone “long” at the exact bottom  – you may have been able to squeeze off a decent trade depending on your TP ( take profits) and who know’s maybe you grabbed 25 – 50 pips somewhere in there. Great.

What most likely happened ( as with any most trade systems ) is that you got confirmation to enter about 25 pips late on either side, and ended up entering either long or short dead smack in the middle – and have now spent a full week wondering daily – “Is this thing going up or down?”.

For the new comer there really is no easy answer here. The smaller time frames will grind both your emotions and your account to dust. The absolute best suggestion I can make is again -TRADE SMALL.

Now pull up a daily of USD/JPY – Is “that” trading sideways?

Here you’ve got alot more information to go on – a downward sloping trend line, horizontal lines of support and resistance, you’ve got lots of historical price action to look at, as well all the  longer term moving averages and indicators you may also have on your screen.

Trade small over time and look to the larger time frames for direction –  and ideally you WILL survive the dreaded “sideways”.

U.S Bond Auctions – Part 2

Forex Kong 6 Comments

Ok…let’s get back down to the auction hall for a minute, and quickly envision we are in attendance at an auction where everybody and their dog wants the bonds that are for sale. I’m picturing something like you see at those big American auto auctions with colored ribbons flying everywhere, thousands of spectators, the lights, the energy , the electricity in the air! woohoo! Ok now we are talking! Let’s get in there and buy ourselves some bonds! Woooohooo! I’m buying bonds!

We’ve got China…I see Japan, Brazil! There’s Switzerland! Canada’s here! Norway! France! Holy shit! The entire planet is going crazy for these bonds! I gotta get my bid in! I’ve gotta get noticed here – I need to get those bonds!

Ok I need to relax.

Obviously this is not the case – but you can appreciate that under “normal circumstances” the purchase of U.S bonds / debt has had much greater appeal in the past, and that a “bond auction” would include a host of other characters aside from a lone bearded man in a Radio Shack suit, loafers with a vinyl duffle bag. By way of  sheer competitive bidding, the prices of bonds stays high – the rate of interest needed to be paid stays low.

A healthy, attractive investment environment in a country that is flourishing – attracts sizeable interest in its bonds. The bondholders win with a secure investment, and the country issuing the bonds wins with its ability to raise money, with very low rates of interest needed to be paid.

Trouble is – when a country can’t attract interest in its bonds, they are then forced to “incentivize” these purchases by raising the rate of interest paid out! In order to get the inflow of foreign purchases in bonds…the price of the bond falls…and the rate of interest needed to be paid out increases. (For example at one point during their crisis – Greek bonds payout rate climbed as high as 27%! – which we all know is unsustainable)

As much as you may have heard of the Fed’s current strategy of “stimulating the economy” with its bond buying – nothing could be further from the truth. The Fed is printing dollars to buy bonds as to not let the planet at large see/realize what real trouble the U.S  is in. If the Fed stopped buying bonds ( like 80 some % of available bonds every month ) the rate of interest would rise so rapidly as to signal the entire planets investment community ( much like in Greece ) – My god! – Something is very wrong over there! Look at those bond rates! If a Government has to offer such a high rate of return on its debt – things must be going down! Big time!

Frankly,everyone already knows this but the point being – the Fed cannot possibly stop its bond buying purchases now, as there is no one else there to buy them.

Unless they are prepared for complete and total “meltdown” and are willing to just face the music – the can will be kicked along a little further, then further – until the rest of the world makes the decision for them.

And the bond hall is “closed for renevations or until further notice”.

U.S Bond Auctions – A Dark Empty Hall

Forex Kong 1 Comment

In a general sense, when a government needs to raise money (outside the revenues gained from tax collection) it’s pretty common practice for that government to issue and sell bonds. In the case of the United States – The Treasury Department ( a branch of the U.S government ) prints up the paper bonds (which offer a small return of interest to potential buyers) and heads on down to the local “Bond Auction” hoping to sell the bonds to the highest bidder.

The higher the price paid for the bond equates to the lower the interest rate paid out on the bond  (this is just how the bond market is set up) so in general the Government wants to sell the bonds for the best price / lowest rate that it can, ensuring  revenue from the sale – but at the lowest possible interest needed to be paid back.

Straight up. Government needs more cash to spend. Treasury Dept  prints up bonds. Bonds are sold at auction to any and all who are interested in the purchase of the given countries debt.

In the case of the United States and the current “Quantitative Easing” strategies being employed – Mr. Bernanke and The Federal Reserve ( which is a private bank for profit  – holding a monopoly on the creation of money, and not a branch of government in any way shape of form) prints money directly out of thin air, packs up their suitcase of “funny money” and heads on down to the auction floor to slug it out with the rest of em.

Trouble is, you can hear a pin drop out there in the auction hall as Mr. Bernanke is the only one who showed up. Sitting alone on a rickety ol fold-out chair with his suit case full of freshly printed dollars………no one else has come to bid, as few (if any) are interested in the purchase of U.S Government debt.

The auction is a bust.

Totally embarrassed the “auctioneer” and Mr. Bernanke make a quick “verbal agreement” on price for virtually “all the bonds available ” – the janitor starts sweeping up and the auction is concluded. The Treasury guy heads back to Washington with a suitcase full of conterfeit money, and the Federal Reserve heads home with a duffle bag full of useless paper.

This is just another “Kong’ish explanation” fair enough – but I feel it important for you to understand (and will take a chance here this weekend in going another step further to explain) the implications and ramifications of this dark and and empty U.S bond auction hall.

ooooooooh! – U.S Bond Auction Part 2 

QE5 – The Puppet Show Continues

Forex Kong 2 Comments

Come Wednesday markets get another chance to hear from Mr. Bernanke at the press conference following the June FOMC meeting.

It pains me deeply to consider how many individuals will be hanging on every word, with hopes of  reaching their financial / trading / investing goals – all wrapped up in a single man’s remarks.  It’s sad really. It’s almost as though the idea of markets actually trading based on the performance of the companies therein – has been completely and totally forgotten. I would even go as far as to suggest there are an entirely new group of “youthful traders” out there that may not know any different! All “fully invested” only on the premise that “Ben’s gonna watch their backs”. Oh my……

What also kills me is the suggestion that this recent “dip” has been manufactured in the media / by the Fed in an attempt to “gauge” the general investors community reaction to the idea of “less stimulus” – talk about a puppet show!

It really is a puppet show! Pull the strings up….see what happens..let the strings down….see what happens. Sick.

I’ll stick with the general “forecast” that with markets still practially at all time highs – there will be no further mention of stimulus on Wednesday..but likely comments suggesting ” we are ready when needed”. How the markets take it at this point  – again….perhaps that “final pop” bringing in the last of the retails before giving things a good flush.

I’m gonna play a bounce in USD, but keep things on a tight leash as I remain medium term about as bearish as a gorilla can be. Any strength in over all “risk appetite” in coming days can only be seen as even better areas to continue selling.

Stunned At The Bullishness – Risk Off

Forex Kong Got something to say?

I am absolutely stunned!

I’ve been on and on about this for literally months now….watching TLT seeing the trouble ahead with bonds, and in turn the USD  – as equities are ALWAYS the last to go!

https://forexkong.com/2013/04/20/intermarket-analysis-questions-answered/

This should have served as a roadmap for your preparation – and at this point there really are no excuses.

This market has absolutely tonnes of room for correction. I can see several JPY pairs easily shaving -1000 pips and still maintaining there trends, and USD has got nothing but “air” underneath it here all the way down to like… 79.00

In any case – I don’t suggest taking this lightly as my “short U.S equities” has also been triggered.

Good luck all.

3% more overnight alone on Long JPY trades that equate to one thing…and one thing only.

RISK OFF.

Risk Currencies Not Participating

Forex Kong 21 Comments

In the usual “risk on environment” the commodity related currencies are usually the big winners.

When investors feel that things are generally “safe” money moves from the safe haven’s into higher risk related assets and currencies in commodity related countries such as Australia, New Zealand and Canada.

This is not happening.

In fact (generally speaking) the commods (in particular AUD) are getting more or less hammered, and exhibiting extreme weakness in the face of equity markets still clinging near their highs.

When you see USD cratering as it has over recent days, but in turn see that the Australian Dollar is EVEN WEAKER – you know without question – Houston we have a problem.

With Australia’s economy so tied to its trade with China, there is little doubt that the global macro shift towards “risk aversion” is already very much in play as AUD has been completely obliterated with lots of room for further downside.

I’ve tried on several occasions to “trade a bounce” as we’ve seen surface evidence of “risk on” in equity markets but unfortunately – that’s all it is….. “surface”.

Clearly our friend “risk” is quietly sneaking out the back door.

Why Markets Are Moving Lower

Forex Kong 6 Comments

As much as the Fed would have you think otherwise ( as the current chatter of “QE tapering” leads headlines) markets are “selling off” for exactly the reasons that a market “should” sell off. We’ve been over this on several occasions as the SP 500 looks set to reverse at more or less the exact spot we’d looked at some weeks ago.

SP 500 Upper Level Resistance

What I find particularly amusing about this – is how the media and Fed are doing all they can to suggest the reason for this weakness is the Fed’s recent “whisper” that it may taper it’s QE programs, when in reality nothing could be further from the truth!

The market moves lower on poor guidance and “so so” earnings, weak global growth projections – and all the other “normal reasons” that markets move.

The Fed wants you to believe this “downturn” is due to the potential withdraw of stimulus – so you will applaud more stimulus! The Fed/media  is “aligning itself” with the current weakness as to look like ” the hero” when time comes for the announcement of FURTHER STIMULUS.

As the summer correction runs its course – markets will be “begging” for answers, begging for understanding as to “why it can’t go up forever! “why! why Ben why!?”

It can’t go up forever because at some point….some point – the fundamentals will indeed catch up with the QE freight train.

I remain short USD and long JPY against nearly everthing under then sun – as a “currency salad” I look to enjoy this summer. I may however put the bowl down at a moments notice as Central Bankers have been known to spoil the odd picnic.

 

 

 

 

Short Term Forex Trade – No Chance

Forex Kong 5 Comments

If you’ve ever logged in to an actual forex trading platform you’ll have noticed right away – a number of wonderful options for “entering your order”.

You’ve got trailing stops, market orders, limit orders….then of course the “one cancels other order” – and the ever so complicated  “if then? one cancels other order” – just to name a few. Each “order option” complete with its own little drop down menu’s providing you with “predetermined stop values” as well “predetermined take profit values” such as -25 pips, -50 pips etc……

Have you lost your mind?

The vast majority of Forex brokers act as “trading desks” – and in that small amount of time between you “placing” your order , and waiting anxiously to ” get filled”  – your brokerage has placed the exact “opposite order” on their own behalf – trading straight against you, and more or less banking on the fact that you are dead wrong.

The “predetermined stop values” and “take profit areas” are seen across the entire platform – and targeted daily!

Ever wonder why no matter how hard you try to trade the smaller time frames / short-term action – you wind up getting cleaned out? Duh! – You are showing your broker ( who is actively trading against you ) exactly the level to hit your stop!

Add this little nugget to the list, throw in the current volatility and complete “gong show” we call the market – and once again take heed.

Do not try to trade this!