Tuesday, August 26, 2008

Lucas Gets Lucky -- screen shots of yesterday's USD/JPY trade

google docs is being a bitch and keeps screwing up the slide presentation I was trying to put together, mixing up the slide order and the speaker notes. weird.

anyway, I'm just going to put screen shots on this post directly with the notes underneath. you'll probably want to open each image in a new window to get a decent look at them.

this is the 'momentum indicator' I had mentioned. seriously perhaps the most ridiculously simple 'indicator' yer likely to run across. but...I've yet to find anything more reliable.

and the indicator is... (drum roll) ...when the simple moving average crosses above the exponential moving average (or visa versa). on oanda I use the 21 ma and ema, so on the daily chart we are paying attention to the three week trend. (charts on oanda include weekend data.)

also I should point out that the chart here is a line chart of the average price of each day. I don't use these very often, but sometimes they help to filter out the noise.

this is a one year chart of the usd/jpy rate. below is the 34 day Average True Range, which is a measure of daily volatility. with the yen pairs we most often find that volatility declines as the rate increases and then increases as the rate declines. the problem arises when you try to figure out what's 'high' or 'low'.

this was actually the first shot I took after starting the trade a couple hours earlier.

notice that from 1 am to about 1:40 the 8 wave consolidation pattern.

to cartographic geeks like me, these price patterns are intriguing. even if they are on 1 minute charts.

when I saw the fulfillment of that pattern I became confident that the trade would go my way.

price is breaking below the first triangle pattern of the week. good sign.

a half hour later we see the price bouncing off the same support that was found Sunday evening and also last Friday morning. coincidentally the 233 hour ema was hanging out at the same place.

but this was nothing more than a convenient place for the market to procrastinate. it was too early in the morning for a currency to make a major move.

here we see the rebound from the support found on the last slide.

after the culmination of the spike back above 110 we see the several 'inside bars' on this 5 minute chart. and, of course, the eventual breakdown from that consolidation.

second triangle forms. the lower line just a slope of wishful thinking.

second triangle of the morning breaks down.

here we have a third test of support. by now even the most unimaginative trader can visualise the market's trajectory in the near future.

don't let anyone convince you that computer programs have the advantage. can a black box visualise a price trajectory?

aside from a basic understanding of the principles of price analysis, Imagination is Everything.

after a little fake-out at 6 am, the rate definitively violates support as the US trading day begins.

this would be a good time to point out that the trade didn't exactly go very smoothly at beginning. the first trade I placed, I bought instead of sold. oanda had just changed the platform layout...

then I shorted some on that early rebound, but had too tight of a stop. but after I got closed out I got completely convinced of the direction and right away shorted twice as much as I got stopped out on. stops suck. but bankruptcy sucks more, so we put the stops in.

'Smoke Break'

this 3 hour chart shows how the rate found some support at the same place it did last week before it collapsed. this is what I call 'Knee Jerk Support'

(and yeah I was shorting it last week too. did better pip-wise last week actually, but didn't have nearly as much size on the trade then as this one.)

after the Smoke Break ended they spiked the price a bit at 9 am, mainly just to get the Johnnys stopped out.

then check out another round of inside bars before the inevitable down move.

the arrow at 109.5 is me closing out 1/8th of my position. the arrow a little lower is the closing out of another 1/8th. the theory was that by closing out 1/4 of the position I could let the rest ride without taking a loss. theories suck.

a little later I close out the entire position a little below 109.25. I was tired and the market was over-sold (eg 5 min RSI was well below 20).

then the decline just kept on goin there for a bit and I was all pissed. but as it turned out, closing when I did wasn't a horrible decision.