t is a quiet week in the forex markets with many traders having already closed their books and off enjoying the holidays with their families. As a result, everyone has said to expect "thin trading conditions." However many traders may be wondering what thin trading conditions really mean. By definition, it is an environment where trading activity is particularly light because of the lack of buyers and sellers in the market. This can lead to one of two completely opposite outcomes - breakout or range.
The reason why breakouts can occur in these conditions is because the lack of buyers or sellers creates a situation where it doesn't take much to trigger a sharp move in the currency. However the lack of buyers or sellers can also lead to range trading if no one is motivated to take new positions.
Based upon how the EUR/USD and USD/JPY have traded over the past decade during Christmas week, the odds of a breakout this week are low. The following charts compare the trading range during Christmas week in the 2 currency pairs (red bars) to the average weekly trading range for the past 10 years. For the EUR/USD, aside from 2007, the trading range this week tends to be below average. For USD/JPY, the weekly range has also been below average every year except for 2001. In fact, the trading range this week in the forex market tends to be 25 to 50 percent less than the average trading range.
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i have been playing with my crayons.......experimentation with the wicks ??
nice gap down on eur/usd ..............
still looking vulnerable ???
higher highs have been negated ... trend line violation?
where is this chap going to?
speculative trend lines - good support @ 1.4260-1.4320 region .....and then 1.40-1.41!!
2yr weekly chart ?
38.2% = 1.41 & 50% = 1.38
classical 3 bar reversal could be a possibility !!
but we shall see?
smaller TF's may give the answer?
value area of 1.40- 1.41 very good support , possible swing trade for 100-200 pips is on the Christmas card?
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Can experts, whether self-proclaimed or endorsed by others (publications), provide reliable stock market timing guidance? Do some experts clearly show better intuition about overall market direction than others?
http://www.cxoadvisory.com/gurus/Read more…
Hi guys, this is my video looking at FTSE and abit of Dow Jones.This is Part 1, I will try and get part 2 done asap.Some scary conclusions, I know the video is quite long so I do appologise for dragging it out abit.But the implications of what could happen next week is MASSIVE!Please let me know what you think.Kind Regards,Max
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last weekly candle was an engulfing candle so one has to maintain a positive bias going into this week.
we are still trading above the trend line and we also have a higher high
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The latest scandalous news from the hedge fund world - the lawsuit against SAC Capital founder Stevie Cohen by his ex-wife Patricia is shocking not for its salacious details but rather for its accusation that Mr. Cohen traded on insider information. The news is utterly depressing because if true, it only serves to confirm the commonly held notion that hedge funds are nothing more than graft vehicles that exploit other investors with an unfair edge and furthermore that success in the markets can only be achieved through cheating.
I have no idea if the accusations against Mr. Cohen are true (although rumors of insider trading have dogged SAC for years) but I do know with reasonable degree of certainty that there are great traders who make their money the old fashioned way - they earn it. Paul Tudor Jones of Tudor Investments is one such case in point.
How do I know that Mr. Jones is an honest trader? Because he loses. In fascinating PBS documentary that recently surfaced on Youtube entitled Trader Mr. Jones is dutifully followed by a television crew over a period of months as he trades everything from the kiwi dollar to the S&P futures as markets careen towards the 1987 collapse. In one particularly poignant scene Mr. Jones is early in shorting the raging bull market of the late 1980's and has to cover for stinging 5% loss as the camera records his every movement. It's precisely at that moment that you know that Mr. Jones is for real. He doesn't shy away from his mistakes and though clearly upset he takes the losses with professional equanimity and later on in the film rallies to recoup his losses as his bearish bias is finally rewarded.
What is the easiest way to tell if a trader is a liar and a fake? If they talk only about their triumphs and promise you a never ending stream of uninterrupted profits. That's why I am always wary of all investment gurus who talk only about their winning positions and never admit their losing calls. Real traders lose money all the time. Real equity curves are jagged and do not follow a 45 degree angle and real investment returns are like real life - a few steps forward and several steps back.
Unfortunately as human beings very few of us are prepared to accept that reality. While almost everyone pays lip service to the word risk - few really understand that it is simply a polite synonym for the word loss. Traders who can't stand loses never win in the end and those who tell you they don't lose are lying and cheating.
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Today I will go over what I think drives price movement in the markets, why I hold these beliefs, and why I think it is important to understand the forces in price movement. Keep in mind the following theories are my opinions, not absolute fact. I believe in technical analysis much more than fundamental analysis, which will be reflected in this feature. There are people out there that will probably disagree with some of my statements below, which is fine. However, it is my hope that this information will provide value for our readers and at least make people think.
People often ask "did fundamentals trump technicals on that trade?" or something along those lines. No offense to anyone out there, but that is a ridiculous question. There are not two boxers names "fundamental analysis" and "technical analysis" slugging it out for trading supremacy. Sometimes a major news announcement will shoot the price past a strong technical level, but that's why I don't enter trades right before a major news announcement. How do we measure "fundamentals" though? Does that mean an announcement today, the overall economic scope of a country over the past century, or something in between?
The reality is that the only force that moves prices in any market is the buying and selling of the financial instrument. For our purposes, we will use currency trading as an example, but this is true in all liquid, openly traded markets. Currency prices don't fluctuate on their own. They only move up when traders are willing to buy at a price higher than the current price, and the only move down when traders are willing to sell at a lower price. That sounds incredibly simple, but this is a very important fact to establish.
The reason it is important to determine that traders move the market, is that this means no one can predict exactly where the market will go. Only probabilities at certain ranges can be determined, and usually the probabilities aren't overwhelming (they don't need to be). So the next time you hear someone say "XYZ is going to hit (black price) today!", take those predictions with a massive grain of salt. They are saying that they know exactly what every trader is thinking, how much each of those traders will buy or sell, when they will buy or sell it, how the buying or selling of others will affect their own buying or selling, and how every trader will react to news announcements (both scheduled and unscheduled). Let's presume that some incredible genius figured out a way to create artificial intelligence that could solve each of those issues (and more I am leaving out). That model would assume that people are rational (like fundamental analysis does). Unfortunately, there is no limit to how irrational traders can act, individually and as a group. Therefore, it becomes obvious that no one person can ever know exactly where a price will go.
This seemingly endless list of variables, along with the irrational behavior of traders, is why I believe in technical analysis. Technical analysis uses various ratios and drawings that, in my opinion, are designed to measure the behavior of traders. We aren't trying to explain why they are doing what they do. As we discussed above, it is impossible to know what is going through every trader's brain. Instead, we are trying to determine certain levels where traders are more likely to act one way then another. With technical analysis, you can do basically the same thing every time. If you watch the patterns we post, they are basically the same patterns on different pairs every day. We try to eliminate as many random variables as we can. It is important to have a robust strategy, as we do, that works over all markets and all time frames. If a strategy only works on one financial instrument with one time frame, chances are that strategy won't work for long. After doing this, we can measure if we have an "edge" over a very large sample of trades. This isn't a guarantee that what once made money will always make money, but it is a lot better than nothing.
I am sure you can guess where this is going regarding fundamentals. Now there are different type of fundamental trading. If you trade based off of an announcement that came out today, that is very different from a trader who looks at long term macroeconomics. If you trade strictly off of new announcements, that is a steep uphill battle. First of all, there are a lot of people out there that think the markets move ahead of the news. I am one of them. Second, markets can gap immediately after news announcements and can really hurt your execution with every broker. Third, markets often don't react according the exact numbers released in these news announcements. This goes back to the fact that traders are irrational and you have no idea how they will perceive news announcements. This can lead to wild swings, moves opposite of what makes sense, and other crazy events.
So how can someone consistently profit over a long period of time (at least 100 trades) by looking at individual news announcements? You've got me. Even if a trader won at times, how can you be consistent when every reaction is so different? A trader who looks at the big picture over a longer period of time faces a similar problem. Sure, a currency may be "supposed" to move one way based on the economic measures a trader uses, but that only matters if traders buy or sell in that direction. How does this trader know that other traders will rationally interpret this information like he did? On top of that, one of my favorite trading quotations is "the markets can stay irrational much longer than your account can remain solvent." This means that the market could finally come around your way to the rational economic price, but you could already be knocked out by that point.
I could talk forever about this topic, but I will cut myself off for now. The point is that we don't know exactly why prices will move, where they will move, or why they moved where they did. That is why we take the approach of applying a consistent, technical method that has been tested over a long period of time. I will probably write a follow up at some point, because I have a lot more to say on this topic. Hopefully you enjoyed this article and it makes you think about the markets in a slightly different light.
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Many traders and investors have been buzzing about the Research in Motion(RIMM) earnings. Every financial website was making a big fuss about how they knocked the ball off the cover and may trade higher to the moon. As a trader we simply view all of that as noise and want to tune out the news that you hear. It is more important to just find the support/resistance levels on the charts.
This morning we alerted our traders that RIMM should pullback from the open. After scanning the smaller timeframes we navigated to the daily chart and noticed a very strong lower gap window at 71.42 going back to September 25th, 2009. By simply identifying this resistance area it told us that the odds favored a pullback from that level. Gap higher moves usually retreat into strong resistance and this was text book play.
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WILL THE DOLLAR CONTINUE TO RISE?
On the last trading day before Christmas week, when everyone goes into holiday mode, the dollar held onto its recent gains against all of the major currencies except for the comm dollars (AUD, NZD and CAD). Although many of the major currency pairs ended the day virtually unchanged, on an intraday basis, there was quite a bit of volatility in both currencies and equities. Considering that today is Quadruple Witching, when stock index futures, stock index options, stock options and single stock futures all expire, the volatility is not particularly unusual. Instead, the lack of economic data in U.S. and the flat price action in the EUR/USD has many traders wondering how much further if the dollar will rise.
Will the Dollar Continue to Rise?
In the foreign exchange market, we have long learned that trends can be longer and deeper than most people would normally expect. The latest downtrend in the U.S. dollar for example lasted for more than 8 months. Since the turn in the U.S. dollar is supported by a turn in fundamentals, there is a good chance that it could continue. However dollar bulls may have to wait until the New Year for the dollar to resume its rise since next week’s economic reports may hurt more than help the U.S. dollar. The key U.S. economic releases on the calendar include the final release of third quarter GDP, durable goods, existing and new home sales. No major revisions are expected to Q3 GDP but given the drop in builder confidence and the previous jump in existing and new home sales, the housing market numbers may retreat. Also, the volatility in the week of Christmas tends to be less than two thirds that of the typical volatility that we see in the EUR/USD and USD/JPY throughout the year. If the dollar gains traction however, pushing the EUR/USD lower, the sell-off could stall at 1.4150 region, where we have the 200-day SMA and the 38.2 percent Fibonacci retracement of this year’s rally coming in as support.
Is the Dollar’s Downtrend Over?
Despite the obvious rebound in the U.S. dollar, many investors and economists have a hard time believing that the long term trend in the dollar has really changed. They point to the aggressive spending by the U.S. government and the growing budget deficit as the primary reasons why structural demand favors dollar weakness and not strength. They also indicate that even though the U.S. economy is improving, growth in the first half of 2010 will be modest at best and the fears of the blowup in Greece spilling over to the larger members of the Eurozone are exaggerated. Although we also believe that the spending by the U.S. government will only increase in the coming year, in the near term, foreign central banks still have to buy dollars. Trading is also an expectations game. The dollar could resume its decline which means the rebound that we are seeing now could be temporary, but until the market has a reason to change its bias, it won’t. The next test of the U.S. economy will come from the December non-farm payrolls report, which is not due for release until January 8th.
Forex Traders Increase Long Dollar Positions, Short Euro Positions
Meanwhile, foreign exchange traders in the futures market increased their short euro, long dollar positions. Last week’s CFTC Commitment of Traders report revealed that futures traders turned net short EUR/USDs for the first time since March. On Monday, we talked about how this shift in positioning tends to foreshadow a sharp decline in the currency pair. As of December 15th, before the break of 1.45 level, EUR/USD net short positions were at 16,448 contracts, up sharply from 511 contracts a week earlier. From a sentiment and positioning perspective, this suggests that the dollar has more room to rise even though it just recorded its biggest one week rally against the euro since October. Although future traders are net long dollars against the euro and Japanese Yen, they remain net short dollars against all of the other major currencies which implies that they are not as bearish about the Australian or Canadian economies as they are the Eurozone and U.K. economies.
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