- THE FIRST SHOT: 1.1. INTRODUCTION:
Over the past two or three weeks my daily routine has altered slightly, in the sense that I am now waiting on a TRUMP tweet for direction rather than placing as much emphasis on my LEAD INDICATORS as I used to do. I have written quite a bit of late about how the equity markets have become very news driven and economics have taken what can be called a back seat.
In response the FX market has been fairly tame in its response. From time to time it “Huff ‘n Puffs” but if truth be told it is sporadic volatility.
This change causes me a problem. I am a really big believer in Central Bank policy really controlling the FX reactions longer term. As a FUNDAMENTAL trader this is central to my markets ideals, approaches, trading timeframes, my TRADE MANAGEMENT, POSITION SIZING and is at the heart of my TRADE PLAN.
I have to write about TRUMP and CHINA this week in “THE SOAPBOX”, even my keyboard was ready for that topic.
Next week, however, I intend to write about “THE MARKET NERVES”, because I believe that the markets are nervous.
In addition, starting this week, and hopefully each week moving forward, I am going to add into the blog an EDUCATIONAL article. I used to do this each week a couple of years ago and used these articles to build up my EDUCATION section for my PREMIUM subscribers (See section 4).
As mentioned last week, my website is going to have a facelift carried out and behind the scenes for most readers of this blog, THE WEEKLY FX PREMIUM area for subscribers will also be upgraded. Part of this upgrade includes the TRADER EDUCATION area.
1.2. THE SOAPBOX:
CHINA / U.S. TRADE: THE HEAT IS ON
The daily TRUMP TWEET that I see around 7AM AST (6:00AM EST) has now taken on more importance in my diary than the forex factory calendar for US and Canadian Economic data releases that occur at 8:30AM EST.
I wrote in my blog of March 10th, 2018 about TRUMP controlling the news narrative with the title of my blog being called: -
IS TRUMP THE 2018 VERSION OF ELLIOT CARVER?
(Elliot Carver being a James Bond movie fictional character)
There is absolutely no doubt in my mind (and I have not had a drink before writing this), that TRUMP is smarter than most of us give him credit for. You just have to put up with his clumsy delivery and poor communication, BUT, this is all part of the approach. No-one can be this inept.
TRUMP has the opportunity in front of him to make the history books with his upcoming face to face meeting with Kim Jong Un and the trade tariff negotiations with China, which, if successful, could become the “Blueprint” for all U.S. trade negotiations moving forward.
My observations are though that whilst TRUMP was initially seen as unpredictable when he became President, because of his style, this unpredictability is actually very predictable.
The issue for me is that the U.S. media is inept in getting to the bottom of the issues at hand. They prefer to create news rather than address the issues factually. U.S. media is so biased it plays into TRUMPS attacks of “FAKE NEWS”.
Moving back on point...
After giving the media time to develop their own wild speculations the TRUMP tweet or comments are walked back. Then the actual result via reconciliation and, not as much negotiation as we think, is a watered-down version of the original. We have seen this with steel negotiations and it’s been used as a ploy with the NAFTA negotiations. We now have a threat to cancel NAFTA unless a deal in principal is completed this coming week in Peru.
This “ART OF THE DEAL” approach is now seen for what it is, or as it should be seen.
With regards to China....
On Wednesday last week the market was in FEAR mode that TRADE WARS were underway as CHINA listed out its areas of tariff retaliation. It was a measured move and like the U.S. it came with a delay of implementation because the Chinese want to talk and negotiate just like the TRUMP administration. By Wednesday afternoon, the TRUMP administration had convinced the markets discussions were going to take place and that TRADE WARS were a long, long way away. We saw a rebound in equities that were on their knees first thing and by the end of the day Wall Street ended positive. This positive picture carried on through the following Asian, European and Thursday’s U.S. sessions.
Then Thursday night, TRUMP released a statement stating that he wants an investigation by the USTR to look into adding a further $100 billion in tariffs on Chinese goods because of their unfair retaliation. At the same time, he says that he is happy to negotiate.
The market reaction was immediate JPY strength and the AUD weakness.
Larry Kudlow, ex CNBC has been thrown under the bus within 48 hours of his attempts to calm the markets down by walking back the threat of TRADE WARS. He now becomes TRUMP’s latest staff victim, and his credibility must be shot.
On Friday morning last week, Kudlow was torn into by Johnathan Ferro on BLOOOMBERG. Kudlow tried to put his point across, in fairness to him, but I wonder was there history there between ex. CNBC and BLOOMBERG. It was a shouting match as usual with people talking over each other. Basically, Kudlow said nothing has been done with China, no agreements made, nothing discussed it’s all up for negotiation.
It’s all confusion...
Kudlow (Economic Advisor) says “There’s no TRADE WAR here, nothing has been agreed or negotiated”
Less than two hours later...
Stephen Mnuchin (Secretary of the Treasury) says “It is a TRADE WAR”
Pure TRUMP... confuse, mixed messages, allow for walk backs....
Are we in a “tit for tat” mode?
As I see it, China is a bit more savvy than the U.S. media when seeing through TRUMP and his antics.
There is plenty of commentary about how TRUMP holds all the cards. I don’t see it all one way. China holds a great deal of US debt for one thing. I am not saying that I disagree with the overview of what TRUMP is trying to achieve. I think trade with China has been all one way, but China will NOT be the rollovers that TRUMP maybe thinks they will be.
Trading this geopolitical event is pretty straightforward in my eyes as long as uncertainty persists its short AUD and long JPY currencies.
My favourite pairs to look at would be: -
SHORT: AUD/USD, AUD/JPY, AUD/CAD, USD/JPY
- THIS WEEKS IMPORTANT TRADE INFORMATION:
2.1. ECONOMIC DATA:
NOTE: Only the items that interest me are listed here.
2.2. GEOPOLITICAL EVENTS:
2.3. BIAS CHART - USD MAJORS SUPPORT and RESISTANCE:
2.4. USD OVERVIEW – MY THOUGHTS:
Nothing much has changed from last week. We remain in the TRUMP downtrend and remain range bound as seen on the attached chart.
Longer timed charts show “BEAR FLAG” formations with measured moves as low as 82.00.
Initially, the recent lows of 88.20 need to be tested first and obviously USD bears have this level firmly set in their sights.
The BULLS need to take out the 38% Fibonacci retracement at 90.91 (basically 91.00) in my opinion as absolute minimum to get me thinking that the “KING $ is back”.
2.5. USD TRADING CHARTS:
No change from last week...
The Daily chart below highlights the trading range that I believe we are sitting in.
We have two ranges: MAROON Lines 1.2090 to 1.2550 and the BLACK Lines signify a range within a range at 1.2240 to 1.2480. The latter range has been tested twice, but we are just range bound.
This pair is waiting for a bolt, a catalyst to move it one way or the other. Sadly, NFP did not provide the catalyst required.
Overhead resistance is at 1.4240. There are lots of buyers ready to cap moves higher here. It will take an excellent piece of BREXIT data to thrust through that level.
The upward sloping trend line has supported recent USD strength and last Friday’s candle is a bullish engulfing candle. In the past these have NOT produced the onwards moves that technical traders expect. Maybe this one will be different. If so, a re-test of 1.4200 could be on the cards this week.
We are trending lower and this pair is suffering under the effects of CHINA TRADE WARS with the U.S.
We have seen this pair move sideways over the past week or so. I see this as just consolidation of the move lower.
I have found this pair difficult to read. At times, I feel it could easily spike to 0.7700 as well as just as easily fall to 0.7500.
The doji style of candle for the last day of last week both reflects and confirms my thoughts.
No change from last week.
I believe that we are in a range, which is clearly defined on the chart of 0.7176 to 0.7350.
The Head and Shoulders pattern is in play. The measured move is to 1.2510. It is only invalidated should we see a break back above 1.2930.
No change from last week.
As you can see on the Monthly chart below, the triangle pattern is “RIPE” for a breakout. My thought process is a long side breakout towards parity once again.
There is a range in play, which I have been following of late which is from 0.9190 to 0.9850. I am a little reluctant to aggressively trade the CHF given its flight to safety and neutrality attraction.
We are tightening in the triangle.... something is going to give soon.
We are still in the throws, in my opinion of breaking down towards 102.00.
However, we have spiked to trend line resistance around 107.00. A short from a little higher would offer greater value, circa. 108.00 would be great. Basically, a re-test of the underside of the 2012 trend line.
The JPY is a very targeted currency at the moment as Bond Yields, RISK and TRADE WARS all play directly into how the JPY is traded.
- THE WEEKLY FX PREMIUM TRADING SUMMARY:
3.1. WEEKLY FX PREMIUM PERFORMANCE YEAR TO DATE:
(Incorporating the last 5 WEEKLY FX PREMIUM TRADES)
You can get on board and join from as little as CAD$10 for 10 days and then CAD$150.00 per month, currency conversions for CAD$150 is roughly as follows: -
- GBP £90 per month
- EUR €100 per month
- USD $120 per month
- JPY 12,700 per month
- AUD $150 per month
This represents a great value way to subscribe…
Go to my website www.weeklyfxdrivethru.comfor more details under the TAB – “SUBSCRIBE HERE”.
- TRADER EDUCATION:
Most weeks, I will add an article in this section based on an area of importance in trading that I feel should be documented. It may not resonate with all traders but for some I hope they find it useful.
FACTORS FOR DETERMINING POSITION SIZES
How do you determine the size of your trade?
Do you have one fixed size for every trade you make with your favourite pair?
Whilst trading the same position size for every trade sounds simple regardless of what pair you are trading, there are more factors to take into consideration.
Below, I am going to give you three factors that I consider before placing a trade.
- MONEY MANAGEMENT:
From my perspective, this is the most important factor to consider. How much are you going to RISK?
Personally, I operate to a guideline in my TRADE PLAN that no single trade should RISK more than 3% of my trading account.
As a “Newbie” trader there are many other things you can do for effective MONEY MANAGEMENT.
If you are a new FX trader, you could be prone to mistakes and that is 100% normal. Therefore, being conservative with your approach will give you the time required to understand what you are doing and the effects of what you are doing with regards to the balance on your broker account.
The FX market is a strange animal. The way the market behaves and reacts to events changes from time to time.
It is very easy to be caught out.
At times your currency pair can be trading steady in a range in the desired direction and as such you feel inclined to maybe increase you existing position or add another trade.
On other occasions, the markets can be quite fast moving, maybe around a major economic data release, or on a breaking news event.
As a “Newbie” these are the times to keep your position size unchanged.
Trading Forex you have leverage and whilst this leverage can be good news if you are generating a nice profitable position, leverage can also be your enemy as badly positioned trades can grow losses very quickly.
There are some trades that you are 100% comfortable with and there are others that seem OK, but you prefer to be more cautious with your conviction until the trade starts to gather momentum based on current sentiment.
The FX market lays out many “Elephant Traps” for the retail trader.
For example, a breakout out of a trading range can be viewed as a trade opportunity based upon the breakout move being directional. However, the breakout move could be a false breakout, perhaps just an extended STOP LOSS run.
A greater CONVICTION trade would be the same move but accompanied with a major news event that supports the move in the same direction.
4. DIFFERENT CURRENCY PAIRS / DIFFERENT POSITION SIZES:
Saving the best for last.
MONEY MANAGEMENT I believe is crucial to TRADING LONGEVITY and trading success. In the Forex market there are hundreds of possible trading pairs, some are very popular, and some are what are termed “Exotic” because they are not traded as often.
LIQUIDITY is important when trading. We need good money flows through a currency pair to ensure good two-way action and a battle between buyers and sellers. This gives moves that are more consistent.
With exotic pairs, the money flows are not as great and bigger institutional orders can create volatility that cannot be sustained and move price that creates issues for retail traders vis-à-vis STOP LOSS positioning.
Therefore, it makes sense from my perspective to adopt position sizes based on the usual liquidity a currency pair would see on a daily basis.
The currency pairs like EUR/USD, USD/JPY, EUR/JPY, GBP/USD and EUR/GBP attract greater money flows than AUD/USD, NZD/USD, USD/CAD and USD/CHF, I would categorize these pairs as LEVEL 1 pairs.
JPY crosses and EUR/CHF, I call these LEVEL 2 pairs.
AUD/CAD, AUD/CHF, AUD/NZD, CAD/CHF, EUR/CAD, EUR/AUD, EUR/NZD, GBP/AUD, GBP/CAD, GBP/CHF, GBP/NZD, NZD/CAD, NZD/CHF, USD/SEK, and USD/NOK, I would call these LEVEL 3 pairs.
USD/MXN, USD/ZAR, USD/TRY, EUR/NOK. GBP/SEK, all others and there are far too many to list here. I would call these LEVEL 4 pairs.
I would apply something like the following factor to a maximum position size.
LEVEL 1 pairs = 100%
LEVEL 2 pairs = 50%
LEVEL 3 pairs = 25%
LEVEL 4 pairs = 10%
- WEEKLY FX PREMIUM SUBSCRIBERS:
(This section is for WEEKLY FX PREMIUM ONLY)
5.1. TRADING REVIEW:
5.2. OPEN TRADES... HOW I WILL TRADE THIS WEEK:
5.3. CROSS-RATES & EMERGING MARKETS PAIRS:
5.3.1. CROSS RATES:
5.3.2. EMERGING MARKETS:
5.4. SENTIMENT,FUNDAMENTAL & MACRO THOUGHTS:
5.4.1. OVERVIEW THOUGHTS (MY MACRO PLAN & IDEAS):
5.4.2. THE MARKET SENTIMENT CHART:
5.5. CURRENT LIVE TRADES & LIMIT ORDERS:
5.5.1. CURRENT LIVE TRADES:
5.5.2. CURRENT LIMIT ORDER TRADES:
5.6. FX BROKER NEWS and MARKET FEEDBACK:
- THE FINAL SHOT:
Nothing more to add here, I have said enough except,
Always remember longevity in Forex trading can only be achieved through trading with good RISK and MONEY MANAGEMENT, and above all set your position sizes in accordance with the size of your account and allow for some flexibility.
The Pip Accumulator
BLOG VERSION: #277 FREE NEWSLETTER
DATE: 7thApril 2018