*Good morning/afternoon everyone!* The U.S. dollar is trading lower against most of the major currencies this morning as risk appetite improves after yesterday’s brutal selling. Stock futures are up, helping to bolster pairs like EUR/USD and USD/JPY. However as we begin the NY session, the decline in Treasury yields could also tip the scale and push USD/JPY lower. Yen crosses on the other hand will take their cue from stocks today. The currency most vulnerable to weakness is the Canadian dollar because oil prices are down more than 2% after President Trump tweeted that he hopes Saudi Arabia and OPEC will not cut oil production because he thinks oil prices should be much lower based on supply. Despite a softer Eurozone ZEW survey, EUR/USD is trading above 1.1250 on the hope that progress could be made on the Italian budget front. the expectations component of the ZEW surely also increased. The best performing currency this morning is sterling which is up on higher wages (despite a higher unemployment rate) and continued Brexit optimism. On the Brexit front, we are getting closer to a deal but with some counterproductive headlines, traders are still reluctant to overload sterling positions but when an announcement is made, we can almost be assured that there will be a strong followup rally. AUD and NZD are also up from yesterday but having risen strongly in Asian trade, they are mostly consolidating and even weakening slightly. We also have our eyes on the Swiss Franc which appears to be topping below 1.0130. *The MAIN THEMES I see today are* +EUR +CHF -CAD -JPY *Trading Biases* +EUR, +CHF, +GBP, -CAD, -JPY mildly +AUD, +NZD, -USD *Today’s Initial Trades* Here’s the summary – 1. Buy EURCAD at 1.4885, Stop at 1.4857, Target 1.4912 2. Buy EURUSD at 1.1247, Stop at 1.1219, Target 1.1275 3. Buy AUDCAD at .9531, Stop at .9503, target .9559 4. Sell AUDCHF at .7270, Stop at .7298, Target .7242

Swing

*Good morning/afternoon everyone!*

The U.S. dollar is trading lower against most of the major currencies this morning as risk appetite improves after yesterday’s brutal selling. Stock futures are up, helping to bolster pairs like EUR/USD and USD/JPY. However as we begin the NY session, the decline in Treasury yields could also tip the scale and push USD/JPY lower. Yen crosses on the other hand will take their cue from stocks today. The currency most vulnerable to weakness is the Canadian dollar because oil prices are down more than 2% after President Trump tweeted that he hopes Saudi Arabia and OPEC will not cut oil production because he thinks oil prices should be much lower based on supply. Despite a softer Eurozone ZEW survey, EUR/USD is trading above 1.1250 on the hope that progress could be made on the Italian budget front. the expectations component of the ZEW surely also increased. The best performing currency this morning is sterling which is up on higher wages (despite a higher unemployment rate) and continued Brexit optimism. On the Brexit front, we are getting closer to a deal but with some counterproductive headlines, traders are still reluctant to overload sterling positions but when an announcement is made, we can almost be assured that there will be a strong followup rally. AUD and NZD are also up from yesterday but having risen strongly in Asian trade, they are mostly consolidating and even weakening slightly. We also have our eyes on the Swiss Franc which appears to be topping below 1.0130.

*The MAIN THEMES I see today are*

+EUR
+CHF
-CAD
-JPY

*Trading Biases*

+EUR, +CHF, +GBP,
-CAD, -JPY
mildly +AUD, +NZD, -USD

*Today’s Initial Trades*

Here’s the summary --

1. Buy EURCAD at 1.4885, Stop at 1.4857, Target 1.4912
2. Buy EURUSD at 1.1247, Stop at 1.1219, Target 1.1275
3. Buy AUDCAD at .9531, Stop at .9503, target .9559
4. Sell AUDCHF at .7270, Stop at .7298, Target .7242

STOP the INSANITY! Making My Trades Less Stupid.

Boris Schlossberg

If you trade long enough you know that it’s not the bad trades that hurt you -- it’s the stupid ones that always knock you out. This is especially so in day trading where the opportunity for truly boneheaded moves is available on a constant basis.

Tell me if this ever happened to you. You see a setup, but you are late to the chart. Maybe you were off the desk for coffee or someone IMed you and you had your eyes off the ball or you just hesitated to pull the trigger. Trading is timing and day-trading is the Swiss watch precision of timing. But you shrug off the feeling and plow into the trade anyway and like a weak tennis player that is wrong-footed you are almost always stopped out.

How about this. You see the setup forming. It right there, but not quite, According to your valuation model its a bit too early, but you can’t wait. You. Need. To. Be. In. That. Trade. Again like a tennis player that lunges too early and misjudges the ball, you get into the trade only to see it stop you out, and then reverse and hit your take profit.

Now, those are common mistakes, that all of us make. But what happens afterward -- at least with me, and perhaps with you -- is the true pinnacle of stupidity. Angered at the idea of an unforced error you double up and try to smack market right back. Of course, the market smacks you. Once. Twice. Sometimes even three times before you come to your senses and stop shoveling money into revenge trades. Now that is truly stupid and yet I do it all the time. So, here are my thoughts from the school of hard knocks on how to stop the insanity.

1. Define BEST. In the calm of the Asian session, after the day to day combat has ceased, mentally replay every trade you made. Go back to the charts and FORCE yourself to see what worked and what didn’t. Very quickly you will see the common properties of all your winners. Now slow it down and write out step by step what happened in each winning setup. Look at that list. Circle it. And then start each day writing out by hand. Yeah I know that sounds stupid, but that is the only way you will absorb the knowledge, Typing does not work. Memorizing does not work. Only writing out by hand will help you correct your behavior.

2. Separate all trades into BEST and REST. No ambiguity. No subtlety. No gradations. It’s either best or rest. In the heat of the trading day, we don’t have the luxury to be nuanced. As human beings, we are naturally binary animals. So play to your instincts. Now here comes the most important part. Trade REST at one-fifth the size of the BEST trades. That means if your normal size is 50,000 units, trade REST setups at 10000 units. (I am assuming that in case of day trading all your setups have the same stop and take profit criteria.) Note I am not telling you to not take garbage trades. You will do it. I will do it. Everyone who trades will do it. I am just telling you to take garbage size. In trading there are only three ways to avoid bad losses -- you can wait it out. You can widen out and average out or you can stop out small. The first two choices will always lead to blow out. The third is the only pragmatic solution to trading.

3. Never trade without a ROBOT. I never let an EA select my trades, but I always let an EA manage them. This does two things. It always protects my risk once I am ahead on the trade and it gives me the peace of mind to hold the trade completion. As I’ve said many times before, trailing trades is the least efficient way of trading except for all others. But here is where all of us get into trouble. How many times have you been away from the desk, take a look at your phone, see a setup and jump right in using the MT4 app. Don’t do it. Almost every major blow up I’ve ever had, started exactly that way. You are basically trading manually which almost always results in adding to the positions until the size swells and the losses mount into the thousands of dollars. Want a better way to trade by mobile? Put Microsoft Remote Desktop on your smartphone. Configure your VPS and place every trade via a Robot. This way risk will never get away from you.

4. Never add money to your account. (This assumes you haven’t blown up, in which case by all means) This is actually a great piece of advice from Marty Schwartz -- an old 1980’s trader who wrote one of the best books on the subject. Marty believed that you never increased the size until you could recoup and then double your capital. This forced you to focus on your setup and hone it mercilessly until you had the skill to trade larger. Remember the only thing greater than winning is coming back from losing.

5. Love your losses. If you took the BEST trade and it stopped out that not only natural but good. The best day trading systems are only 70%-80% accurate. That means every day at least 2 out of 10 of your best trades will be losers. Expect them. Accept them and know that control is the biggest trading skill of all.

Will ECB Stop EURO from Hitting 1.25?

Will ECB Stop EURO from Hitting 1.25?

Chart Of The Day

Will ECB Stop EURO from Hitting 1.25?

Thursday’s European Central Bank monetary policy announcement is the most important event risk this week. The euro is trading strongly ahead of the rate decision despite the risk of ECB President Draghi jawboning the currency. Since their last meeting in December, EUR/USD is up close to 5% and while a number of ECB officials have come out speaking against the currency’s rise, investors are waiting on Draghi. The problem is that we’re not sure he’ll say enough to halt the currency’s gains. Its important to realize that the euro is rising under the backdrop of a weaker dollar, hope for early guidance change a and stronger Eurozone growth. In order for traders to stop buying euros and start selling, Draghi needs to unambiguously dovish. That means expressing currency concerns and downplaying the chance of a guidance change. He can accomplish that by saying rate hikes won’t come until after QE ends and that the market misinterpreted the ECB minutes. In this case, EUR/USD will fall with profit taking possibly driving the pair below 1.23. However if Draghi expresses concerns about the currency but focuses on the improvements in the economy and acknowledges the possibility of early guidance changes, buyers will sweep in quickly especially following knee jerk decline and we may find EUR/USD on its way towards 1.25 because the trend is on the side of the currency.

Technically, there are 2 key resistance levels about the current one, the 200-day SMA near 1.2430 and then 1.25.

Will 1.2400 Stop Cable?

Will 1.2400 Stop Cable?

Chart Of The Day

After Theresa May’s speech, today cable soared rising nearly four big figures off the lows of the day as it now stands within a few pips of the 1.2400 handle. Part of the run was fueled by the simple “sell the rumor, buy the news” dynamic, but part of the move was also driven by Ms. May’s promise to put the full Brexit to a Parliamentary vote.

However, upon further clarification, this was simply a promise to ratify a deal that will be negotiated well in the future rather than an admission that Parliament should vote on the trigger of Article 50. Still with UK Supreme court still to come chances are good that Ms. May may be forced to get Parliament approval before proceeding with any formal Brexit plans. If the ruling were to come in a few days it could well wipe out the last few shorts at these levels and push the pair into the 1.2500-1.2800 range. But if there is no fresh news for a few days, aside from the smattering of economic data, cable is likely to stall at these levels which represent the biggest resistance since its fall towards 1.2000 on the weekend open.

For now UK data continues to surprise to the upside and remains supportive of cable, but the Brexit woes dominate the trade in the pair and today’s speech offered little solace to pound bulls looking for a measured approach.

Here’s where USD/JPY Should Stop

Here’s where USD/JPY Should Stop

Chart Of The Day

USD/JPY is on a tear. On an intraday basis, it is up more than 450 points. No one expected this currency pair to have such a strongly positive response to a Trump victory. But with Treasury yields soaring (the 10 year rate breached 2%), the dollar shot higher against all of the major currencies. Instead of mourning, investors are cheering a Trump victory because they think he could be extremely positive for the economy. He ran on a campaign of aggressive spending and this is the first time in 8 years that we could be looking at a healthy fiscal stimulus package. His victory speech was conciliatory and heavily Keynesian – this went a long way in boosting risk appetite and lifting Treasury yields.

Technically USD/JPY is within arms reach of 106 and appears likely to make a run for this level. Beyond that, we have some very important resistance levels. The 200-day SMA and 38.2% Fibonacci retracement of the 2011 to 2015 rally converge around 106.60. Given how quickly and aggressively USD/JPY has rise, we believe that the rally will hit a wall near that level.

Stop Trading and Do This Now

Boris Schlossberg

Like war and making movies, trading is basically 99% boredom and 1% action.

That’s what makes it so dangerous.

We all know that we need to eat our vegetables. Drink eight water glasses per day and exercise regularly.

Blah. Blah Blah.

How many of us actually do even 50% of what we are supposed to? Life is not like Lake Wobegon where all the women are strong, all the men are handsome and all the children are above average. In real life we are all full of character flaws and the key to success isn’t to correct them through willpower but to intelligently manage them with minimum damage.

Which of course brings me to trading.

We are not perfect Platonic beings. We can’t sit perfectly still waiting for our setup to occur while prices flash in front of our eyes. We are day traders. We like to get involved.

But of course that is always the start of every sad story in FX. I got bored. I took a trade. And before I knew it…

Basically there are two ways for the market to rattle you. One, it can shake you out of good trades by moving prices against you, make you doubt your set up and then make you cover at breakeven and then turning to hit your profit target. This happens to me all the time and while it’s bad it is by no means catastrophic. The net result is that you spend a lot of time treading water instead of making profits, but eventually if you follow your setups you will swim even if it’s with all the grace of a frog.

The other way for the market to con you is far more insidious. It is essentially the financial market version of the three card monty. In that game the mark (who is always you) is attracted to the game by the smooth talking dealer who flashes the card deck and shows you how “easy” it is to find “the lady” ie the queen of hearts. In FX it generally looks like this: Prices are rallying! Its strong move! I am jumping in! Wait -- it’s correcting? I am not gonna lose. I am adding more this move will resume for sure!

Almost every day we are tempted to place open ended trades without any clearly defined risk or reward triggered solely on our hunch rather than any well tested method. Even if we don’t do those type of trades for a month or more because we are “disciplined” we will eventually break down and do one anyway. As I wrote awhile back, we always bite the cookie.

But that’s ok. There is a simple solution to protect you from yourself. Here is all you need to do.

Trade the 0.01 lot
It doesn’t matter if you have $10,000 or $100,000 or $1M in your account. If the trade is not part of your well tested, well thought out strategy. If the trade does not have an exact size, exact entry, exact stop and exact exit to it. If the trade like so many of our trades is “experimental” then trade the 0.01 lot.

Always.

You can do as many stupid trades as you like. You can hold them forever or you can flip then over 50 times each day, but trade the 0.01 lot.

Always.

That one simple trick will let you survive any number of idiotic ideas. No need to be “disciplined”. Diets and risk control never work anyway. We all want to trade for fun not just for profit. The key is to do it in a way that will never damage your real money.

So trade the 0.01 lot.

Always.

USD/CAD Will 1.3200 – Stop the Rally?

USD/CAD Will 1.3200 – Stop the Rally?

Chart Of The Day

It’s be a remarkable rally for USDCAD as the pair is up almost 700 points in the month of May despite the fact that Crude is closing in $50/bbl level. The run in the pair is partly due short covering and partly to a more bullish outlook on the US dollar as the FOMC meeting minutes yesterday suggested that a hike may be coming in June. Such a move would widen the rate differentials between the two currencies and could push the pair towards the 1.3500 level.

But before that can happen -- USDCAD needs to overcome serious resistance as the 1.3200 mark. Tomorrow’s Retail Sales could do the trick if they miss forecasts. Markets are already anticipating a decline of -0.6% from 0.4% the month prior but a bigger miss of more than 1% could push the pair well through the 1.3200 figure and open the way to a run towards 1.3500.

GBP/USD – Next Stop 1.46?

GBP/USD – Next Stop 1.46?

Chart Of The Day

GBP/USD – Next Stop 1.46?

Thanks to the improvement in risk appetite, sterling ends the week near its one month highs but we believe that the rally is beginning to lose momentum and next week’s Bank of England meeting should drive it lower. The BoE has a lot more to be worried about in March compared to January. While their trade deficit narrowed, the improvement in Jan came only because of a large downside revision to the December report. Their deficit with the European Union hit record levels with exports falling at the start the year. All 3 of the PMI reports showed weakness in the economy and as BoE Governor Carney mentioned at the start of the week, Brexit is the biggest domestic risk to financial stability. No changes are expected from the central bank but the minutes from the meeting should contain a more cautious tone that should negative for the currency.

Technically GBP/USD broke above the 50-day SMA at 1.4320 leaving the next important resistance level at 1.4400. This was tested and broken momentarily on Friday and if it is challenged again, the next stop for GBP/USD will be 1.46. However if it fails at 1.44 a decline should take the pair back down to support at 1.4175, a level where daily rallies have paused on numerous occasions.

NZD/CAD Rally Should Stop Near 0.8850

NZD/CAD Rally Should Stop Near 0.8850

Chart Of The Day

NZD/CAD Rally Should Stop Near 0.8850

NZD/CAD has been on a tear. NZD’s strength comes from U.S. dollar weakness, short covering, improvement in risk appetite and this week’s better than expected PPI report. CAD’s weakness has been caused by softer data and low oil prices. However on a fundamental basis, the rally in NZD/CAD should be short-lived because the recent decline in dairy prices is negative for New Zealand’s economy and will eventually catch up to the currency. Canada is plagued by weaker retail sales but the primary driver of the currency is oil and based on the recent price action, $40 a barrel is proving to be a very important support level.

Technically the most important resistance level for NZD/CAD is where the 200-day SMA and 23.6% Fibonacci retracement 2009 to 2014 rally converge near 0.8850. Support is the 100-day SMA at 0.8592.

Will UK GDP Stop the Slide?

Will UK GDP Stop the Slide?

Chart Of The Day

Cable has been hit extraordinarily hard over the past few days dropping nearly four big figures as dollar rallied. It’s not quite clear why cable should have weakened so give the generally robust growth in UK economy and the expectation that BOE will follow the Fed in hiking rates. Certainly the BOE is the only other major G-10 central bank that is even considering a tightening policy path.

Tonight’s second revision of GDP data may provide some solace to the bulls if the number is revised higher from 0.7% initially reported. Support may also come from technical factors as the pair is now at key double bottom support on the daily at 1.5350 and should see at least a mild bounce towards the 1.5500 area.

EUR/USD – Will The Rally Ever Stop?

EUR/USD – Will The Rally Ever Stop?

Chart Of The Day

Over the past four trading days the EUR/USD is up an astounding 700 points or seven big figures. That’s one of the sharpest rallies on record and is emblematic of just how wrong footed the market has been on the pair. The spike higher has been fueled by lack of liquidity, risk aversion flows and the merciless momentum of the algos which have wreaked havoc with many long term positions.

The truth of the matter however is that fundamentally nothing has changed. The ECB are still on divergent monetary paths and the economic performance of US is far superior to that of Europe. No one that may matter in the short run however as currencies will continue to trade off equity flows. Once the risk aversion correlation establishes itself, it takes a while to go away. So the EUR/USD may indeed squeeze higher, but any further moves are likely to be more contained as most of the technical damage has already been done.

EURO – Is 1.15 the Next Stop?

EURO – Is 1.15 the Next Stop?

Chart Of The Day

EUR/USD continued to power higher, closing firmly above 1.1215, the 61.8% Fibonacci retracement of the 2000 to 2008 rally and EUR/USD bulls have the ECB to thank for today’s move. Even though Central Bank President Mario Draghi expressed his disappointment with growth, laughed at the idea that they are nearing their inflation target and said if anything, they will actually add to policy, the euro jumped after he said the central bank would look through the recent volatility. This is important because it suggests that they will not be front loading their bond purchases. Last month, the central bank suggested that that the bulk of QE would happen in the summer and this notion put pressure on yields. Today however, German 10 year rates jumped approximately 15bp on the idea that bond purchases would be spread out more evenly, providing ongoing stimulus to the economy. This led to a significant adjustment in expectations that has translated into a steep decline in bond prices, sharp rise in yields and move higher for EUR/USD. Stronger Eurozone data and weaker US data also contributed to the move and on a fundamental basis unless there is a very big upside surprise in Friday’s U.S. labor market report, the EUR/USD should make its way towards 1.15.

Technically, the EUR/USD’s break above 1.12 is significant because there is no major resistance until 1.15. More specifically the key resistance level to watch is the May high of 1.1466. In the past four months, EUR/USD has come close to testing 1.15 but failed to do so in May and Feb. However a clean break of 1.15 is needed to open the door for a move to 1.1650, the next resistance level. If the EUR/USD drops back below the 61.8% Fib mentioned earlier, the currency pair could slip as far down as 1.1050, the former support level especially if it is a driven by a hot NFP report.