Random Day Trading Observations on A Hot Summer Day….

Boris Schlossberg

If you trade in a team you will always trade better…

When day trading it easier to be 80% accurate on 1-2 risk reward scheme than 40% accurate on 2-1 risk reward strategy…

Edges are easy, sticking to them is hard…

If you trade small and take your stops you may lose, but you will rarely FAIL and lose it all…

Every blown account is the result of ego rather than strategy…

The most important thing in trading is not to win, but to survive…

The market is a Markov process – it could give a sh-t about yesterday and even less of a sh-t about your position…

Moving averages, support and resistance lines, Fibonacci retraces are all just squiggles on a chart to give us illusion of control…

Brett Hull is right. Systems exist so you can remove as much randomness as possible from trading…

The best measure of your performance is your total return divided by your max drawdown. If it’s 2 or higher – consider yourself doing well.

The maximum opening trade if you trade more than 10 times a day should be 1X equity. If you don’t add a single unit you would have already levered your account by 10X through simple turnover alone…

The maximum opening trade if you trade less than 5 times a day should be 2X equity.

The maximum opening lever factor if you day trade period should be 4X of as we like to say –
4X for forex…

If your profit factor is 1.3 or better and you did more than 200 trades pat yourself on the back…

If you don’t have a myfxbook account, you are not really trading. You are just f-ing around….

If you want to be good at this, commit yourself to trading for at least ten years….

With dog days of summer upon us, it’s good to take a break. So until Labor Day , I’ll recycle some of my favorite columns from the past.

Enjoy the beaches and the mountains everyone.

BK Hot Chart EUR/GBP Headed for 0.7260

BK Hot Chart EUR/GBP Headed for 0.7260

Chart Of The Day

EUR/GBP Headed for 0.7260

Stronger than anticipated U.K. data and continued uncertainty relating to the Greek debt deal negotiations drove EUR/GBP to a fresh 7 year low. While the currency pair bounced off these levels towards the end of the North American trading session, fundamental forces should continue to press EUR/GBP lower. There are reports that Greece will request an extension to their bailout on Thursday. While the euro could jump on the announcement, the gains will be unsustainable unless there is a quick approval by European officials. It is in Europe’s interest to ensure that a deal is done to avoid the havoc that a Grexit would have on the financial markets and the perception of the irreversibility of the euro. However according to a draft of the bailout extension request obtained by the Financial Times, most of the terms presented are the ones that have already been rejected and therefore unpalatable to the E.U. At the same time, sterling is looking ever more attractive. Stronger U.K. data and slightly more hawkish Bank of England minutes raises the odds of a rate hike this year. Today’s data was good but the icing on the cake was average hourly earnings which rose 2.1% versus a forecast of 1.7%. We have been looking for sterling to outperform on today’s reports and this strength should carry through to the end of the week, when we expect U.K. retail sales to surprise to the upside, putting additional pressure on EUR/GBP.

Technically, breaking below 75 cents has put EUR/GBP on track for a move down to the 61.8% Fibonacci retracement of the 2000 to 2008 rally of 0.7260.

BK Hot Chart – USD/CAD to 1.30?

BK Hot Chart – USD/CAD to 1.30?

Chart Of The Day

BK Hot Chart – USD/CAD to 1.30?

USD/CAD raced to a high of 1.28 on the back of weaker than expected GDP numbers and while the loonie recovered part of its losses by the end of the North American session, the uptrend remains intact. Over the past month, the currency pair soared over 1000 pips or 8% to its strongest level in 5 years. The initial slide was triggered by a decline in oil prices with the move extending on the back of the Bank of Canada’s surprise rate cut and the move is now exacerbated by weaker economic reports. Each of these goes hand in hand of course because the BoC would not have lowered rates if oil prices had not fallen and the economy had not weakened. Nonetheless, the 0.2% contraction in the month of November drove annualized GDP down to 1.9%, the slowest growth since March. The problem was manufacturing and oil production – which saw its biggest drop in 6 years. Unfortunately next week’s IVEY PMI and employment reports could highlight the same areas of vulnerability in Canada’s economy. If the data is soft like we anticipate, USD/CAD could make a run for 1.30. The only wrinkle is oil. If it finds long term support above $40 a barrel and starts to rise, breaking above $50 a barrel, a top would be on the way for USD/CAD.

Near term support in the currency pair is at 1.25 with more significant support at 1.2380. Taking a look at the monthly chart of USD/CAD the next main area of resistance is at 1.30.

BK Hot Chart – NZD/USD Could Drop to 71 Cents

BK Hot Chart – NZD/USD Could Drop to 71 Cents

Chart Of The Day

BK Hot Chart – NZD/USD Could Drop to 71 Cents

The New Zealand dollar fell hard on the back of surprisingly dovish tweaks to the Reserve Bank of New Zealand’s monetary policy statement with NZD/USD dropping to its lowest level in 3 years. According to the statement, the decline in oil prices was too much for the RBNZ to bear. The central bank felt that “falling oil prices is causing tradable goods inflation to be very weak.” They also fear that headline annual inflation could turn negative for a period before moving back towards 2%. Combined with an unjustifiably high exchange rate, fiscal consolidation, reduced dairy payout and the risk of draught, the outlook for growth has now changed. Most importantly, they removed the statement about expecting more tightening and replaced it with the comment that rates could move up OR down depending on data. In other words, the RBNZ has shifted from a tightening to neutral monetary policy bias and the New Zealand dollar collapsed in response.

At this point, there is no major support in NZD/USD until the 2011 low of 0.7118. Resistance remains at 75 cents.

What’s Next for NZD/JPY?

What’s Next for NZD/JPY?

Chart Of The Day

Fundamentals
Its central bank day in FX tomorrow and NZD/JPY could be at the center of the storm as traders get ready for policy makers. On the US side the Fed is expected to pretty much maintain its neutral line as low inflation and laggard wage growth are not going accelerate the normalization schedule. On the other hand the RBNZ has seen growth stabilize and milk prices rise for three consecutive months. Still the central bank may reaffirm its neutral stance in which case NZD/JPY could get whacked from both ends as the disappointment from the Fed and RBNZ push the pair lower.

Technicals
Technically the 87.00 is key support for the pair and break there opens a run towards 85.00. On the other hand a close above 89.00 would suggest that the pair has found firm support and may be ready to rally

BK Hot Chart – USD/JPY Upside

BK Hot Chart – USD/JPY Upside

Chart Of The Day

BK Hot Chart – USD/JPY Upside

For the time being USD/JPY appears to be stuck within a narrow 117.20 to 118.85 range but from a fundamental and technical perspective, the uptrend remains intact. As the Northeast hunkers down for a major snowstorm, forex traders around the world are turning their eyes to the upcoming Federal Reserve monetary policy announcement. While recent stimulus from the ECB and other central banks gives the Fed more leeway, we do not believe they will alter their forward guidance having just changed it in mid-December. If you recall, last month, the Fed replaced its vow to keep rates near zero for a “considerable time” with a pledge to be “patient” on the timing of the first rate hike. At the time, this was viewed as such a hawkish shift that it drove USD/JPY from a low of 116.30 to a high of 120.80 in a matter of days. There has been a few weak data points since the last Fed meeting, most notably retail sales and average hourly earnings but this follows many months of positive economic surprises. The Fed also believes that the decline in oil prices will pick up the slack. If they dialed back their hawkishness, it would risk undermining credibility. The next big meeting is in March so there’s no need to rush any changes. If we are right and the Fed provides no fresh insight at this week’s meeting, their tightening bias will make the dollar more attractive and drive USD/JPY higher.

Technically, there is short-term support at 117.15 and more significant support at 115.57. The 61.8% Fibonacci retracement of the 1998 to 2011 decline at 120.18 will cap gains for the time being.

BK Hot Chart – What’s Next for AUD Now that 0.80 Broke?

BK Hot Chart – What’s Next for AUD Now that 0.80 Broke?

Chart Of The Day

The Australian dollar broke through 80 cents to trade at its weakest level against the U.S. dollar in 5 years. The 1.3% decline came despite an uptick in the HSBC Chinese manufacturing PMI index. While there is growing evidence that China’s economy is stabilizing investors do not believe that this will stop the RBA from lowering interest rates by 50bp this year and these expectations could drive AUD even lower. Next week’s CPI report from Australia will be particularly important in shaping the market’s expectations for the next RBA rate decision on February 2nd. Given the decline in commodity prices, the odds favor a weaker release that could drive the currency pair towards its 2007 lows.

Now that AUD/USD has fallen below 80 cents and below the 61.8% Fibonacci retracement of the 2008 to 2012 rally, the next stop for the currency pair should be the 2007 swing low of 0.7675. As long as AUD/USD remains below 0.8050, the downtrend remains intact.

BK Hot Chart – AUD/NZD Turn

BK Hot Chart – AUD/NZD Turn

Chart Of The Day

For the first time since October, AUD/NZD is attempting to close above its 20-day Simple Moving Average. Historically, this has been a strong signal for short and medium term reversals in the currency pair. In 2014 AUD/NZD closed above the 20-day SMA on 8 occasions and 8 out of 8 times, which is 100% of the time its move extended for a minimum for anywhere between 40 and 300 pips with an average gain of 170 pips.

From a fundamental perspective, the Australian dollar performed far better than the New Zealand dollar today as investors start to consider the positive impact that lower oil prices has on China’s economy. Chinese trade numbers are scheduled for release tonight and if they surprise to the upside showing an improvement in exports, AUD will stand to benefit more than NZD.

Hot Chart Key Levels for EUR/CHF

Hot Chart Key Levels for EUR/CHF

Chart Of The Day

From a fundamental perspective we like buying EUR/CHF because we think that the Swiss National Bank will maintain the 1.20 EUR/CHF peg. However when it comes to looking at the technicals for EUR/CHF, the outlook is murky because the peg distorts the charts. 1.20 is obviously the main support level for the currency and if that is broken, the next technical support should be 1.1675, the 23.6% Fibonacci retracement of the 2007 to 2011 decline. If 1.20 holds, the second chart below indicates that 1.2050 should be near term resistance. Of course if the Swiss National Bank suddenly intervenes, we’ll see EUR/CHF on the 1.21 handle.