Now that major holidays are behind us, trading should return to normal. By “normal” I mean customary spreads, around the clock action, no days off outside the weekends. It will be some time before another celebration interrupts typical routine. Well, some people would be happy to celebrate anything, but unless Bernanke and Trichet embrace “Palindrome Day” or something of that sort as a factual holiday, we shouldn’t worry much. For those who don’t know what “Palindrome Day” is, you are not missing out, but it is a date that reads the same forward and backwards. In US we had one of these oddities yesterday- 01.02.2010. At any rate, should be all clear for a while.
Since New Year fell on Friday this year, we had extended weekend, so opening shouldn’t be any different than on average Sunday. When January the 1st happens during the week, some brokers remain open, or at least quotes are generated. This produces very narrow range day, perfect for a straddle trade next day, because market is almost certain to move with much bigger magnitude. It doesn’t always work perfectly, but over the years I’ve made few pips doing just that with USD-CHF. Not this year, though. Have to look for something different.
For short term trades I’m looking for opening gaps, just every Sunday. Chances of them forming today are relatively good for some pairs. Japanese Yen pairs come to mind. JPY closed very weak on Friday after loosing ground most of the day. This was what I classify as a directional move with a close at or near daily extreme. When this happens, gaps are more likely. Things could be somewhat different today, but this is something I’m looking for.
Given strong closing of JPY pairs, I will also look for “Sunday evening set up“. If these moves continue for few hours, strong reversal candle on hourly chart could a signal to sell. Both of this strategies might be combined, conditions permitting. I wouldn’t be getting into more than 2-3 crosses, but this still could be enough for good results and prevent uncomfortable losses.
In early 2009 one of the first trades I posted here was a sell in EUR-GBP. Some things just don’t change that much. This time around, though, larger magnitude time frame is used. On daily chart price established support at around 0.8835. It has already rested there twice before so any violation of this level could mean a valid breakout. My order is placed 0.8826 with first target at 0.8580-0.8600. Secondary target could be as low as 0.8400 or just above.
Situation presents good place for stops, about 0.9060. It is fairly large in terms of pips, but taking into consideration what time frame is used I like it. Maximum potential profit is about 420 pips for this formation, so the ratio is good. And frankly, on a scale of the chart, this is favorable S/L placement. And, of course, this is initial stop. Once the trade is under way and price paints history, intermediate term chart, 4H, can be used for even better stop. But not just yet.
There are some concerns here. Zooming out to even larger time frame, it is possible that price is building a bottom, with a distinct possibility of moving higher and making a ran on the all time high eventually. That’s why decisive breakout is needed. It would invalidate potential bottom and put bears firmly in control. Then again, every single trade carries risks, so it is nothing new. Let’s have productive 2010.
Mike K.
Happy New Year, Mike! Starting strong, I see. Few gaps opened up, fairly small and to the downside on Yen pairs. Are you taking any trades? Is it a good environment to be “fading” the gaps? Thanks!
Same to you, Heather. How was the party? As far as trading, I’m done with CAD-JPY for 40 pips, but others are only now showing signs of reversal. GBP-JPY and EUR-JPY are what I’m getting into. As far as fading I’d watch all related crosses to determine what is the weakest. At this time looks like NZD-JPY is the best candidate, but this could change in few hours. Have to keep watching.
Would 67.45 be good level to enter short? Thank you!
Yes, this gives you managable stop and decent target. Not bad!
t feels like it’s been forever and I’ve lost my confidence. So I am copying you. Thank you for letting me.
No problem.
“…it is possible that price is building a bottom, with a distinct possibility of moving higher and making a ran on the all time high eventually.” Can’t wait to see what happens.
Not bad!
[...] year relatively quiet. No really big moves from right away, but things moving along fairly fast. Japanese Yen opened with gaps, as expected, even if they were not sizable. Some platforms might not even show them at all, [...]
Thanks.
Hello, Mike,
Can have the pleasure to be part of your blogroll? http://blackbottleforex.blogspot.com
Anyway, good start for the year. I like it where you state your entries and exits which is very clear. keep it going, have a good year ahead!
Thanks. I’ll update the blogroll when writing next post. Most likely Wednesday. Good trading!
thanks Mike, are your crosses affected by the recent NFA regulations?
What specifically?
1:25 leverage for crosses, i think.
It doesn’t show in accounts with any of my brokers. Besides, that would have little effect on me. I don’t use that much leverage.
http://fxmadness.com/2009/04/11/general/trading-forex-without-much-leverage/
thanks Mike, a great post. i’ll dig ur archive over the weekend
I know you don’t trade the news but between Japan and Greece I decided it’s time to sell EUR/GBP.
Could be a good idea. Good luck.
It’s not going so well.
It had a nice spike down. What where you looking for?
[...] best seen on daily charts, which was mentioned yesterday and described in more detail in JPY watch update. From now on bounce from this general area is very possible. I don’t want to be short [...]
[...] daily chart of EUR-GBP produced a short trade. Last week I was taking short term bearish trades, until price reached 0.8830 support. Move under [...]