Adventures in Forex Trading Mike Heffley's FOREX Trading Blog

11. February 2010

NZDUSD Short Divergent Setup

Filed under: My Trades,Trade Ideas — Mike @ 17:42

NZDUSD short divergent setup

The NZDUSD is now solidly Divergent on 1 hour, Stochastic overbought and MACD declining.  AUDUSD is also in a similar pattern but not as convincing to me quite yet.  The NZDUSD looks better to me but both have the same setup risk in that 800 SMA is not too far off.  On the plus side the daily pivots are both below price now.  So maybe they hit the 800 and turn around OR forget the 800 and go for the daily pivots?   I have not traded these pairs for a while but looks interesting.

 

I have a small test position on the NZDUSD and am just watching the AUDUSD at this point. 

 

Safe trading,

 

Mike

EURUSD Long?

Filed under: My Trades,Open Trades,Trade Ideas — Mike @ 13:15

 EURUSD FIb 4HR

I have been watching and profiting from the EURUSD slide the past few weeks but think we may be ready for a retracement.  FIB retracements from recent lows back to mid January highs line up well with past s/r levels and are good targets for me.  I have a trade I put on this morning going long to the .618 less a bit of padding.  Initial profit target = 1.3947.  If we break convincingly above the 62 on the 4 hour I’ll move up my stop and target profits.

On the other hand, if the pair goes the other way (Greece news bias to the upside but you never know), my stop is just below the recent lows at 1.3570.  This would just mean time to wait for another chance at a retracement for me.  I attached a big pic view using the 4 hour charts.  I used the 1 hour for timing of the trade.

Safe trading,

Mike

14. January 2010

EURUSD 62 bounce trade 1HR

Filed under: My Results,My Trades — Mike @ 13:34

This is my first post of 2010.  As I had said in my last post in December, this year I am focusing on money dicipline and high probability low risk trades this year.  In that goal, I will be posting explanations to the trade setups I post, not just the setup and result.  I have come to firmly believe and embrace that a good trader is a consistently consistent trader, which infers that there is a pattern to a good traders results.  Following that through, one needs to have an arsenal of singles and doubles that work more times that not, and if not, are not game ending.  This is key, being able to survive a series of bad trades without being tempted to go for the home run trade on a weak setup and ending the game (margin calling or worse).  Sometimes standing aside is the best course of action.  There is no stat that matters more than keeping your trading capital. 

EURUSD 62 bounce 13Jan10 (click to see chart)…

This is one of my favorite trades and is easy to spot, stops are clear cut, and target goals are easy to set up.  I call it the 62 bounce, and I trade this on the 1 hour time-frame chart.

 Here is the trade (the pivots on the chart are the next days, but look at the notations to understand the original trade).  There are two conditions that have to be met for this trade to be a valid setup.  First, at a minimum there has to be a trend that was in place recently and second, that trend is confirmed by the 62 EMA and 200 SMA in phase with the trend.  I also use the 144 EMA on my charts as well as the 800 SMA.  For a longer term trend, the 800 SMA will also be in phase with the dominant trend, but for a shorter trade, I am o.k. with just the 62 and 200 trending together in phase.

The trade sets up when price falls to the 62 and bounces off it.  That is it.  The basic trade.  Take the trade in the direction of the original trend.  If a wick penetrates and the next candle moves back that is still a valid setup.  They key is to confirm that the 62 is acting as strong resistance to price.  If you look at the chart, you will see several 62 bounces that set up.  All but the last one would have been able to be closed at a profit. 

I also look for confirming signals as well as some basic support and resistance setups to target stops and profit targets.  This is a 30 to 50 pip trade for me on this pair.  If you look at the entry I chose you will see the gradual decline from a 2 bar reactionary move.  Then the smaller less convicted bars just retracing the earlier movement.  If you analyze the time of day you’ll also notice that the retracement happened during low volume time periods and the start and follow trough of the bounce happened at the Asian session, then took off during the Eurpoean session, and retraced in the U.S. morning session and followed through.  That is another key thing I watch for, inter session give and take.

 I hope this gives you a bit of insight into one of my favorite trades, but be very aware that this is a short term trade setup.  Take it, get your 30-50 pips and get out.  Look for reversals and test riding back to the 62 as well (I also took some pips as it reversed in the US session). 

Safe trading,

Mike

10. December 2009

Repetition is the mother of all blowups!

Filed under: General — Mike @ 17:35

My close trading friends know I had some rough patches this past year trading.  I had some great times too, but it is the rough times that finally brought me to my knees so to say and made me take some time off to reflect, recharge, and re-evaluate my approach to trading.

I absolutely love trading, and I have backtested, forward tested and live traded enough over several years to know some very high probability trades.  I also know enough to understand that leverage is both good and bad and if abused can crush the best of traders.  Revenge trading, or scalping with an overleveraged lot size is usually not a good idea, trust me on this!  Trading without a plan, without sound money management (whether that means a certain percentage of capital traded, or segregating risky from moderate possitions in subaccounts), trading poor setups or virtually non existent setups, momentum trading a slow market because it is Friday afternoon and you are not at your weekly goal yet, or the worst of the worst….. trading without knowing your reason for the trade are all mistakes and poor choices that I know enough not to do.

 Yet, I found myself repeating some of these mistakes often this past year, to the eventual destruction of most of my trading capital.  Yes, it was a disastrous year from a purely return standpoint.  So why the heck am I putting this on my blog for anyone to see?  Too much espresso perhaps…. but really, this is a post to myself to be able to refer to throughout next year should I consider the same failed non-strategy strategy.  I already can be fairly certain of the outcome having “tested” this approach off and on over a year long period.

 Twice in the past year I put in a decent stake in one of my trading accounts.  I ended up having to refund both times at a much lower amount.  I remember one period where I was on fire, huge returns, and leveraging some big moves. I made some truly amazing returns.  I was hopefull I could get my account up to $X and then I would return to a more reasonable leverage amount and more thought out trades.  It seemed it was going to work.

I rember clearly the start of my blowup.  I was literally less than $200 from my goal on a Friday afternoon.  This has always been a problem for me – setting a weekly goal and  getting close on Friday and then damaging my account trying to stretch for the goal.   I had spent some time backtesting scalping on the 3 minute charts on the EUR/USD and decided to “just scalp a few quick trades” with some rediculously high leverage to nail my goal.  Trying to scalp on most Friday afternoons is like watching paint dry and I knew it was a bad idea, but hey, I was so close and only needed 1 out of 3 trades to work to be successful in my backtesting (at normal leverage).  What could possibly go wrong?  By the end of that Friday, I lost around 30% of my account.  It was not the trading style, it was the overleveraged lot sizes that killed me.   I kept getting scared out due to large real money drawdowns.  Over the next two weeks I kept trying to get my money back, almost did a few times, then lost again due to the same error in judgement.  Anytime a 7-10 pip drawdown is getting scary rest assured you are trading very wrong!

So after a big blowup I would  trade with the ashes of my account, turn say $100 into $1000 over a period of weeks etc. and get back to good trading techniques.  Refund a bit and the pattern would repeat.  My wife noticed this pattern over time and said you trade much better with not much money and you trade badly and lose with a large amount of money.  Maybe you should take your profits out after you reach $X and then start over again.  I told her she did not understand and I needed a larger trading account so I could make more trades and money! It has actually become a joke with us about blowing up the trading account, although it is not all that funny, there is some humor in it and in the predictability of human nature.

 So, here I am at years end contemplating next year and the state of my trading education.  I have come to understand and fully embrace what one of my mentors has said for years that money management will make or break a trader.  A great trader can be crushed with a few bad trades due to bad money management and abuse of leverage.  An average trader can learn to trade for a living with just a few good trade setups and good money management.  It is my goal to emphasize good money management this year and only trade the trades I have tested and understand. 

I will continue to backtest and work on trading strategies to learn high probability trade setups, but I will also be spending alot of time learning more about emotions in trading.  I tend to focus on the logic but it is the emotional side of trading that is I believe holds the key to success to becoming a more consistent and profitable trader.  Here’s to another year, wishing you much success!

 Mike

24. February 2009

EURUSD Short S2 + Fib Extension 1HR

Filed under: My Trades,Open Trades,Trade Ideas — Mike @ 08:48

eurusd-to-s2-fib-24feb09.gif - This started as a quick trade for 30 pips pre opening down to the 800 on the 5 or 15 minute areas.  As I was looking at the longer tern Fibs on the 1 hour I saw that the 1.382 extension on the fib of the last move is a confluence area with the daily S2 pivot.

 My initial trade targets are being hit as I post this.  I am playing conservative today due to alot of talking heads going before the US Congress.  I am going to trail down my stops and see where this may go.  I am NOT willing to risk much though as I expect some whippy action once the testimonies get underway, still, this is an interesting setup with a nice profit target if it breaks in that direction.

11. February 2009

NZDUSD Box 60M+5M 11Feb09

Filed under: Open Trade Ideas,Trade Ideas — Mike @ 19:31

nzdusd 60Min box 11febo9  -  nzdusd 5min 11febo9  

 Simple support and resistance trade here.  No firm idea on direction, although I am USD long fundamentally for the medium term.  On the 60M a s/r box has formed around the 144 and 62 with the 200 moving up to meet it.  On the 5 minute, the 800 sma is about 30 pips above the box as I write this.  The MACD 60M indicates downward momentum is waning and the Stochastic shows a cross a few candles ago and the pair did go long on that bar.  Taking nearterm trendlines into account, there are some clear indicators as to when to get in depending on what price does.  My goal for this pair would be to catch the break and ride it for 30 to 50 pips.  I am not willing to enter this trade unless I am actually watching it happen.  This is a short term trade idea for me at this time as the pair has been unpredicable lately.  I caugt 30 pips yesterday at the end of the NY session and closed it just before it took off in my original direction,  AAAAAAHHHHHH!  :-)

GBPUSD Daily Short setup

Filed under: Open Trade Ideas,Open Trades,Trade Ideas — Mike @ 19:06

GBPUSD_Daily_11FEB09 - This is more of a trade watch idea as there are good arguements for a bounce off the current level, but I am biased to the short side.  That being said, I would be willing to go long for a retracement until the pair consolidates.

 The Daily chart shows price is sitting on a fibonacci confluence zone as well as bouncing on the top of the recently broken channel.  I believe fundamentally that the GBP is still set up to fall further.  The wildcard here is the actions of our happy congress and what ultimately gets passed, and how the market reacts to the massive debt load we will be incurring which has the very real possibility of leading to inflation, increased money supply and a falling dollar.  To confuse the long term outlook, the USD is being used as a flight to safety vehicle which has propped it up over the past few days.  Again, arguements can be made either way. 

 My plan is if the pair closes below the red confluence zone and channel, I will short it down to the .382 as an initial profit that is draw between the two confluence zones.  I will be looking for opportunities to stack and move my stops down.  I have taken some nice pips the past 2 days on the current shorts and am now in with a very small lot to try to build another possition if it breaks.  If we get taken out I’ll wait for a consolidation or break below. 

9. February 2009

NZDUSD 60 min reversal to trendline

Filed under: My Trades,Open Trade Ideas,Open Trades,Trade Ideas — Mike @ 13:52

NZDUSD Daily Fib update 9feb09  -  See how strong candle hit Fib level and bounced.

NZDUSD 60M fib 9feb09  -  This is a small reversal to the short term trendline on the 60M that I have entered, but relatively small stop.  Risk is the pair will want to rise to the 800 before the 800 falls to price.  I may have to retry if I get stopped out.  What I find so interesting is a reconfirmation of the Fibonacci levels in real world trading.  Although the real methodology is a trade off of what I think is an overdone rally with a modest 100 pip initial target the Fibonacci overlay is spot on with the price movement.  Even the  projections below 1.0 are right on the previous low.  It is also interesting that the .380 fib level is right on the cross of the TL as the trade opened.

 On Fib’s, they are not trade ideas all by themselves, but they are becoming useful in my trading as confirmation of where price should/could go and where it should not go in a certain timeframe.  These levels also highly correlate to the work I did on the Daily Fib’s last week on this pair in a previous post.

2. February 2009

NZDUSD Daily Fibonacci Levels 3FEB09

Filed under: Open Trade Ideas,Trade Ideas — Mike @ 22:32

NZDUSD_DAILY_FIB_2FEB09

GBPUSD Fibonacci Layout Jan09

Filed under: My Trades,Open Trade Ideas,Trade Ideas — Mike @ 21:52

GBPUSD Fib Jan09  -  Daily Channel and Fibinocci Convergence Projections

GBPUSD 4HR Fib 28JAN09

 GBPUSD 1HR FIB 28JAN09 Fibs

21. January 2009

NZDUSD Trendline Break to Mesa on Daily

Filed under: Trade Ideas — Mike @ 23:53

NZDUSD Mesa short daily 19JAN09 (click to see chart) – Possible small trendline break trade down to former low, also a Mesa break short as well.  This is potentially a double confirming trade on the daily.  After being burned so badly last week on this pair and the AUDNZD,  I will not take until it breaks and closes below the TL on the 1 hour.  I plan to scale in incase of a quick retracement.  This is the same theme as all other trades today, dollar strength which I suspect is partly due to the MLK bank holiday and the U.S. Innauguration tomorrow.

 This trade did work out and hit my targets but I missed the entry and did not take it. 

GBPUSD – Short off Pivot and 62 on 1HR

Filed under: Open Trade Ideas,Open Trades,Trade Ideas — Mike @ 22:55

GBPUSD 1HR 21JAN09  short off a close bounce off the 62 and hitting the daily pivot on the 1 hr.  I like this type of trade, although with higher volatility lately they can be a bit risky as you can get whipped out before it goes your way.  I am short for a very small lot (1/4 of what I normally trade) to see if I can catch this.  My stop is just above the 62 on the 1 hour.  This trade has been in a 20 pip range all Asian session today.  I am only targetting the S1 level but that is 500 pips!  I am willing to take a few tries on this pair due to fundamentals, also looking for an entry on either the GBPCHF or GBPJPY, but only one of the risk pairs.

AUDUSD GAP Trendline trade – 2nd try???

Filed under: Open Trade Ideas,Open Trades,Trade Ideas — Mike @ 20:47

AUDUSD Daily GAP-2 trendy13JAN09  Pair has broken a medium term trendline and may be setting up for a good short trade.  Stop would be above recent high.  Since the pair is divergent on the 60M, I prefer waiting to see if this happens, possibly taking the divergent trade, and then taking the short trade if it sets up with a better risk/reward (smaller stop loss).  Goal is lower trend line.  (see AUDUSD divergent trade post for 1HR chart setup).

 Wednesday 21JAN09

I am back in this trade.  Updated chart is below.  I was up 90 + pips and it retraced during the mid Asian session leading up to 21:00 est, but now is retracing again.  If this does not break the congestion tonight I will not keep chasing this trade.  It was a good run either way.

Updated AUDUSD Gap trade as of 21JAN09 20:45:

AUDUSD 60M Gap 21JAN09

Tuesday 20JAN09 – The pair did break the near term mid-resistance line I drew yesterday, but it did not cross the recent low which was significant resistance on the other move down to this level.  I took a small testing possition and was stopped out on a bounce off the mesa line.  I will wait to see if it can close below this area on the 1 hour with a convicted candle before retrying this trade. 

Monday 19JAN2009 – midway through the Asian session, it looks like we are setting up for possibly another shot at this trade.  The first time it reached 1/2 of the way and retraced to the 200 on the 60M.  Will we break through and get to the green lower support TL? 

I think if we can ride the Obama mania train for the European session we have a great shot.  We’ll see.  All the USD related trades today setting or triggering are in my mind the same trade – short term USD strenghthening due to election relief and the current global love affair with our soon to be new President.  I expect this will be a very short trading window and if it holds through the European session, all bets are off after tomorrow.  I am hoping for some good trending once the market decides it’s short term take on the new pres.

Here is the updated chart: 

  AUDUSD Gap 2nd try 19JAN09

EURUSD Short to Daily Trendline – HIT THE TARGET!

Filed under: My Results,My Trades,Trade Ideas — Mike @ 20:35

EURUSD Short to daily TL 19JAN09  (click to see chart)-  After the EURUSD bounced off the 200 SMA on the 1 hour it has been on a tear downward.  Where will it stop?  I think it if makes it beyond the S1 pivot at 1.2950 area it will try to go for the long term trendline that is crossing around 1.2800 area.  There is the risk of a reversal to the 62, but innaugauration mania may give us a push down.  What is interesting is that the TL is now between S2 and S3 so it is well with statistical probabilities to hit this area in the European session if current sentiment holds. This pair does not usually go down to S3 or below. 

Take a look at the 60M chart here:

EURUSD 60M trendline view 19JAN09

UPDATE as of Wednesday 21JAN09 – the pair hit the long term base trend line dead on and then retraced.  I did not take all of this as I was afraid of a reversal  but did collect a nice amount of pips on the bottom part of this trade.  I still think we may go lower on fundamentals but this pair has been tough for me to trade as its volatility range has increased significantly from what I am used to.  I am watching, but just taking a few short range trades in the direction of the current trend.  If it breaks the long term base line I would consider a testing possition, I would also be willing to go long if it broke strongly above the 62 on the 1 hour.

Chart as of Wednesday 21JAN09 20:00

EURUSD Daily 21JAN09

19. January 2009

EURCAD Surprise Squeeze – Still watching after false starts

Filed under: My Trades,Open Trade Ideas,Trade Ideas — Mike @ 23:06

EURCAD Surprise Squeeze 19JAN09  – close to breaking short on 60M and also Squeeze box set up on 4 hour.  Also note the gap S/R levels and possible danger of consolidation at the lower trendline in green. 

21JAN09 – 22:08 I tried a few stabs – got stopped out twice.  I am still watching this one but would not be surprised to see it retrace.  I am not as sure about the direction now vs. Monday.

20JAN09 – I took a small stab at this Tuesday evening around 18:30 est when it closed below the 144 on the 60M.  It almost stopped me out but then reversed nicely down to the bottom of the surprise box at 1.6321.  Placed a SL to protect 25 pips.  Stop was hit as it touched the 144.  I am happy with that result due to expected market swings due to innauguration tomorrow.  If it closes below the box and I catch it, I’ll take another shot with a small lot. 

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