Weekly Trading Update (February 10, 2012)

By @ibtimes on

“As a trader, I prefer less trading opportunities with better probabilities, not the other way around… In the meantime, keep it simple and the losses small.”– Sam Evans

Hello:

Successful traders live by the rule to keep their losses small. On special occasions though and given the right market opportunity, bulls and bears still convinced a turn for the better is near, might look to repair those losses at no or very little costs, and drastically improve their odds of getting back even. For many traders, it’s difficult to admit losing trades and close them out early. This can lead to stops continuing to be activated until they move into the loss area and to the position increasingly spiraling out of control. And we all know how this may well end if worst comes to worst. The end result will be total loss of one’s trading capital. Many traders account histories bear this out. This phenomenon isn’t only true of trading – after all, it’s only human to dislike implementing measures that have adverse effect. We want to avoid the negative the best we can or at least suppress it. By the same token, acting according to those principles isn’t a rational and sensible decision – except in rarest cases. Clearly the bottom line is: make sure you always exit while losses are small, a lesson which applies not only to trading.

Below is the summary of some of my trading activities this week.

AUDUSD

Primary Trend: Bullish

The best thing to do in this uptrend remains buying low. The price moves up, hits a resistance level, pulls back, before moving higher than the previous resistance level. A long trade that was executed is still open and the position now has 76-pip profit.

NZDUSD

Primary trend: Bullish

The outlook and trading approach for this pair is quite similar to that of its AUDUSD counterpart. It should be noted that the NZDUSD moves slower than its aforementioned counterpart; its moves are slow but steady. Many speculative methods can be used to take advantage of this pair. All of these methods need to be determined independently of the underlying trend. The real trend is determined in the context of the present underlying. For example, an instrument can reverse to a downtrend after a strong uptrend and still quote above the 200-day MA. The traditional market indicator ‘instruments over 200-day MA’ would register this positively although the trend is already down.

AUDNZD

Primary trend: Bearish

My current short trade here is still negative by -32 pips; though my maximum possible loss on it is 0.5% in a worst-case scenario on the trade. In the present context of a downtrend, this market is consolidating seriously. The SMA 50 is below the SMA 200, while the price is above and sideways over the former. The RSI 14 is slightly above the level 50, pointing to a mild rally. The Stochastic 14,3,5 is trudging towards the overbought area. If the price reaches the overbought region, it may signal a shorting opportunity. There’s a great possibility of a breakout in the direction of the overall trend.

EURCAD

Primary trend: Bullish

The successful bullish attempt that started early this week has overridden the bearish sell-off that occurred last Friday. On our preferred timeframe, there seems to be a head-and-shoulders pattern. Should this be taken serious? These days, head-and-shoulders patterns are less and less applicable to today’s markets. While they are still valid for company stocks, there is very little in the way of accumulation or distribution in the most heavily traded markets, such as stock indices, currencies, and interest-bearing instruments. The pattern is virtually worthless for intraday trading.

EURNZD

Primary trend: Bearish

The bullish attempt on the cross is still seems to hold, but the bearish bias is still valid. The bulls need to wield their power long enough before the trend can change significantly. The SMA 50 is far below the SMA 200 while the price stays above the former. The ADX 20 is just pointing around the level 10 – showing a market without steam. -DI is above the +DI, whereas it’s only slightly above it.

GBPCHF

Primary trend: Bearish

The resistance level at 1.4590 proved very effective. The bullish attempt on this instrument was rejected and the price nosedived – by over 180 pips. Is the price movement in your favor or are you caught in a wrong side? Watching your wallet would make a difference. You can make all the Forex winnings you want, and if you don’t have mental and actual ring fences around your capital and your trading habits you can lose it all plus a house in an afternoon.

Conclusion: While the difference between a good strategy and a duff strategy certainly separates some of the losers from the winners, the difference between effective execution and ineffective execution separates far more. What you need to do to survive as a trader has been constantly revealed – not some feel-good motivational buzz (the word that it’s easy to make consistent profits in trading rings hollow), but a dead-eyed ruthlessness about behavior that doesn’t help your trading, and a nimbleness about courage needed to take advantage of opportunities that do.

I’d like to conclude this article with a quote from a blogger at Elitetrader.com. It got to do with biased attitudes in human beings (something that militates against us in trading):

“Look, for example, at this elegant little experiment. A rat was put in a T-shaped maze with a few morsels of food placed on either the far right or left side of the enclosure. The placement of the food is randomly determined, but the dice is rigged: over the long run, the food was placed on the left side sixty per cent of the time. How did the rat respond? It quickly realized that the left side was more rewarding. As a result, it always went to the left, which resulted in a sixty percent success rate. The rat didn’t strive for perfection. It didn’t search for a Unified Theory of the T-shaped maze, or try to decipher the disorder. Instead, it accepted the inherent uncertainty of the reward and learned to settle for the best possible alternative.

The experiment was then repeated with Yale undergraduates. Unlike the rat, their swollen brains stubbornly searched for the elusive pattern that determined the placement of the reward. They made predictions and then tried to learn from their prediction errors. The problem was that there was nothing to predict: the randomness was real. Because the students refused to settle for a 60 percent success rate, they ended up with a 52 percent success rate. Although most of the students were convinced they were making progress towards identifying the underlying algorithm, they were actually being outsmarted by a rat.

…Meanwhile, the rats are still beating the Yale students.”

Your questions and opinions are highly welcome.

Thank you.

With best regards,

Azeez Mustapha

Forex Signals Strategist, Funds Manager &Coach

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