Market commentary 11th nov 2013.

November 11, 2013 in Forex Analysis

It has been pretty tough lately to make money in forex. Like any business it’s tough to make money when its quiet and this helps explain it. Volumes are on the low side right now (Reference: http://www.leaprate.com/forex-industry-news/entry/ouch-cme-group-and-ebs-see-lowest-fx-volume-metrics-in-years-in-october.html).

Price action has been quite random with sudden moves following news announcements which is basically the big market makers running stops. It is not hard to guess where the stops are and where the market makers will go but the problem is the moves are very sudden following news announcements and it is not possible to catch them without resorting to very risky 50:50 type trades prior to the news event.

We had similar price action this time last year. It is frustrating to trade this type of price action as it is difficult to get better than break even results. There are some strategies that work well in this environment such as the semi-martingale grid systems. Last year these systems became very popular among traders and showed great returns for many months but then got killed when the Yen pairs started trending. As I mentioned in the interview, I have learned to avoid these high success rate techniques as they are ‘turkey’ strategies. If you ask a turkey what he thinks of the farmer, I am sure he will heap praise on him as the farmer turns up every day and feds him very diligently. But then one day he shows up with the butcher. Most of the systems you see on sites like Zulutrade, Ayondo etc work in this way and you should avoid anybody who uses these methods. I am in this business for the long term so will only use strategies that work long term. These tend to be trend type strategies such as the PSAR add method I am currently using. The downside is it requires a lot of patience when market conditions are not favorable. Again, I quote Jesse Livermore ‘The money is made in the waiting’.

Performance last week was flat on Pepperstone, 0.3% on AVA and took some losses on the Shelbourne Markets account (or rather gave back some of Octs profits).

The dollar index acted strongly last week as the economic news from the USA looked better and traders bet that stronger economic readings will bring the Fed back in on the taper side of the QE equation. My expectation here is that this will continue and over the coming months we may see the dollar index trade up to the top of its range on the weekly chart to 85.00 (currently 81.20). As always such expectations can change suddenly subject to news & new information. (Important note none of the below is a trade recommendation, it is just wait I am looking at. You need to have additional layers of analysis on top of this and an ability to read price action in real time in order to take trades).

EURUSD – The ECB surprised the market last week with an interest rate cut leading to a fast sell off. This favors the sell side for a move back to the 1.32 zone once it works off oversold conditions.

GBPUSD – I am going with the weakness theme on this pair for now. It maybe a safer short than EURUSD here as the latter is v oversold. News from the UK is out on both Tues and Wed.

AUDUSD – This is showing lower highs, lower lowers on the daily chart and if the dollar continues to act strongly, we may see it trend back to the 0.900 zone.

USDJPY- This pair has been notoriously tough to trade for the past few months. There is a giant wedge on the daily and the market makers played the break out traders on it last week with a ‘fake out’ break out move out of the wedge and then squeezed them out on the downside before squaring up their positions.

EURJPY – I am watching this closely as if we get some ‘scare’ stories out of the eurozone then its ripe for some major (500-1000 pips) moves south. The trick is to catch these moves without taking on too much risk. The market makers will squeeze the shorts and get filled on their positions before letting it go.

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