How to trade big moves – don’t, but do.

Study the following charts. These are the Referendum moves but work for extended and strong, thin moves as well due to the volume mechanics which I will explain at the end. The reason I say don’t but do, is because it’s best to trade the retrace.

cadjpy6thjuly

gbpchf6thjuly

gbpaud6thjulyeurusd6thjuly

Enter blindly on big moves that reject the 50% level. To plot the fib, you take the open of the candle at the start of the big move and end it at the wick of the end of the big move. You can use discretion if the move is close enough to the 50% level of the move (or if it breaks it and still rejects it). Optimum entry is a close exactly on the 50% level.

Stops are placed at the next fib level above if buying or below if selling (the 61.8% level or the 38.2% level).

Take profit is at the return to the range of the move, i.e the newly generated support level at the wick of the end of the big move. You can then use discretion to add to your position, or move stops to just above the first take profit level.

Why does this work?

gbchf6thjuly-NFP

Volume is key here. I shall explain in terms of the histogram (volume profile) on the side. Price ends up bouncing at areas of high volume as there are resting orders, people taking profits and new entrants into the market (trading at higher volume areas  is cheaper for big participants – less slippage due to there being more participants at these levels).  On the flip side, the 50% level almost always has a big void of low volume. Price can slip through this, but when there is very limited volume to trade into and when the trend is very strong in one way (made apparent by the big thin move), price tends to continue with the trend.

Here are the stats on the strategy taken on a daily & H4

time frame over 15 months:

The Sharpe Ratio could be better, but the strategy can be optimised further. The frequency of trades ranged between 1-4 per month.

Try it out and see how it works. It’s pretty simple which I quite like.

(Article originally written in August 2016).

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Oil, Gold, USD, GBP, Yen COT report breakdowns & interpretation #fx #oott

 

We are seeing a 5Y extreme net bullish positioning from non commercial speculators. I would want to see bids at $40-46 forced out first, however. This means that a drop of about $13 is available. We have a slight Wyckoff bottoming pattern. I remain bullish above $36 long term on oil (WTI).

Gold

Looking at PA and the reduction in longs over Q4 2016 indicates that we aren’t in for a bull run any time soon. Wyckoffian schematics indicate a move to $1,050. Currently hitting a rounded resistance retest of a key low volume break below support, I would continue shorting gold with a stop above $1,260, target of $1,050 for a 3:1 risk to reward trade.

USD

Dollar longs have remained stable over the past few months. Open interest had increased due to the Trump USD rally. Trump’s team has said the dollar is too high very recently. External to this, USD LIBOR rising could be causing investors to shy away from USD denominated assets over the next few months as dollar hedging costs become too great relative to potential yields. I’d expect the dollar to stay within current ranges of 96-104 for the foreseeable future, however longer term I still remain bearish. What could change this is a) NAFTA terms being reassessed b) changing geopolitical situations c) Trump does something even more mental that has longer term economic implications.

Sterling

Sterling shorts have been covered since November. This is most interesting to me due to the perceived general public fear over a GBP crash when Article 50 is triggered. This could suggest that in reality, sterling would be in for a rally if you want to look at recent sentiment regarding the pound. We’ve had a pretty large spike in bearish volume at lows back before Christmas. A spike in volume at relative lows or highs can sometimes indicate a reversal, but I wouldn’t put too much credence into that. The ‘fat finger’ low at 1.1945 has not been taken, however I am basing my stucture off of the lows at 1.21 and 1.20. A hold above 1.20 I will remain bullish, however I expect a ranging market where sellers will be absorbed over the next few months.

Yen

Similar PA to gold here (understandably). Non-comms are net short Yen. How long they’ll maintain this for is another question if we start experiencing risk offish behaviour in other assets. Yen on a longer term picture is more interesting –

Below 0.80 and we could see 0.70. If 0.80 holds, however, Yen bid is on, even if this is totally detrimental to the BoJ’s aims.

Trump and May Set to meet

Today’s “off the wall” (pun intended) trade idea? – buy avocado futures! (More on Mexico below)

Later today President Trump and U.K. Prime Minister Theresa May will meet in Washington.

There will be a press conference following the meeting at which Trump is sure to praise and encourage the U.K.’s efforts over Brexit. He is also likely to take the opportunity to bash the EU much to the chagrin of Merkel, Junker et al.

Yesterday saw the release of Q4 GDP data in the U.K which showed that the inflationary effect of the weaker pound and a perceived slowdown in consumer spending is yet to have any effect on growth.

Sterling continues its recovery. Its performance since the Brexit vote could be characterized as “taking the lift down and is taking the stairs back up!”

The pound has recovered 5% of the “flash crash” Brexit fall against the dollar and continues to be steady against the Euro.

Next week sees “Super Thursday in the U.K. when the Bank of England will issue its Quarterly Inflation Report and the MPC will make its decision on interest rates. Bank of England Governor Mark Carney has already stated that the Bank are watchful and will act pre-emptively should inflation start to increase “outside the normal cycle”.

Mar. Carney has already announced his intention to leave his position in June 2019. Whilst he hasn’t, as yet, taken on the almost mythical status of a Greenspan or Bernanke he was certainly the right man in the right place to steer than Bank of England into calmer waters following the debt crisis.

It is to be hoped that his successor is already being groomed with the departure coming at a critical juncture in Brexit. The U.K. will need to be careful not to become “Manchester United after the departure of Sir Alex Ferguson!”

Later today (1.30GMT) sees the release of Q4 GDP data in the U.S.

This is expected to see a healthy increase from 1.4% in Q3 to 2.1%. Economic activity continues to pick up in the U.S. Jobless figures are at the level which equate to “full employment” below 5%.  The dollar index has fallen (slightly) every week since the turn of the year and we could see the uptrend recommence should this data surprise at all to the upside.

President Trump has done pretty much all he can other than to “invoke the Spirit of the Alamo” upset Mexico over the past week or so. It seems the wall will be built but the question remains “who will pay for it?

80% of Mexico’s exports are to the United States. America has an eighty billion dollar trade deficit with Mexico. To a certain extent, they need each other but the onus is on Mexico as President Trump is well aware!

A 20% tax on Mexican imports is a double edged sword. It will pass the burden onto the U.S. consumer but could also drive importers of Mexican goods to look elsewhere to source product.

 

 

Shorting AUDUSD on open @ current price

I will be blindly short from current resistance on market open. If my first zone fails (SL at 0.7500) then I will be watching for a move and rejection of 2nd rounded test @ 0.753 with a stop at 0.756 with half of my original position. From the large bearish candle you can see that many weak longs got taken out at the original support (0.7300). Conversely, the two days following, those shorts were taken out. This leads me to believe that the current level is strong to initiate further shorts into.