Market Trading Levels

Level 1:  1.5051

Level 2:  1.5275

Level 3:  1.5497

Level 4:  1.4817

Level 5:  1.4690

Level 6:  1.4472

Market Trends / Flows

My Weekly Bias: Bull

Weekly: Bull / Over-Bought

Daily: Bull / Neutral

4 Hour: Bull / Neutral

Quick Analysis / Recommendations

EURUSD is trading in an ascending channel, but just formed a double top on the daily.  Watch for bearish moves early in the week down to the bottom of the channel.  Look for buying opportunities at 1.4765 and 1.4750 with stops below 1.4720.  Look for more buying on a confirmed breakout of the 1.5050 level.

When I interview a potential mentoring client, one of the first things I want to find out is where his mind is.  Specifically I want to find out if he trades with his Amygdala or not.  If the trader is in fact spending a good amount of time in fight or flight mode while a trade is on, I know that he’s trading too big.  I’m not sure I’ve ever interviewed more than two or three candidates who didn’t have this problem.  All of them were already accomplished gamblers and a “rock-star trader” who wanted to bounce ideas off of me for a few months.

Most of the people reading this post are trading a set position size for every trade.  For many of you, that means you are trading a standard lot for every ten thousand dollars you have in your account.  This is a ridiculous amount of money to trade with such a small account.  That’s a whopping 10:1 leverage!  A typical stock broker only offers 4:1 to day traders and 2:1 to most other traders.  Don’t mistake that 100:1 leverage that the broker provides you.  That number is nonsense and should not even enter your mind.

I like to use even leverage in my trading.  That means that I  trade a position that is the same size as my account or smaller.  On many trades I trade this 1:1 leverage.  That means that I’ll trade one mini-lot for every ten thousand dollars in my account.  Many of you are getting ready to hit the BACK key right about now but you should read on!  Trading this way increases your equity by 1% for every 100 pips.  There’s nothing wrong with a 1% gain.  I’ll talk about tying your profit to your stop loss in the money management section of the blog.  This is a mindset post and must stay that way.  I’m talking about being able to live with your losses.

You have to trade down to the sleeping level.  If you cannot sleep when you have trades open, you’re over-leveraged.  It’s that simple.  Don’t let marketers and brokers trick you into over-leveraging your account.  You’re the only one who needs to know what size your position is.

Make no mistake, trading is less about trading and more about eliminating trades. Trading is not an active hunt for a trade. Trading is a process of elimination. Other than our normal rules, which really should limit us to very few trades per week, we have a few things that automatically filter out potentially bad trades. Some of these are periods of illiquidity, major news releases, speeches by major players, and holidays. Periods of illiquidity include normal daily and weekly anomalies. The Sydney session and early Asian session are some of my least favorite times to enter a trade. There are exceptions to this rule. Many of my trading strategies are based on daily of weekly price action. I’ll enter those trades at anytime with no fear that normal illiquidity will take me out of a good trade. Summer months are another time that wreaks havoc on traders. From May through August, you can expect some pretty wild swings, but very little sustained movement. During summer, I prefer to put my daily and weekly trading systems on the shelf and move down to the intraday timeframes. During summer, I trade ranges on intraday during late Asian and London sessions. Major news releases are just nuts! Price moves up by 50-100 pips, back down 100-200 pips, then ends up right back where it started. Every once in awhile there is a real change in value. For the most part, however, news events just create a whipsaw. Great trading systems that are based on daily or weekly price action have a distinct advantage in this environment. The stop losses are usually placed outside the range of a news spike, however, price spikes in your favor can assist your trade by hitting your target days early. Speeches by major players pretty much just piss me off. These pole-smokers seldom have anything truly important to say, and when they do say something important it’s suspect at best. Once again, however, a trade based on the daily or weekly price action should survive almost anything these degenerates have to say. Holidays go without saying. When the big money is on vacation, the market is illiquid. In fact, from Thanksgiving on through New Year the market is pretty pathetic. There is money to be made, but it’s a great time to spend with family, or to learn more about your craft. Trading is a process of elimination. If you hunt for trades, you’ll find them. There are opportunities to enter the market every millisecond. Use as many filters as practical to conserve your equity and enter only the highest quality trades.

BZ1D Trade

Buy EURUSD @ 1.4818 – 1.4865  SL:  1.4716
Scale2:  1.4770
Scale3:  1.4738

Notes: This trade is from Blue Zone (Daily Chart).  If it works out, you should plan to be in this trade for several weeks or more.  I’ll make a call at some point to close 1/2 of this position for a risk free ride.

Update: 15 November 2009 @ 17:48 CDT – This trade is up by 90 pips on the first entry (worst case scenario).

Trade Management: Close 1/2 position when price reaches 1.5016.  Leave the stop loss where it is and leave both scale-in limit orders in.

Update: 16 November 2009 @ 17:23  Earlier today I closed 1/2 of this position.  This is now a risk free trade.

Trade Management: Updated 19 Nov 2009 – Move Stop Loss to 1.4775

Watch for Trade Management Calls on this post.

I’m placing the following trade.  Video to follow:

Buy USDJPY @ 89.61  SL: 89.46  TP:  90.37
Risk = 1%

How much did your last FX trade cost you? Chances are that you lost more than just your broker’s spread. Be honest with yourself for a moment. Read the rest of this entry