Weekly Trading Update: February 3, 2012

“The 1980s movie "Wall Street" coined the term "greed is good." But things are different in real life. When trading the markets, if you focus only on making money, it 's very likely you will lose it all. When greed takes over, traders make huge mistakes, such as betting everything in one single trade, or not using any stop losses.” – Joe Ross

This is an update on some of the movements in the markets and what I’m doing about them, plus my losses and profits. The analyses are based on 4-hour charts, looking at the overall price actions on the charts. My preferred leverage is 1:100 and my position size is 0.01 lots for each $2000 or 0.1 lots for each 20000 cents in a cent account (making it 0.5 lots for each 100000 cents). The risk per trade stands at 0.5%. The Stops are my insurance policy. For trading purposes, I’ve decided to do only trend-following; and only trend-following I’ll do. This kind of trading approach has stood the test of the time. I make my money somewhere in the middle of a trend. I open primary positions with a risk-to-reward of 1:2, riding the trend until the target is hit or I’m stopped out. The value of patience will forever be emphasized. As long as I stick to my rules and keep my risk low, I’m immune to fear.

Often, an instrument that has poor fundamentals will just go down and an instrument with good fundamentals will just go up. Technical levels are irrelevant in these situations, since no indicator is a complete trading system in its own right. In fact, after the period most indicators make it to the back tests, results seem to get disappointing very often and very fast. Based on fact, no set of indicators is a complete system either. Therefore successful trading needs careful safety rules and discipline.

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

AUD/USD

Primary Trend: Bullish
The best thing to do in this uptrend is to buy low, for the market is making higher highs and higher lows. A trade that I made in the beginning of this week has made only 128 pips. The trade is still open.

NZD/USD

Primary trend: Bullish
There are a series of higher highs and higher lows, just like the Aussie versus the Greenback. Once again, the buy-the-dip method is preferable. If one enters when the price is around the higher high formation, one could be stopped out before the market moves in the forecasted direction. Like an uptrend, a downtrend consists of corrections as well.

AUD/NZD

Primary trend: Bearish
It’s clear that the AUD can’t withstand the strength of the NZD. The SMA 50 is below the SMA 200, while the price is going below the former. The RSI 14 is below the level 50, pointing to a bear market. The Stochastic 14,3,5 has long been pummeled in the oversold zone. This means one shouldn’t enter a new ‘sell’ order here, but one may enter should the indicator get to the overbought region.

EUR/CAD

Primary trend: Bearish
On this cross, the challenge to the bears’ authority is seriously contained. The bulls pushed the price as far as the level at 1.3240, but they were put in check. The price seems to be going back to that level, and unless it’s broken upwards, a new bear pressure might occur. This gives us an incentive to pass up less volatile currencies for riskier ones, especially in the midst of a raging bear market.

EUR/NZD

Primary trend: Bearish
Here, the bear market is very strong. The SMA 50 is far below the SMA 200 while the price is far below the former. The ADX 20 is just pointing above the level 30 – showing the possibility of a renewed bearish pressure. -DI is above the +DI. Going short is recommended here – something that could be done when the price rallies temporarily.

GBP/CHF

Primary trend: Bearish
This cross seems to have found a support at 1.4340 prior to going up by over 200 pips. Things have stabilized a little. However, remember that the sentiment is bearish. Someone sold short this cross a few weeks ago. While driving on the following day, he checked his smartphone and saw that his position was positive and the target had almost been reached. He was so excited that he almost drove into a canal!

Conclusion: Sometimes speculators incur losses due to entering the market and failing to exercise positions without proper exit plan when real money is involved. You’ve to plan effective exit strategies. Keep sharpening your skill, precious traders. Make your trading rules simple and clear. Avoid overconfidence and remain humble. .

I’d like to conclude this article with quotes from Joe Ross:

1. “Before placing a trade, you should always ask yourself "how much will I lose if this trade goes wrong?" Many traders have no clue as to how much capital they're risking on any single trade. That's a mistake. The most successful traders focus on limiting risk and protecting capital, rather than just making money. By limiting their downside, they successfully grow their account over time. You can easily copy their strategy.”

2. “Start by always using a stop-loss. That will protect you from losing too much. But equally important: you should also limit the amount you risk on every single trade. I recommend risking no more than 5% of your account on any trade. As you can see, letting emotions get in the way of your trading is not a good idea. If you're making any of these mistakes… it's only a matter of time before your account will blow up. Most traders learn this the hard way. But if you avoid these… key pitfalls, you will not only save money, but will also become a better trader, moving one step closer to complete financial independence.”