I think John's comments were referring to the lower liquidity we tend to see throughout the financial markets around the holidays....think of it as being similar to the forex markets during the Asian trading hours on a daily basis. For the most part, trading is pretty quiet and the major currencies pairs hold to well-defined ranges. On occasion though, volatility picks up and because the markets are thin, the moves are only exacerbated.

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Terri Belkas is the author of Daily Fundamentals, Global Central Bank Comments, and Forex Trading Weekly Forecast on DailyFX.com.

I am long on AUD/USD @ 1.6842 stop @ 1.6750

Here is my view on NZD USD

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It looks like the EUR/AUD will be going up in the next several days. There's a new short term bearish trend that has formed in the EUR/AUD daily chart, and looking at the SSD, we can see the crossing of the two lines indicates in increase in Euro Strength against the Kiwi.

As well, due to dwindling risk aversion in the market, coupled with a seeming economic stabilization occurring in the Eurozone, we can expect the an increase in EUR/AUD.

The same type of ascending wedge pattern seems to be popping up behind most of the Aussie dollar crosses.

This seems like a good oppurtunity to trade some of these pairs in tandem or partially hedge them against each other.

What do you guys think?

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John Kicklighter is the author of Dynamic Carry Trade Basket, Watch What The Fed Watches, and Forex Trading Weekly Forecast on DailyFX.com

Say what about this double top in the EURAUD with yesterdays outside reversal day? Looks pretty sweet to me for a short.

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What would be your time frame and what is your strategy.

If your looking at this short-term, you are a ways from the absolute level of resistance you drew up. The probability that it could retest this horizontal level of resistance is pretty high; so you would need to widen your stop and further push out your targets to keep a good risk/reward (which likely means it would take more time to make profit on the position).

Talking about a longer-term position, the current is building into the ascending wedge, which has a dangerous probability of an upside breakout.

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John Kicklighter is the author of Dynamic Carry Trade Basket, Watch What The Fed Watches, and Forex Trading Weekly Forecast on DailyFX.com

My strategy has been to watch the SSI indicator, stock market sentiment indicators, and recording how the high yielding currencies and the stock market react to bad news. This got me into the AUDUSD. Then I shorted the EUR against the AUDUSD so my basis for the EURAUD was 2.07. I added to the position today as the EUR fell after bearish U.S. economic news.

Of course I look at the charts and the candlesticks, but don't have a specific technical strategy. My stops are loose, but for the EURAUD it looks like I will have to bail out at $2.055 as it wouldl appear that I am wrong about the direction of the EUR.

I'm not really crazy about using tight stops on individual currency pairs. I would prefer to just set a stop on the drawdown that I am willing to bear on my entire account. When you end up in a synthetic pair it seems rather complicated to set a stop without incurring extra costs.

This would be a nice feature to add to FXCM. If my account falls below $25K, or whatever number, just pull the plug. Get me out of everything!

Looks like you were right. My stop is going to get hit. This is what I get for being greedy.

I have seen traders that have been successful without a particular technical strategy. However, I have met next to know traders that have been able to avoid technicals and play without a clear stop on each of their positions.

It would be an interesting feature to be able to cancel out of everything when your account balance hit a certain level; but that would just lead to greater loses on your part. What if you had three really good trades on and the drawdown on one cut all those other winning trades off at the knees?

Personally, I follow technicals and base my stops on what is seen on the chart (even those that don't believe in technicals should at least admit that enough of the market looks at them that they have validity in the sheer number of traders that react to certain levels). When I have clear pattern (like this ascending wedge), I'll set my stop based on the given levels.

So with EURAUD - let's say I'm long just for demonstration purposes - I could see the recent congestion puts a relative floor on range activity around 2.0275. Therefore, my stop would be wide enough to cover this at 2.0125. This stop is determined by what is expected from volatility and outlook from direction alone. So then I decide that with a $50,000 account, I just want to risk 2% with this trade - or $1000. So, considering a total risk of 150 points and a pip cost of $6.90 per EURAUD pip, we happen to come out to one standard lot that I should use to risk 2% of my total account on this one trade. If you want to risk a smaller percentage or have a smaller account you can move to a mini or micro so that you can lower the pip cost and have better ability to leverage your stake through position sizing.

Practically, this is a way of fusing the need to cap your potential loss with a reasonable use of underlying technicals (which is also a method of determining an 'uncle' point without relying on emotions to dictate the trade for you).

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John Kicklighter is the author of Dynamic Carry Trade Basket, Watch What The Fed Watches, and Forex Trading Weekly Forecast on DailyFX.com

Thank you for all of the tips. Do you know any traders that use time stops to exit positions? If I have a trade that is not working for a few days I usually just get out. But obviously price could drive me out of the trade as well.

I'm not dismissing technicals. Support, resistance, and chart patterns are very important to me because they reflect psycology. Regarding the EURAD chart whoever bought the break out at $2.09 on 12/18 is underwater. The question in my mind is how bullish was the trader that put on that long position? What was the state of sentiment for this currency pair at the break out? If the trader was extremely bullish then he will provide the fuel necessary for a longer term downward move. A chart pattern alone cannot tell you the potential for a move IMO.

The back testing that I have done show that the majority of the moves occur at 8:30 EST when U.S. data is released. No surprise of course. For me that is the line in the sand and I want to position my trades around that reference point. Once I am have a profitable trade on then I watch to see how the currency pair is responding to bullish or bearish news. I know this is not scientific, but this is the approach I use.

I once read about a guy that developed software that made profitable preditcions on the horse races. He was betting on how the crowd would react to the seeing the odds prior to the race rather than which horses would win.

That is the way I see the economic numbers and news. The news is irrelavant, but you need some way of judjing the reaction to the news, be it charts, sentiment indicators, or some combination thereof.

Hi everyone,

I have just signed up for this forum today, but have been reading DailyFX for about 4 months now very regularly. This is my first post.

Today (31 Dec) at 1600 GMT, the AUDUSD pair suddenly spiked after previously rallying off a major uptrend support line. The rally started at approximately .6900, and after some pauses peaked at .7069 (at the time of writing).

At the time the EURUSD was entering a consolidation phase from the earlier dowmove, so there was no leading influence from the EURUSD. Normally the AUDUSD is susceptible to price leadership from the Euro (in my view). The GBPUSD did commence a major rally at the same time, however...

My question is - was there any fundamental news I missed? I like to keep on top of the data release calendar and keep abreast of key announcements. I just wanted to check if anyone was aware of a news announcement that I haven't tracked down that may have been particularly market moving for the AUDUSD and the NZDUSD. We had the US initial jobless claims, continuing claims and NAPM out today, but these had been released at 13:30 and 15:00 GMT, well before the speak at 16:00 GMT.

In my view this is very unusual behaviour for the AUDUSD pair.

Perhaps it is just purely technical - a drive higher from the strong uptrend support line visible on the 1 hour chart. If so, what a powerful support line!

I am not one to go chasing reasons for market movements; I am just wanting to make sure I didn't miss any fundamental news trigger.

Looking forward to people's thoughts.

Many regards,

Mark
Specman

Most probably this was not related to a news announcement but could be brokerages going to zero for the year end for accounting purposes. Some firms have it in their policy to close their books at year end and start fresh next year without carrying anything over.

I'm long AUD and expecting further upside to the pair. Fundamentally it has a lot of upside potential once gold resumes its rally and additionally $US is likely going to lose 1/2 of its value due to FED actions. Also there's various charting analysis that you can reference on the AUD/USD that also suggest medium term upside potential to 0.725 and beyond.

Happy New Year and happy trading!

I wish someone could explain this movement to me as well. This was especially frustrating for me because I had been long the AUD for some time thinking it would move higher do to increased risk taking in the stock market. World stock markets moves quit nicely on 12/30. I bought some AUDUSD only to be frustrated because a big move did not come. The next day I sold out early in the morning only to watch a big pop.

I sure would like to know what my mistake was. Maybe it was flows out of the EUR and CHF. How crosses effect one another is something that I have a hard time understanding.

I have met quite a few successful traders that have time stops - whether they are loose or hardfast. The minority are discretionary traders that judge the time has passed for a setup and it didn't play out in the time they thought it would, so there was a lower probability that it would do so in the future. The majority though are those that fit this extra rule into a set system. You can become familiar with certain setups (is it a breakout, trend, reversal, range) and tell how long they should take to play out. If they don't do so in that certain time frame, it can often be because your interpretation of what was going on was wrong or there was something else more pressing.

You seem to be approaching the market more from the market behavior side. I also feel sentiment is the most accurate gauge of the market because traders are not responding to data, but more speculating what will happen in returns, growth, etc ahead. This is why I usually approach the market with probabilities in mind. The two questions I ask myself before each trade are: what is price action (volatility) likely to be within my time frame and then what is the probability that the market will go in my direction. This helps me decide whether its risky/cautious or short-term/long-term; and I can set up a strategy around this.

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John Kicklighter is the author of Dynamic Carry Trade Basket, Watch What The Fed Watches, and Forex Trading Weekly Forecast on DailyFX.com

This was about mid-day for the US session and many exchanges were closing early for the holiday. There was very little liquidity behind the market to begin with and I'm sure it dropped even further before the last of the banks cut the markets off for the year.

It could very well have been the squaring of books (loose currency being held by banks, commodity hedges unwound, etc); but it was just as likely that there were so few traders in the market that they were taking advantage of the pushing-power behind their orders and running minor technical levels.

It's always good policy to stand on the sidelines when liquidity is extremely low, especially if you are a short-term trader.

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John Kicklighter is the author of Dynamic Carry Trade Basket, Watch What The Fed Watches, and Forex Trading Weekly Forecast on DailyFX.com