I can appreciate trading with the trend in normal markets. But I think we can all agree that these are not normal markets.
Normally, international economic trends are quite predictable over long periods of time. That is definitely where trend-trading works, best with a simple set-it-and-forget-it strategy. Economies don't turn around very easily but must be coaxed into changing direction over an extended period using monetary and fiscal policy of the respective economic base.
Now, though, with quantitative easing and negative real interest rates globally, the forex market has thus disengaged from the "nromal" reality and must, therefore, trade according to an alternative reality. That reality now is keyed to risk aversion.
I know you can see that risk aversion is near an all-time low relative to the fundamentals of the economy it is supposed to represent. With unemployment in the United States continuing to climb and the American consumer (unarguably the driver of global trade...) putting extra locks and chains on their purse-strings, it is clear that the money leaving the USD and into equities and commodities world-wide is misguided. With the Federal Reserve having pumped billions into the US stock markets via the crony capitalism of the TARP banks, it is anyone's guess as to how long this pump and dump scheme can last.
I am clearly betting that we have not very long before the entire bear market rally tumbles back to the mean. I believe this for several technical reasons, as well:
With USD movement being a near exact mirror-image of the S&P 500 Index, one can assume that this engagement will not quit anytime soon. (It is indeed and ASS U Me PTiON...) Looking at the technical charts of the stock index, it can be seen that this run is getting rather long in the tooth.
Gold has become the trade du jour and other hard commodities are also counting in a 4 percent growth in the USD GDP over the next six quarters. Perhpas I am naive but I don't believe that number for a second.
Looking at the DXY, it also can be seen that the Index is making a base at about 76. If the USD is basing against the EUR and GBP, then it should also be creating a base against other currencies, though not necessarily including the JPY.
On the chart you posted, I can see where former support has become resistance but the chart is also trying to establish a sideways range in this area. The angles of descent have been decreasing over the past few trading days, indicating a possible basing manuevre.
Another leg down and I'll be convinced but I just don't see how much further down the USD/CHF can go given all the above parameters in action. A break above this new resistance level leaves open the possibility of an upside surge to 1.0600, the former support level. This move, in itself, is a 300-pip rise. It could easily come in the blink of an eye.
Also, the SNB hasn't decided to re-engage in buying EUR and USD, I think, because they know that the gig is nearly up for the S&P 500 and, therefore, don't believe that the USD has much further to go to the downside.
Businka, in my opinion, trend trading makes sense no matter what your time frame or holding period.
Trends are trends for a reason. For instance, in an uptrend...there are either more up days than down days OR the up days have much larger moves than the down days take back. Therefore, we've got better odds at being a buyer in an uptrend than a short seller. It gives us a high probability trade.
Here's an example below on USD/JPY's 4 hour chart.
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SSI showing retail traders are still trying to "call a bottom" in USD/JPY.
Wouldn't it just be so much easier to go with the trend?
If you use the SSI as a contrarian indicator, as it was designed to be...then you'd be short USD/JPY which is also in line with its trend.
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Traders are still trying to pick the bottom on this downtrend. I wonder how many more will fall victim to it.
A positive SSI means that they are buying it. Since it has a reading of 2.72...that means that 2.72 traders are buying it up for every 1 trader that's shorting USD/JPY.
It's amazing that the trend is down...and what appeals to them? Not trend trading....but counter trend trading.
A trader has to ask themselves why they always want to go against most ALL of the momentum and most ALL of the professional order flow.
Would you rather have these big institutions pushing your order or working against your order?
Many times they are placing "yards" which are literally billions of units of currency at a time.
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Traders are "extremely long" the dollar this morning.
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Seems as though everyone's long the USD/CAD right now.
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USD/CAD was in a downtrend, but the daily stochastic came out of oversold...
tradertan, yeah so far it would need to be able to break and close above the red downtrend line below in order to become bullish again in my eyes.
Thanks for posting. I hope to see a lot more posts from you.
Welcome!
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tradertan, yeah so far it would need to be able to break and close above the red downtrend line below in order to become bullish again in my eyes.
Thanks for posting. I hope to see a lot more posts from you.
Welcome!
Thank you.
Good point on the break of downtrend...
It looks like it might be a week or two before we see a general break in that direction.
Something to keep an eye on all CAD Pairs (AUD/CAD, EUR/CAD, GBP/CAD)
On the other hand, can you point me to any interesting position trading strategies (atleast on the daily, preferably weekly) that you have come across on this forum, if its not too much to ask?
It looks like it might be a week or two before we see a general break in that direction.
Something to keep an eye on all CAD Pairs (AUD/CAD, EUR/CAD, GBP/CAD)
On the other hand, can you point me to any interesting position trading strategies (atleast on the daily, preferably weekly) that you have come across on this forum, if its not too much to ask?
tradertan, you can check out the carry trade forum because that's where the longer term thoughts are.
Longer term position trades would need to be based off of fundamental strengths in a country, rising interest rates and the charts being above the 200 SMA.
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There's likely more dollar weakness coming as the downtrend in the dollar continues since the G-7 really didn't do anything about it or even say anything very "strong" about it during the actual meeting.
Traders seem to have taken it as a sign to continue to short the dollar.
EUR/USD likely heading higher.
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Everyone wants to be a bottom/top picker today don't they...
Better to be a trend trader.
They're really trying to pick a bottom on USD/JPY and USD/CAD.
Usually not the best move to make.
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This is one more example of why "bottom picking" is futile and trend trading prevails.
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The bottom pickers are still drawn to trying to find a bottom on USD. They're like the moth drawn to the flame.
Wouldn't it just be easier to stick with the obvious downtrend rather than fighting all of that momentum and order flow that's going against them?
They never seem to get enough.
They're seriously long USD/CAD again...and to no avail because the trend is still intact.
There's a saying...trade the trend until it ends.
Learn to break away from the pack and don't try to bottom pick or top pick. It's futile.
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Good comments Sean, I hope the analysts at Dailyfx are also reading this. (Ha Ha)
straty...well, I gain a lot of info from my fellow buddies at Dailyfx. They're great too.
They are the ones that put out this info that shows so many of the retail traders trying to call the USD/CAD bottom.
3.51 traders are long USD/CAD vs. every 1 trader short.
I ask...why short CAD by buying USD/CAD when they just had two great employment reports back to back and the trend just broke lower again?
If I were shorting...I'd pick on the weakest link...an improving employment report is clearly not the "weakest link".
The trend is your friend.
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