fxnv's blog

Many traders have good methodologies for determining an appropriate time to take a trade. Their system actually signals when to get into or out of the trade. Then, they second guess the system and don't do it. This is a lack of commitment. And it stems from a lack of confidence.

Commitment means going for it, even if there is a chance of losing money.

Do you remember the story of the Chicken and the Pig.

Most traders experience similar emotions. Exhilaration when a trade goes your way, disappointment or stress when it goes wrong. No matter how many times you trade, these emotions are hard wired into your psyche. Whenever a negative emotion is experienced your confidence takes a hit. When trades go your way the natural reaction is to want to trade more often. Both these experiences can induce wrong trading habits.

Clearly it's the uncertainty of the trade. A trader is always confronted with a lack of confidence about the future. Even if a trader has a system of buying at support levels and selling at resistance, or buying or selling breakouts, there is always the uncertainty factor. No one really know whether support or resistance will hold

On Sunday our first set up never materialized. Bear Stearns collapsed causing some panic selling of the dollar and the need for the Fed to come to the rescue. Then on Tuesday the Fed was expected to cut the discount rate further, which they did, sparking a rally in the stock market and some good dollar buying. The anticipated trades presented themselves and were ripe for the picking.

In the overnight markets, our dollar-yen trade above 99.25 was never triggered. The dollar sold off against the yen amidst the Bear Stearn crisis but found support at 95.70. I will continue to look for a bounce at around this level, amidst severe speculation that the central banks might intervene to remove forex volatility. The trend is still down but there are opportunities for 20 to 40 pip trades at extreme oversold levels.

Last week, I pointed out an opportunity for a day trade in the USDJPY and a possible longer term trade. The day trade was good but the selling pressure continued forcing the USD to go below 100 Yen. This is the first time in ten years and a move that is causing concern to Japanese exporters. 

If you notice that the GBP also sold off against the Yen, it indicates that the general Yen strenghtening has something to do with the unwinding of the carry trade.

On Friday the USDJPY traded down to 101.40. The level moved into a buy zone on the weekly chart.

Despite the negative talk in the market about the dollar value, a trader must watch the market and not the talking suits.

A quick look at the daily USDJPY shows an interesting candle pattern developing. THe pattern is somewhat bullish.

The best time to trade is when the market is moving. Traders need volatility. If there is not a clear direction, bank traders will often "push and pull" around a certain price locked in a trading range. This can be hazardous to your bank account because tight stops will be hit on both sides.

If you are in the USA, consider being in the market between 7 a.m and noon, which is when both London and New York are trading. When sessions overlap the liquidity is the best and the volume of orders in the market make it difficult to run stops.

This is the eternal dilemma. Should you try to force a trade or should you sit on your hands and wait for resolution? 

Of course while you are sitting on your hands, you might miss a sudden move. In this instance, I believe a trader should pick his battle quite clearly. Stay in the market with at least a small position and try to hit singles. When the market sets up properly, at least you will be prepared for the move. And don't forget to watch the dollar for a rebound!

Sometimes a trade entry point is very obvious. So you enter the trade. You have done the necessary preparation, and you know where your target is and how many pips you are risking. You place an order at your target point and one at your stop loss point. Then you wait for the market to do what it has to do.