Itinerant Trader: Adventures in Currency Trading

This week came and went and I stayed out of the markets. I want to see what the Ben Bernanke does on Tuesday before I act. I still have the same 6 outstanding positions that have been open for months. My account equity moved significantly lower this week to bring my drawdown to an unmentionable low.

San Fransisco Fed President Janet Yellen announced today that the rate cut that the market has been confidently anticipating may not happen. I think she's saying that she has no intention of voting for a rate cut on September 18th. The U.S. will be releasing significant Advance Retail Sales, Trade Data, Michigan Sentiment, Industrial Production and Claims data later in the week. Unless 2 or more of these numbers is shockingly negative, I don't see Fed President Yellen changing her mind. I'm no Fed President but I would maintain a "wait and see" approach also. At 5.25%, the current rate seems neutral.

My strategy for this week remains the same as that of last week. I will look for opportunities to set up long-term Canadian Dollar short positions against either the US Dollar or the Australian Dollar. Since the Yen has run up a lot against the US Dollar and the interest rate differential is still quite wide, I might consider selling the Yen below 113. The Yen has been winning by default recently so I expect the pair to trend upward unless greenback selling gets really heavy.

I'm still mostly sidelined. For the week, I was looking for an opportunity to buy the AUD/CAD @ 0.8620 with 150 pip of room but never pulled the trigger. For the week, the pair traded about 120 pips above that point and 50 pips below my target so I think the direction is right in the longer term. If I had been more attentive to the markets, I might have made this trade. Going forward, I may still look for opportunities to enter this trade. I expect an upward trend to develop over time so there's no need to rush into this one.

I went long USD/CAD @ 105.09 I took on Wednesday afternoon hoping that the pair would climb back up toward the market close. After seeing no sustained progress on Thursday afternoon, I closed the trade out for 10 pips profit. Although I didn't want to be long the pair going into the employment reports for both countries, I'm still bullish the USD/CAD over the next few months because I expect the Loonie and Crude Oil to weaken through the winter months like they did last year.

The other trade of the week was a long AUD/USD @ 0.8290 I took after the supremely negative NFP report was released. The pair ended up lower but, although I am bullish the Australian Dollar, I hope to get out of it at entry early next week.

Total profit for the week was 10 pips and a floating loss.

I have been watching the AUD/CAD with the intention of buying it for a long term trade. My Australian Dollar bullishness is based on expectations of steady growth in Asia and continuing metals prices. While I don't expect the Loonie to tank, I expect oil prices to fade through the winter as they did last year and the Canadian Dollar to fall back with them. In addition, the effects of the strong Loonie over the past few months have been showing in recent economic data and should continue to show more and more in upcoming releases. While a strong Loonie is by no means disastrous for the Canadian economy, with 80% of its exports going to the U.S., a rise in the Loonie should drag on manufacturing and services exports. The pair will likely move more sideways than up for now. It's nice to know that someone else has the same idea.

AUDCAD Long Term Bullish Setup

The upcoming week should be action packed with important data releases. I won't trade aggressively but my expectations are for the USD to close stronger by the end of the week.

Another week, another trade. The week started with my AUD/CHF long position up over 300 pips with a stop protecting only 28 pips. Volatility in thin markets caused the pair to spike to just below the opening price hitting my stop and leaving me with 28 pips in the process. While I was aware of the possibility of my stop getting creamed, my confidence in the Australian Dollar against lower yielding currencies kept me in the trade. The pair ending the week up 190 pips above my entry has borne me out. After getting stopped out, I didn't reenter because I wanted to wait for the pair to base again or look for another Australian Dollar cross to buy.

Since I am still leveraged beyond comfort, I am not watching the market too closely. On Wednesday, my gut told me the the USD/CHF was basing in the short term so I went long the pair @ 1.1995 setting a stop @ 1.1920 and a limit @ 1.2050. The trade clicked off for 55 pips profit 2 days later leaving me with a total of 82 pips profit for the week. The week could have been far more profitable but I am still above my 50 pip goal.

Most of the volatility from previous weeks' carry trade breakdown had subsided by this week. When the market drops like it has in the past few weeks, I look for a candlestick with a very long wick to the downside followed by a couple of days of consolidation before entering a long position. This week, I did exactly that before going long the AUD/CHF @ 0.9692 on Wednesday morning with a stop 100 pips below entry. Although I had been watching the AUD/JPY, I didn't use that pair to express my yield play because it had already rebounded significantly and is more vulnerable to stop killing spikes. The trade ended the week up 240 pips. I put a stop in above opening and plan to hold on to this trade for longer because I expect it to go higher. The pair shouldn't be as vulnerable to downswings as other carry trade pairs.

The week ended with the other six pairs showing losses. The recent interest rate compression puts my positive weekly rollover in danger.

While this week provided a lot of potentially lucrative trading opportunities, the flip side of the coin (potentially destructive trading pitfalls) kept me out of the market. I will wait until the market and central banks settle a little more before moving back into the market.

I still have the same 6 stale outstanding positions but with the recent decrease in U.S. interest rates, the positive rollover interest I have been getting is decreasing. I am more inclined to do something now other than waiting like I have been doing until now.

When I look back at my trades and blog about them after many weeks of inactivity, it surprises me that I trade as often as I do. The first of the 2 trades executed for the week was a long AUD/CAD @ 0.9020 that got stopped out a 3 days later for a 50 pip loss when all of the central banks were injecting liquidity into the market to sooth Nervous Nellie fears of a Subprime Mortgage Mess instigated market collapse. I remember this trade ranging with a little profitability before the central banks conspired against my legitimate trade. I still believe in the fundamentals on this one and will probably attempt it again when order is restored.

On Monday afternoon, I shorted the USD/CHF @ 1.1910 only to close out at 1.1905 7 hours later. This was probably a momentum trade that I close out early after seeing that it wasn't performing.

Thanks to the central banks, I ended the week down 45 pips. Normally, I take full responsibility for my foolishness or indiscipline but since central bank intervention is a market distortion, I don't feel completely responsible for my losses this week.

With 5 trades, this was a pretty active week for me. I should have blogged this week to record my thoughts but I didn't and don't remember why I traded the EUR/USD (2 trades), GBP/JPY, AUD/CAD and AUD/JPY. I made gains in 4 of the trades but a loss in the AUD/JPY mostly wiped them out save 4 pips.

This was another sideways week that ended with the same six losing positions of the last few months. In the time, a more aggressive Itinerant Trader could have worked his way out of this outstanding positions and moved on but I am unable to monitor the markets closely enough to do so. Thus, I patiently wait...

I don't know what inspired me to trade this week but I traded the EUR/USD, EUR/JPY and the USD/CAD. Total profit amounted to 3 pips. Looking at the times of the trades, I think I might have been angry or out of sorts this week. Maybe it was because I got 1 year older this week and decided it was time to prove something...I don't know why I traded at all this week.

The markets moved in my drawdown's favor this week. Last week's 35% drawdown was 25% this week.

I only executed 2 trades this week. Both were short EUR/USD that I closed out at par. Still smarting from my USD/JPY loss last week, I wasn't willing to risk much on either trade. Also, the pair had just reached record highs. I prefer to see a pair show resistance or support over a few days before establishing a position.

Account drawdown at the end of the week was nearly 35% making me a little reluctant to trade.