Corrugated Trading Follow Up

See I'm not crazy, look at the trade below. Just like i said earlier even if the price peeps over the WMAs id wait for it to come down below. Sure enough I did and I bought into for not a decent take. Keep in mind this only works during certain types of markets. As I am trading near the end of the day, no news, mild volatility this strategy plays out. You try this in the morning when volumes are much higher and news is coming out and volatility could make this much harder.

Corrugated trading

Oil crashed this morning and west texas prices plunged below the $40 a barrel territory. The market hasn't traded this low in a while so we have to look back to previous prices to get some sort of context as to where the market ma bottom out. See the picture below. Using a scale of 1 week on the West Texas Oil chart we can wee where the market has previously bottomed out to try and figure out some hypothetical points of resistance.

It's a bit hard to see but you can see where prices are trading now are nowhere near historical lows, so there should be some more room for prices to fall. In the long term i'll hedge on prices to continue their downward trend. In the short term i'm going to engage in something that i've dubbed as corrugated trading.

If you've ever looked at a pieced of corrogated cardboard on it's side, it consists of two hard outisde pieces and a sheet on the inside which waves arround between the two pieces. This picture fits the analogy of this trading strategy perfectly. Imagine that the WMA's and the outer bollinger bands serve as the outside parameters., and the moving price as the wave of loose cardboard between. Referencing my crude drawing below (sorry) you can kind of understand what i'm talking about.

The concept is rather simple. In this case the price moves up and down between the lower BB and the WMA prices. When the price trades to the lower BB i expect some resistance, and when the price trades up to the WMAs I expect some resistance. The end result is a nice predictable zone where the price will bounce around in until it either moves into the top section of the BB (above the WMAs) or breaks the lower BB and moves downward. This might not work great with currency pairs as the price volatility between the the WMAs and the outside BBs can be a mere few pips making it hard to capture any movement with good trading. With oil however this distance captures a couple of dollars which is plenty of room to make great trades just bouncing between these two conceptual points of resistance.

Beware though, once the price breaks through the outside BB, or through the WMAs you should wait and see as to how the market will settle. See if it continues a similar trend on the upside. Because the market has been so down today I wouldn't take a breakthrough in the WMA as a signal that the price will head toward the top BB. Instead you might want to wait to see if the price comes down below the BB and continues it's trend. Or if it hits the top BB you might want to consider a short.

Slow Reaction From High Level Announcement.

Several important market announcements this morning, one being the USD Market Manufacturing PMI. One important thing to note about high level announcements is that the market reaction isn't always immediate. In this instance the market shows no reaction for almost 5 minuets before the desired effect happens. Now me being at work I missed the initial bump. When trading this event live you want to watch out for the large increase in volume and pay attention to the direction of movement. As soon as you see the volume jump and the price begins going up, it's time to hop on the band wagon.

Being at work i missed the initial jump, but jumped on a perceived upward trend in the market only to be rewarded a little bit late.

The other thing to note is that I got pretty lucky on the second jump. If you're trading news events you're likely going to make short term trades, for a few minuets to maybe an hour. Notice just before the second spike there is a drop in price. This combined with an increase in volume could falsely indicate a strong downward trend just before the market takes it's actual course, The market doesn't always jump off in the intended direction initially. This makes it tough to capitalize on the full jump in the market as you might fear that you are buying or selling in the wrong direction.

Just Missed.

This new book I've been reading says that you can keep losing trades to a minimum by using market orders to wait for the currency to get to a preferred zone (or whatever bullshit rationale they use). So i'll give it a whirl.Consider the EUR/USD a few days ago. I noticed that that it's trending downwards towards what I perceive to be a point of resistance in the market. As you can see i was pretty close to the money on this one. Just missed the zone by maybe 20 pips, and lost out on about 100 pips overall, maybe more after today.

The take home from this is that resistance zones are ambiguously defined, and in my case it may have been much better to put my market order just a little higher, Instead I was a little bit more cautious than i should have been and missed out on a good trade. Next time I have to be a little more audacious with my order, to make sure that it goes through and I pull out a profit in the long run.

But as I will show in a future post, you have to be quite vigilant with your market orders.

First one

Hello There,

This is my first post. This Blog Serves as a log of all my fx trades, for which I try to apply common techniques. The goal is to simply build and better my understanding of forex and securities markets in general with specific attention to commodity pricing, and fundamental analysis.

8/5/2015             

·         Traded Non-Manufacturing Composite index. Went up very quickly after the announcement, I was a little behind the mark. I got into the trade 2 late. The initial surge took about 10 min. Then it was fairly stagnant for the next 20. Held my positions even though the trade went down from where I initially entered.

·         What would I do next time? gen in earlier and get out sooner. Really shouldn’t have been in the trade for more than 10 min. Ride the initial wave and the second then dip.

·         Towards the end of the day the price did come back up. Should have held in my trades longer to break even instead of taking loses.

·         Early afternoon the upward trend had continued. Should have left my earlier trades in place as I would have been up 100 PIPs at this point easy.