One of the things I’m really falling in love with in the FX market is the speed at which everything moves, it’s all much slower than in the futures market. And since I tend to be a counter-trend trader, this works well in my favor for after I enter a trade, I have much more time to react if things don’t go my way. All of this is greatly due to the ability to better control the amount of leverage you want to use.

There were a number of factors that caught my eye on the above trade. When I was flipping through some charts this morning, I noticed that USD/CHF had taken a pretty big hit but when I checked out GBP/CHF, it hadn’t reacted nearly as strongly. And while the GBP has held up much stronger agains the CHF than USD over the past few months, they do tend to move in the same general direction, so this descrepancy was enough to put the GBP/CHF on my watchlist.

And when I checked out the Daily chart above, I saw that price had stretched 200 pips beyond the FFF- reversal zone. I remember seing this trade a few days ago when it initially broke into the FFF- zone, but when I zoomed down to the 60-minute chart it seemed to still be in a very solid uptrend and since the move wasn’t exponential in nature, I passed.

But today was much different.

I initially got a MACD Cross early this morning as prices blew past the 10 & 34 EMA. This also occured with an ADX cross indicating a strenthening of the downward trend. Then around 8:00 this morning I got the perfect entry as price was increasing smack dab into a crossing 10 & 34 EMA on the hourly.

So I went short with 150 pip stop & 200 pip target looking for a pullback to the 10 EMA on the Daily. The trade is still underway so there are no guarantees that it’ll make it, but I like my start. I’ll be monitoring the position tomorrow and if today’s low is taken out, then I’ll be adjusting my stop to just above yesterday’s high. Call it beginner FX Trader’s luck but since I made the switch I’ve only have 1 losing trade for a 10 pip loss and 5 winning trades for a total profit of 230 pips. I’m not very organized in my recording of the trades as I’ll need to revamp my trading spreadsheet a little bit to account for different pip spreads and values, but once I have done that I’ll be sure to post those results here.

After looking at how the different index futures have been acting recently, I made the executive decision to focus on the NQ today as it seemed to be trending the strongest. It also fired off a daily long squeeze play yesterday indicating that it was still looking to go higher.

This morning I was actually hoping to buy a gap down, but none occurred so I had to be patient and wait for something juicy to set up. And boy did my mouth start to watter a little after 10:30 this morning when I saw price dropping into an area supported by 2 FFF Reversal Zones on some lighter volume (not shown).

I had my limit buy order set up at 1845.25, a couple ticks above the bottom FFF Zone of 1844.75. At first I was very disappointed that price failed to fall into my buy zone for by all rights price “should” have fallen to that area. That’s when I started to shift my perspective and really look hard at what the market WAS telling me. Namely, that it was getting ready for a nice rally.

Here’s what I started to see:

1.) Price failed to make it to those 2 FFF Reversal Zones which usually act like price vacuums.
2.) Downwards volume was drying up
3.) There was a reverse H&S Pattern starting to form on the 55-tick chart
4.) Price & TRIX were making higher lows
5.) Then there was the trendline break.

On top of all of that, the TRIN was trending down and the basket of index funds that I monitor all seemed to be drifting higher as well. Needless to say, my disappointment dried up real quick and I got long at 1849.50. I started the day with a bullish bias and this seemed like a nice spot to go long.

for the next 30 minutes, price grinded higher but the volume just wasn’t there to keep me in. So when I saw the – Trendline break & TRIX Divergence, I closed my position for a nice gain of 3 NQ points. It ended up being the only trade I made today. If I had stayed in, I would have fared much better as the NQ went on to make new all-time highs today, but I can’t be displeased with the play.

I’ve been fiddling around today a lot with Oanda’s FXGame currency trading demo platform. From what I’ve learned thus far I’d be losing and gaining some advantages by switching to the FX Markets.

Advantages:

No Commissions: You pay the difference in the spread, period. That’s not to say that the spread isn’t a significant cost but not paying a broker’s commission has to count for something
Better Leverage: 100:1 (I’ve heard that some brokers offer 200:1, but let’s not get carried away)
Better Hours: 24/7 trading (which is great, especially if I start selling real estate during the day)
Maximum Liquidity: 1.5 Trillion a day should be enough to cover my positions
Carry / Interest: If you play your cards right and stick with the right currency pairs, you actually earn money on the money you borrow to trade with… 4.00% p.a. with 100:1 leverage sure goes a long way towards putting a dent in your losses

Disadvantages

No Volume: I use volume a great deal in my current style and would have to get used to not having it to lean on
No Market Internals: (NYSE-TICK, TRIN, Put/Call, Basket Monitoring) All of which plays a huge role in my trading methodology and all of which would be useless if I switch to the FX markets
Big Educational Curve: There is so much I need to learn, become familiar with, and master before I feel confident putting up any kind of a real stake in the FX Markets. What kinds of economic reports to pay attention to from the gazillion different countries and when will they report just to name one.

In a way though, if I can become proficient at trading profitably without having to rely on volume and market internals, I think that in the long run it will make me a more robust and profitable trader. I am not looking forward to the lumps I’ll undoubtedly receive as I try to find my way in this new arena, but I always love a good challenge.

I’ve been looking for an opportunity to try out a new exit strategy for my Flash Formation Fractal play and I got it this morning. But first some background information that made me want to change anything in the first place.

As those of you who follow my blog know, I am a big fan of FFFs and counter-trend fades in general under the right conditions. They can offer low risk, high reward entries if you have the guts to pull the trigger. In the past, I have used a standard 1.50 ER2 point stop for such entries and I would hold onto the position until either my stop or target was hit. After evaluating enough of these trades, I started to see a pattern emerging that seemed exploitable.

When FFFs fail, sometimes price would just blow right through the FFF reversal zone like it wasn’t even there. But because FFFs by definition occur only at the end of a prior move, these bursts often would not go too much farther before some sort of reversal is mounted. Under my old exit strategy, 1 of 2 things would usually then happen.

1.) Price would blow right on up and take out my stop prior to a correction
2.) Price would stall and pull back but never make it to my target…when this happened my stop would usually get hit eventually

However, rarely would my target get hit before my stop under these circumstances. This isn’t to say that there weren’t times when the position would show a profit, its just that my binary exit strategy was not robust enough to capture limit my losses and maximize my gains under this scenario.

FFFs are supposed to be areas where a price reversal is imminent, period. Thus if price blows through the FFF zone, it is a red flag that such a reversal is no longer likely and a sign to be looking for the nearest exit.

So my new strategy is this:

Set the initial stop at a reasonable distance beyond the FFF Reversal Zone (‘A’ on the chart above). If price blows through this zone, then wait for the move to stall and look to take a small loss/profit around the entry price as the whole premise of the play is blown.

However, if the FFF holds true and price does reverse, adjust the stop to a more reasonable level (‘B’ on the chart above) but still ensure that it is outside of the FFF Reversal Zone.

Finally, as price makes it halfway to the target, move the stop to just above the FFF Zone (‘C’ on the chart above)

Which brings me to today’s play. It was my only trade today and it yielded a return of 1.53 R-Units. The NYSE-TICK had spent the entire morning under water up to that point. Price was mapping out a controlled upwards corrective move off of the morning drop attempting to go for a gap fill.

What caught my eye on this move though was the lack of increasing volume on the 2-minute chart. While volume spikes were occurring as price increased, each spike was lower than its predecessor. This was all the confirming evidence that I needed to attempt an FFF Fade.

I ran the calculations and the FFF Reversal Line was in the 782.10 area so I set up a Limit Short Sell at 781.90 with an initial stop at ‘A’ . My target on this play was looking for a pullback to the rising channel trendline around 779.00. Not wanting to get greedy, I put a Stop Buy Order at 779.60 and within 15 minutes I was hat hit my Net Daily Goal for the day.

Overall, I had a very productive day.

The 55-tick trend, 610-tick trend & 15-minute trend were all rising. The NYSE-TICK was rising. Hell, the TRIX on the 2-minute chart had just turned green on increasing volume and I choose these circumstances to go short! It was pure speculation with all remenants of a strategy or plan being thrown out of the window.

I was alert and traded well for most of the day today. Just goes to show you that 90% won’t cut it in this business. Lapses in judgement cost real $…Well, that is the one good news…that at least I was in simulated mode today. Hard to say whether I’d have made the same mistake in live mode…I’d like to hope not but have to assume that i would as that’s the whole purpose of the simulator. If you can’t control my impulses & emotions here, it only gets harder once I go 100% live.

I’m combining my analysis & trade reveiw for today as I only made 1 trade today. I’m still not sure how i should rate the trade either (Good, Ok, or Bad). It most definitely had the desired result and there were a number of converging factors that let me to pull the trigger, but at the same time, it was a very risky play to go for a counter-trend long play today when the trend was so decisively down.

So I’ll let you decide for yourself today. Above is the trade, & here are my reasons for entry:

1.) Minor Trendline Break
2.) Positive TRIX Hook
3.) Positive NYSE-TICK Hook
4.) Much less volume on this leg of the move (Volume Divergence)
5.) 60-Minute Trendline Fade

That’s about it. I didn’t have any real strong signals, but just a number of little ones that caused me to go long. For a target I was initially looking for a pullback to the 610-tick trendline. However, eventually I noticed a very nice looking 55-tick Flash Formation Fractal forming & decided to exit as prices started its final move up towards the dotted blue line.

Overall, I was very pleased with how patient I was today. There was a lot of action going on and I could feel parts of myself being pulled towards making a hasty entry but I was able to remain vigilant and wait for a nice opportunity that helped me reach my Daily Goal in one fell swoop.

Consecutive Days Hitting Net Daily Goal: 1
# Days Hitting Goal out of Last 20 (with goal of 16/20) : 3/5
Weekly PnL (Stop = -6.66) : +1.10 R-Units
Total PnL this Level (Stop = -10.00) : -2.44 R-Units