Sir Pipsalot's Tuesday Market Update 05-04-2010

[Gumrai]

Looks like people are still putting their faith in worthless indicators rather than using their eyes to look at what is happening. So your stochastic is over sold...... it don't mean sheeeet! people.

Pull up a 4hr chart, zoom out, and ask yourself one question "why on earth would I want to be going long EUR/USD?"

There are no heros in forex, you don't get bonus points for picking bottoms or tops.

Recent COT data shows LONG DOLLAR positions up from $9.78 billion to $16.24 billion!
and your going long the Euro?

Come on folks get a grip.

Ricex is absolutely correct.
Everybody knows the saying " The trend is your friend". Well it is your enemy when you are trying to pin-point tops or bottoms. No matter what fundamentals may tell you, there is another saying - " The markets can remain irrational longer than you can remain solvent."
Use your analysis to enter trades and get out when the trade moves against you - stay true to your stop-loss. Aim to stick with a trade that is going with you and cut your losses when it ain't.
As Ricex says, pull out the H4 chart so that you can look at at least the last month and then think about whether you want to go long.
Yest the smaller timeframes may offer buying opportunities, but only to snatch a few pips.

 

[Lee Barker]

Looks like people are still putting their faith in worthless indicators rather than using their eyes to look at what is happening. So your stochastic is over sold...... it don't mean sheeeet! people.

Pull up a 4hr chart, zoom out, and ask yourself one question "why on earth would I want to be going long EUR/USD?"

There are no heros in forex, you don't get bonus points for picking bottoms or tops.

Recent COT data shows LONG DOLLAR positions up from $9.78 billion to $16.24 billion!
and your going long the Euro?

Come on folks get a grip.

Very well put! I think the problem with me is accepting a loss. So i leave a trade going in the negative and try to convince myself that its going to turn around when its not!

 

[cataquil]

bias versus execution

The bummer here is sir pips has been bearish on the euro when it was was at its highs in december. After getting chopped down on a number of atttempts short over the past year, I guess he was waiting for more confirmation. Well u know forex, now u see it now you don't. U watch a pair go back and forth 5 pips for an a few hour, you are short and thought it would move, so u close and go for a walk, come back and the price has move the direction you anticipated by 200 pips in 15 minutes.

Anyhow the big short anticipated got missed, so the brain switches into the "dam I missed it I have to compensate"-mode. Then you often start finding yourself trying to be clever-by-a-half. You get drawn into the up-and-down gyrations of the market, you forget the bigger picture. You find yourself disregarding the fundamentals and trading short term price action.

It can happen, it is important to remember here that the euro had been ranging for awhile. Even thou it is in a downtrend, it has been consolidating as evidence for the contagion spreading are investigated. The 1.30 break may have been it for the time being, but violence in Greece is why this has now accelerated to the downside. Parity has been mentioned by report by big banks...so if that is where it is going, why not just go there...hell it is not like we have never seen a 2000 pip in 1 week before....can u say "excessive market volatility", companies/people need time to hedge their exposure, and jaw-boning and news can cause those nooks and crannies.

What is easily forgot is how when a stoploss is given just how many disregard it...they move it a bit cause they think it is a stop run or a market sweep, they average in, how many times do we see a big day after these down moves. When you are trying catch a top or bottom the whole point is to stick to the stop because u know it is a risky trade. The reason for doing it is you are going to get a very nice fill early and risk management will be easier, so u are trading a high stopout rate for a good risk/reward. A Trend Following system will never get you in at such an ideal location.

 

[cataquil]

1 more thing

Also I saw someone mention people not thinking for themselves...I would like to just say that there is a whole boatload of analysis that comes out everyday from technical & fundamental analysts, trading services, the blogshere, the social media, thru text chats with other traders, and hell even from your broker. Every trader must explore the right mix for them. Some like to digest this information and are still able to weigh up all the analysis and come to an independent decision. It can be argued that it is good to read the analysis of others because it keeps you informed about the reason why someone would take the other side of your trade. Others get distracted by this heap of information, not only can it obscure their own clear and true judgement of the market, but time spent garnering the information can distract from trading....have you ever missed a trade cause you were reading some blog...When a new trader is learning of course they will need to use this information, but they should watch for any sign of an opinion generated within themselves, and weigh it up versus the various sources of trading information available. Regardless ultimately the decision to click the button is the traders, and any information that was encountered up to the moment is not responsible for clicking the button.

 

[Ricex]

Very well put! I think the problem with me is accepting a loss. So i leave a trade going in the negative and try to convince myself that its going to turn around when its not!

Lee, I know where your at, who here could honestly put their hand up and say that they have never experienced this? but the reality behind that thinking is sometimes very expensive, is it not?

To help us all with this psychological problem, traders have created rule based trading which fences in these ego rooted emotions, and gets things down to a very simple 'yes/no' system of decision making, and doesn't allow the 'maybe', 'might','get','lucky' gambling type trading that is very frequently seen.

Here's a link to a thread with some general first level rules : https://www.forexpeacearmy.com/forex-forum/general-forex-talk/9064-forex-trading-rules.html

Second level rules would be related to your strategy of the sort, if a = b & c = d then do e, no second guessing, it either is or it isn't.

Third level rules could be of the nature, personal rules pertinent to who you are. These need the traders to have a very good honest understanding of themselves.

Learn to see loss differently, accept it as integral to trading and assimilate that acceptance into your business plan as would a shop keeper. You already know that it's a bad trait, you just need to find aids to help you be more clinical in your approach.

I realise that that is easier said than done.

 

[Ricex]

When you are trying catch a top or bottom the whole point is to stick to the stop because u know it is a risky trade. The reason for doing it is you are going to get a very nice fill early and risk management will be easier, so u are trading a high stopout rate for a good risk/reward. A Trend Following system will never get you in at such an ideal location.

Cataquil you make some good points in your post, and there are of course counter-trend strategies which try and pick these moments of trend direction change but to be honest there are better ways of trading in my opinion, sometimes you can be waiting poking about for quite some time, time better used being in the market and moving along with the popular sentiment.

In respect to the information overload that many traders subject themselves to, I agree. My advice is either avoid altogether or take in limited info from one or two trusted sources, then trade what you see on the screen, not what you think.

 

[cataquil]

trend trading

I agree with you in general Ricex, top and bottom picking can be delicate and/or stinky affairs, very often it will come down to the individual. Again the compensation element appears..."I missed the trend, I will get some the other way then get back with it"...however it must be pointed out, trend trading is not without its own hardships....at what point does a pullback/retracement become a reversal?? Again u can see the same mindgame as top/bottom-picking countertrend trading..."oh I will give it some more room, I know it is just a market in oversteam"...also what defines the trend? Weekly, Daily? oh right of course all experienced traders would choose the long term charts...HOWEVER if you are an intraday trader and you have spent the day with cable or the pound yen...you know what those Weekly/Daily trends are saying don't mean dillidilly-squat for you today right here & now and you are better off using the 15 min/1 hr trends or else you can quickly find yourself underwater 200 pips with a big news release a few hour ahead...still not comforting...I guess euro might be a slightly different matter...but frankly I don't think so...today the euro is down 150 pips, but it travelled a total distance of 350 pips and in those profit-taking cascades, price backflops, in those counter-trend shock-bounces there is opportunity...and every swing/position trend trader who has seen there pip count reduce by over 50% in a blink will know how important profit-taking on new statistical outliers can be.

 

[Sir Pipsalot]

good intelligent discussion here... I have nothing to add... you've all made all my points for me.

 

[Ricex]

at what point does a pullback/retracement become a reversal??

Before reversal we will normally see consolidation, it's quite rare to see pairs really reverse their overall trend on a dime, it normally takes a little time to get everybody on board so to speak.

This latest Euro downtrend took a couple of months of jogging on the spot around 1.50 before it finally decided to go.

What's an uptrend? a series of higher highs and higher lows, the moment price stops doing this we have to reconsider and maybe change strategy. Has price gone into a consolidation (ranging) condition or is it reversing? Knowing the market condition is fundamental to successful trading. We don't need to be first in line.
This is kinda my point about people looking to go long the Euro, a misunderstanding of what price is doing.

I see what your saying about opportunities in counter trend trading, but I take my trading decisions based on high probability set ups, for me these counter trend trades have a much lower probability of performing than I am willing to accept. There are so many pips to be had across the board from just going with the flow that I don't need to go looking for any more up some dead end alley.

This as ever is just my opinion, but it's kept me consistently profitable for some time now. Besides that this website has a very high percentage of novice traders on it and I think that it's important to emphasize the need as a beginner to trade with the trend.

Using a skiing analogy (I like skiing), trading with the trend is like the snow plough position, gently and safely moving down the mountain, even if you fall it ain't going to hurt that much. Counter trend is like off piste skiing, fast, dangerous and with a high risk of being wiped out with an avalanche!! LOL.... only kidding folks