We are in an extemely resilient market right now. The stock market is willing to make strong runs to the upside, but does not seem to be as agressive selling off. Now that we are through earnings, is that strong direction over? Looking at a daily chart, there is an awful lot of room to move back down towards the trend support line. The last 3 Days are telling, as even though the market moved higher today, it was unable to close above the open from 3 days ago. The Diamonds look to be starting to develop a new Down Trend. I don't know that the market is through rallying longer term...but I'm looking for a pullback to somewhere around the 9,800 level.
The fx market tends to move in a cyclical pattern in terms of trending conditions. The periods tend to shift between the Asian, European, and North American sessions. A lot of time the dominate currency will tend to produce which session we trend in.
Right now, the USD is leading all of the currency pairs in terms of establishing directions. One of the major shifts we've seen over the last couple of weeks has involved the USD/JPY. For roughly the last year, the JPY had been the dominate currency in this pair. We were able to determine this based on the pairs reaction to the Equity markets. When the DOW went up, the USD/JPY went up, when the DOW fell, the USD/JPY fell. This was in large part due to the interest rate disparity between Japan and other countries. It was very cheap to borrow Yen and invest in higher yielding assets whether it be another currency or another country's equity market.
We have seen this dynamic shift in the last few weeks to the USD being the dominate currency. Historically, a countries currency has gone the opposite direction of their stock market. This is due to Supply and Demand. The more of something available, the cheaper that asset becomes. When the stock market rallies, money flows into the market, thus devalueing the currency and making it weaker.
We have seen some pretty strong moves during the North American session and that may be where we shift our focus over the next couple of weeks.
The market tends to move in funny ways sometimes, be aware it will shift back to having a different session carry the strongest intra-day trends, but for right now, watch the North American session for some great opportunities.
The Back Test is a feature within CommandTRADE/CommandTRADE FX that allows the user to historically test how a strategy would have performed if turned on at a certain date. It is a great tool that can teach us quite a bit about how a strategy behaves in different circumstances and market conditions. Listening to us on the CommandTRADE team you will hear some different opinions on the best usage of the feature; I'm going to go through my favorite uses.
First of all, I never use a Back Test result to influence my trade or strategy decisions. I personally feel that there should be substantive reason to attach a strategy. I make strategy decisions based on what I see in the charts and what I am expecting to occur for any given pair. We see quite a few instances, more so among newer users (which is very understandable), where the back test results determine what strategies are being used. Both the currency and equity markets are ever changing, while we do see trends that will continue for many days, the look of any given chart 1 or 2 weeks ago does not necessarily give us a great indication of how that same chart looks today. The key to consistent results is to consistently use a strategy in similar market conditions or with similar chart patterns.
There are two main ways that I use the Back Test. The first is to review what occurred with any given trade. The second is for strategy creation. The latter is where the bulk of my actual back testing will occur.
I will review a large number of my trades in the Back Test screen. I’m more of an active or day trader, so the number of trades I make in a day is normally not a very high number. The main thing I research on a trade is how the charts looked when I turned on the strategy and what the entry looked like on the charts (was this trade one that I would have made if I was sitting in front of the computer). If I see a string of rough trades using a particular strategy, I want to know why. Am I turning it on at a bad time? Is there something specific that keeps occurring for my trades to lose? What could I have done differently to get a better result? A lot of the time when I look back on a losing trade nothing jumps out at me. I will scratch those up to bad luck. There will be times when everything looks perfect and then the market does something funny.
All strategy creation occurs in the Rule Generator and Back Test. The actual process of back testing is a very key component of building a strategy. I will back test among multiple days and multiple pairs on any given idea that I’m building. I look for a couple of things when I’m running the tests. I begin every strategy with a mental image of how an entry should look on the charts. The multiple back tests are confirming that my rules generate an entry that is comparable to that mental image. This is when I will begin to make adjustments to the strategies rules to create my ideal entry point. The next batch of tests will involve adjusting the exit strategy. I will typically start out with a fairly wide stop loss and target and make small adjustments to find the ideal level. I will look at the profit/loss figures and win/loss ratio to hopefully settle on the best possible exit scenario.
All in all, the Back Test is a very powerful feature that allows us to look back historically and not only test a given strategy, but to get a snapshot of a historical point.
We have recently posted a Virtual 1-Day Training for CommandTRADE FX. These are posted in 8 1-hour long segments that will give a complete breakdown on the functionality of the software. These segments were created to give those users that are unable to attend one of our two day training events here in Dallas a good representation of what occurs during the first day of the training. While we would always like to have our users attend the event, as it allows us the opportunity to get to know you, these videos are a great way to find out how all of the buttons and features of CTFX work.
You can get to the recorded training by going onto the website and selecting the Training tab. There will be a link in the CommandTRADE FX section for Virtual 1-day Training.
Enjoy,
Harris Frankel
CommandTRADE Product Specialist
WASHINGTON (AP) - Democratic leaders in Congress sidetracked legislation to bail out the auto industry Thursday and demanded the Big Three develop a plan assuring the money would make them economically viable. "Until they show us the plan, we cannot show them the money," Speaker Nancy Pelosi, D-Calif., said at a hastily called news conference in the Capitol.
http://www.breitbart.com/article.php?id=D94ISTF80&show_article=1
Today's market developments are starting to develop back into strong directional moves. A couple of pairs today have pushed through major Support or Resistance levels and appear to be breaking away from the about week long period of consolidation.
The biggest development today was the EUR/USD. We had been in a wedge formation with lower highs and higher lows. We broke through the key support level around 1.2700 today and have been hovering around the 1.2550 area for most of the afternoon. There is a good chance this pair continues to move to the down side throughout the middle of this week.
The other pair that broke through a major resistance level today is the USD/CHF. This pair has been consistently bumping its head against 1.1800 for the past week. We have made 3 attempts to break through before the push finally occurred this morning. This pair had been developing an ascending triangle, a pattern of similar highs and increasing lows. This pair might continue to run to the upside throughout the middle of this week.
http://www.bbc.co.uk/blogs/thereporters/robertpeston/2008/10/the_5000bn_bailout.html
The attached story is from the BBC and details the British Monetary Report that stated banks have made $5,000 billion GBP available since April 2008. It's a very interesting read.
I'm sure many of you have heard the phrase, "It all comes back to commodities." The interesting thing about this phrase is that there are distinct correllations between the Commodities market and the Currency market. First off, without money how are we supposed to buy commodities. I don't know about you, but I don't think the CBOT is going to be real excited when I show up there with a barrel of crude oil looking to exchange it for a bushel of wheat. A large number of commodities now are cash based, in which the contract is written that at the end cash will be delivered or exchanged instead of the actual commodity.
Some of the more common relationships are Gold and the GBP/USD. This is typically a direct relationship as the USD will strengthen as gold prices go down and weaken as gold prices move up.
The DOW Futures and the USD/JPY typically will have a parallel relationship. This is due to Japanese Yen being borrowed very cheaply and then converted to USD to be invested in equities that have a higher rate of return than putting money in Japanese banks. As the stock market rises more yen are converted to dollars and the USD/JPY goes up. As the stock market sells off, the equities that were purchased are sold back, the dollars are then converted back to yen to payoff the initial cheap loan. The USD/JPY will move down as the Yen strengthens.
Oil and the USD/CAD have an inverse relationship. Canada is a large exporter of oil and provides about 20% of US crude oil on a daily basis. As the price of oil goes up, the Canadian Dollar strengthens, thus forcing the USD/CAD down. As oil prices fall, the Canadian dollar weakens, thus the USD/CAD moves up.
The relationship between commodities and currencies runs deeply and sometimes will be another tool in determing which direction a pair will move.
I'm attaching an Op-Ed piece that was written by Warren Buffett. The highlight of this article is contained in the following line, "A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful." It's interesting to hear one of the philosophies behind one of arguably the best trader's in the world. This article comes from The New York Times and is a very interesting read.
http://www.nytimes.com/2008/10/17/opinion/17buffett.html?_r=1&ref=opinion&pagewanted=print&oref=slogin
Harris
