Weekly Overview – 15-10-2016

15 - AUD COT

AUD positioning looks very interesting, a possible divergence is forming. Since making that high in long positions in April, AUD was not able to reach it again. The current hesitation signals a potential long term reversal. Let’s tak a look at the chart.

15 - EA W

I’ve chosen EA rather arbitrarily, because the other currency really does not matter that much. However, AUD is trading at a very interesting price right now. Not significant resistance that it is facing in pretty much ALL trading pairs. In AG, even though it is not visible on these Weekly charts, the price is reaching a narrow range in which the pair has been trading between early 2011 and early 2014. From technical point of view, the chances for AUD to continue rising are relatively subdued.

Note that on Monthly strength index chart only NZD and JPY are higher then AUD at the moment. What is interesting about AUD is that even though it has a bullish cycle and relative strength (it is actually second bullish currency in the last 6 weeks), it failed to print strong bullish price action. Other than AG (due to Brexit related concerns in GBP) and AN (due to recent decline in NZD), AUD could hardly move higher to any currency.

EUR, having closed the week with strong bearish sentiment, is taking EA into that very strong support area that we have already looked at. If price is rejected from here, selling AUD will become irresistable. However, if the coming bearish cycle will be as strong as I expect it to be, there should be no problem finding an entry anywhere during the next couple weeks.

Let’s take a look at the Oil, knowing that it must either stagnate or decline to support bearish analysis in AUD.

15 - Oil COT 15 - Oil

Indeed, both Oil COT and the chart itself look VERY interesting.

COT is showing a great increase in bullish sentiment this week, with 25K contracts covered on the short side and 26K added on the long side. At the same time, the price are facing a very strong resistance area and psychological level of $50. Of course, big traders might know something we don’t that would justify their buying, but it could also be the needed stop run to take Oil lower. If all these traders will be wrong in their bets, the next bearish wave will be very significant.

What will happen that will take Oil above $50 right now? Next strong resistance is in the area of $60, but first we need to take out the current level. The price is hesitating doing so for the last 9 days. I myself would never buy here, even on the initial breakout (if it happens).

Together with the above AUD analysis, something interesting is certainly building up. My bias is most certainly short, BUT if I am wrong here, the upper break on both AUD and Oil must be great and led by some fundamental events that Market is anticipating.


Let’s take a look at another interesting currency that has been on my radar for months now, and yet consistently refused to reverse: JPY.

15 - JPY COT

Speculators are hesitating to buy above the current level at which positions are kept for almost a year already. They have tried selling in June, but the Market quickly proved them wrong. However, I cannot see how this enormous bullish cycle (as seen on the picture below) can continue without a significant correction. This week we can see that 22K contracts has been closed on the Long side, with the Short side remaining virtually the same. It is understandable to take a profit at these levels, but what about actually selling JPY?
15 - UJ MN

The Monthly chart clearly shows the scale of the current bullish scale. It’s refusal to reverse easily is only understandable – the momentum is just too great. However, I cannot help but notice that JPY is facing some very strong resistance at the current levels or a little bit above. Virtually every pair is either already trading in a huge Monthly value zone (JU, JG, JA), or facing it (all other pairs).

Once again, because we are looking at the Monthly chart, this reversal might take still a long time to fully develop, but we’d better watch out.

Interestingly with my above analysis for Oil and AUD, I do not think it is very likely that both Oil and JPY will start their slide simultaneously. The scale of my analysis for them is different, with Oil being merely a Weekly reversal/correction, and JPY is Monthly. In terms of the timing them, if AUD/Oil is destined to print a bearish cycle in the next couple weeks, it is very likely that JPY will wait for this long anyway. And with the craziest US election around the corner, any significant positioning on the Market is unlikely.

P.S. In terms of US dollar, note the difference between the last bullish cycle and the current bearish. Also note potential Head and Shoulders on UH and UC – these two pairs seem to have plans to go lower. With UH trading in this enormous value area, starting all the way back in 2012, a significant (in terms of the Monthly chart) bearish trend is unlikely. USD is really asking for another strong bullish wave.


EJ potential reversal





GBP continues messing up the markets after the Brexit. Another pointless spike has happened early in the morning, just to close your stop losses with a huge gap and then retrace back to where it was before. Such situations are only further confirming that trading on lower timeframes is not safe any longer. If your stop loss would have been 100 pips, you would have lost “just” 5-6 times your planned risk (depending on how well your broker would execute your stop order). With a stop of 20-30 pips, you would have lost 20% instead of your planned 1%.

07 - EJ

As mentioned earlier this week, EUR has managed to form a bullish cycle on Weekly. However, the price action has been quite week and it does not seem likely that EUR can pull off breaking very strong resistance on almost every single pair (see the picture).

JPY has bounced from its support areas as well, and will possible continue trading in the Daily range, as seen on the charts.

Overall, EJ is a good trading pair to watch for a potential bearish trend.

UC – 5 months of sideways price action

06 - UC

Both USD and CAD have been depreciating to most other currencies, and yet neither managed to trade in a good long term trend. Their cross pair has been trading with very choppy price action for the last 5 months.

Every time we come to the boundary of such range, it deserves our attention. At the moment, both USD and CAD are trading at the top of their respective bullish cycles, with USD barely winning over CAD. This move has taken the price right to the top of the flat boundary. The price has got there without any convincing strength, so it is hard to expect a strong bullish breakout.

Given that USD has managed to reach the top of its bullish cycle even on Weekly, without showing any strong price action in that cycle, it does not seem likely that it will keep on appreciating. CAD however, being at the bottom of its bearish cycle on Weekly, has more potential to go higher for a while.

It is very likely that the price will stay in the range, but thanks to its considerable size, we can still trade UC on the short side.

GN – Strong continuation, NC – Possible daily reversal

14 - GN (H1-H4) small

After showing strong bearish move yesterday, today GBP completely reversed and put up a bullish move. Interestingly, half of this move happened in the very early hours, before BOE kept the interest rate unchanged. No matter how much fear mongering media will create, at some point there will not be any trader willing to sell GBP this low. It will be interesting to see if it creates a significant bullish cycle on Daily-Weekly.

NZD has been the most bullish currency in the past couple weeks and now it also starts correcting – possible even reversing. RBNZ will be meeting on 10th of August and unless NZD depreciates by then there is a very good chance of a rate cut. The Market would normally price upcoming change before hand, so we might see a bearish cycle on NZD for the next 3 weeks.

Together, GBN and NZD represent two of the most interesting currencies at the moment, because they have been leading the whole market (together with JPY) recently.

NZD is also interesting because together with CAD it represents the strongest bearish move this week so far:

14 - NC (H4-D1)

The bullish move created by NC at the end of the last week is completely cancelled now. The price is approaching Daily TL.

Looking at NZD profile on H4, many pairs have broken below their recent swing lows.

Looking at CAD, the bullish move this week is very well sustained so far (with exception being CG). However, CAD is slowing down and is very likely to correct in the last couple days, before it can continue higher. Supply is coming at these higher prices virtually on all CAD trading pairs.

The most important belief

By far the most important belief on the Market is in myself.

Throughout the years I’ve been always trying to perfect my trading system, analyzing each losing trade and trying to figure out what went wrong. I always assumed that any loss means that I didn’t recognize some obvious hint the Market was giving me. I assumed I made a mistake that must be fixed before I take the next trade. That kept me going in circles for many years.

The problem with that attitude is that I was believing that it is possible to be always right. I wanted to be always right. In essence, I didn’t have any belief in myself so I was trying to build an ideal trading system that I could believe in.

A breakthrough was the realization that some trades are simply not working out. There is nothing wrong with them whatsoever. They were taken at the right time and at the right price in the right direction. And yet, the Market did not go in that direction.

When I define “the right trade” or “the right direction” in terms whether the trade made profit I am in for trouble. Basically, I am making sure that any loss will make me “wrong”. A different attitude is to define “the right trade” as the trade that has been taken according to my trading system, without any anxiety or hesitation. The trade might still lose me money, but it is “right” because it wins in the long term. Even when the trading system is not good enough to give me a winning edge, the trade is still “right”, because by following my rules I will soon find out the problems in my system and improve it.

On the other hand, when I judge every losing trade as “wrong”, I will experience emotional pain. If a trade is capable of causing me pain, disturbing my emotional balance, I will soon develop a fear of taking a trade. When I start hesitating pulling the trigger, my belief in myself is further diminished. Before I know it, I am trying to improve my trading system again, trying to make sure it will never lose and become the Holy Grail I can believe in.

Until we can fully believe in what we are doing we can never become consistent in trading. If there are no rules in your trading, you are going nowhere. If there are rules in your trading, which you constantly adjust to make sure the Market does not cause you emotional pain, you are going in circles still. We have to change what’s inside before we can start seeing what’s outside clearly.


Subjective vs Objective

Despite of all the common advice in trading psychology books I’ve been reading I was never quite able to develop an extremely rigid trading rules in my system. Mark Douglas suggests to “have rigid rules and flexible expectations”. However, due to my belief of how the Market works, I find it difficult to explain my analysis or trading patterns in simple “if… then” terms. If I would ever teach anyone to trade, the best instructions I could offer would be something like:

  1. Make absolutely sure your Money Management will never allow you to lose
  2. Learn trading psychology (accept the risks and responsibility)
  3. Watch the Market daily
  4. Build an opinion
  5. Embrace uncertainty and test your opinion with your money
  6. Learn from the feedback Market is providing to you

In my mind, most of the trading setups have always been relatively subjective. The Market would just “look like” going down. At some point I just “feel like” getting out. However, the more I trade the more I recognize that there is certainly a place for fair amount of objectivity in trading as well. I just do not believe that objective concepts can be applied just about anywhere in my trading.

Cutting right to the chase, here is where I would try to define my trading objectively:

  1. Money Management rules
  2. Business organization (trading diary, trade analysis routines, preparation for trading routines, etc.)
  3. When NOT to trade
  4. When I pay myself – take my first profit and put the remainder of the trade in BE (e.g. close 30% at clear Reward:Risk target like 3:1)
  5. Checking minimum conditions any trading setup must have

And here is where I would trust my feelings and intuition (apply subjectivity) in my trading:

  1. Most of my market analysis, i.e. building an opinion or a bias for certain trading instrument
  2. Final decision whether to take an entry

Basically, what I am doing, is building a strict, rigid framework that protects me from making big mistakes and provides some structure for my trading. Next, I allow myself certain amount of freedom inside of that framework where I can trust my intuition (experience) about the Market.

For example, I am making sure that no matter what happens, any trading day, week or even month CANNOT result in a significant loss (1).  I also know what kind of work I must do every single day in order to manage my trading properly (2). I am making sure that under certain conditions (Market environment, life situation, etc) I am not going to trade because I do not believe that my intuition/emotions will provide appropriate judgement under such conditions (3). Next, I am making sure that I pay myself automatically, without even evaluating the current situation on the Market, as soon as certain amount of profit is reached (4). Additionally, before executing any trade I will make sure that it has some necessary parameters that I have defined – this gives me confidence to pull the trigger without hesitation (5).

However, I have to leave most of the Market analysis up to my intuition. Even though I have certain rules and checklists for Market analysis, in the end they only help me to clarify how I am feeling about the current Market situation (1). Additionally, even when I have a bullish bias on a certain currency and all minimum conditions are met to establish a position in that direction, I will still choose to miss that opportunity if I do not feel good about it (2).

The implementation of subjectivity in our trading is extremely difficult unless we are self-aware of what is going inside. It is still important to analyze our emotions and opinions, making sure that they are not caused by anxiety or some psychological issue that we were not able to resolve completely. Obviously, I am nowhere near perfection reading myself or the Market. However, I find it impossible to trade unless I listen to my intuition. I cannot build strict logical boundaries around my life and so I do not expect to put any part of my life (e.g. my trading) in a box either.


Recommended reading: Intuitive Investor by Jason Apollo Voss