The Good, The Bad, The Ugly

A technical and fundamental review of trade plans uploaded for the week. The good refers to the winners, the bad refers to the losers and the ugly refers to stupid trade plans. The objective of this post is – what was the lesson and how can these mistakes be avoided in future.

Trade Plans for the Week
1. GBPCHF Short @ market SL @ 1.29359 TP @ 1.26077……………..Bad
2. AUDUSD Short 0.77842 SL @ 0.78600 TP @ 0.76569………………Ugly
3. USDZAR long @ 13.56207 SL @ 13.64761 TP @ 13.98165…………..Ugly
4. USDCAD Long @ WPP SL @ 1.24422 TP @ 1.26716…………………Bad
5. GBPJPY Short @ 148.163 SL @ 149.357 TP @ 146.00 or 144.631……Bad
6. WTI Long @ MPP SL @ 48.50 TP @ 55.50……………………….Good
7. EURUSD Short @ 1.18267 SL @ 1.18912 TP @ 1.7035……………..Bad
8. AUDUSD Long @ 0.78/ WPP SL 0.77457 TP 0.80500……………….Not triggered
9. CADJPY Long @ 90.00 SL @ 89.396 TP @ 94.00………………….Not triggered
10. EURJPY Long @ 133.000 SL @ 131.749 TP @ 137.00……………..Not triggered
11. GBPJPY Long @ 148.500 SL @ 147.701 TP @ 157.612…………….Bad

The pairs traded for the week were USD, GBP, JPY and WTI.

Technical and fundamental Review
Before looking at each trade plan, let’s first review the week technically and fundamentally for the week. We came into the week after NFP reported a negative number though an increase in wages and a lower unemployment number. On Monday during Asia we saw some news out of the UK regarding understated inflation (From the UK Times – says a mistake by the UK’s Office for National Statistics has led to domestic inflation being understated) this was reported during Asia on Monday indicating that the BOE would be likely to tighten at a future date. This news was received with Brexit talks underway, which has been the result of Pound weakness heading into this week. Later Monday we had ECB Lautenschläger commenting on ECB monetary policy saying that bond purchases will come to an end. All while Gold was making a move higher. Dollar weakness was then supported by FOMC meeting minutes that were less hawkish than expected.

The USD trades I posted were based on a continuation of the bullish trend in the USDollar and could have yielded some good results, however there a crucial tactic missing from the overall plan… Confirmation of Dollar strength and it literally came down to what did not take place within a six-hour window. This single mistake is the result of not just losing pips on the ugly USD trades but also missing out on the profit that could have been earned if I had not assumed that just because price is at support in a bullish trend it will go up and that the fundamentals causing Dollar strength the week before were still in play, at least for the time being. This is a very important lesson. If you can’t spot the pig then you’re it.

Taking the obvious fundamental data and the lack of confirmation of Dollar strength into account let’s now review each of the USD trade plans.

AUDUSD Short 0.77842 SL @ 0.78600 TP @ 0.76569
I have put this trade into the ugly category because the double bottom at WM2 should have been a clear indication that there was not any reason to sell this pair at WPP – even if the 21 was below the 55 and price had made a lower low. We can see Bears sold at this resistance level, though the lack of Dollar strength as indicated in the Dollar Index meant there was no setup and so, therefore, no reason to sell. Add to this the higher highs and higher lows on Gold M15 and one has a clear reason to be bullish on the Aussie.

USDZAR long @ 13.56207 SL @ 13.64761 TP @ 13.98165
In addition to the Dollar weakness and Gold strength, we also had a rally in Platinum (South Africa is the number one Platinum producer in the world) and the SCA issue regarding the spy tapes for Zuma. All making for a potentially strong Rand. Technically price had made a higher high and was at support in a bullish trend though once again, a strategy without tactics is like driving a car without a destination in mind. The setup on M15 was clearly bearish and with price being above WPP there should have been no reason to buy this pair – even if it was bullish. This trade plan goes into the ugly category due to fundamentals not being taken into account and due to there being no bullish setup on M15.

USDCAD Long @ WPP SL @ 1.24422 TP @ 1.26716
This pair was slightly different to AUDUSD and USDZAR. Trend was bullish, price was at the H4 21 and WPP – all good levels of support in a bullish trend. Price also double bottomed and made a higher high on H1. The caveat here was oil. WTI opened at WM2 and while it had made a lower relative to the low at 50.00 for the previous week and depsite the 21 being below the 55 using tactics on M15 to confirm bearishness at the H4 21/ WPP and bullishness on the Dollar Index would have avoided the long on USDCAD being taken. This trade goes into the bad category due to the trade being taken at support though not using fundamental tools to confirm the entry.

EURUSD Short @ 1.18267 SL @ 1.18912 TP @ 1.7035
Price had fallen at this price several times in previous weeks so it was not an unlikely resistance level. Bears did sell here and there was the potential for a double top on M15 with price having broken through the 55 though H1 was clearly bullish and the target was clearly WM4 with MPP looking like a more likely resistance. I remember thinking this when I wrote the trade plan though I didn’t pay attention to it because I thought the range would hold due to Dollar Index being at support. You see that there is the problem – confirmation bias is a nasty little thing. If the range held then I should have waited for the lower low on M15 and traded the pullback as well as waiting for the confirmation on Dollar Index. I went into this trade, like many of the other trades I posted this week, with a pending order. Be sure that using pending orders means there is no doubt price will rise or fall at that price level.

For the pound short trades – GBPUSD, GBPJPY and GBPCHF – the trades made sense technically and there was a fundamental reason for Pound weakness as far as Brexit is concerned though failure to pay attention to the inflation release is what causes the loss on these trades. While we don’t know how the market will react to news, not being aware of news is unprofessional. Pound was very volatile last week – with Brexit being a possible catalyst for weakness and underscored inflation being a possible catalyst for Pound strength the NET result should have been stay away from Pound. In terms of the GBPJPY long trade plan that was posted later in the week, I feel this was chasing price. The trade failed to deliver on the Bearish side so that natural reaction is it must go up, which also did not work out well. I don’t think Bulls or Bears had an easy time with Pound last week. So the lesson here is if there are conflicting fundamentals rather stay away. One thing to pay attention to though is how useful tactics are when it comes to weekly swings as illustrated in the GBPUSD chart below.

Of all the trade plans uploaded the only good one was WTI. The profit on this trade is 137 points.

Overall not a stellar week. All of which could have been avoided by paying attention to the news and using tactics on M15 to confirm the trade. Waiting for confirmation on the Dollar Index would have completely changed the way I approached the week. Never ever assume that just because the trend is bullish and that because price is at support (even if it is role reversal or the 21 EMA or a bullish pivot like WPP) it will go up and make a higher high. Above all, ALWAYS pay attention to the change in fundamental data.

I hope you enjoyed this post as much as I enjoyed writing it. I hope others who fell into the same traps have managed to see where they went wrong and how to avoid these errors when trading next week.

All the best.

Dollar Index M15

A little patience goes a long way. No setup, no trade.

AUDUSD H4

Double bottom, higher high, pullback, buy. So simple. Note that on this chart buying at the 21 would have looked risky though with Gold moving higher and Dollar Index moving lower it was a no brainer. And even if the buy didn't make sense there was definitely no reason to be selling.

USDZAR M15

As mentioned in the above review, if price opens above WPP for the week the only reason to buy would be because of a 21 MA - though even then, you need a setup. One look at the M15 chart at the time of price being at support would have clearly indicated that this was not going up. Look at all those gorgeous role reversal sell zones highlighted in red. USDZAR short with various position trades was the trade of the week. The combination of Dollar weakness, Gold strength, Platinum strength and favorable political news re: Zuma made for the perfect storm. These are the hard trades to lose - the loss is small though the opportunity cost is huge.

USDCAD M15

This was the tricky one. Support on H4 was solid and we got the tactical setup on M15 with the long at the up arrow. However, looking at price action on WTI and Dollar Index would have avoided this trade being entered, even if this chart gave confirmation for the long.

GBPUSD M15

What a beautiful chart for Bulls. Also, what a nice way to build up some positions for a weekly swing. Notice there were no bearish confirmations on this chart and so therefore no reason to trigger a sell order.

EURUSD H4

Clearly MPP/ the weekly target would attract more Bears. Especially with Dollar not confirming strength. Besides all that, there was no confirmation on M15.

13 thoughts on “The Good, The Bad, The Ugly”

  1. Hadyn S. says:

    Hopefully the N. Korea/USA (Kim Don) “Brink of War’ rhetoric won’t Bear gap the heck out of GBP/JPY over the weekend. It was expensive getting in, but after the dust settled, I still had 2 entries with a healthy SL. Then I started to realize through recent articles there might be a possibility of those two unleashing a hellstorm of threats over the weekend, I tried to pull my stops & hedge, but for some reason I’m still confused by, the TW platform closed an hour early on me. it must be some daylight savings deal? Anyway, we can certainly add the whole KimDon feud to the Brexit/BoE hike for even more expected volatility. Thanks for the fantastic post Ryan. It really does help to keep tabs on Geo Political, Monetary Policy and Fundamental Eco releases. I’ve recently created a method that has help me harness all of that info. Then what I do is give each unit a positive/neutral/negative interpretation, and all together it paints me a better picture to pick my bias from.

    1. Thanks for the feedback Hadyn. Interesting point on the fundamental tracker.

    2. I also noticed TW platform closed early last week. Not usually on line late Friday so not sure whether it is a regular thing.

      1. Hadyn S. says:

        Jim, I noticed that too. I was going to do a correlation hedge at the end of the day, and realized I was wasting my time. Lucky nothing much happened over the weekend.

  2. jean janssen says:

    Thank you Ryan, very educational, I am going to print-out this one and stick it next to my computer.

    1. I am glad it helped. Powerful exercise. One I should have started a long time ago. Funny thing is I find myself at a point where I am starting to look at the subtle details and seeing them a lot clearer. This will be part of my practice going forward. You’ll notice that I have implemented the learnings into this week’s posts to avoid making the same mistakes. Let’s see how the week goes. Definitely, want some more good at the end of the week. Thanks for the response.

  3. Rana Haq says:

    Thank you for your post. If I don’t confirm it causes me problems too, therefore, confimation by dollar positive news and right timing seem to avoid these problems of losing pips and time. Also, reaction from news can be very short-lived and trade may have a very
    tiny profit potential. In such cases, small profit target should have been taken.

    1. Yeah. I think one always has to keep correlation in mind and trust the analysis. Also give the loss a toss and let the winners run. I had wide stops on the USDZAR trade which kept me in a losing trade instead of changing gears and selling it. Thanks for the feedback.

  4. Maryna says:

    Hey Ryan, any reason why you didn’t plan/trade any EUR crosses for instance as they were big winners last week? You invested or planned to invest most of your money in USD and JPY basket of pairs – any specific reason why?

    Thanks for sharing your trade plans and the feedback.
    Maryna

    1. I went into the week with a focus on trading role reversals on H4 to maximize greater ROI. EURUSD was at the bottom of the range and so because it was not trending I left it alone. I was also looking for selling opportunities due to me wanting to trade a Dollar bullish bias. Later analysis indicated that there were some great opportunities on the Euro pairs on M15 with some beautiful role reversal price action trades for Euro strength heading up to Friday and then some nice profit taking on Friday. I am ok with missing the Euro trades – what I am not ok with is how I traded USDZAR. Definitely going to avoid that from happening again. Thanks for the feedback.

      1. Thanks Ryan excellent and informative post. .

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