Hiatus

Just a quick note to say that I'm on hiatus at the moment. I'm spending 4 weeks in Japan and internet access might be intermittent. And of course, I'll be spending my time doing touristy stuff. I won't have much time for forex, although I'll do what I can. :)

GBP, NZD misbehaving this week

The GBP and NZD have misbehaved this week, showing some significant weakness in most pairs. Today, diary prices fell 8.8%, so this would partly help explain NZD weakness. But there's been no news on the GBP, so it just looks like profit taking to me. A few major GBP news events come out tomorrow. Good news should restore some GBP strength. 

EURGBP and GBPCHF are at important S/R levels, which should hold over the next 24 hours. I don't see anyone being brave enough to break these levels just before major news. This may be a good time to open GBP longs at a cheap price. 

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EURGBP

GBPCHF

Fundamental Outlook for Mar 15 - Mar 21

My outlook for Mar 8 - Mar 14.  

USD

Unemployment claims beat expectations last week, but retail sales and sentiment were quite bearish. Inflation figures were also lower than expected.

Overall news: Bearish

Central bank bias: Mildly hawkish

Outlook for this week: Neutral

EUR

Not much news. ECB head Draghi praised the bank's QE policy, saying it helped shield other euro countries from contagion. This was a dovish statement. 

Overall news: Mildly bearish

Central bank bias: Ultra-dovish

Outlook for this week: Bearish

JPY

No major news. A few medium-impact economic figures were released which were bearish. 

Overall news: Mildly bearish

Central bank bias: Mildly dovish

Outlook for this week: Mildly bearish

GBP

BOE Governor Carney stated twice last week to expect gentle interest rate hikes over the next 3 years, confirming the bank's hawkish stance. Voting member Weale indicated that the BOE will be watching wage growth to help them decide when to do so. 

Overall news: Bullish

Central bank bias: Mildly hawkish

Outlook for this week: Bullish

CAD

The biggest news item last week was an uptick in the unemployment rate.

Overall news: Mildly bearish

Central bank bias: Dovish

Outlook for this week: Bearish

AUD

News has been mixed, leaning towards the bearish side. The unemployment rate has improved, but business confidence fell. Chinese economic figures were slightly positive. RBA Assistant Governor Kent said the AUD is still relatively high, talking the AUD down. 

Overall news: Mildly bearish

Central bank bias: Dovish

Outlook for this week: Bearish

NZD

The RBNZ chose to hold interest rates last week. There was some expectation of a rate drop, so this decision was bullish. RBNZ Governor Wheeler indicated the NZD is over-valued, a dovish statement. However, the RBNZ is also keeping watch on the housing market. Any further monetary softening may trigger a housing bubble. I've downgraded the central bank's bias to neutral due to the mixed signals the RBNZ is giving. 

Overall news: Bullish

Central bank bias bias: Neutral

Outlook for this week: Mildly Bullish

CHF

No news last week. 

Overall news: Neutral

Central bank bias: Dovish

Outlook for this week: Mildly bearish

Test drive of 4H breakout discretionary system

I spent today creating rules for a new 4H breakout discretionary system.

It's based on my research of Asian currency pairs (anything paired with JPY, AUD or NZD). In my research, I noticed that the daily high or low will tend to be established in the first four hours of each trading day (the first hour is very prominent, but the next three hours also have an above-average tendency to form the daily high or low).  

Thus, if we want to enter a position for the next 24 hours, the high or low of the first 4H candle is a good place to put our stop loss. We can enter on the break of the opposite high or low of the 4H candle. 

You can't trade every first 4H candle, obviously. This is where the discretionary part kicks in.

The ideal 4H candle should form off a S/R level or swing point, and be in line with fundamental analysis, and provide a reward of at least 1R.

This is a draft of the system's rules. It's very simple. 

Background

There's a ~50% chance that the daily high or low will be established during the first four hours of the trading day (based on NY close). We can exploit this by entering a position and putting our stop loss near the first 4H high or low, knowing there's a very good chance that this stop loss will not be hit during the day.

Checklist

1. Can we get a reward of at least 1R?

2. Does the 4H high / low form off a S/R level or swing point?

OR

Does the 4H candle break through a S/R level?

3. Do the fundamentals line up with the trade?

SL

Above the top or below the bottom of the 4H candle.

TP

Possible targets:

- Yesterday's high or low

- BRN (big round number)

- Swing points, S/R

EXAMPLE TRADE

This is the trade I tested today. It's the AUDUSD. Fundamentally, I'm bearish on the AUDUSD. Price has stopped at 0.77000 and formed a resistance level. I went short on the break of the day's first 4H candle, with my stop loss just above the high (an alternative stop loss could be above the swing high). I took profit just above the highs near 0.76000.

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One month anniversary of fundamental trading

Well I've been trading fundamentals on the daily chart for a month now. How's it been?

Pretty good. I finished the last four weeks up 2% on my live account, trading conservatively (0.25%-1% risk per trade). I only opened 17 trades though, so it's not a big sample. 

My observations:

- if you're trading discretionary, studying fundamentals will add alot of confidence to your trades. You understand what the big money is doing.

- it's easier to spot retracements vs reversals (if price is moving against fundamentals, assume it's a retracement). This is quite different from pure technical analysis, where it can be very difficult to differentiate retracements from reversals, at least until it's too late. 

- daily price movement is influenced primarily by fundamentals. If you're trading the daily charts, studying the news will help greatly. 

- transaction costs on the daily chart is almost trivial (usually 2-3% of the total trade). I've always known this, but it makes trading so much easier versus trading on the 5M charts where transaction costs can eat up 10%-20% of your trade.

- it is boring. In fact I get pretty restless if I don't have a trade going. I try to keep myself occupied by doing technical and quantitative analysis, just to improve my technical knowledge. 

- fundamental analysis doesn't take that long. Seriously. I probably spend about 4 hours per week on fundamental / news analysis. Studying the major news on the forex factory calendar is pretty simple. Put the results of each news release into a spreadsheet, and spend a few minutes on deciding how price will be affected. If you're unsure, try to read a few news articles from sites like bloomberg, reuters or fxstreet. It really isn't that hard. 

- keeping to your SL and TP can be tricky, at least for me. Because trades take longer to complete, there's more opportunity to mess around with your trade. 

Fundamental Outlook for Mar 8 - Mar 14

My outlook for Mar 8 - Mar 14.  

USD

The biggest headline was NFP once again beating expectations. 

Overall news: Bullish
Central bank bias: Mildly hawkish
Outlook for this week: Bullish


EUR

The ECB chose to hold interest rates last week. Unemployment news was also good, while other economic indicators were mixed.

Overall news: Bullish
Central bank bias: Ultra-dovish
Outlook for this week: Neutral


JPY

Quiet week for the JPY. Only one medium-impact news release (average cash earnings y/y, which was a little bullish).

Overall news: Mildly bullish
Central bank bias: Mildly dovish
Outlook for this week: Neutral


GBP

The BOE held interest rates last week, as expected. The BOE members' votes will be more meaningful when they are released later this month.  Other news was mixed. 

Overall news: Neutral
Central bank bias: Mildly hawkish
Outlook for this week: Mildly bullish


CAD

The BOC likewise held interest rates. There was some expectation of another rate drop, so this decision was bullish. However, most economic indicators last week fell below expectations.

Overall news: Mildly bearish
Central bank bias: Dovish
Outlook for this week: Bearish


AUD

The RBA was the fourth central bank to hold interest rates last week. The deputy governor indicated that the RBA was content with the current exchange rate, so perhaps the RBA will ease back on jawboning the AUD. Other news has been mixed.

Overall news: Bullish
Central bank bias: Dovish
Outlook for this week: Neutral


NZD

News has been mostly neutral. 

Overall news: Neutral
Central bank bias bias: Marginally hawkish
Outlook for this week: Mildly Bullish


CHF

Only a few news releases last week, but both were bearish. SNB's foreign reserves increased, signalling attempts by the central bank to devalue the CHF.

Overall news: Bearish
Central bank bias: Dovish
Outlook for this week: Bearish


MY CURRENCY PAIR WATCHLIST

Looking for longs: USDCAD, USDCHF, NZDCHF, NZDCAD, GBPCAD, GBPCHF
Looking for shorts: none

Opened - Long NZDCHF

This'll be my last post for tonight. :)

The price action on NZDCHF seems to be more bullish than the USDCHF at the moment. The reward (1R) is acceptable and I'm fundamentally bullish on the NZDCHF. 

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Closed - Long USDCHF (opened 4 March 2015)

I might've closed this trade prematurely. This trade was only opened yesterday and seemed to make good ground a few hours ago, but then abruptly retreated. There's about four hours left in the US session, so there's a good chance that today's candle might close as a pinbar. That's too bearish for my liking, so I closed the trade and took profit at 0.25R. 

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Closed - Short EURNZD (opened 27 Feb 2015)

I took profit on the EURNZD I had opend on the 27th of Feb. Price has begun to settle during the second half of the NY session, and is only a few pips from my profit target, so I decided to manually close the trade and take profit before the Asian session starts. Reward was 1.4R.

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Opened - Long NZDJPY

Price broke upward on the NZDJPY some hours ago. I had went long just before the breakout, out of impatience, which was stupid. I need to keep my impatience in check.  

You can see that 90.000 is behaving as short-term support, so I placed my stop loss just below that. Reward is 1.1R. 

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Opened - Long USDCHF

Looks as if the USDCHF is breaking out on the upside. I went long after seeing a confirmation of the breakout (a second bullish candle). Reward is 1R.

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Closed - Long GBPJPY (opened 24 Feb 2015)

I closed my GBPJPY long that I had opened last week. It looks as if I had entered prematurely, as price retreated after my long got triggered. Price has struggled to break resistance since then. To me, it's taking too long for price to move up.

I  got out at a 0.5R loss.

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Live Call - Long NZDJPY (1 March 2015)

There's a good technical setup appearing on the NZDJPY. It's not on my fundamental watchlist, as there was no JPY news last week. This means I'm neutral on JPY. However, the NZDJPY looks to be breaking on the upside due to NZD strength alone (I am bullish on NZD). I might take this trade at half my normal position size. 

My entry would be the break of the top of the engulfing candle (I'm hoping that enough stops will trigger here and push price up). Stop loss would be at the opposite end. Reward would be 1R, towards the top of the projected next swing.

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