Order Of Magnitude » Journal

AUD/USD – Small Long Term

wdevauld — Mon, 21 Dec 2009 05:46:16 +0000

A longer term pattern that may turn into a head and shoulders reversal on the AUD/USD currency swap.

Head of 0.940 to a neckline of 0.895 is about a 450 pips measure giving a target of 0.850 A stop could be placed at 0.9320 where a breach of the shoulders would invalidate the pattern, and honestly we'd feel a whole lot better getting out at 0.920 where there was more recent highs made. Now on a closer timescale:

If price can get below and hold below 0.8840 then we'll enter a position so that a rise to 0.92 would at most deplete 10% of risk able capital. Every standard lot of $100k you move, a pip will cost $10, so a move to our stops would cost $3600. Remember to do your own research.

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Looking at AUD.USD ahead of RBA’s GDP numbers

wdevauld — Tue, 15 Dec 2009 19:59:30 +0000

We've been in and out of several positions on AUD/USD in the past couple of weeks. We slightly ahead in trading with a few excellent positions balancing out a few more that stopped out. Tonight the Reserve Bank of Australia is releasing its GDP numbers, and as a result we're analyzing recent price action to determine what plays, if any, we would like to make

On a longer term timeframe, the 55 day moving average is rising, and is recently above current trading at around 0.9133. The rising long term daily average points us towards only entering on the bullish side if an opportunity presents itself

There is also a loose symmetric triangle forming starting around the beginning of November. The triangle points to a price tightening inward towards 0.9125, which is close to the SMA(55) on the daily. We believe this tightening is foreshadowing an upcoming price move.

For a longer term trade, the recent lows around 0.8905 (Nov 2nd) and 0.8946 (Nov 27th) are important when determining a stop. Since we'd like to take advantage of the difference in interest rates, a longer term trade is in our favour, which leads us towards a 0.89 area for a stop to allow for more volatility. Allowing for more volatility will most likely result in a longer term trade where we can collect the interest difference.

Resistance has shown itself in the 0.9320-ish area a few times with highs at 0.9328 (Oct 21st), 0.9322 (Nov 25th) and 0.9323 (Dec 3rd)

Tightening in to hourly bars, it becomes apparent that the area around 0.9175 has been a source of resistance frequently in the last 2 weeks

Our plan is to watch smaller timeframes (hourly and 10 minute) if the price action moves towards 0.91. We will not purchase higher than 0.9125 and will maintain a 0.89 stop. This equates to 225 pips of risk worst case. We will calculate the position size so that this maximum loss will equate to no more than 10% of our available capital (Rule #1). If we maintain an exit at 0.9320, we are looking at 195 pips of profit. This 1.15 Risk to Reward does not meet our requirements for a solid trade.

If we decide to tinker and adjust the upward price target to the October high of 0.9406 (changes Risk/Reward to 0.8) , or move up our stop to the 0.9020 (changes Risk/Reward to 0.53) level we are just trying to justify a trade that was objectively thrown out. That said, the GDP news is a large chunk of fundamental information and if the real numbers beat the consensus estimates of 0.4, and the market starts to significantly move showing that the information is not yet priced in, we may entertain the higher stop of 0.9020 if the strength of the hourly timeframe is significant. Otherwise, we'll let this one pass.

[UPDATE: RBA's GDP disappointed @ 0.2 as opposed to a 0.4 expected value. The pair immediately shed 50 pips in 2 minutes while we were on the sideline]

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The world still appears bearish

wdevauld — Mon, 09 Mar 2009 06:17:32 +0000

Our Freeport position we wondered about, and eventually jumped into, has been profitable so far. We've adjusted our stops to a hair below $32 so at the very least we can come out profitable. There is a lot of volume in the $40-$45, which is where we are looking to get out. The final rule for exit: we'll close it after 8 more weeks. We know that a volatile day could stop us out, and we are fully prepared for that. It is, afterall, a long position in a bear market.

The rest of the long positions the scanner turned up ultra-short funds like SDK SRS and QID. The Bear-o-meter, on the other hand pulls up a pile of names. Most of these equities and funds are well below the $10 mark, which isn't that rare these days. Finviz is saying that 116 of the equities in the S & P 500 are below this psychological line in the sand.

A lot of the names with high negative scores coming out of the scanner were of the full blooded financial variety, or some trust, loan or holding variant. An old friend, Las Vegas Sands, made an appearance again. Our entry never happened, and we figured that we sidestepped a landmine. Putting on the glasses of hindsight, we can see that by not adding LVS to a long term list, and watch for more entries, we missed out on a very profitable trade.

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Covered Call: PLD

wdevauld — Mon, 12 Jan 2009 08:21:28 +0000

The third week of the month is usually crazy, when short term pressures overwhelm logic and reason. Our weekly scan produced an interesting gem: ProLogis. Being as options expire this week, we found the bid/ask spread for the in-the-money $12.50 calls to be a bit out of the ordinary. Examining the Equivolume:

It would appear that this REIT has been going for a bit of a run and big volume appears on the right kind of days.

Now for the 50-50. We have an upward moving stock, that is due for a pullback, and in 5 trading days the options expire. PLD has a 15 trading session average true range of $1.75, which is pretty large for a stock holding the Friday's end of day price of: $14.12. Yes, 12% of current trading price.

Now, if a covered call position could be entered under these conditions, you would lay out $1412 for 100 PLD shares, and then sell a single covered call at $12.50 strike for $2.50 a share, or $250 total. If the price falls below the strike in the next 5 days, your cost basis is $10/share to offload, so we'll have a still profitable stop at $11.75 to exit the position. If the equity remains above $12.50 until Friday, you'll get called away, along with all the fees that produces. The only thing you get to take home is the premium.

So let's say your broker lets has a $10/transaction fee (hopefully you can do better). Your initial outlay is $1412 (equity) + $10 (commision) - $250 (option premium) + $10 (another commision) = $1182 (total expenses). You get called away, so you sell your stock for $1250 (minus $10 again, that broker!), and take home $1240. That mean $68 dollars in your pocket, after fees, on an outlay of cash equal to $1182 (you'll lose way more in buying power) in 5 days, if the shares stay above $12.50. If they go under, get out, and keep whatever premium erosion you have accumulated at that point. So on the upside you can get 5.7% on your money in 5 days, and there is safety net down to $10 before you start to lose money.

If your greedy, or want to take on more risk. The February call options have high volatility priced in. Have a look at our premium chart:

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Hiatus

wdevauld — Thu, 31 Jul 2008 16:35:39 +0000

Well, the stops are all in place, and we're going to spend some time away from the markets. All short term trades have been settled and that account is sitting in cash. For the longer term here's a summary of where we stand heading into a two week blackout of financial information:

Longs:

E*Trade Big Rock Pengrowth Intel Take-Two Google

Shorts:

Visa Financial Spyder Starbucks

Remember that this isn't a recommendation to buy or sell, just what we are currently what positions we are holding. Be sure to do your own due diligence

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Long Here on EURUSD

wdevauld — Tue, 22 Jul 2008 03:12:19 +0000

Over the last couple of hours buying pressure on EURUSD has been increasing against 1.5935 resistance. Depending on how you read your patterns, you could put in a 40pip profit target, considering the height of the triangle:

We're not quite that aggressive, and we also hate missing out on a good run. Offloading half the position 20 pips above resistance at 1.5955, alows us to set a stop a few pips above our entry to ensure that we don't loose anything on the posistion once it has become a winner. The initial stop should ensure a 2:1 reward to risk ratio. 10 pips of risk to the downside at 1.5915 will invalidate the uptrend, so you could even place your stop just under the local minimum @ 1.5919 to tighten up the amount at risk.

The battle won't be an easy one because 1.5940 could stop this upward trend in it's tracks, and after that we need to break the highs set on the 16th @ 1.5948. After that we can't find resistance until 1.5880 which is a nice 5 pips above where we take profits at four times our risk.

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Where is EUR/USD Going?

wdevauld — Wed, 16 Jul 2008 01:22:32 +0000

If you take a look at the daily chart for EUR/USD, you can see the pair has been trading between 1.53 and 1.60 since April. No trend has really shown itself, as the price has failed to establish a pattern of direction in its highs and lows. The price has been running up since mid-June, and is now trading very close to all time highs. We could have a breakout if the price is able to break and hold above the 1.61 level. Zooming in on a tighter timeframe:

30 - minute EUR/USD

Over the last couple of days the price has moved in an upward trend, pushing to higher highs and holding at higher lows. Recently a new high of 1.6039 was established, before the price was forced back down below 1.6. Now, a new low has been established and the price is turning up.

For the breakout, if the price moves into or above the 1.604 - 1.605 range and is not forced back, the EUR/USD could push a distance into uncharted territory. The heavily psychological 1.6 barrier would be broken, and the breakout trader would love to see the same sort of price action that happened when 1.50 fell. Of course, the resistance could hold, and push the price back down to the 1.56 levels, or perhaps all the way back down to 1.53. You have to wait for the pattern to form, else you could get burned.

For the trend, getting in now while the price fights with 1.5920 may be a good idea. Unloading at around 1.6020, which the price action has seen recently, would yield 100 pips of profit. Limiting our losses to 50 pips with a stop in the 1.5870 area would be just above recent lows.

Because of these reasons, I'm currenly long the EUR/USD pair, and looking to unload the trend trade around the all time high to seal in some profits. I plan to get back in if the rocket looks set to blast off with price remaining above 1.6

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Trade Book

wdevauld — Wed, 09 Jul 2008 08:09:02 +0000

All of the trading that was done today can be found on this July 8-9 Trade Summary. A quick summary:

¥11,300 profit
$185.75 CDN profit
€39.00 profit
$76.81 CDN in commission fees

Around here we pay our bills and buy our beer and bread in Canadian money, thus at the time of this writing if everything was converted back to CDN, there'd be a net profit on the day of $269.15 for this session of trading.

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