Currently, The Asian, US and elsewhere stock market looks healthy. The problem in the US housing market is "contained" in the subprime sector. Everything seems to be robust...
But what others don't know is that the risk of loss is always at its highest on the precise moment that most people judge it of least concern. Eventually, prices would reach its tipping point... a moment of desperate reality... another market crash. Most likely, there will be no crash tomorrow nor the day after. But there are some things you are better off preparing for, even though they may not happen for a while.
Here are some of the concerns that traders should focus on in the coming days.
1. The Chinese stock market is getting hit hard. Its CSI 300 Index is down 17% in the last three weeks. Brokerage account openings have dropped by two-thirds. Could global hot money... and local cold cash…turn bearish on Chinese shares? Could this trigger a worldwide equity sell-off? Yes it might.
2. The dollar is in trouble. The Friday's NFP released data was in favor for the dollar but it didn't help much. On Wednesday, it hit its lowest level against the pound (GBP) in 26-years. It is now near its lowest level ever against the euro. Trillions worth of dollars now sit in foreign vaults. while reserve managers openly talk of diversifying away from greenbacks. Foreigners don't have to abandon the dollar in masse to knock it down, all they have to do is to let up on their purchases of dollar-denominated assets - such as U.S. Treasuries. Could it happen? Could the shock cause a crash in major financial markets? Why.. yes... it might.
3. All paper currencies are dangerous. The dollar is not the only paper currency in the world whose supply is growing rapidly. Practically every central bank is printing up its own money in vast quantities - trying to keep up with the U.S. brand. This is why the world has so much "liquidity." It's why so many assets are rising in price so steeply. But could investors suddenly become fearful of so much monetary inflation? Could consumer prices shoot up as asset prices already have? Could the world's people want to get rid of their paper currencies in favor of other stores of value - notably gold?
4. A Milan-based bank, Italease, has just seen its derivative portfolio blow up. So has Bear Stearns (BSC). Large lenders are getting skittish of complex debt instruments, just as more deals than ever before come to market. So far this year $1 trillion in deals have been done in the North America - a rate of deal-making nearly 50% higher than the year before. What happens if the wheeler-dealers don't find the credit they're looking for? What would investors think if even one of these mega-deals blew up badly?
5. The Bank of England raised its key interest rate on Thursday by 25 basis points to 5.75 percent, another six-year high. This is the fifth time this year. The ECB's Trichet held steady this month but hints that rates will go up in the future. Elsewhere, banks are likely to hike rates too. And watch out if the Chinese decide to do some serious tightening.
Could there be even bigger blow ups waiting to happen? And could they cause a stampede for the exits? Anthony Bolton, Britain's most successful fund manager, worries about it. So does the Bank of International Settlements. And so do central bankers in Madrid, London and who knows where else. And if the pros stop lending so freely, might not it trigger a credit crunch and a crash?
For the last 2 weeks. The majors just did a range bound. If you look at it in a medium term chart, market is indicision phase. The after effect of this would be a breakout, whether a big reversal or a continues steep down... we don't know yet. But we will keep our eyes open.. and keep our ear on the ground.
Market Crash Ahead?
7.6
July 6 (6:45 EST)- The Green line is the same trendline I drew on my (4h chart) post last July 3. I said breached of that line means continuation of the up move, This is the number 1 on the chart above.
On my post right before this one. I said "EUR/CHF pair broke the upside trendline, but indicators are showing overbought. Might have to wait for a dip to get in". This is the number 2 on the chart.
On number 3, the dip stopped at the same exact trendline with confluence of lower ATR and 61.8 fib level. Then make a reverse to the number 4, which lays the confluence of the new "mid term" trendline and upper ATR. Indicators also showing overbought, so price might bounce there.
If you draw a trendline from "A" to "3". This might be the next stop before resume of the uptrend. Take note that the price just reach higher than the previous highs. This is a good indication of long term bull bias.
Just my observation. Trade it at your own risk.
Size Does Matter
It is often said that to grow as a person that you have to stretch and move out of your comfort zone. I definitely believe in this concept, however…
When it comes to trading stocks, futures, options or forex, stepping outside your comfort zone can be dangerous!
Let me explain… Say, a trader is used to trade 10% of his/her equity at a time, with the average value of 10% risk, They are very comfortable putting this amount at risk. What's more, they never experience any anxiety and can sleep well at night at this level.
However, watch what happens when these traders decide to up their ante to 15 or 20% risk margin. All of a sudden they are worried about every tick against them and start riding an emotional roller coaster based on the current price of the currency.
At these levels they become much more emotional and their judgment becomes cloudy. As a result, they start making bad decisions that never occurred at the 10% risk margin level.
A good idea is for you to take a good hard think about what "size trader" you are and where you are completely comfortable at. Write these numbers down and force yourself to never deviate from them.
When the time does come to raise your bet size up, do it in small increments over time.
I assure you, that by sticking to this simple concept that it will make trading a much more comfortable and profitable experience.
Be patient and stay focused and the money may roll in at levels you never thought possible!
Happy 4th of July!
The US dollar was steady against other major currencies in morning trading here Wednesday as players remained on the sidelines before the Independence Day holiday in the US.
All 4 majors trend sideways since this morning. Thin liquidity is expected to persist until Thursday's announcements about interest rates in the UK and the euro zone. ECB is expected to keep rates on hold, while BOE is expected to raise rates by 25 basis points.
European bonds are trade lower in today’s session following an unwinding in safe haven flows as market participants jump back into equity. This is good news for carry trades.
EUR/CHF pair broke the upside trendline, but indicators are showing overbought. Might have to wait for a dip to get in.
GBP/CHF pair trend sideway with overbought conditions.
End of New York session 7.3
Price bounce off the 76.4 fib and make a run to 1.6550 where it hit a trendline. Stoch and CCI shows overbought, we might see a bear move from here. Breach of the trendline envisage a continuation of the bull run.
Take a closer look on the earlier 76.4 fib bounce, all 3 indicators suggesting reversal. Another 2 pips worth.
Objective Mindset for Profitable Trading
Source: My FXroundtable yahoo group
Author: hunting4pips
In an interview with one of my colleagues several years ago, Curtis Faith described the mental edge he had over the other Turtles that made him the top performer: "I had a very detached perspective. I did not get emotionally caught up in things. And so I had the type of personality that made it easy for me to withstand long-term periods of losses. That let me continue to execute, and it let me approach a problem differently from the other Turtles." It is difficult to prevent feelings of anxiety, frustration, and loss from interfering with trading. When many traders face a drawdown, they feel stuck and afraid. But winning traders stay detached and objective. And that allows them to survive, continue trading, and get out of drawdowns.
If you are passionate about what you do, it can be difficult to avoid putting your ego on the line with every trade you make. And when your ego is on the line, it's difficult to stay objective. You may know intellectually that you shouldn't take the outcome of a trade personally, but you do. It's natural to show some concern about the outcome of a trade. Whether you are a systems trader, a discretionary trader, or a combination of both, wins and losses matter and it is often hard to keep feelings of euphoria, relief, frustration, and disappointment out of the picture.
Humans naturally avoid risk. They don't like losing. People are willing to gamble a large sum to avoid a potential loss than immediately accept a smaller but certain loss. Novice traders have difficulty taking risks. They don't have a rock solid track record, so they are not sure what to expect. Besides a lack of experience, many novice traders have limited capital. In the back of their mind, they hope that they will make enough winning trades to make up for losing trades. The pressure to
meet these expectations can be daunting, however. In an effort to do well, a typical novice may put on a trade that is too large, and may not delineate or follow an adequately detailed trading plan, in a fruitless attempt to get ahead or make up losses. But these actions are overly emotional. They are impulsive and based on fear, rather than on a cold, objective analysis of available information.
It can be difficult to take a long, hard look at your chances of success, especially when you feel the pressure to perform in an uncertain enterprise like trading. That said, in many ways, trading the markets is much like other businesses. For example, if you were to open a small convenience store, you would need to make an accurate assessment of the perishable goods you could sell. If you buy too little, customers
may be put off when they can't buy the products they need and you may lose customers. On the other hand, if you stock up on too many products, they will go bad, and you will end up losing money. Your survival depends on your ability to anticipate what your customers want and recover from changes in their demands. In running your trading business, you may not need to lease retail space or maintain an
inventory, but you do need to take risk, anticipate setbacks, and figure out a way to survive. People are inconsistent and difficult to predict. Your plans may not always come to fruition. The fickle nature of the markets demands that you have extra capital to weather the storm and reliable trading strategies that have a statistical edge.
Losses are a fact of trading. There is no such thing as a foolproof trading system. In the end, traders must look at the odds of success and live with the uncertainty of the outcomes. Across a series of trades, you may have to deal with losing streaks as well as winning streaks. Market conditions change with minor and major events. Last week, for example, we saw the impact of an impending fed announcement, but future world events may also impact the markets. Even without these events, though, the masses may change their mind regarding their perceptions of the markets. Sometimes, the masses behave according to prescribed and consistent patterns, but sometimes they do not. And that is where uncertainty really comes in.
Why do some traders fear uncertainty? People are used to protecting their resources. We like to believe that we can protect our assets, whether they are property, stocks or bonds. But trading the markets is risky, and loss is a certainty. Even if you use a trading system with a solid track record, profits are not guaranteed. Across a series of trades, a string of losses and a resulting drawdown can wipe out profits. It is common in some cases to lose 50% of one's account or more, even with a system or strategy that will produce a decent return over the long run. Living with such uncertainty is vital. You must have both psychological and financial resources to survive.
When your capital is limited and you are taking on too much risk, it's hard to control your emotions. Since you are not risking money that you can afford to lose, it is difficult to fool yourself into believing that you are. It is hard to forget that real money is on the line, and that losing your stake is quite possible. However, it is vital to take a realistic approach to trading. Take a hard look at your capital and your past trading performance. Based on your past track record, determine how much you can make realistically. Remember that drawdowns and setbacks
are a fact of trading, so it is necessary to honestly evaluate your trading skills, your financial resources, and your commitment to success. As simple as it sounds, many traders have difficulty facing their personal and financial limitations. But the only way to succeed is to accept your limitations and figure out a way to get past them.
Cultivating a rational, objective mindset is essential for profitable trading. But when your money is on the line, it can be hard to remain objective. If you are riding a rollercoaster ride with regard to your emotions, however, it may reflect real fears. The only way out is to take an honest look at your personal and financial resources and find capital, reliable trading strategies, and the committee to gain the experience you need to trade with the proper mental edge.
7.3
EUR/CHF is in a consolidation phase right now at 1.6490 after a hard drop yesterday. 1.6490 which is also the 76.4 fibo of 1.6416 low to 1.6667 high. 76.4 fibo is the last strong support level. (4h chart) Candle closing below it could get the price to 1.6416 (100 fibo) or 1.6350 (127 fibo); While fail to breach 76.4 fibo will resume the bullish reversal. The GBP/CHF is at the same situation as the EUR/CHF, almost identical.
On the daily chart, a bearish engulfing candle formed 3 days ago, suggesting a downtrend bias.
According to one elliot wave practitioner, it should drop atleast to the 1.62 level, before we can see a total reversal. gee... I don't know, I hope not.
On the fundamental side. US stocks rally with Dow up 126 on Monday. Bear Stearns concern eased. Swiss annual consumer inflation rate rose 0.5% from last March of zero, a continues .3% monthly increase would increase pressure for a more aggressive monetary tightening, which will force SNB to rise their interest rate. Overall, fundamentals contradict to each other. I will just stay aside, and only place small baits once a saw possible opportunity.
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Last week update:
PMTFC end the week with 3439 equity. While TN account ended with 7370.
Not much difference from the previous week results, since EUR/CHF is in range bound the whole week.
To clarify something. This blog is not set-up to compare PMTFC's account with TN's. Both strategies are different though both are hedging correlated pairs, starting equity are different, risk percent used are different and the close and opening of positions are not at same levels.
