It’s no secret that the SNB has been in the markets buying euros to maintain its 1.20 EUR/CHF currency peg. The euro, however, is a loosing currency to hold as it looses value in the face of its sovereign debt and political crises. To hedge against this loss of euro value and diversify its foreign reserves as it accumulates euros, a pattern, first noted by Credit Writedowns and included in yesterday’s digest, has emerged that the SNB sells its intervention euros for other, more valued currencies. And it looks like one currency of choice may be sterling.
Euro has drifted higher in the face of interventionHowever, euro sells off versus the sterling post-intervention
Sterling strength has been mysterious to many traders because UK fundamentals are so poor (poor economy and tons of QE). Perhaps the SNB has been big buyer of sterling as it looks to quietly get rid of a devaluing euro that it is forced to buy. Now as $EURCHF is hovering around the 1.20 peg, I have to wonder if we’ll see a drop in $EURGBP when the SNB enters the forex market again. Some argue the SNB is already in the market.
Too many people say “I was too early on that one” to reassure themselves that they were right after all. The bottom line, though, is: if you didn’t make money, you weren’t right. So stop lying to yourself and work on your timing!
Great read over at Richard Todd’s blog on timing. Timing is something I strive to improve upon every time I’m in the market. I realized early in my trading that the entry of a trade is just as important as the exit. I personally feel it is more important. Todd’s post got me thinking about what it is I do to improve the timing in my trading.
Use tighter stops. This is a recent change I made about a year ago. I know it is very counterintuitive and even ill-advised. But tight stops don’t allow you to be lazy when entering markets. There can’t be any “Oh I’ll just get in right here.” There must be a reason for every trade and that reason is your price. A trade is triggered because price has reacted a certain way at a specific chart level. It is at that level where we would love to get in at. It is the level that will maximize our profitability. An early entry is too impatient. Impatience is never a good way to trade. A late entry is a missed entry. Missed trades simply don’t pay which can be okay but refer to the above quote.
Use limit orders. Trading live in the market can be exhilarating and boring. Both environments have positives and negatives but they have one thing in common. They both affect timing. In a volatile market, some traders get an itchy finger pulling triggers as fast as the market can oscillate. In a slow market, impatience rears as a trader enters a trade just to trade. Using orders allows me to time my entries to a certain extent as I let the market come to me. If the market never comes to me, then it’s time for a new setup and a new trade. With capital preserved, I can go into that next trade with a clear head.
Using profit targets. There is aplethora of literature out there about using stops. Far less is dedicated to using limit orders to set profit targets. Many traders will place a stop but never set a profit target. Without a hard profit target set, the trader may be away from the screens when the market finally does move in her direction. Or worse, the trader hesitates, or simply refuses, to take profits off the table. Use hard (tight) stops. And use hard targets.
Todd says timing is everything. I agree, and take it further. Timing is the only thing.
I had the privilege of meeting @DeniseKShull 2 years ago at the StockTwits Meetup during the NYC Trader Expo. I attended her session the next day and was blown away by her assertion to actually use your emotions in your trading. I followed her on Twitter. She started writing her book not too long after that conference. The rest, as they say, is history. If you haven’t read the book, this interview is a beautiful and illuminating preview. Absolutely blown away by the brilliant insights Matt and Denise discuss. LISTEN TO THIS INTERVIEW. Read the book. Get your mind right. Happy trades.
If you started this week with a trading plan on a currency pair, good for you. That’s just the first hump. Get a plan. Write it down. Yes, typing counts. Write down what you see the currency pair doing. Write down the key levels. Write down what you will do if it gets to those key levels. So if you managed to get that done between Saturday and Sunday afternoon, I say KUDOS to you! Celebrate.
The second half of the battle is simply trading the plan. Think about your week. Those of you who had the plan, think about your week trading that currency pair for which the plan was written. Did you trade your plan? Did you understand the plan you didn’t write and trade that plan? Did you have to trade your original plan anyway by the end of the week? Was any that successful? Good for you, fellow traders! Some among us had a flawless week. Most of us had mistakes. And yet we all have something to learn and take with us back into the markets on Monday. Celebrate.
My lesson this week is: Trade your plan because nothing beats experience. When the market is bouncing around, it’s easy to loose your way. Go back to the plan.
Sound simple. It’s not. Sound daunting. It doesn’t have to be. Start with a plan. No new words of wisdom today. Just a real profound feeling of pride one gets when you finish a good week of good trading. When you start to execute on that plan with the confidence of experience, you start to become a different trader. Every single time you execute. Get to that point in your trading. Don’t celebrate the money. But by all mean, celebrate a well-executed plan!
During the last days of February last week, sterling strengthened across the board. I noticed it because it was very strange to see the $GBPUSD and the $GBPAUD rise together when these GBP pairs usually diverge. $GBPUSD and $AUDUSD typically rise together on risk and a weak USD resulting in a weak $GBPAUD. Looking at the rest of the GBP pairs, sterling was being bought versus all the major currencies. As companies and investors alike exit positions and/or repatriate profits, capital flows can be even more exaggerated at the end of the month. And it seems investors are positioning with sterling.
But why would sterling go up when the United Kingdom is the only G10 country to fall into recession at the end of last year. The BoE has launched QE3 for the UK. Inflation is quite high even if the central bank chooses to ignore it until it comes back down to acceptable levels. An interesting monetary policy angle that is but that’s for another musing.
So why would sterling go up? Because of China? In yesterday’s digest, a very interesting article suggested that sterling is catching bid as a preferred funding currency to unwind long AUD positions. With China’s economy slowing down, analysts believe that Australia’s economy will suffer due to the declining demand from their large trading partner. A slowdown in the economy the main reason why the Reserve Bank of Australia is signaling a more dovish monetary policy. WSJ‘s Kemble-Diaz argues that the undervalued GBP has more value than other major currencies at such low levels.
Another reason may be seasonality.
March was a good time of year last year
In $GBPUSD this time last year, March 2011 marked the beginning of a push higher after the rally in January 2011. Cable is certainly well-posied for consolidation after its monster rally higher earlier this year. Another push higher is supported technically as long as price remains above 1.55.
Since seasonality is the buzzword on the financial circuit so far this year, let’s take it a little further. The end of the month into the beginning of the next tends to be a good time for cable. The $GBPUSD has rallied higher in the last months during this time period.
The end/beginning of the month is a good time for cable
No matter how you reason it, sterling continues to confound the bears with its strength. Against the USD, maybe $GBPUSD becomes an easy buy. But when supported with a rise in $GBPCAD, $GBPAUD, and $GBPNZD, one need only concentrates on riding this new trend while the opportunity is here and getting off where appropriate. Trade what you see.
What a professional journey it has been for me these past 3 years. When asked to do a personal blog, I passed on this opportunity when first presented to me almost 9 months ago. I didn’t think myself ready or even worthy to present ideas under my own brand. Tweeting is one thing. Even being an editor of a blog is a very different thing. I can hide (more or less) amongst other traders and opinions. But under my own blog, it’s just me all the way out there. I had done it before but on StockTwits it’s just a completely different level of authority and respect so I had to be sure that I could represent.
Thankfully, opportunity knocked twice and I was a fool only once before. I snapped on it this time. I put things in place and finally here we are. It’s been quite a journey. From trader to tweeter to editor and now my own personal forex blog. Thank you StockTwits! Let’s do this!
