Will Cyprus Forex Broker Accounts be Subjected to a "Wealth Tax"?

While we eagerly wait the outcome of this socialist experiment gone wrong in Cyprus, we would like to again remind the public that where you deposit your money is incredibly important.You need to know that it’s safe and that the brokers holding it are the most regulated and under the heaviest scrutiny in the forex industry. Trading is hard enough as it is, why expose your funds to unnecessary risk?

The United States is the most heavily regulated Forex industry in the world. All brokers must register with the Commodity Futures Trading Commission and are members of the National Futures Association.

Brokers have daily, monthly, and quarterly operational reporting requirements, detailing customer funds on deposit, # of retail and ECP forex customers that are active, whether they are US or foreign domiciled, and the percentage of non discretionary accounts that were profitable vs non-profitable among other things. Unaudited financial statements are filed monthly and audited financial statements are filed annually. Failure to comply with these NFA requirements can result in severe disciplinary actions as well as substantial fines and penalties.

A lot of traders get so caught up in trading, they completely forget about whether or not their account deposit is safe. We think it's better to be safe then to be sorry.

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AUD/USD & NZD/USD Trade Update

Our NZD/USD hit both targets yielding 27 pips and 62 pips respectively. With the average being 44.5, it more then covers the 23 pips we lost on AUD/USD.

The NZD trade portrays the importance of setting targets. If we hadn't planned our exit, we could have easily given back most of our gains by now. Nailing a big move and making a lot of pips makes us no money if we just sit in the trade and watch it reverse against us.

With the AUD/USD trade, we realized that if the pair hit 1.0340, there was a good chance it would hit 1.0400 quickly after. Sure enough, after better then expected employment numbers last night the Aussie was propelled to 1.0400 by "risk on" sentiment generated by the advancing U.S. stock market. This trade is a great example of why we feel it's necessary to pick a point on the chart where we can say we are "wrong" and no longer want to be in the trade. Clearly defining the risk on every trade is the key to our success.

Forex Trading: AUD/USD & NZD/USD

We just shorted the AUD/USD & NZD/USD this morning due to the candlestick patterns and attractive risk to reward ratios.

This is a 1 hour chart of NZD/USD. We shorted at .8250 with a stop above the swing high with a first target of .8225 and second target of .8190. If the first target is hit we'll move the stop to break-even.

The rationale behind the trade: Continued trend of USD strength exhibited in February, commodity currency weakness across the board so far this morning, the bearish engulfing candlestick pattern just put in on this 1 hour chart, and a continuation of a descending channel on the 4 hour chart.

The Aussie has run up over 200 pips since it put in a swing low at 1.0120 and the pair has not put in a decent retracement since then, so we feel it has more "room" for a push lower and our targets are a little more ambitious - 1.0245 and 1.0200

As always, we fully recognize that we could easily be wrong - the key to trading profitably is to not lose much on trades that go against us and to let our winners run. That's why it's important to ALWAYS define the risk taken on EVERY trade!

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Forex Trading: USD/CAD

USD/CAD has been in a strong uptrend recently; but the pair gave up some gains after Friday's positive NFP report and strong Canadian economic data.

USD/CAD Negative
- 50.7K Canadian jobs added versus expected 7.8K and previous -21.9K
- Canadian unemployment rate fell from 7.1% to 7.0%
- Good U.S. NFP report - Actual: 236K, Previous 162K, Previous revised down to 119K
(Note: institutional investors who want to speculate on the U.S. economic recovery while still getting some carry can buy the CAD as a proxy for the USD)
- Risk On: The CAD held up the best against the USD, with the Aussie & Kiwi close behind due to the increase in risk appetite stemming from the good economic data.

USD/CAD Positive
- The U.S. unemployment rate beat expectations and improved to 7.7% from 7.9% - this caused expectations to change about QE due to some of the stimulus being tied to a 6.5% unemployment rate target. This caused significant USD strength across the board against all of the major currencies except the Canadian dollar for the reasons listed above.

The 4 hour chart of USD/CAD below shows a clear break from the channel. This could turn into a sideways trading range or lead to a retracement.















The Daily chart below outlines the the support levels below in case the pair begins retracing, with a strong support range of 1.0100 - 1.0050

Forex Trading: AUD/USD Update

AUD/USD is behaving as we expected it might (read here) and we believe that next move will be to the downside. On the daily chart you can see the 1.0150 level was clearly broken, and the suckers wiped out. The plunge should occur next, thoroughly frustrating current long positions and those shorts who have been stopped out by the 185 pip rip up slightly past 1.0300. This speculation is supported by a very strong U.S. Dollar in the month of February and would line up with a "correction" in the market that everyone seems so sure we'll get. (Side note: when we do get it, everyone is going to begin calling it the start of a new "bear market" and after the people who bought the dips get wiped out, we expect the equity markets to rip up to fresh all time highs.)

This 4 hour chart below shows a good risk to reward setup, with 1.0290 acting as overhead resistance, and and .618 fib and highlighted area providing (short term) support at 1.0185. If we get below 1.0150 again we think price should hit parity fairly soon after that.

The Mercenary Creed

The Mercenary Creed comes directly to you from www.mercenarytrader.com, a website every trader should have bookmarked.


I. Thou Shalt Heed the Price Action.
II. Thou Shalt Respect the Risk.
III. Monitor Thy Equity Curve.
IV. Thou Shalt Go For the Jugular.
V. Thou Shalt Focus on Making Money.
VI. Thou Shalt Go Short as Well as Long.
VII. To Thine Own Self Be True.


I. Thou Shalt Heed the Price Action.

The seasoned trader knows that “prices move first, fundamentals come second.” Conviction is my ally, intution my guide — yet only price confirms and validates. I know that charts, in essence, are simple abstractions… a complex interplay of forces, reduced to two dimensions in a tightly defined space. As a Mercenary I walk the middle path, heeding price action without deferring to it.

II. Thou Shalt Respect the Risk.

When I was a child, I traded as a child, not giving proper respect to risk. But now I am a Mercenary, and so now I trade like a Mercenary, giving risk its proper due. My trading capital is my life force; like an aviator’s fuel or an ocean diver’s air supply, I shall monitor it with passion and precision. First I shall survive, for only then can I thrive; as Sun Tzu instructed, I shall wait by the side of the river for the bodies of my enemies to float by. In respecting the risk, I shall continue on as my enemies falter… and in surviving my opportunities shall multiply.

III.. Monitor Thy Equity Curve.

The Mercenary respects the wisdom of his forebears. As such I pay heed to the oldest wisdom of all: When trading poorly, decrease risk and exposure; increase risk and exposure when trading well. I will maintain a constant vigilance over critical aspects of emotion and performance: How I am feeling; how I am trading; how attuned I am to the rhythm of the market; and, most vitally, whether my precious capital reserves are waxing or waning. In this I shall trade at my biggest when doing my best, trade at my smallest when doing my worst, and prosper through the great long stretch of days.

IV. Thou Shalt Go For the Jugular.

In monitoring my equity curve I shall ‘earn the right to swing’. Like Babe Ruth I shall retain the capacity for grand slams; like Ted Williams I shall “wait for a good pitch to hit.” When profits are strong and opportunity is great, I shall emulate the palindrome and maximize my good fortune to the hilt. The gambler takes foolishly outsized or unwarranted risks, while the grinder stays forever miniscule. As neither gambler nor grinder, but Mercenary, I shall trade patiently and carefully at all times, respecting risk all the while… and then, when the time is right, I shall take a defined portion of my gains and knock the #$#@ing cover off the ball.

V. Thou Shalt Focus on Making Money.

The fool cares more about being “right” than making money, and cocktail party glory is the soothsayer’s deep desire. I leave such foolishness to the chattering classes, cultivating instead a ruthless focus on making money. I shall feel no attachment to the “big call,” no hesitation in the urge to change my mind, and above all else no love for the position. Ego is indulgence and indulgence costs money; for the Mercenary, to be “right” means nothing while profit means everything. P&L is my Alpha and Omega, risk-adjusted return my northern star.

VI. Thou Shalt Go Short as Well as Long.

The Mercenary embraces that old trading truth, “There is only one side to the stock market… not the bull side or the bear side, but the right side.” As a flexible market participant, I shall cultivate the talent and the temperament to prosper in all market environments — up, down or flat. I shall transcend the tyranny of the “long-only” mentality, and shut my ears to institutionalized helplessness. I shall know the mountains and the valleys, going long or short with ease — always remembering that “the wolf careth not, how many the sheep be.”

VII.. To Thine Own Self Be True.

As Polonius instructed Laertes, I so instruct myself: “To thine own self be true.” The Mercenary lives unburdened and unyoked, free from troublesome earthly masters; I take my living from the markets as a fisherman takes from the sea. I will embrace this extraordinary freedom, and with it an extraordinary responsibility… the responsibility to live life to its fullest. I will travel where I wish, do what I choose, live in the manner I see fit, and support the causes near and dear to me; in word and deed I shall be free, an encouraging example for my fellow men in chains.

The last time the Dow was here

If you watch prices of equity indices on CNBC while trading forex, you know that the Australian Dollar (AUD) and New Zealand Dollar (NZD) typically share a reasonably strong correlation with the U.S. stock market (albeit currently weaker than usual.) Thus, it can be reasonably inferred that when the U.S. stock market enters a bear market (whenever that may be) it should bring the Aussie and Kiwi down with it.


From Zerohedge:

• Dow Jones Industrial Average: Then 14164.5; Now 14164.5
• GDP Growth: Then +2.5%; Now +1.6%
• Americans Unemployed (in Labor Force): Then 6.7 million; Now 13.2 million
• Labor Force Particpation Rate: Then 65.8%; Now 63.6%
• Americans On Food Stamps: Then 26.9 million; Now 47.69 million
• Size of Fed's Balance Sheet: Then $0.89 trillion; Now $3.01 trillion
• US Debt as a Percentage of GDP: Then ~38%; Now 74.2%
• US Deficit (LTM): Then $97 billion; Now $975.6 billion
• Total US Debt Oustanding: Then $9.008 trillion; Now $16.43 trillion
• US Household Debt: Then $13.5 trillion; Now 12.87 trillion
• Consumer Confidence: Then 99.5; Now 69.6
• S&P Rating: Then AAA; Now AA+
• VIX: Then 17.5%; Now 14%
• 10 Year Treasury Yield: Then 4.64%; Now 1.89%
• EURUSD: Then 1.4145; Now 1.3050
• Gold: Then $748; Now $1583
• NYSE Average LTM Volume (per day): Then 1.3 billion shares; Now 545 million shares

Article Link here

The Success Indicator

One of the biggest differences between muppets and professional traders is consistency. It's one thing to have a couple winning trades in a row. It's another thing entirely to win 60% of 500 trades over the course of a year while always taking risk to reward ratios of at least 1:1.

So how do we achieve consistency? The answer has nothing to do with trading - and everything to do with YOU. Like it or not, the habits and characteristics of your personal life do not disappear when you sit down to trade. You can't magically "decide" to be strictly disciplined if you have little discipline in your personal life. You also won't have the patience to wait for your prime setup if you can't even be patient with those around you.

The path to becoming a patient and disciplined trader must be walked upon every moment - whether you're trading or not.

I've been making a conscious effort to embrace the characteristics of the ideal "successful person" listed below and I can tell you from firsthand experience that it has had a positive impact on my trading performance.

It's easy to waste money on gimmicks that don't work. It's so much harder to make changes that can make a real difference. I know, it's not easy. But it's never easy if it's worth it.

These aren't the rips you're looking for

The U.S. stock market is in a clearly defined uptrend. The #1 rule of technical analysis is to respect clearly defined trends at all times. I can fade trends and try to short the top pip; but I have to respect the trend, which means realizing that the majority of the time I'm going to be wrong and that I have to always protect myself with a stoploss.

That said, the best risk to reward ratios are found at turning points in the market. I'm a huge fan of Paul Tudor Jones. The man nailed the move in 1987. The key to picking tops and bottoms is to have very specific criteria that must be met before an entry is made - and realizing it might take a couple of shots.

Everyone keeps talking about the how the U.S. Dollar is going to really strengthen when the stock market collapses soon and the sad reality is that they are trading that bias - against what the tape is telling us. I'll trade what I see. If the stock market nose dives, I'll be shorting the Euro and commodity currencies in a heartbeat. But all I see from the tape is equity markets that are in a strong uptrend due to QE and an "improving" U.S. economy (which is the reason for a strong USD/JPY today.) The S&P 500 dropped over 11.50 points today, and ripped right back thanks to it being a POMO day. The tape is telling me that the S&P 500 and Dow Jones are going to all time highs, and that if we see a drop in equities, it will most likely be a good opportunity to BTFD.

Chances are, these are not the rips down you're looking for.

Forex Trading: AUD/USD and NZD/USD

NZD/USD
The Aussie and Kiwi should be interesting pairs to trade over the next couple weeks due to the increase in volatility and the current disconnect between the U.S. stock market and the U.S. Dollar. With the sequestration scheduled to come into effect tomorrow and little optimism that the Republicans and Democrats will reach a deal, it could have a positive affect for both equities and the USD.

Let's look at some charts. This is a daily chart of the NZD/USD with the 200 SMA and 200, 100, 50, & 20 EMAs. I want to draw your attention to the trendline support, which was broken slightly (which trendlines often are because muppets typically put their stop losses and sell stops below them.) Price moved right to 0.8225 (study price reaction at 00, 25, 50, 75 levels) where the 200 EMA helped provide support.  Price then rebounded to the open of the large down candle (2/26). Price often encounters new supply and demand at the opening/closing price of daily candles.

So what does this mean? The trend on the 4 hour chart is down. Trend continuation on the 4hr chart and a breakout of the channel to the downside on the daily chart is the scenario that makes the most sense to us. Remember, we've had a small break of the channel to nab the sell stops and stop losses, then a rip up to squeeze the new traders who entered with sell stops. A rip down would frustrate the most amount of traders at this point, that's why we consider it the most likely scenario.

Even though we have developed a bias, it's important to note that we are often wrong - just as all traders are. The important thing is to not get hurt badly when we're wrong and to let trades ride and make a lot of money when we're right. So what's the purpose of performing analysis when we're wrong a good deal of the time?

Dwight Eisenhower said it best, "plans are useless, but planning is everything."

If you understand the current chart and the possible scenarios, it makes it easier to adjust for the constant changes in market variables.




On to AUD/USD. We've noticed that a lot of "high profile" traders on twitter have been saying that 1.0150 is support on AUD/USD. Similarly to the situation in NZD/USD, there are probably already stop losses and sell stops accumulating below 1.0150. There will probably also be buyers at 1.0150. We think the most likely scenario is a move to 1.0150 (buyers enter), then a move lower to squeeze the buyers, trigger stop losses, and trigger sell stops. After that's done, a short move higher to squeeze the traders who entered with sell stops, and then a move lower to parity.

This is one of the most common scenarios we see played out in the market. Day after day, week after week, month after month.

Once I can pin point bids and offers on a chart and know the levels where traders should get hurt, it becomes easier for me to find entries with great risk to reward ratios.

Forex Trading: Market Update

The market was decidedly in "risk on" mode today after good economic data was released and Ben Bernanke reiterated his commitment to Quantitative Easing (QE) until the unemployment rate dropped. The uptrend in equities since March 2009 has remain intact, and bullish sentiment is still not at extreme levels. With the distance we are away from all time highs in the Dow Jones and S&P 500, we think the most likely scenario is a break to all time highs. This should trip a lot of stop limits, buy stops, and bring in more money off the sidelines. At some point there will be a correction; but unless the issue is serious enough to create the beginning of a multi-year downtrend, it will most likely be a dip, providing a good buying opportunity.

The main reason the U.S. stock market has been so well bid over the last couple of years has been QE - and Bernanke reaffirming his commitment to easing gives the bulls a green light to continuing buying. That's what matters more then the "economic realities" bears claim exist. Maybe they are right; but it doesn't matter. When it comes to the markets, price is the only reality there is.

To the FX market: there's been a notable divergence, as the U.S. Dollar Index has remained well bid in the month of February, even as equity markets have pushed higher. There are two possibilities: either the correlation between risk on/off and the U.S. Dollar is breaking down, or the break in the correlation is only temporary in which case the equity markets will soon rip down or the USD will weaken substantially. This question may be answered this Friday (March 1st) when President Obama's sequestration is scheduled to go into effect.

Sequester Update

If you're a trader who's interested in market commentary and current events, DYDD (Doing Your Due Diligence) is a website worth checking out. The following post below was written by Robert P Lehman and can be found here. You can follow bob on twitter here.

Sequester Update
Well, the days tick by and there is really little of substance to report, although the political game playing continues in SIZE. The deadline for the Sequester is March 1, 2013 and it appears that nothing will be done to avoid it. I alluded to that in the addendum to my last post on the Sequester, it appears the Republicans have concluded they can win this fight.

The Republicans efforts around the upcoming Sequester thus far have been limited to pointing to Bob Woodward’s account that Jack Lew, current nominee to become Treasury Secretary, came up with the idea of the Sequester. The beauty of the idea, supposedly, was that a Congressional Super Committee would be “forced” to come to an agreement or face painful cuts to sacred cows of the Republicans (defense department) and the Democrats (discretionary spending). According to Woodward’s book, the White House was gleeful about the “genius” of their idea. That glee has apparently diminished and the President and his acolytes, have been treating the idea like an ugly stepchild. Meanwhile, the republicans seem to delight in reiterating that the idea was the President’s to begin with.

The White House’s recent strategy is to attack, and some might say strike fear amongst the electorate regarding the impact of Sequester. A parade of Cabinet leaders have been paraded on news shows warning of the harsh consequences of allowing the Sequester to be implemented. They paint a dire picture, but hosts have frequently countered with confusion as to how the Sequester impact can possibly be severe. Political commentators have suggested that the Administration will make cuts where they can be easiest to put on television, specifically reducing staffing in certain major airports. The thought is that doing so would increase pressure of recalcitrant Republicans, but the strategy poses risks Equity markets seem largely indifferent to the debacle.

At 11th hour, Sens P. Toomey and Inofe are looking to move a bill forward to allow President special authority to allocate cuts. No idea if this comes to fruition.

Famous Quote

“All a trader needs to know to make money is to apprise conditions. The big money was not in the individual fluctuations but in the main movements that is, not in reading the tape but in sizing up the entire market and its trend. And right here let me say one thing: After spending many years in Wall Street and after making and losing millions of dollars I want to tell you this:

It never was my thinking that made the big money for me. It always was my sitting.“ - Livermore

Forex Trading: GBP/USD

The GBP has been the second weakest of the major currencies recently, only being outperformed in the race to the bottom by the Yen. We recognize that the GBP is in oversold territory (RSI below 30) and realize the possibility for a corrective move higher; but we believe that both the technical and fundamental views point to a lower GBP in the medium term.

The fundamental argument can be easily supported by browsing through the last 6 months worth of GBP economic data on Forex Factory's Calendar. Once the "Olympic Effect" wore off, the GBP numbers began to miss expectations. One of the main problems in the U.K. is the punitive tax rates. This problem has decreased general competitiveness and productivity and caused an exodus of businesses and employees in the finance and banking sectors. As Zerohedge reports here, jobs have become so scarce that it's even difficult to obtain a part-time job as a coffee barista.


Technically speaking, this is a clear breakout from the triangle pattern shown below.

The .50 fib retracement drawn here on the monthly chart had held really well until we recently broke through it.

Here's a closer shot of price action (a weekly chart) with multiple bounces off of the .50 fib

On the daily chart we have a clear break from the bottom of the range (1.5660) and a resulting 580 pip drop that occurred with very little consolidation. This suggests that there's scope for consolidation even though price has been dropping quickly so far and we feel trades to the downside still offer good risk to reward ratios.

As per our previous post on the GBP/USD we've highlighted an attractive setup that we'll look to play if the GBP begins to strengthen. The key arguments for GBP strength are:

- This is a "buy the rumor, sell the news" scenario. The rumors of a downgrade started flying when GBP/USD was trading above 1.6000 and now the UK's credit rating has just been downgraded.

- If the Euro keeps selling off, then EUR/GBP should continue its descent, giving the GBP underlying strength across the board.

- The variables we consider before taking a trade are always in motion; but right now we're looking at 1.5425 and 1.5500 as attractive resistance levels to sell into GBP strength should it run the price inefficiency beginning at 1.5315

Forex Trading: GBP/USD

GBP/USD has just spiked up as the .382 fib retracement at 1.5250 held. There's a price inefficiency from 1.5315 to 1.5415 that price may move through very quickly if it breaks above the swing high of 1.5325.

GBP/USD has come down from 1.6350 to put in a fresh yearly low at 1.5130 - a move of over 1200 pips!! It has made the move down with really no corrective move and very littler consolidation, so there's plenty of scope for a bounce at these levels.

EUR/GBP is also beginning to drop along with EUR/USD (currently down 500 pips from a high of 1.3700) due to political risk & negative growth revisions. If it continues dropping it will contribute to GBP strength as the Euro is the #2 most liquid currency in the world (think of the cross effect EUR/GBP has on GBP/USD in terms of volume traded.)

Below, a picture perfect example of a price inefficiency.

Update: Moodys downgraded the U.K.'s credit rating on Friday after the U.S. equity markets closed causing the GBP to drop sharply against its peers and gap lower 100 pips on Sunday's open. It just goes to show you that good setups are never guaranteed to work. We all have losing trades; but managing risk is what sets the successful traders apart from everyone else.

It still remains an attractive setup that we'll look to play if price makes its way back up to 1.5315

New Zealand Dollar - Time for Intervention

Moments ago Royal Bank of New Zealand's Wheeler said the Kiwi was overvalued and that the RBNZ stood ready to intervene in the currency if necessary. The RBNZ members have long since been annoyed by what they consider to be an extremely high exchange rate due to speculation; but this is the first time they've mentioned the possibility that they may intervene in the FX market.

The Kiwi pairs have been trading at high levels recently and this announcement has surprised the market. There's plenty of room to the downside, and it seems probable that NZD/USD will come under significant selling pressure during the upcoming European and US sessions.

The important thing to know about NZD/USD is that it isn't as liquid of a currency pair compared to USD/CAD or AUD/USD. If this pair starts moving down and picks up momentum, the lack of liquidity could cause a sharp move down if carry trades begin to be unwound. The lack of liquidity can make it costly to unwind large trades, and this kind of comment could cause traders to start unwinding their trades now to avoid getting stuck in a nasty situation later on if NZD/USD dumps.

Biases

The Day Trader's List of Common Mistakes

I like to write lists. Not only do I find the process therapeutic; but it often results in the realization of things not previously considered. So here's a list of the common mistakes that I make.



Having an emotional reaction to a news event. (The unexpected comments out of the G-20 and G-7 meetings recently have been annoying.)
 *Solution: I'm a day trader and usually don't hold positions overnight. When something unexpected happens that causes price to violently react, I find it's best more often then not to sit on my hands. I will go immediately flat if I believe my positions are in danger, and have found (the hard way) that it's best not to trade unless I see a highly attractive setup, and then to only play it with 1/2 or 1/4 of my normal position size. When price is more volatile then usual, I find myself eager to "get some action." Resisting and literally sitting on my hands has been the best solution for my P&L.


Not cutting losers fast enough. Everyone who trades has probably heard the "cut your losers short" phrase, and mostly thought to themselves that it was good advice but utterly failed when trying to implement it.
 *Solution: I don't struggle with this issue very much anymore, simply because I've gone to an intraday-only policy for holding positions on my main account. By forcing myself to go flat at the end of the day, I now ask myself, "What do I expect to get out of this position before I'm forced to cut it at the EOD?" If the answer is less than what I could get for right now, I simply cut it. Using time in conjunction with a TP is how I make it easy for myself to cut my losers short.


Chasing a move.
*Solutions: There are plenty of ways to skin a cat. I occasionally play breakouts myself. However, I've found it's risky to play breakouts when I'm strictly trading intraday. I always like to sell into strength and buy into weakness while playing in the direction of the trend. Look at any chart and you'll see a lot of candles closing in either direction. If there's that much volatility, then chances of getting a good entry are higher if you buy on the "x"th bear candle and sell on the "x"th bull candle. There's a plethora of more variables to consider; but I've found that adopting this mentality has been a big help for my trading. It also typically yields better risk to reward setups.


Overtrading.
*Solution: Go play golf. If I'm not feeling patient enough to wait for my setups, I leave the computer before I do damage to my account. Being patient and maintaining discipline is literally 90% of what it takes to be successful at playing this game. That's your answer for why so many people fail. It's so hard to be perfect in these categories and it only takes one slip to kill an account.



Not taking profit fast enough.
*Solution: It happens, we all get greedy. My general rule of thumb is that it's better to take profit too soon and be extra careful when trading a counter-trend setup and let winning positions run a little if they are with the trend. The key is to get all of your levels mapped out (horizontal S&R.)


Over-leveraging.
*Solution: Don't do it. It's the hardest thing NOT to do. Ultimately we are all trading to try and make money, and the allure of a quick return is powerful. All I can tell you is that every trader I've seen who hasn't had a solid risk management system has been wheeled out of the trading floor on a stretcher sooner or later. The best advice that I've gotten is to repeat in my head that if I over-leverage, my account is as good as blown up. The WORSE thing that can happen to a trader is to over-leverage and make money. That provides positive reinforcement to a potentially fatal habit.

Forex Trading: Market Update

New Zealand Retail Sales q/q just came in: Actual: 2.1%, Exp: 1.3% and previous -0.4%. The Core retail sales came in slightly lower; but still above the consensus estimate: Actual: 1.5%, Exp: 1.4%, Previous -0.3%.

The Kiwi ripped on the news, which was to be expected because there was evidence of strong short interest entering just prior to the news. (Check the 1m candles - did not correlate with risk appetite across the board.) The economic data releases out of New Zealand has been so bad over the last quarter, that the sentiment of short term forex traders was decidedly negative. As we know, when sentiment becomes this lopsided, there's attractive risk and reward to be found in fading it. Especially when fading it means trading with the trend!

From a technical view, we are in an uptrend on the daily and 1hr chart and are now breaking out of an ascending triangle on the weekly chart. Graphs are located here.

It's important to note that at some point, the equity markets around the world will probably capitulate, and commodity currencies will sell off hard against safe haven currencies (primarily the USD.) It's also important to note that THIS HASN'T HAPPENED YET. It can be deadly to base a trade on a theory of what might happen, without seeing evidence of that already beginning to occur. I heard a lot of people on CNBC shorting the market last fall and telling the world the stock market was going to sell off due to fiscal cliff concerns. Guess what, it didn't happen. When the carnage does finally begin to occur, I have a feeling everyone will KNOW the bloodbath has begun. If it's really that apparent, it should be easy to identify and jump on. Until then, I'm going to remain patient and play the price action that I see in front of me.

When in doubt of what to do, I usually refer to the popular saying on Wall Street, "If you're early, then you're wrong."

Note: I would not be surprised if this is a false breakout on NZD/USD and we run up to 86.00 or 87.00, causing the shorts to cover and new longs to enter the market before a sharp reversal. It seems like that course of action would cause the most pain to market participants as a group, so it seems logical that it would happen.