LESSONS FROM A NOTHING WEEK

“Recapping the week in GBPJPY: “Tech analysis SECRETS uncovered!”

Yea, I know, it’s Friday and you want to ditch anything & everything market related, political, and/or lectures from Hollywood SJW’s. But, there are some mighty lessons to be learned from GBPJPY this week that can’t be ignored … especially if you got caught in one of the many “moonshots and/or waterfalls” from the week’s pathetic trading action.

Lesson #1: Extreme spikes [up or down], usually occurring when the 121 & 183 EMA’s are flat, and then change the slope of the EMA’s, don’t produce very good or reliable trade signals when the 5 & 9 EMA’s finally cross. It’s much better and statistically profitable when the moves up or down are 1) relatively orderly, 2) happen early in the day, and 3) occur when the day’s range is relatively small, so there is room to move. What we’ve seen this week, is anything but, with some exceptions, but for the most part the moves up/down come quickly and then evaporate quickly as the market retraces and then does nothing.

Lesson #2: Especially for Newbies to trading, or even those who have less than 5 years full-time trading experience in the non-dollar crosses, do NOT let congested time periods skew your thinking into one of, “well, it’s settled down now, so I can give it a little more room … or, it’s not doing much, so I can triple or quadruple up onlosers cuz it’ll come back I’m pretty sure”. As I stated before, they don’t call it “The Dragon Trade” for no reason.

Lesson #3: Understand fully, why you can’t sell spikes down or buy spikes up for entry into a position; if you do, they’ll carry you out on a stretcher. During very volatile weeks [400+ PIPs range], yea maybe you can get away with it … but when weekly ranges constrict [like this week (so far) and last], you will not be able to recover from the rotten LP fill you will get. This week has been a case study in stop hunts by dealers and large hedge funds, with zero follow-through in price action.

Lesson #4: Finally, understand what large spikes do to the algorithm, and how they affect market psychology; namely, they are “blow-outs” of stops that “clean out” the dealers order books, and make it very tough once they retrace to have an effective buy/sell signal that goes anywhere. Today’s trading points this out in “spades”, with both downdrafts [both approximately 60 PIPS] coming out of nowhere, and when done going nowhere for hours; signals generated after these two yielded very poor results, simply cuz the pressure is off the market, and many traders who missed the contra move back up were still short and needed to cover on any declines. On the other hand, relatively “orderly” moves without large spikes, simply continue to grind up those caught the wrong way.

Lesson #5: Understand why the cross [today GBPJPY] is acting the way it is; namely, is it cuz 1) USDJPY is going up/down, 2) GBPUSD is going up/down, 3) they both are moving relatively together in the same direction [i.e. Dollar bullishness or dollar bearishness], or 4) they’re moving in opposite directions for the day [Pound up/Yen down or Vice versa]. Today, we had the biggest range of the week [so far approximately 135 PIPS, but who knows what the NY afternoon will bring as we move to the close], and basically, both pairs moved together in fits and starts. That tells me that any stop hunt that takes the market sharply higher or lower, once we’ve pass the threshold 120 PIP range for the day mark, can be faded with a trade.

Moving right along with today’s market action, today’s move lower in GBPJPY, almost impossible to hang on to short positions, as the “3 steps down, 2 steps up” with the “Flying Wedge of Death” [FWD] all week long, giving any position true heartburn … profit there one second; the next second you’re down 5 PIPS … “whaddaya gonna do now Skippy”? I will agree, that if you’re willing to risk 30+ PIPS on a trade, then yea, you could have probably stayed short in one of the short positions … but to me, this is way too much to risk for a market that the last 2 weeks has had sub-200 PIP ranges for the entire week.

Both big moves lower, from the European open, skewed the algorithm signals, and the signals today either had the 121 & 183 EMA’s flat when it broke lower, or the spike lower meant your short signal was skewed by a large spike down; neither allows for a short trade. Instead, today was the first day I’ve used the “special indicators” section of the manual to attempt to buy a bottom … the setup was there, the trade was profitable. Directly below is the trade off the recent bottom.

I didn’t stay in this trade very long, for the simple reason I was too far away from the signal price on the 5 & 9 EMA’s, and after I got long, price really stopped moving up … when I saw that bid above 148.170, I hit the liquidation button, and got filled at 148.173 … which, by the way, was the high bid for the M1 … “you think I could have gotten this in GBPUSD”? [To ask the question is to answer it.] In retrospect, this was the first of 3 moves lower that put in bullish engulfing patterns off the bottom; it’s Friday afternoon, and while I’ll take the first one, the others I’m leaving alone cuz I don’t want to get stuck in late New York trading with prices drifting … and if I’m wrong, where do I go?

One thing of note; I’ve changed my thinking, and am lowering the range from 140+ to 115 – 120+, in order to use the “special indicators’ section of the manual. What I want to see, is some kind of “flushing” the stops, and a relative disorderly bid/offer for a few seconds … I don’t want the market to go smoothly, rather I want to see it “gap”; this tells me stops have been flushed, dealers taking the other side, time for the market to go the other way. And, if I don’t see this, I don’t make the trade.

Next week is Thanksgiving week in the U.S.; I would expect after Tuesday, everything from the New York open + about 1 hour, to see the markets die down rather quickly. With what’s going on in China, I don’t think GBPJPY goes into a “shell”; if anything, market action should pick up some. If today’s range holds up through to the close, the weekly PIP range will be approximately 163 PIPS … this is after last week’s range of approximately 193 PIPS … both rather pathetic given the news flow, especially since many Wall Street investment houses are looking for much greater volatility in GBPUSD going forward into 2018. We’ll see how that works out, but the “structural” problems Cable has with inflation & “Brexit”, make it hard for me to envision any kind of massive rally in Cable … could happen, of course, but I don’t see the volatility to the upside getting out of hand … on the other hand, the downside is “wide open” for Cable, and since USDJPY has the “safe haven” flow attached to it [why I don’t know, but it does], GBPJPY has a lot of room on the downside if things turn south in FX land. Only a general Dollar meltdown, or the U.K. starts hiking rates aggressively, will in my opinion start to see Cable to the upside with “legs” … not predictin’, just sayin’.

Overall, given the week’s extremely sloppy & choppy action, especially after the European open, the algorithm did a very good job of keeping everybody out of trouble, which by the way is its primary objective. Yes, like everybody else, I had hoped for bigger ranges and higher volatility this past week with better signals, but our “wants & needs” don’t matter … we take what the market gives us, or we get “stomped on”; markets are “predatory”, none more than GBPJPY. Trust me, it won’t stay like this for long.

I’m outta here … until Monday [if I get USDCAD data finished, I’ll post it Sunday night]. Onward & Upward!! PAMM spreadsheet directly below.

Have a great weekend everybody!

-vegas

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