Wednesday, February 11, 2009


My trading stop was triggered at 90.30 during the early Asian trading!

Our initial over-all outlook however, has remained bullish for the dollar. Yen has remained range bound with the 90.00 level currently holding solid for now. I look to re-establishing a buy position at this level if it holds just before the U.S. Market opens today.

There are peculiar aspects inherent in spot currency trading that a forex trader has to contend with and which were evident in our first trade. One of which is the fact that online currency trading is a 24 hour activity which starts Sunday 22h00CET and ends Friday23h00CET. This means that if you leave positions open overnight (open at the close of U.S. trading), you must be ready to experience the low volume trading during the Australian and Asian trading hours, which is characterized by peculiar market moves and does not necessarily reflect the true sentiment of the market players in general. The true sentiment of the market starts to rear its head when European trading commences and becomes more distinct just before the U.S. market opens.

In short, in a very volatile market such as one which is seeking a bottom as in the case of USDYEN, price may range from a hundred to two hundred points between its highs and lows for the day; while the range between the opening price(Australian open) and closing price (U.S. closing) is narrow forming a short candle body (like a shooting star). If you are doing leveraged trading (margin trading), a movement of such magnitude against your position can force you out of the market unnecessarily before it resumes favorably in your direction. I have seen this happen often in my more than twenty years of trading currencies.

There are three ways by which micro account holders (those with $5,000 or less capital) can avoid this situation. One, he can choose to square all his positions at the close of the U.S. Market. Two, he can deposit additional capital before the U.S. market closes. And third, he can simply avoid a situation like this by opening a bigger account from the onset.

In my case, I left my position open at the close of the U.S. market yesterday (at 91.28 and I was still earning). When I turned on my computer again at about the time the Tokyo market opened, the price was already at 90.28 and my stop was automatically triggered causing me to actualize the loss.

It was both good and bad! Good because the stop limited my loss from further increasing as the price went further down to 89.94 before going up back to its current level of 90.08. Bad, because now I am looking forward to re-establishing my position to buy in again but with an impaired capital and in a very volatile market at that. This is basically where the risk of leveraged trading (margin trading) lies. An impaired capital(due to a prior loss) limits your effective trading range since you will be trading closer to your cut point, your margin call point. In online trading, the broker will automatically liquidate your position at a loss when the margin call point is reached without giving prior notice to you. An impaired capital can turn you to a very emotional trader unless you have a trading system you are following.

This leads me to another point which I want to bring up. One of the many things a forex trader can do when the market moves against his current position is to lock his position. This entails establishing a new trade which is opposite your already established position. For example, as in my case, I bought the dollar against the yen at 91.14 and when the price broke 91.00, I could have sold the equivalent amount of dollar against yen without liquidating my previously established buy position. This will effectively freeze everything and no additional loss will be incurred. From this point on, and where ever the market goes, whatever either one of the position losses the other gains back. This is an effective technique that you can use when you get caught in a sticky situation or when suddenly you find yourself in a totally different playing field.... when economic fundamentals turn out to be not as expected or when unforeseen developments occur. After the dust has cleared and the candlesticks is ready to resume its course, you can liquidate the position used to lock the original position at a profit. And when the market has recovered, you can now liquidate the original position at a profit.


The monthly USDYEN candlestick chart still shows a bullish reversal pattern which is initially targeted at 92.40. Any dollar bull like me will just have to contend with a possible re-test of the 87.00 level in the near term.

The daily candlestick chart is also showing that players are hesitant to push the prices further down. A breach of 89.42 on the daily chart will warrant a re-test of the 87 lows.

Buying in at the current levels of 90.05 is recommended before the U.S. Market opens. The risk factor remains at 89.42. The worst case scenario for this recomendation is a 63 pip loss!

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