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Robert Edwards
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Contrarian daytrading technician who specializes in micro scalping of stocks (using 1 minute bar charts), swing trading of stocks overnight, weekly stock option premium selling, pre-market and post-market psuedo market maker and stealth trading activity, and selling commodity option strangles... More
  • Second Up Week In The Australian Dollar So I Went Short: Will I Make Money? 3 comments
    Jul 27, 2013 2:35 AM | about stocks: FXA

    If you have been following my articles on the Australian Dollar then you will know that although we have been in a severe downtrend, I have advised going long on Friday's close, if we went down for the week. For the previous 8 Fridays prior to today, we have been down six of those Fridays and I successfully went long all of those Fridays, even though we have been in a severe down trend. Last Friday we closed up but I bought that Friday too and which turned out to be an excellent trade. After the September Australian Dollar closed last Friday at 9157, we only fell 22 ticks before rallying to a high of 9284 on Wednesday, a gain of 127 ticks. However, that same trading day we fell to a low of 9096, erasing all the gains for the week and making the trade a 61 tick loser. I had already taken my profits on the rally, but I found the move to a new low for the week quite disturbing. I felt at that point that it was time to now play from the short side on all rallies. Thus, for Thursday and Friday, when we traded above 9200, I scalped from the short side. Even though we eventually closed up for the week, at 9228, every rally was sold off during the day and it became apparent that the bulls are operating on borrowed time. Even though the close was determined at 3:00 p.m. EST, we continued to trade until 5:00 p.m. and I went home short from 9234 (I am making 6 ticks).

    I decided to look at the weekly chart of the Australian Dollar to see if probabilities favored going short on a Friday after rallying for 2 weeks. On the chart below you will see that I counted back from the present and marked 13 different times where the Australian Dollar went up for two weeks in a row. The bars are marked "A" to "M".

    (click to enlarge)

    If you travel back on the chart you will see that the week of 5/3/13 marked "A", we closed up for the 2nd week in a row, at 10282. The next week we opened lower and continued lower for nearly 350 ticks. It does not get much better than that. No drawdown and you would make a large gain on the short and the market stayed weak. Of the last 13 times the Australian Dollar went up for 2 straight weeks, one made immediate money on the trade with little if any drawdown, and the market stayed weak, on weeks marked A, B, D, F, H, and M. That makes 6 out of 13 times, the trade is a major winner and immediate gainer with virtually no drawdown and it was virtually impossible to mess up the trade. Of the remaining 7 trades, three times we fell down but eventually retraced, requiring a trader to get out or at least place a stop to protect profits. Week E, we dropped 92 ticks for a nice gain before ultimately reversing higher, week G we dropped 195 ticks prior to reversing higher for the week, and in week K we fell 217 points before reversing and slightly closing up. These are all very fine winning short trades. Twice the trade was a wash. In week C, the market went sideways with 46 ticks against the trade and 46 ticks with the trade, the following week. Week L was a wash, as one had to get out quickly with 44 ticks of profit before the contract moved hard against the trade. Twice the trade was not a winner. Weeks J, and L were not winners--at least not initially. Week J required weathering 167 ticks or $1670 of drawdown, before we went negative on the week and the trade became profitable. Ultimately a small winner with some pain. Week L, had 216 ticks of drawdown ($2,016) before starting a five week drop[ that could have eventually given a gain of 1226 ticks ($12,026), a great risk/reward trade.

    Conclusion: 85% Chance Of Winning On This Trade

    What I have learned is that out of the previous 13 times the Australian dollar closed up for two weeks in a row, going short made immediate money with virtually no drawdown 6 of the 13 times with the market staying weak. It would be virtually impossible to mess up and take a loss these weeks. Also 3 out of 13 times the market fell immediately about 100 ticks but then reversed so a trader would have to take profits on the dip or at least place a protective stop. Added together, 9 out of 13 times (69% of the time) a trader was an immediate winner on the trade of over $1,000, in the past year. Twice the market moved sideways with minor gains and losses but one could easily find a spot to get out at a profit. I called these a break even wash. Therefore 11 of 13 trades (85%) had easy potential to become winners or at least to not lose. But even the two losers ultimately became winners if one tolerated $1670 of pain in one case, and $2,016 of drawdown pain in the other case. The latter case would eventually become a big winner of over $12,000. Thus I feel very good about being short over the weekend, as I know things will work out very well 11 out of 13 times, based on past experience.

    So even if we rally big in the Australian dollar from the 9228 close, putting me in a losing position, if I hold the trade and add another short position when I am losing $1600 to $2000, which would be at the 9388 to 9428 level, then I should do extremely well on the trade, as we should either fall back to 9228 and let me out on the low contract at a profit, while letting me make a couple thousand on the high contract. But there is an outside chance after we return back to 9228, we might continue falling and take out the low and work our way down to as low as 8000 in the next 5 weeks, based on past experience.

    The seasonally bullish time in the Australian dollar ended on Friday, July 26, 2013. I have been playing from the long side the last 8 weeks as a result, and trading has been quite profitable. Small speculators on the Forex markets were 76% long as of Thursday, July 25, 2013. That is a contrarian indicator that one should be short the Australian Dollar right least for next week anyway. Maybe a lot longer.

    Stocks: FXA
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Comments (3)
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  • Robert Edwards
    , contributor
    Comments (587) | Send Message
    Author’s reply » So far so good. It is Monday, evening and we are trading on the low of 9148 in Sept. Australian Dollar, down 23 ticks, added to the 57 ticks we fell during the day on Monday. Total of 80 ticks from Friday's close. We could fall to 9100 or lower pretty easily.
    29 Jul 2013, 07:35 PM Reply Like
  • Robert Edwards
    , contributor
    Comments (587) | Send Message
    Author’s reply » Well, it is still Monday evening and we took out last week's low just under 91, and fell all the way to 9035, a quick drop of 193 ticks from Friday's close. The bulls will have a lot of repairing to do now to get this market turned back higher.
    30 Jul 2013, 12:08 AM Reply Like
  • Robert Edwards
    , contributor
    Comments (587) | Send Message
    Author’s reply » Check out link below that indicates Aussie Reserve Bank Governor Stevens hinted of rate cut, that caused Aussie Dollar to sell off hard.

    30 Jul 2013, 12:27 AM Reply Like
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