Comdoll Weekly Replay (March 14 – 18, 2011)

Whew! After dealing with a crazy schedule and even crazier market action last week, I can’t think of a better way to end the week than doing a comdoll replay. Here’s how Japan’s news moved comdolls, and why I think NZD/USD had the best chart setup for the week:

I think we can all agree that because of recent economic events, price action had been unusually volatile in the past couple of days. Heck, most major currency pairs bounced like it was dancing to Pink’s Raise Your Glass! But instead of using this as an excuse for my losing trade this week, I plan on taking advantage of the uncommon market scenario and use deliberate practice as Dr. Pipslow suggested. Who knows? Maybe I’ll know better when a similar scenario pops up in the future.

What moved the Comdolls this week?
Much like other major currencies, the comdolls danced to the tune of risk aversion in markets and the effects of Japan’s earthquake to the global economy. Right at the beginning of the week the comdolls dropped sharply against the Greenback when positive comments from the Reserve Bank of Australia failed to fight off risk aversion, falling commodity prices, worse-than-expected economic data, and the selling of comdoll-denominated assets in favor of Japanese repatriation.

Pip winds started shifting around the middle of the week when comdolls pared some of their losses against the dollar. Apparently, traders were not only a bit calmer on Japan’s nuclear problems and the Middle East rift, they were also cheered by a report which showed that commodity prices have risen the most out of 19 raw materials for the past three months. Of course, it also didn’t hurt that foreigners bought a net of 13.3 billion USD worth of Canadian securities in January, an amount double the markets’ expectations. I say that calls for happy snaps for the Loonie!

Last but definitely not the least is the markets’ big finale late last week. If you’ve been watching your charts closely and not dining out with friends like some people I know (cue the sheepish grin), you would know that the Bank of Japan launched a currency intervention together with other G7 central banks.

As my karaoke partner pointed out to me yesterday, the display of solidarity wasn’t seen since September 2000 when they bought the euro! This time around the G7 central banks joined together to weakened the yen. The move was bullish for the comdolls except for the Loonie, which was weighed down by Canada’s worse-than-expected inflation report.

I guess the Loonie’s price action does tend to deviate from the Aussie and the Kiwi, huh? Maybe I should’ve just taken this sweet NZD/USD setup that I spotted instead of my losing USD/CAD trade earlier this week.

NZD/USD Fib resistance

On the pair’s 1-hour chart I saw that price retested the .7350 level after dropping below .7300 around the middle of the week. I splashed some Fib lines around and found out that not only was price lingering at the psychological handle, it was also sitting at the 50% Fib retracement! I then looked at Stochastic and saw that a bearish divergence had formed around that time. What’s more, Stochastic just touched the overbought area!

If I had only shorted the pair at .7350 with a 50/1/1 stop-trail-add strategy, I would’ve gained a 2:1 reward-to-risk trade and a total of 500 pips in all 4 positions (200 pips from the first position, 150 pips from the second, 100 pips from the third, and 50 pips from the fourth position). Then, if I had felt just a bit greedier, I would’ve reversed my trade and bought the pair at .7200 when a bullish divergence showed up after I got stopped out. I would’ve placed a 50-pip stop and aimed for the .7300 area for an extra 100 pips.

Ouch! I missed a total of 600 pips with this trade setup! But that’s the purpose of this exercise, isn’t it? Now that I know that such opportunities exist in this kind of market environment, I will be on my tippy toes the next time something similar occurs in the charts. When history does repeat itself, I’ll be sure to catch those yummy pips!

In the meantime though, I’m off to my afternoon coffee date with my girls. It’s been fun sharing my thoughts with you, and I hope to hear from you too! Catch me on my Twitter and Facebook accounts for more updates!