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Trade Closed: 2010-06-09 23:07

PoD Chart

Oh great, I made a mistake on my trade and it proved costly! After being up 80 pips on my second position, I ended up getting stopped out!

First of all, I didn’t expect the markets to be so risk hungry yesterday. We saw the dollar take a hit across the board, as it even lost out against the euro! Led by a surge in commodity prices, the AUDUSD rose up to .8358, which was just a tad higher than my stop loss! You can call me “Un-Happy Pip” right now!

I realized that I made a mistake on my trade, as I probably used the wrong swing high for the Fibonacci tool. If I had used the high at .8520 as my swing high, I would have seen that the 61.8 Fib level was at .8355, which was right below yesterday’s high!

I’m a little disappointed right now, as I was already up more than .50%, but I ended up giving it all away as the .8200 price level held, and ended up losing 1% of my trade. Hmm, I might need some comfort food to cheer me up…

Here’s the damage on my account:

First position (entry at .8235) stopped at .8350: -115 pips
Second position (entry at .8280) stopped at .8350: – 70 pips
Average – 92.5 pips/ 1.00% loss

Trade Idea: 2010-6-7 22:54

PoD Chart

With risk aversion the key driving force in the markets right now, I believe that traders are going to look for opportunities to get in on long dollar trades as they unwind their positions in higher yielding assets like the Aussie dollar.

I popped on the Fibonacci tool to help me find a good entry point. With stochastics showing some upward momentum, I think we could still see the pair pop up a little bit. What I’m planning to do here is to scale in my positions at the Fibonacci levels. Both my positions will be worth .50% of my account, putting my total risk at 1%.

I’m looking to put my sell orders in at the 38.2% level at .8235, but I also have another sell order at the 50.0% Fib at .8280. Looking back, I notice that the 50.0% Fib lines up nicely with a former support level. This area of interest could prove to be a resistance level now.

The second entry gives a better reward to risk ratio, with that position having a ratio of roughly 2.5 to 1. Combining it with the original position, my overall reward to risk ratio stands at about 1.5 to 1.

I’ve set my stop at .8350, just a bit past the 61.8 Fib level. I think if the support-turned-resistance at .8280 does not hold, we could see the pair continue to shoot up. While I am scaling into this trade, I’ve only set one take profit point at .8100. That price level seems to be holding as a strong support level, so I’ll be closing my whole position at that point. If it does break, I will consider shorting yet again!

With debt problems popping up here and there, risk aversion is still the name of the game. This keeps weighing on the higher-yielding Aussie, which has hardly been able to benefit from upbeat economic figures. In fact its rally after the release of better than expected ANZ job advertisement figures was short-lived.

Earlier today, the NAB business confidence index revealed that sentiment turned a bit sour in May. The reading dipped from 13 to 5 during the month, signaling that businessmen are no longer as optimistic about current and future economic conditions.

The Westpac consumer confidence report could mirror this outlook, possibly posting another downtick for the month of May. The actual figure is due 12:30 am GMT tomorrow, along with data on home loans. Another decrease in home loans could be seen as the effect of the Reserve Bank of Australia‘s consecutive rate hikes discourage people from securing mortgages.

Here’s my recipe for success:

Short AUDUSD at .8235 and .8280, stop loss at .8350, take profit at .8100

I hope this trade goes well for me! For now, I’m going to sit back and relax and drink my authentic Chinese tea! My friend from China just shipped me a whole box, so I decided to try it. I must say, it is pretty good!

This content is strictly for informational purposes only and does not constitute as investment advice. Trading any financial market involves risk. Please read our Risk Disclosure to make sure you understand the risks involved.