Forex market trend normality

[tomorton]

Something that has always perplexed me and probably many active traders is when to get out of a profitable trade.

There are two basic approaches - if you're long get out because prices have a) gone higher, or b) gone lower

Obviously, reverse a) and b) and you've got your exit rules for shorts. Its alright but its crude and often means surrendering gains - is there another way?

Last week, 23 out of the 26 moved in line with their intermediate trends over the week. That is, most of the pairs with upwards sloping 50EMA's on 23/11 rose further last week, and most of the pairs with downwards sloping 50EMA's fell further. This is the highest "normality" score over the last 11 weeks.

Maybe this was a valid signal to close all long-term trend-following positions? My weaker unrealised profit line suggests so.

 

[tomorton]

This week, only 11 of the 26 forex majors ended with a trend-following performance. This has certainly hurt my unrealised profit figure, and I would definitely have ended the week better off if I had closed after the London session close last Friday, or any time before the London session open on the Monday.

I've got to think that once the market has moved to an extreme, 23/26 (88%), its more likely to revert back towards the opposite extreme than continue rising, so profit riding on such a strong performance should justifiably be banked, disregarding the individual chart TA's.

 

[NVP]

hi tom ......suggest you look at currencies individually as it reduces your analysis from 28 pairs to just 8 for the g8 .....?

26 pairs? .....suggest you are missing 2 pairs ?

N

 

[tomorton]

hi tom ......suggest you look at currencies individually as it reduces your analysis from 28 pairs to just 8 for the g8 .....?

26 pairs? .....suggest you are missing 2 pairs ?

N

I watch the 26 pairs classed as "major" by my SB firm, I think they attract lower margin requirements and narrower spreads compared to what they call exotics. I suspect a scan of the major 8 pairs would work just as well for guidance. The firm's set-up also explains the absence of two pairs they don't list as major - I believe its NZD/CHF and NZD/CAD? No discrimination on my part.

 

[tomorton]

What factors that make forex price up and down?

A lot of the moves are down to differences between interest rates set by different national central banks, in response to their national GDP's, inflation rates etc. etc. so some currencies are more profitable for the major private banks to own. To buy these they need to exchange other currencies, so these tend to go down.

Plenty of other factors too, but I honestly do not worry too much about what's the next thing that's going to affect say the NZD, and will it go up or down and how far and how fast, and what other currencies will move in the opposite direction as a result, the big banks will work that out and when they buy NZD or sell NZD, it will be visible on the charts, and the way that prices are seen to move will tell me whether to buy or sell.

 

[tomorton]

Bullish / Bearish tendencies of major pairs by 50EMA slope -
AUD = 1-6
CAD = 0-6
CHF = 5-1
EUR = 5-2
GBP = 2-5
NZD = 2-3
USD = 4-3
JPY = 7-0

(i.e. AUD has Bullish 50EMA slope in only 1 of its 7 pairs, JPY has Bullish 50EMA slope in all 7 of its pairs, etc.)

Top trades on this basis -
Short CAD, AUD, GBP:
/JPY
/CHF

Long EUR:
/CAD
/AUD
/GBP

Of course, holiday weeks and end of year sessions in particular are relatively unpredictable so even grater caution than usual would be wise.

Happy New Year to all!

 

[tomorton]

The AUD- and GBP-based shorts worked out well, while the CAD-based shorts cancelled each other out. Long EUR/AUD and /GBP were pretty good, long EUR/CAD was either a loser or entry was never signalled.

Little change for next week. Bullish / Bearish tendencies of major pairs by 50EMA slope -
AUD = 0-7
CAD = 2-4
CHF = 5-1
EUR = 4-3
GBP = 1-6
NZD = 2-3
USD = 5-2
JPY = 7-0

Top trades on this basis -
Short:
AUD/JPY
AUD/CHF
GBP/JPY
GBP/CHF