The Sensible Risk Managed Method

• With the unfortunate drawdown came some lessons
• We calculated the hard stop with the worse case scenario. At what level would we receive a margin call based on the position size that was given.
• If this stop is well past what we expect, we sized the position with a higher probability of not getting stopped by a range or a whipsaw.
• New simple trend following clues and simple as a moving average. Noticed that the 100 Hour ema was great for this, it could last 7-10 days, even longer, but price respected this moving trendline. Not trading against this means you're safely with the trend.
• We finally took profit, at times it may have been too early, but this helped manage the drawdown. By closing out with profit, when the trade went against us the other way, the position size was smaller, less heat from drawdown.

We will continue to follow this risk first methodology, we'l go small with the short term trend, and size up when we can confirm the larger trend has resumed, while always remaining cautious that the short term trend could end. Stick to these limits and manage the leverage above all!

Feb 2, 2011 Turn Date

Nov 26,2010

A few observations and lessons learned from the past few months starting Sept 2010.

• Everyone made their predictions on the USD and in particular how far the move up the Euro would be.
• Whether they were fundamental traders, technical traders or whatever experts. Many had it wrong, very few were able to even be close to the top of the move or even when the swing downward would be.
• The Elliotticians, at least a few, had nailed the top within a few pips. It was very impressive and made me realize that though it does have its flaws sometimes. There really aren't many methods out there that are in tune with the trend, and can predict directional movement in the same way. Prechter and EWI were off their forecasts by quite a bit,but were correct in their direction of the trend. ie. They saw the move up from the lows of 1.1876 Euro to the 1.4282 highs in early November as just a correction, not a new impulsive trend. Everyone else believed that the Euro was in a new Bull Trend, Prechter and really the Elliotticians went against this thinking and saw it corrective. They were spot on ignoring news and fundamentals and reading the real trend correctly.
• So despite the big loses the past few months. I've learned some expensive lessons, and a new respect for the Wave principle. It's been a savior and putting the work and faith in it could really pay off in the long run.
• From a severe drawdown the beginning of Nov, I'm glad to say we're up over 65% this month, with potentially higher gains in the near term.
  
• From here we'll just keep working harder on EW models, and try not to let Bias get us in trouble again.

And just for fun: Intrade predicts(as of this posting Nov 26,2010) that the Euro has a 60% chance of closing below 1.300 on the last day of the year 12/31/2010 conversely,there's a 40% chance that the Euro will close above 1.300, lets see how the intrade punters do. I like their bet though because I'm with the 60%.

Week of Sept 9 Intraday Look

• We had a nice 200 pip move down for the start of the week.
• We've been ranging since then without too much going on.
• Sept 11th is a major turn date, perhaps that will light the fuse.
• This chart gives a pretty good wave count to otherwise rather difficult price movement to analyze.
• So far the Elliott wave model has been key to picking major turns, then the turns happen, they are unbelievable days with huge moves.
  

Riding the Waves

• A few key items and notes here. First we didn't know when the 5th wave of this ABC correction would end. measuring the Top of Wave 1 and the end of Wave 3 gave us a clue of where the 5th Wave may end. Look at this chart and see how it nearly caught the top perfectly at the 162% level, amazing!
• Look at how well the MACD shows the formations of the waves, a very handy tool.
• Also look how well the MACD measures the momentum, look at how near the end it crossed and confirmed the upward move was losing momentum.
• Also notice that 1.3333 level is a key Fib level of the entire more, it just happened to be the 78.6% retracement of the entire move down.
• Be careful of extensions, you can see here Wave 3 extended, you could mistake this extension for the end of Wave 5, go short and you'll be way too early on the reversal.
  

Lessons Learned from 2010 Trades

1. No trend, no matter how sure it looks is a sure thing. The Eur/$ short is a perfect example, it looked like it was on a one way move. Ignoring that it can correct, and correct in a big and surprising way is one way to lose and give back all your profits.
2. Buying and Holding, especially in a Bear market is not only dumb, but a good way to psychologically get buried, you'll be lucky to have your wits if it does turn back in your favor.
3. When our target is hit, we will scale down and tighten stops. Shorts will be covered next time, and replaced with limit orders when the market goes the opposite direction of the trend.
4. KNOW THE TREND AT ALL TIMES, not just at times. If you stay in a trade too long and ignore the current trend, you could be adding huge loses that will wipe out any gains.
5. Do not sell the bottoms or buy the tops.
6. Make better use of stopping and reversing.
7. The Drawdown was not fun, it could last 2+ months and can be misery, stopping out and getting back in later is a far better choice, so use it.
8. Seasonality- Some months are just not great to be Long the dollar, June and July seem to be those months.

Cycle Guru Memo July 27, 2010

The cycle gurus issue their weekly missive tomorrow, we hope they"ll update us on their EUR/USD view as they suggested the cycle would peak "end-July" with 1.3000 as their target. SO far they are less than 50 pips awry and the tepid US equity market response today -0.16/+0.26% reveals cautious tendencies at these elevated levels. EUR/USD at 1.2995 remains pretty well bid so the jury remains out, the 24-hr SMA at 1.2996 reveals we are in very neutral territory here; techies don"t get aggressive until spot takes out 1.3100 topside. Peter.Wadkins@ThomsonReuters.com

Update: While the actually short term top was 1.3333 the cycle gurus were a few hundred pips away from their top. Their direction and read of the trend though was pretty good, their bias was heavily towards the downside, overall I've been pretty impressed. This update was written 9/9/2010 weeks after this cycle guru piece was released.

Intrade Euro Outlook - EUR/USD.DEC10.1.2500 09:30