Wednesday, July 12, 2006

The Traders Helping Traders Big Weekend Edition - Test Drive Version

Traders helping Traders - Erich's Trades

Exerpt from Part One of the Big Weekend Edition

Currencies Market Overview

Don't you hate it when the market gives you a good setup for a Friday? I sure do. You never really know whether the market will commit to the trade so you're left scratching your head whether you should take the trade or wait it out. For every time the market makes a nice breakout there are at least twice as many incidents where nothing happens and the market just flounder.

Unfortunately for us, last Friday saw some pretty big moves in many of the currencies we were watching. And since the currencies are big ranging markets, or at least capable of big ranges, we decided to wait out Friday's trades, but that might have been a wrong decision as many of the markets made some very nice breakouts.

The Aussie, British Pound, EuroFX, Swiss Franc, Japanese Yen and even the Mexican Peso all posted some very impressive gains for Friday putting all these markets back into bull territory. The only market which floundered was the Canadian Dollar, but what did you expect from the "Loonie"? We'll likely see it try to play catch up at the beginning of the week, but right now it doesn't really look good enough to trade.

The US Dollar did the opposite of everything else because of the inverse relationship between itself and the other currencies. We might look at getting into all these markets early next week, but now I'm forced to wait out Monday's session as well. If you think Friday's can be unpredictable just wait and see what Monday gives us!

FLAT Currency Complex

Energies Market Overview

If it wasn't for bad luck we wouldn't have any when it comes to the Energy complex. We had some very nice trades brewing in Unleaded and Crude this week; however before the weekend the market made an unpredictable move lower stopping us out of our positions. We escaped Unleaded and Crude without a loss but weren't so luck with Heating Oil which never gained enough upward momentum to allow us to adjust out stops to take some of the risk out of the trade.

In spite of last week's setback however, the Energies continue to look very bullish. With all the rumours floating around out there it looks like there is no relief in sight for energy prices – at least not for the short term. While all three markets should/will move together, I'm going to look at Unleaded and Crude this week and put Heating Oil on the back burner...that'll teach it for whipsawing us last week!

Unleaded Gas

The best thing about Unleaded Gas right now is the strength of the trend. DMI is very strong and looks to be climbing. The worst thing about Unleaded right now is that RSI is very overbought and hooking lower. This could signal short term resistance and lower prices over this week. We're in luck however, as we've got a good resistance line which we can use to buy a break above.

Did you notice the double tag at the 225.20 high for Thursday and Friday? Did you also notice how low the market closed on Friday after the second hit here? This shows us that the 225.20 line carries a bit of oomph with it and that makes it a good line to buy above.

While you could buy a break of the contract highs and cover below 225.20 (safer), I'm going to look at buying a break of 225.20 instead. The low closing price means that the market will have to move a considerable distance a break strong resistance before finding the order. RSI is dipping which would also require the market to make an extraordinary move higher in order to whipsaw us.

Finding appropriate exit stops is the hard part for this trade. Ideally the stops would go below Friday's low of even better the 220.50 support; however both these levels are too far away to please my wallet. I'll have to settle for a closer intermediate support line, probably something near Friday's close, and while this adds to the risk of my trade it does get me out a lot faster if things go sideways. Besides, if the market breaks the strong resistance at 225.20 and then reverses, why do I want to hang around?

Profit target is the monthly spike from last September; however that's a long way off so I might consider taking profit a little earlier in case we see a premature bounce.

BUY September Unleaded at 225.55
Exit Order: 222.45
Approximate Risk Exposure: $1302 per contract
Profit Target: 243.75
Approximate Potential Profit: $7644 per contract
RRR: 5 1/2:1
Degree of Risk: HIGH

Check out the Unleaded Gas chart at

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