Monday, July 31, 2006

The Traders Helping Traders Big Weekend Edition - Test Drive Version

Traders Helping Traders Big Weekend Edition
for Test Drivers July 31st 2006
Shooting the Breeze

I certainly did a number on myself the other day. I woke up with a stiff back, probably the result of working like a madman the day before. I thought to myself that I'm going to have to do some stretches, but decided I should move around bit first to get limbered up.

I went into the kitchen and started to empty the dishwasher. I picked a couple of knives out of the cutlery tray when all of a sudden I lost the feeling in my legs and went tumbling to the floor. The loud thud brought my wife to investigate what had happened. There I was, stretched out on the floor with shooting pain going through the small of my back.

I normally have a strong back. I hurt my upper back badly about 15 years ago when I (stupidly) decided to lift a couple of 5 gallon pails of paint as soon as I got out of bed (are you seeing a theme here?) That time I was also laid out across the floor, but since it was in my upper back, I also had a hard time breathing (turned out I had dislocated a rib.)

Ever since then I've had regular chiropractic care and have tried to take care of my back being careful to always bend my knees and to lift properly. This time was different however. Even when I put my back out I never lost control of my body. It took a few minutes for me to be able to get on all fours and eventually get up and walk around, but the whole ordeal had me a little concerned.

I went to my chiropractor and he slapped me around a bit and straightened me out. He told me that the nerves in my lower body had become overloaded and "short circuited". The result was that they shut down momentarily and down I went. He told me that I'd been working too hard and it was time to take it easy for the rest of the weekend. He called it a "warning", which didn't exactly make me feel better about the whole thing.

So now I have a legitimate excuse for not working on the fence, the yard or the siding – my last three projects – at least for a couple of days. I almost asked him for a note, thinking that my wife would think I was just making this up. I thought he could write me a prescription for "putting my feet up and drinking beer all afternoon"... but that might have been pushing things a little too far.

I wonder if "taking it easy" also meant I wasn't supposed to golf on the weekend? Nah, that couldn't be right. But maybe I'll get a cart just to be on the safe side.

Erich [email protected] PS. My sincerest apologizes for the screwup at last Wednesday's Webinar. Wednesdays are particularly bad for me since I'm usually out of town on Wednesday and it seems that more often than not something happens on the way home to make me too late for the webinar.

I promise that this will not happen again in the future. If I am not able to make it to the webinar on Wednesday I'll be sure to let you know and we'll reschedule for another night. If I have to, I'll stay home on Wednesday's just to make sure that nothing short of an electrical outage prevents me from being there.
Trades for the coming week:
Currencies Market Overview
The currency markets were on fire last week! While we saw a bit of chop in some of the markets, many of them are beginning to shape up nicely and giving us some excellent trading opportunities for this week. We're already in two markets, the Aussie Dollar and Mexican Peso, both with good results so far. The best thing about the currency markets is that they have a tendency to trend very well, so if we catch them early we could be in for a nice little ride!
British Pound
The British Pound, EuroFX and Swiss Franc all have a tendency to retain an inverse relationship with the US Dollar Index. This week we see all four markets giving us a similar looking setup (the reverse in the USD); however not all the charts are handled the same way. The Pound and EC are looking more bullish, while the Swiss Franc and US Dollar Index are looking bearish.

In the Pound we have a market which is technically in an uptrend, but just barely. DMI is showing some upward momentum, but it's not as strong as I would like. Keep in mind that DMI is a lagging indicator, so it might take a while to catch up if rates continue higher.

The nice thing about the Pound chart is the RSI trendline bounce which occurred on Friday. This is a textbook bounce and would suggest higher rates to follow this week. We also have a solid resistance line at 187 from which to initiate the trade and good support at 186.30-ish to exit on.

The only problem with the trade is that we have to look to the contract highs to maintain a reasonable RRR. There is considerable resistance at 189.00 which could hold the market down, but I'm not too worried about it since we should at least get the trade to breakeven before we run into that.

BUY September British Pound at 187.03 Exit Order: 186.23 Approximate Risk Exposure: $500 per contract Profit Target: 189.47 Approximate Potential Profit: $1525 RRR: 3:1 Degree of Risk: Moderate to HIGH
Euro FX
The EuroFX is also in an uptrend, but not as strong of an uptrend as the British Pound. In fact if you look at DMI it shows that the market is in a downtrend! Remember though that DMI lags, so I'm not overly concerned about it at the moment. Having said that however, the fact that we have a conflict between the chart and the indicator does raise the overall riskiness of the trade.

On the upside, we do have solid support on the weekly chart which is helping to hold up the market. This gives me a little more confidence it trying to buy the market long. We also have the double hit on resistance at 128.13 which ended the week, which we can buy above.

Ideally I would like to buy above the 128.50 line, because this would also break any resistance offered by a downtrend line; however that will leave far too much money at risk. Alternatively I'll opt for entering the market above Friday's resistance in an attempt to keep risk as small as possible.

Exit stops will go below the 128.00 line, which has some activity from recent open and closes, but the bulk of the hits originate from last May. I would have liked to put the stops further away, but quite frankly I can't afford to. This is fairly tight for a market like the EC and is definitely within the market's daily range, which could spell trouble.

Unlike the Pound we don't have to stretch out profit target too far to get a reasonable return for our investment, but I'm still looking at the resistance near the contract highs at 130.00 as a likely target.

BUY September EuroFX at 128.27 Exit Order: 127.93 Approximate Risk Exposure: $425 per contract Profit Target: 129.87 Approximate Potential Profit: $2000 per contract RRR: 4 1/2:1 Degree of Risk: HIGH

To see the charts and the rest of the trades in all markets, PLUS the daily followups to all the trades in the Big Weekend Edition, PLUS a detailed eBook on exactly how Erich analyzes the markets using support and resistance, PLUS weekly Live Classes and much more... go to