The Great Sport
3 June 2010
Currency: AUD/JPY
Trading Bias: Bearish (To Start a B-wave)
Fundamental Outlook: U.S. Non-Farm Payrolls (Fri, 6/4)
Traders in the market are subject to a number of extraneous factors that prevent them from being as efficient as possible. From our interpersonal relationships, to mechanical and electronic failures of the equipment we've designed...to disease and malaise, the distractions (and stressors) in our lives are innumerable. Yet, traders are among the rare groups of people who simply cannot look for rescue from lifes ills if they still want to get paid. As not-so-famously quoted by the venerable Ayn Rand: "
A trader does not expect to be paid for his defaults, only for his achievements. He does not switch to others the burden of his failures, and he does not mortgage his life into bondage to the failures of others."
And the trader does not expect to be paid for defaults because that trader already knows that there's no one out there who will. And as strict as it sounds, that's the way it should be.
As I look back over my "semi-pro" trading career, I am grateful for all the factors outside of my control that have managed to allow me to stay above water and "still swimming". I like to site
discipline and decent
risk management as my favorite practices that have prolonged my stay in the markets, but at times even they seem only filler material. At times, my strategies seem painfully inadequate...especially in post-[trade] processing.
Today is yet another example...and yet also a lesson why "organized" persistence still wins out in the long run. So let us begin.
Figure 1: 30-min Chart for AUD/JPY
I was traveling earlier the week, but still managed to get in a piecewise trade on AUD/JPY from what I thought was a fairly solid position, long @ 75.53. And after the price rose to over 77.00 during midday, but the time of my departure I was looking at 75.63...only 10 pips higher than where I began. So what do you do? An aggressive strategy (which might've paid off handsomely this time around) would have been to just let it ride out with stops in place. However, my strategy alternates between periods of aggression and defense.
And that's why I took what was (+) available and then left. Had it already been negative, I may have hung around. But as such, it wasn't.
Another reason--though maybe detrimental--that I exited with a menial profit was the fact that the AUD/JPY did not behave as I expected. I always tell traders that it's
very important to have some expectation of what's going to happen next as to make appropriate decisions regarding the price action. Retail traders are always brining knives to a gunfight in my opinion...but to not have an expectation is literally suicide when the market cranks up, or is in a corrective pattern (hint: that's often).
AUD/JPY stair-stepped off the 78.02 high (61.8%
Wave .3 @ 77.96) into the 74.99 low in a classic ABC fashion. That's what encouraged me to get long in the first place. With a downward trending ABC, I knew that there was either a 5- or 3-wave pattern going in the opposite direction. Given the movement prior to that 78.02 high, I felt the movement upward would be 5-waves, not 3. And that may have been my mistake.
The first wave of a 5-wave (impulse) pattern will
not be retraced by much more than 61.8% despite what you might read. At least that's been my experience. Therefore, when AUD/JPY pulled back 81% (
Square of 9 percentage) of the way from 74.99 to 77.06, my expectations of an upward 5-wave impulse changed.
I haven't the analyzed it as I was still in pursuit of the next trade setup, but I think what really happened was that the stair-step ABC pattern I saw was just the first a-wave of
Wave .B. That, of course, sets up a case where that first wave of
Wave .B is a rather diminuitve c-wave (which is less likely) but whatever. All I know is that I went from a position of having a good expectation of what would happen to having little to none...which takes away my
edge as a trader.
As I traveled back to the home office, I watched the dark comedy unfold with the AUD/JPY blasting up through 77.00 and then through 78.00 by the time I got home. But instead of giving up, I looked for the next probability...which was actually to the short side, in my opinion.
Figure 2: 30-min Chart for AUD/JPY showing Fibonacci time and price levels
Time analysis is still the best kept secret for Elliott and Fib guys. Why? Because it's simply not used. And for those who use it, there's no real doctrine...so most use it with little practicality. But I've been obsessed with time analysis and trying to fit it into my already extensive use of Elliott. As such, I've found some very unorthodox methods that consistently work in limited scenarios.
The first thing that should stand out in Figure here is that 78.74 level. It's roughly halfway between two other Fib levels: 1) 41.4% (square of 2 - 1.00) of the entire move down from 87.94 and 2) 70.7% of
Wave .3 (square of 2 divided by 2). There's an implicit relationship there.
Plus, it was aligned with the 61.8% time projection (quoted as 1.618) of the unlabeled wave that ends at ~72.05 (labeled 1.000). A solid question might be why I started from this point in time instead of at the beginning of my labeled
Wave .1. Well, that's simple too. When measuring time levels, you need to measure from a point that produces inflections--either tops, bottoms or a combination--to increase the chance of it continuing to happen when looking for future levels.
As such, that spot worked better than the beginning of my labeled
Wave .1. And besides...what if my labeling is wrong?
I'm currently short @ 78.80 with original stops at 79.20 (just the normal stop). I still don't have a downside target...but I'm watching current price action and I realize I don't need one. The charts above say 78.02...but the current price is 78.38...and falling. And that's all the reason why it's much better to keep looking for the next setup when you've missed (or messed up).
.........................
"A trader is a man who earns what he gets and does not give or take the undeserved. He does not treat men as masters or slaves, but as independent equals. He deals with men by means of a free, voluntary, unforced, uncoerced exchange—an exchange which benefits both parties by their own independent judgment. A trader does not expect to be paid for his defaults, only for his achievements. He does not switch to others the burden of his failures, and he does not mortgage his life into bondage to the failures of others." - Ayn Rand