ADR TRADING ON CURRENCY

This post will try and explain average daily range trading on currency as best as i possibly can. I will start from a monthly application then move to weekly and finally to daily to try and explain the concept...

Basically the concept of ADR trading is to always have a 2:1 risk reward and so you know levels where you might look at taking profit. Enter within 25% of the range exit at 75% = 2:1 risk reward...simple? It is what works for me and what i have been taught but harder to implement. I have never really done it much on currency trades but was interested to see its application so this post will try and demonstrate the concept.

Basically what you want to do is let price go down or make a low and then once it comes back through the open (think of a candle and the wicks) then you will take a long position and stops below the lows. Should the candle make a high and fall through the open we take a short position.... We want the price to go down only 25% of the ADR so max the price can go down from the open is 25%. We never want to risk more than 25% of the ADR if we are going to trade this method otherwise your risk reward is not good. (sometimes i allow 33% but stick to 25% for now) so for these examples i use the aussie dollar as the currency we will follow. I use IG markets custom indicator to give me the ADR. (below)



So here we have a ADR of 640 pips on a MONTHLY for the Aud/Usd so the max risk of this should be 25% * 640 = 160 pips. the open for the month is 0.8415 so we are allowed to let price fall a MAXIMUM of 8415 - 160 = 0.8255 is the max risk we are allowed. If price makes a low below this we could not enter and need to wait for the next month but we can still use the weekly and daily ranges for trades. But on a monthly we will look and see what limit and projections price can get to...

Ok i will now try and demonstrate with the charts how this could be applied... I should also say it is generally better when you have a clear indication of what u think the market could do but once price has come through the open on be it a monthly, weekly or daily basis i can apply the ranges to give me target levels and failure levels (50%) but i will show this once i have given a better understanding of the concept...

First i will start with a MONTHLY ADR. the Range Which is the high - low of the last 20 months and the AVERAGE of this. So 20 months the average of the highs - lows or range which is (according to IG markets) 0.0639 so say 640pips in a month (see picture above) is 100% of the range. So the low of this month (July) is 0.8315 (according to GFT) So from this low we would add 640 pips. This will be 100% of the range. This target level takes it to 0.8955. Ok so lets look back now at the charts.



This chart shows a monthly with the candles. I have marked the open the lows and then price coming back up through the open. WE can see it is coming of a 61.8% fib level so if we are BULLISH on the AUD we would take this long on a POSITION trade and look for our 75% and 100% target levels based on the ADR which is to the 0.8955 level... lets remember that is where we are looking to take profit and this is our POSITION trade. We entered as soon as price moved back through the open and stops at the lows or at the 25% level of the ADR (should normally be around support/res levels as well. So we enter the trade at 0.8415 through the open with stops at 0.8314 lows... That is a risk of 101 pips and initially we would look for 75% level as target which would be (ADR 640 * 75% = 480. Lows of 8315 + 480 = 0.8795 target) That is still a risk reward of over 4.5 times! Now we can move into a weekly and see those trades...


WEEKLY: ADR = 320pips

Here the open is 0.8417 and we are allowed 25% of 320 = 80pips risk.
The lows here are 0.8316 so this is 8417 - 8316 = 101 pips of risk. Which is outside of our 25% risk. (this is why i sometimes use 33% as this allowed 105 pips to the lows and if you are confident in the position and trade you can do this also but keep it tight!) So say we take this trade based on the 1/3 or 33% of the ADR we would enter when price went through the open at 0.8417 and stops at the lows - 1 pip so 0.8315 stops so a risk of 102 pips to potentially gain a 100% or 320 pips or 75% of 320 which is 240 pips still over 2:1 risk reward.

This chart below shows the weeks in question...



So here we are now looking for a target of say 75% initially which would take us to 0.8556 (Lows + 75% of weekly ADR) 8317 + 240 = 8558. Should price be going through this we could take 100% and accept no less than 75% or 50% of the ADR and keep moving stops up. 100% takes us to (8317 + 320 = 8637) As we can see the highs of this week got us to 0.8791 which well exceeded the 100% of the range and if we were using trailing stops we would have captured a huge move that netted us a lovely profit!!

I wont go through the other week but i will now zoom into a daily and show you how that apply's there and how it can be used for the weekly and monthly targets...




That image shows the Monthly 100% target and where you would take and entry based on the daily candles as it has made lows and passed through the open. We are bullish and that is our direction so we look to the target levels. It is within 25% of our monthly ADR so we take the trade.

The first week of july doesnt look pretty and for a weekly trade it exceeds the entry criteria after the first 2 candles so i didnt go into details there as can get confusing. Lastly i will show the daily candles and ranges these are the ones you can try focusing on as when you move down time frames it can get difficult to understand where you would enter etc but that was the ranges on a bigger scale and to show you the application. Certainly a daily is where they all begin so start here and maybe just use the DEMO account to practice these if anyone feels the need.

The daily ADR is around 105pips on the A/U. So you are allowed to take an entry within 25% of this as long as price pushed back through the open then you look for 75% as first target as per the examples on the monthly and the weekly... So 25% is 26pips and 75% is 78pips. So apply the same rules. From open - 26 pip is within there and pushes back through open take it long or if it falls through take it short and exit within 78pips which is from the low. (Low + 78 = 75% of the range)





The picture above i have demonstrated which trades you would be taking on a daily perspective for the ADR to work. These are generally all within the 25% rule or very close. The moved through the open and you would take the trades long or short as indicated. You can see the ones that create wicks if you work out your exits you would be surprised how nicely your profit taking levels of 75% work. Generally if these are around the support and resistance levels or pivots then just work as ideal levels to take your profits.

I have put on there how many pips were potentially made throughout the month using only that strategy on those days. That does not include the pips you would make on a monthly and weekly trades which i will leave to you guys to work out from the charts i put earlier on in the post.

There are a few other rules you can use with your ADR trades such as. Once you have reached the 50% level of the trade put your stops to your break even as once your risk = reward you should never let it turn into a loss. Also move stops up as you hit target levels if you dont want to take profits. Generally once it is through the 75% level i wouldnt accept much less than 75% as sometimes it can fall all the way back down. But other times it can run to over 150% of the range so its about knowing when to let your profits run and when to cut them. But this takes time to work out and you can use trailing stops if you like. But this is up to the users discretion...


HOPE that was not to much reading and i feel like i just typed for a decade trying to explain that. I wouldn't recommend jumping for joy and going all crazy on the strategy as it is hard to master but if you have your basic technical analysis mastered then you can give it a shot.

Hope it was interesting and thats an insight to how i have been taught to trade.
If you want to see more i recommend looking at 'tradethetrade' channel on youtube as he posts some excellent videos more on stocks than anything but it is the same concept and he is who taught me what i know!!

Link: http://www.youtube.com/user/TradeTheTrade

Anyway guys peace out and have a GREAT weekend. Lets see if we can make as many pips in August!!!

:)

Currency

Hey Everyone,

Exciting weekend so far and to much coffee here already after a long paddle this morning was excited to come home and post a few charts!!

Firstly i looked at some stocks but was keen to check out my currency's so here is 2 i like to follow the aussie dorra and the aussie yen... both look interesting and might show what could be instore for the stock market. I am fairly bullish but i think we might need a pull back before we can take this baby higher still.

Hopefully we will start seeing volumes increase this month as all the lazy fund managers get back from their holidays etc... :)



and AU

CTX Update

I closed my remaining CTX position today as it has now made a lower swing top beneath that trendline. The push above 10.50 yesterday was good area to take profits on that options expiry and the renewed weakness today was questionable.

Should we remain above the 50% fib level i suspect with any market strength that she could push up to my target area however my rule is if there is a lower swing top you don't go long!

Will keep watching.

This weekend i will try do a huge update as i want to get back in touch with the market and make a few good trade plans so i will try post a few thoughts and maybe the system for fx im trying to develop

:)

CTX petrol bomb

Ok i had been having a few fun trades scalping CTX earlier in the week short from 1050 area based on some other charts. I then noticed the strength coming into the stock for longs. I decided i would take a look and this is what i have found and why i am now bullish on CTX into early august.

I knew this turn date was coming so should have traded into it long from before but i been slow so i will just try catch this last leg.

Today broke the highs confirming the swing low so have entered long positions on the break for a target zone of 10.80+



This chart above is the cycle chart i have for CTX and as you can see it is quite accurate and is part of the reason why i was so confident the trendline was going to hold at that $9 level.

This chart below shows the fib levels, we have yet to test the 50% of the big move down fib level and from the last highs we have broken through all the major fib zones and then retested the 50% fib. The time and price here also is lining up nicely and showing strength to the upside.



This last chart just shows a simple elliott 5 wave chart with targets based on last ranges. The weekly ADR also takes 75% to around 10.80 as well and i think this level will be key in determining the break of that down trendline. We must break that down trend line with some volume if we are thinking that range could complete to 100% and take us into the $11 area.




:)

CTX petrol bomb

Ok i had been having a few fun trades scalping CTX earlier in the week short from 1050 area based on some other charts. I then noticed the strength coming into the stock for longs. I decided i would take a look and this is what i have found and why i am now bullish on CTX into early august.

I knew this turn date was coming so should have traded into it long from before but i been slow so i will just try catch this last leg.

Today broke the highs confirming the swing low so have entered long positions on the break for a target zone of 10.80+



This chart above is the cycle chart i have for CTX and as you can see it is quite accurate and is part of the reason why i was so confident the trendline was going to hold at that $9 level.

This chart below shows the fib levels, we have yet to test the 50% of the big move down fib level and from the last highs we have broken through all the major fib zones and then retested the 50% fib. The time and price here also is lining up nicely and showing strength to the upside.



This last chart just shows a simple elliott 5 wave chart with targets based on last ranges. The weekly ADR also takes 75% to around 10.80 as well and i think this level will be key in determining the break of that down trendline. We must break that down trend line with some volume if we are thinking that range could complete to 100% and take us into the $11 area.

:)

Update

QBE i knew that report was coming and if it was good that chart was primed to run to $21+ but the market gods did not want it to be.

That open on the monday was below the other lows and looked like another lower swing top so it was a no go for me unless it could punch back through open and break those highs then i woulda been all over it like a rash but not all plans go that way...good couple hours spent doing that analysis but not to be.

People are asking me about it and i am not touching her until either double bottom or a higher swing bottom from here. Very careful treading but anywhere around $15 i think is good buying if you got cash and can hold. going to be about 8% dividend a year...better than a bank and likely it will go back up with the US cycle improving in a few years

:)

QBE

Some more analysis on QBE.

I actually sold out all of the position i bought before which i know i know naughty boy but a range is a range. Ok but i am looking at taking a Position trade on QBE now after reviewing a few charts as seen below to hang on into the dividend which is around 60 odd cents or around 3.5% if my maths serves me correctly...

Below is a chart of the dividend and what caught my attention was the similar pattern to the august 2006 lows then runs up into dividend. Generally stocks will run up into the dividend and QBE has a nice dividend so could be worth while...



Next charts are a few gann charts i quickly scraped together for a bit more of an argument as to why i think it will go up...

the first one shows the 50% resistance of the all time highs as well as the 50% of the last major range up both falling at $17.74 and $17.35 respectively



This run up lasted 2190 days and if we consider this move took this long to do 100% and is now at the 50% mark after 50% in time it could be ready for a run up? Ideally you would want the 18th of September to be a low at the 50% of the rise resistance level as that is a very strong argument for a reversal However i am wanting it to run UP into the dividend so happy to take this higher low for a position trade here as risk is small to potential reward...



The last chart is the all time low's squared out and displaying the 50% level (green line) of these moves which also falls on the $17.50 area and shows why it is such an important level.

And this last one is just an indicator chart i think i posted. i did another but couldn't be bothered uploading it but basically just showing how over sold it is on the weekly and what has happened all the last times that she was in a similar position...



SORRY for not updating regularly but i will try post more...promise :)

Hopefully this makes up for it and makes us some dollars in the process :)

Charts

I have taken 2 position trades for longer term moves on both LGL, NCM and QBE.

I am bearish on gold hence the shorts, i am anticipating a lower swing top to be formed on both of these charts. i have only taken P1 here and will add on a confirmation.

I have the LGL chart here forming a double top and then lower top also. today was a turn date on LGL so took P1 today and with NCM. Stops are above the highs which can be moved when move begins.



QBE i took a part postion today anticipating a break of that $18 resistance and then a move up to $20.

Will trade the swings on this one based on weekly time frame. So many things line up that let me know that this could be a good trade. For tighter stops place stops below 17.50

Market Wrap

I have not had to much time this weekend that i spent on the market.

Personally i am thinking we might see a rally continued on monday and maybe sell off? Im thinking market might come down until the 19th might a higher swing low then rally? I would love to see a nice higher swing into this date espicially 50% of this last move.

I will try get a chart or 2 up this week sorry i have been flat out with some other things, and again this week im going to be watching FX markets with a bit more intention.

Anyway ill try post otherwise all be on twitter :)

Repeating WPL

woodside (WPL)

Just something interesting that i noticed when doing a chart for a friend. The range from 2006 down has completed if it was to have repeated. Back in 2006 $35 was the support and held and now $40 seems to be the support which if it holds dare i suggest that we get the move that repeated after the last pattern?!?

Just something interesting i noticed without going into to much detail...

Monday...Sub 0

Literally going to be 0 degrees here tomorrow...
Not 100% sure i will be able to pull my sick ass out of bed tomorrow and sit here freezing watching our boring market go nowhere until the US gives us a lead...

Still if we have some weakness i might look to get a few longs, I will update the twitter with those as they come. Might give it some time and see if i cant work out some nice 'weekly' range entries.

Anyway lots of talk of turns this month with the first one being the 8th of July... Guess gotta wait and see now.

See ya'll this week :)

July Market Analysis

Well i am finished up with my FX classes so spent a big chunk of my Saturday doing some serious market analysis so here it what i have produced using a few various methods and what i am generally seeing...

For the month of July we are assuming that we could form a bottom around the middle of July, Especially looking at the dates of the 10 – 14th of July or the 16th/19th of July. I am expecting this month to be a doji looking candle on the index with maybe a short rally at the start of this week (5th of July)



The IG cash range for the monthly chart is currently 798 with a weekly range of 408. Basically what I can take from this is that for the month if we are down and have already made a top for the month of July we will be taken down around 9212 (75%) of the monthly range. I however doubt that a top has been put in for the month of July and think a real assessment of a down side target will be better done after this coming week (or after a convincing rally) At present the Daily indicators are in the oversold position.

Another interesting thing to point out with the DOW is that of the entire move up from march we have yet to make a fib of this rise. I would be expecting a 50% which is around 8900 or a 38.2% which is around 9400... 9400 is covered over next few paragraphs.
Friday’s candle did break the highs on the IG cash (NFP Volatility) but the DJIA chart has yet to break a high yet to confirm that the trend could possibly change to the upside. Any longs from here are purely bottom picking and for the low risk traders among us it is not recommended. I however am expecting a rally hopefully from Tuesday when the US markets open again from their July 4th Long weekend.


I am expecting a retest of the key 10,000 level and have actually worked out my monthly ranges from here as well which actually takes us down to the support levels of 9400 And this is where I expect that the mid July lows could be confirmed and a real relief rally could emerge from. Should the market not have the strength to retest this level or reclaim it then I would expect much more downside to emerge as the market continues its trend down. 9000 Should also prove to be a key support level but we will cross that bridge should it come closer.

Should all this fail and we retest 10,000 and we play out based on the head and shoulders pattern that has emerged we could see the market fall down to levels around 8800...



XJO
For the Australian market I have been updating my day and point count chart for some time. Basically it took us 31days to rally 397 points and only 11 days to evaporate 408 pts and all the gains the rally gave us.




That rally reached just over the 4600 50% fib of the drop level and reversed Should we take a fib extension on this number using a 150% fib of the move (as retraced 50% so extend to 150%) this takes us down to 3750 another key support level. If I extend the first range down this also puts us roughly around the Middle of July Turn date. I have also included the 138.2% fib which is the 3850 level. I Also would watch 4000 as this level should prove to be a tough level to break and should be around here coming into the turn date or at (4122 on the SPI into turn date) I would look to take P1 here and P2 on the first higher swing bottom made in the market and add P3 once this position has been confirmed.



Moving closer to the IG index and on more of a short term time frame I would be expecting some sort of rally this week and likely a retest of the 21EMA which has been containing price. The index simple MA’s have given the death cross and certainly does not weigh to strongly for the case of the bulls. However a small rally should be expected soon.

Again the weekly range for IG XJO cash is 205 and this could take us down to around that 4000 support should we run down from where we are. However I think we might have a difficult ‘choppy’ week while the light volumes in the US give little direction and the market works out what way it wants to go.

WBC 'tea leaves'

I 'dipped a toe' in long today on WBC,

Gann all time low price squares to show support and resistance levels on price, has completed 100% of weekly range and the daily looks like could have a bounce tomorrow espicailly being friday and NFP so could be a short covering rally. Will try off load into the 100% of daily range and if looking strong will hold for $22...