FX and Stock Market Victories to Cheer About Even in a Low Volatility Trading Environment
For the last several weeks, I’ve discussed the low volatility market environment we’re seeing now and I’ve counselled you to alter your trading strategies to accommodate it.
My suggestions have included viewing trades over a longer time-frame while making your stop-losses wider and your position sizes smaller.
Now here’s the thing …
While trading conditions became more challenging, this didn’t mean there were no money-making trades possible.
In fact, it’s been the opposite. Over the past few weeks I’ve been “hitting trades out of the park” while sitting on short trades including NZDUSD, AUDUSD, and TSLA and as well as long trades in AAPL and FB. I’ve reaped enormous gains in my personal trading during that time.
I don't say this to stroke my ego or use it as an “I told you so” moment.
I’m saying it’s a validation of my price action trading style. One that’s geared toward the long term and not getting in-and-out on a 15-minute chart or based on some magic indicator cross-over strategy.
I hold onto trades for longer so they can “work”. For example, I suggested shorting AUDUSD (the Australian dollar against the U.S. dollar) at 0.7061 on March 5 this year. This call was based on the double top and the overall strong downtrend, plus the market’s inability to rally off the long spike over the Christmas holidays:
That was a few weeks ago and in the interim, AUDUSD crossed above 0.72 to impose a 140 pip loss on my position. I advised not panicking, widening the stop-loss, and waiting for this trade to play out.
That’s because there was no pattern for AUD to go higher. The overall trend was lower highs one after another. The rise was essentially just random drift on the chart before the true downtrend reasserted itself.
Two days after I suggested widening the stop loss, AUDUSD crashed 180 pips. It’s now trading around 0.7025 with lots more room to go on the downside. Here’s where AUDUSD is right now:
The first green arrow highlights my initial selling point. The second one shows we are now in a profitable position after widening the stop and being patient.
There’s no reason to get out, so I’m staying short for the foreseeable future in anticipation of much larger gains to come. Here’s another example with XAUUSD (spot gold) where I suggested selling short at 1311 on March 27 on the basis of the double top and historical resistance at that price level:
As you can see from the updated chart below, gold dropped very quickly, then rose all the way back to my initial short position. We stayed short, though. And for exactly the same reasons as AUDUSD: there was nothing in the patterns to suggest bullishness.
So far XAUUSD is good for a 250 pip win with much more to come, I think.
Again, this is a good example of maintaining faith in chart patterns and letting the trend play out in your favor. It works in the stock market too. Here’s an example with Apple (AAPL), which I recommended as a buy way back on January 27 thanks to the double bottom combined with a cup-and-handle formation:
The updated chart is below. As you can see, since AAPL crossed the price threshold I recommended, it’s surged past 200 and there appears to be no stopping it right now.
Of course, it did move sideways before the latest move took it higher to its current level, but the fact remains that the double bottom and cup and handle called this run with outstanding accuracy.
I made a similar call with Facebook (FB).
On February 4, I expected FB to go up to 200 (or even better) despite all the negative news enveloping the company. Here was my recommendation at the time …
And here’s where FB is right now…
As the reverse symmetrical triangle formed I suggested that any penetration above pattern would make the stock soar. And that’s exactly what’s happened.
Tesla stock (TSLA) was a short I recommended due to multiple bearish tops. I recommended a sell at 291 and thought it was destined to fall to the 250 price level:
Now you can see what happened since …
It’s crashed through long term support at 250 and it’s currently at 235.
At this point, TSLA has nowhere to go but lower in the foreseeable future. I think it could easily go to 180 based on the height of the all-time high against the 250 support line (that’s a 130 dollar range). I use 70% of that number to project a low, which would take us to 180 in TSLA.
So there we have it: short AUDUSD and XAUUSD, long AAPL and FB, and short TSLA.
I think that’s plenty of proof that even in a low volatility environment, there’s still plenty of opportunities to make great profits … slowly!
You just have to be prepared to sit in these trades patiently, even when the market starts sliding against you.
Now let’s take a look at a few trades I see in the market right now … Last week EURUSD (the Euro against the U.S. dollar), finally (at last!) broke below the 1.12 support level. I’ve been bearish because of the long-term head and shoulders bear price pattern on the weekly charts:
The neckline has finally been broken on this pair and I believe EURUSD is on a collision course for its January, 2017 lows at 1.03, and then parity (1:1) with the U.S. dollar.
Because this is a slow-motion trading environment right now, just be patient and don’t rush to go short. We’ll likely see a snap back against the neckline before we see a major drop to my profit targets.
Remember also to keep a wide stop and a smaller position size too.
USDJPY (the dollar against the Japanese yen) is also looking very interesting now. I’ve been bearish on this pair for ages, since the latest patterns of the descending triangle and the rounding top suggest this pair has lots of downside in its future.
Last week I pointed out that the narrow range bar for that week could herald a turning point.
And in fact USDJPY is now starting to drop with a bearish key reversal.
This reversal coincides with another recent top in the same area (the blue arrows I’ve drawn), plus the rounding top from last year which ushered in a very large and fast drop over Christmas.
Could this latest slide be another opportunity just like the earlier one over Christmas? It’s possible, but let’s wait and see. A more measured descent is most likely.
The short side is definitely the direction to bet with this pair. I went short last week at 111.51 in an email sent out to subscribers.
If you missed that, it’s still okay to take that trade. Try to enter just under last week’s lows.
Remember, I’m managing the current declining volatility and tight trading range FX market environment by trading more selectively, holding positions for a longer period of time, and widening my stop-loss levels.
(This of course requires reducing trade lot size positions in accordance with the wider stops so you don’t magnify your risk. If you double your stop loss width, then cut your trade size in half to keep risk at the same level.) Meanwhile the U.S. stock indices continued marching toward their respective all-time high peak trading levels. The NASDAQ100 in particular set a convincing new high last week:
And so the path of least resistance is up, for now.
However, I do feel we’ll see a retracement back to support. Seeing as how we just breached a major resistance level, the indexes may consolidate for awhile with some stocks rising (FB, AAPL) and others falling (TSLA) during that time.
I also expect relative strength in USD and JPY with the JPY getting the upper hand in USDJPY, and weakness in EUR, NZD and AUD.
I wish you a very healthy and prosperous trading week.
Mark “PatientWinner” Shawzin