First posted 10/12/09

At the time of writing, the market is edging in my favour and I am almost in profit (you always start with a loss because of the dealing spread). I am a bit nervous about the stop level — perhaps it is too close. On the other hand, I am feeling a bit paranoid after being stopped out this morning — I should remember that that level held and it was my execution that let me down. Here is the trade sheet:

TRADE SHEET

Short AUD/NZD 10/12/09

Trade Description

Short Australian dollar vs New Zealand dollar from 12520.

Details

Technicals

I have been watching this trade for a while. AUDNZD is close to highs for the past few years. The chart has recently been rolling over, slightly below the previous peaks, and I wondered if this was as good a shorting opportunity as I was going to get. Yesterday, the price fell sharply. A wide-ranging day like this can be a signal of further declines to come, so I took that as my sell signal. Intra day, the support around 12630 looked to have become a resistance, with a double top forming below it on the 10-minute intraday chart, so I have placed the stop around there — with an adjustment for the dealing spread (see earlier trade sheet about EURNOK).

Fundamentals

Reserve Bank of NZ held interest rates Thurs but indicated that rate hikes would come sooner than expected. Further Australian rate hikes may be priced in already.

Stop Position

12645. Loss-to-stop = 0.35% of trading capital. Was originally 0.25%, but I widened the stop after this morning’s experience with EURNOK.

Trading Plan

Move stop at earliest opportunity to lock in a profit. Pyramid break below 12400.

Entry Checklist

Are you trading against the trend? Yes — effectively trading the long-term range.

Is there a fundamental story? A limp one — this is a technically-driven trade.

Is there a technical buying opportunity? Yes

Are you placing your stop at a point where the market would tell you you were wrong? I think so. I wondered whether I was placing the stop too close to the entry point — I am relying on the resistance (formerly support) level to hold strongly. On the other hand, if the market powers through the stop it will be telling me that I am wrong about the previous support becoming a resistance. Perhaps I should have built in more leeway. I expect to get a better feel for this kind of thing with practice.

How much conviction do you have? Low

Does the risk accord with the conviction? Yes

Do you have a plan? Yes

If you are wrong, will you live to fight another day? Yes

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