We end the week taking a look at the position I actually did execute using our Pound Yen example.

What position did I execute?

My position of Nothing.

Being Flat.

Zero.

How did I accomplish this amazing feat of discipline?… LOL

 I will tell you!

Since we defined my rationale and view with yesterday’s post as being Bearish…my criteria was I could ONLY sell into strength.

(This is “my” Rule here….it works for me as I prefer to have concrete criteria in my trading Plans…I do not deviate from them.)

These two charts show where we are as of this writing, and illustrate some Price action that supports my Bearish view.

(Click once to view the captures)

( Sorry…4-Hour Chart here…as you can see…)

“But CVJ!…Why did you not trade within that bullish Channel?…”

You know…I am glad you asked!

“Here’s why!”

 Look at the Channel….see the noise and chop of the fractal Price action?

Now…how many times would have I been stopped out of maintaining my Bearish view?

The massive Daily downtrend was Price action I simply would not go against!

Insert “built-in Lesson” here:

This DOES NOT mean you can’t!

I am deeply sure many Traders have worked within this Channel beautifully over the past couple of days…believe me! 

Many of my personal Mentors I have worked with prefer this exact “contrarian” view….meaning a view that is going counter to our larger trend.

It is all about what you are completely and instinctively comfortable with.

For me…it was about where I saw the global strength on this Chart.

We have a 5000+ pip downtrend over the course of one month…..or we have a 2000+ pip uptrend over the course of a few days.

Which was stronger to me?…Which had the higher probability for MY comfort?…

The Downtrend.

So that, Ladies and Gentleman, is why I did nothing.

And that is why I continue to monitor the pair and wait…wait for what is comfortable for me.

P.S. - Of course, I cheated a bit……because I did not tell you what I did on the pair LAST week…more on that next time… 

Yes you can!…and that’s what today’s topic is all about!

We can continue to use our Pound Yen example we have been working with this week. After the FOMC cut the U.S. Interest Rate by .50bps…we did see some dynamic Price action…or did we ???

The continuing formation of our macro Bear Flag rolls along, and our actual Flag really developed into a nice Channel. 

Beautiful Bear Flag (Bearish).

Beautiful Flag Channel (Bullish).

BOTH Sides of the Fence!  

When we see major data releases, we usually have some anticipatory thoughts on the matter. The Fed Decision was no different. Well…you must know my feelings on the matter by now.

Hold? Hike? Cut?…

It’s irrelevant to me…from a Trading perspective…

Remember…I try to REACT…not predict.

If I am bearish….I will continue to follow the “criteria” of our Bear Flag…looking to use key price levels for high probability selling levels. The Fibonacci retracement would be an effective tool for our needs…as seen here.

(Click once to view the captures)…

Now…if I am bullish…I will look for opportunity on a higher time cycle such as the Hourly…as seen here with our Channel.

( …and of course…we saw the bullish scenario develop nicely as we moved along…reaching 162.90’s as of the completion of this writing…)

OK OK… I know what all of you want to know… “Well CVJ…what side of the Fence were YOU on?”

Here’s where today’s “built-in Lesson” comes in…

I still maintain my Bearish view. That’s right! I missed the whole upside swing here!

So…to maintain my view and focus, I only look to sell into strength here.

You may be saying, “But Tim…look at the opportunity you missed here today!”…

The Key here is I actually missed nothing.

I gained everything by sticking to my conscious Choice.

Try to remember…An Opportunity is only lost…..if you were aware of it and did nothing in the first place…

Yesterday, we were discussing a few components of how I approach some basic analysis with a couple of the Yen Crosses.

The flight to quality and safe haven aspects of the Yen and the Dollar had given us some deeply strong downtrends to work with, and we were looking at selling into strength in a coiling range. But first…we needed to monitor a potential breakout situation of our price action inside of a common chart pattern.

My “built-in Lesson” yesterday was my principle of not knowing when we would see this coiling and building of energy breakout of the flag/pennant formation we were in.

(Technically…we really do have ascending triangles here…I just call them flags or pennants…as in these cases…they are functioning the same. Just a matter of semantics, I suppose, but you get the idea…)

Well…we certainly have our answer, don’t we!

(Click to enlarge the Captures…)

Our Pound Yen example illustrates this point beautifully, ( Euro Yen is virtually identical…), as we actually stimulated the break to the upside a few hours after I wrote yesterday’s post. Our little magenta Arrow signals the bullish candle breakout of our pattern.

 I left yesterday’s support and resistance range intact, and simply drew in another area.

Often, we will see these horizontal “rectangle” levels…a support and resistance pip range… be proportionate as well. It is very similar to our vertical proportionate Price action with the Fractals. The same “building blocks” idea.

(Of course, our retracement did not actually “complete” there on the 50% Fibonacci level…but was simply “resting” there, but the level was still a clear magnet for Price…)

We even heard throughout the day a “Return of the Carry Trade!” from the news media.

Well… in my opinion… a one-day upside break does not a Carry Trade make!

That’s OK, though…as we all know, the media has to have something to say and have a story. That does NOT mean you have to listen to it.

My “built-in Lesson” today is this:

Listen to your analysis!

It might not be as attractive as the ladies on the business channels….but surely it will be more dependable for your needs.

Todays’ title refers to an analogy of sorts…

Walking down the “broken and shattered” brick Road of the current global climate…. and having that Road built up with rather orderly and logical building blocks called Fractals.

Those of you who know me well are aware of my experiences with the Yen Crosses as some of my favorite instruments to work with .

While they certainly attract all the worker bees to the honey with their volatility and potential….there is a major downside here. You guessed it.

The “Sting”!

One of the ways I begin my analysis of these pairs is always looking for macro-patterns on the Monthly and Weekly charts, moving progressively down to an Hourly.

The Crosses, despite their empirical ATR and volatility punch, do have rather orderly factors built right in. As with all derivatives and units we trade…they are made up of Fractals.

A Fractal is generally “a rough or fragmented geometric shape that can be split into parts, each of which is (at least approximately) a reduced-size copy of the whole,” a property called self-similarity.

For our purposes….let’s just say a bunch of little stair-steps all over the place!

On the two examples from yesterday….our opening gaps were filled in nicely, and you can clearly see how these little “building blocks” brought us to the quieting and consolidating Price action we see now.

(Please click to enlarge the captures.)

I have drawn in our “Bear Flag/Pennant ” formations here, as well as some general support and resistance in this little range. These will signify a continuation of price action. You can see the “Fractal” grouping getting tighter and tighter…..like a Coil.

What happens next?  Pure Physics. These Coils will begin to tighten as we move along, and this energy will need to be expelled…so a breakout here is imminent. In classic technical analysis, this will occur at the “apex” point of the formation here. Does this always happen? No.

You say, “So Fractal Boy… when will Price actually break out?”…

I have no idea! It is what is, and I accept it as such.

( hee hee…and you thought I forgot about my “built-in Lesson…)

While I personally do not trade breakouts, I do observe them and react to them.

It is this type of concept…the coiling…the building of energy…the falling volatility… that is an Options Trader’s dream!

So why not use them in Currencies as well?

The Option players are nice guys…..I’m sure they will share with us!  :-)

We have simply had perpetual cyclical continuation in the Equities markets as we move across the world from Sydney back around to Tokyo each day. The continued height of the “bouncing ball” of noise and chop across all markets seemingly gets higher and higher.

Weekends usually bring us market “reflection” and the ability of a little time to see what we have done, and where we may be going. In this case, perhaps many took a peek over the weekend at their own financial affairs. Some probably made some calls to their Brokers and Advisors…their Astrologist…their Clergy…or anyone else who could ease the pain.

Translation?  A Continuation of Fear and Uncertainty!

The 22:00GMT opening gaps on the Yen Crosses in Sydney on this particular platform prove this point. EUR/JPY gaps open from 119.16 down to 116.12 and GBP/JPY clocks in at 150.55 down to 145.51.

Please click to enlarge the captures.

(These gaps were beautifully filled with symmetrical fractals straight away…a little unusual, as Sunday gaps

have taken some time to fill in lately…)

If you are going to work with this type of price action, I would favor selling into strength through key retracements levels and horizontal, as well as vertical support and resistance areas. Use your Fibonacci tools, Elliott Wave analysis, and other cyclical tools.  You may have to venture back a ways on the weekly and monthly charts here for solid support and resistance levels, but they do exist.

We will more than likely continue to see these gaps as long as this deep volatility continues.

Perhaps Monday may really be a new dynamic in the markets. Perhaps we will simply “freefall”, and finally clean ourselves out. We saw it in 1987 under similar circumstances. Or…perhaps not. I do not know. And I do not want to know. I simply wish to SEE…

This is perhaps, one of the most important “built-in Lessons” of all.

These markets will do what they are going to do…literally regardless of interventions of any sort. The last 15-20 trading days have certainly proven this point.

It is this exact notion that you should take with you into Trading. If the world powers-at-be, the Central Banks, the injection of trillions of dollar worldwide, and your dog magically opening the door by himself has not changed the situation…do you believe you can alter a particular Price aspect of your trades?

As I mentioned last week…..your job is to REACT to the current scenarios and market climates around you.

In many instances, we will hear of veteran professional traders on many levels simply staying out of the market. Their risk tolerance is not a question of conservation or aggression. Theirs is a profile of current market action not being applicable…period.

No matter how tempting the shiny fruit on the tree appears, their risk profile does not acknowledge it.

So check your own risk profile and see if the climate is comfortable for you.

Always remember…remaining flat with no trading activity is also a deeply viable option.

It is, perhaps, the most “logical and educated” position to take for yourself if you have any level of discomfort.

With the great comments and questions I have received during my first blog week, I thought today’s “Principle” may be beneficial to many. Again, please keep your questions and comments coming! They will assist me in “steering” the blog to various topics and frames of reference.

In many recent conversations I have had with many of our own Professional Traders/Presenters here on FXStreet, one in particular came to mind as I was reading through reader’s questions and comments. I hope it is of some benefit to you…

I was at the Las Vegas Trader’s Expo again this year, and I was speaking with Raghee Horner for a couple of hours about being “consistent” with an individual or system you are choosing in an adoption and mentoring situation.

I came away with certain common factors in how we view this business that we are involved in…

We have so many influences, presenters, mentors, resources, etc. to learn from and examine….that the newer Trader will often pull many factors and views to try to assimilate them into their own.

Perhaps they will take an Oscillator setting from one, a specific Strategy from another, and a Time-Cycle Analysis view from another. This is certainly natural, and I see it in the Webinar Rooms daily. No surprise here, as it is a viable part of one’s learning curve. The detrimental issues, though, begin to present themselves when all of these divergent factors come to fruition in actual trading practice.

The primary detriment here is that ones trading “Style” really is inherently their own. It works for them. They have gone through the trials and tribulations of trying all myriads of trading views. They have arrived at a level of comfort that is second nature and instinctive.

My “built-in lesson” for today is this:  As you are learning or modeling your learning curve from a specific individual or system, stick with it. Do not deviate. Try to absorb the “completeness” of what that Trader is doing that is successful for them.

Now comes the real Irony…

You may find that in most cases…YOU are already on your way to developing your very own trading “Style” anyway… 

Today’s post is really inspired by everyone !

To be more specific…everyone OUTSIDE of the markets. You know who I’m talking about…don’t try to hide it from me!

I’m speaking of your neighbor. Your cousin who lives overseas. Your checkout clerk at the grocery store. Your mechanic. Your dry cleaner. Your best friend. Your favorite barista at the coffeehouse. And on and on and on…

We are in such a unique climate, that the esoteric world of the Financial Markets is as common a conversation as homework and the ball game at the dinner table.

My analogies aside here….we have seen more activity in trying to shore up the financial stability of the U.S. and world economies in the last couple weeks than I have personally seen with one financial entity or Central Bank in quite some time!

A partial list: A couple weeks ago, the Federal Reserve, Bank of England, Bank of Canada, European Central Bank, and Riksbank recently cut interest rates by .50 basis-points. The Swiss National Bank and the Peoples Bank of China cut by .25 basis-points…while we heard nothing from the Bank of Japan at this time.

The “magic bullet” of the Bailout plan comes to fruition. Many Commodities sectors rally and fall. Crude Oil falls. Gold falls. Crude oil rises. Gold rises. The Dollar maintains is strength. The global Equity markets fall. Then rise. Then fall. Then rise.

“Around and around and around we go…where we stop…nobody knows !”

It reminds me of 1982 when I wore out my “Christopher Parkening Play Bach” album while practicing for my classical guitar recital…

Remember my guest post on “Expectation” over on Raghee’s blog a few weeks back?

(Here is the link in case you missed it…)

I continue to ask this same question.

What is the goal and expected outcome of this coordinated effort? We have seem a multitude of “Band-Aids” come into this situation in the last several weeks in feeble attempts to heal massive wounds that continue to bleed out.

We have seen countless instances where governmental entities and Central Banks will initiate a verbal or monetary intervention to no avail. The “King” of this situation is years of the BoJ’s intervention practices being largely ignored by the markets.

I am a firm supporter of always being aware of what is going on around you as a trader. Educate yourself on these larger economic factors and what the intervening parties are attempting to do. They really can provide some insight….but always remember they take months to digest and reach the economic climate wherever you are in the world.

You do not have to agree, disagree, or act. But as I always say…you do have to REACT…because they trickle down to you and affect your trading conditions.

Intervention simply translates into a Crisis of Confidence.

Try not to let this type of toxic “crisis” alter your trading. Follow your plan…stick to your view… and maintain your convictions.

Hello everyone!

My name is Tim Salem,  and thank you for visiting my new blog here on FX Street!

Well…the burning mystery is finally exposed…for everyone who has seen me in the FXStreet Webinar Rooms daily for over 3 years… you finally know my real name!

It is my intention in this forum to have a perspective as a “Regular” Trader…for lack of a better description.

I am not afilliated with any Firm, Broker, or any Entity. The desire here is to offer ideas and perspectives in a casual and conversational style. I wish to reach the new and beginning traders who casually “drop by” FXStreet, as well as regular attendees of the Webinar Sessions each day.

My ultimate purpose is as a representative of someone who’s Currency trading knowledge came almost solely from FX Street as a portal of learning.

My background in equities earlier on helped a bit, but as I say in my little Bio Statement….I really was grateful in having to “unteach” myself poor habits, and “relearn” proper aspects of working in the Currency world.

You have a myriad of perspectives in the FXStreet Blogs and all over the site with our Professional Traders and Educators…so why look at technical analysis, fundamental analysis, trading strategies and specific trading environments with me?

Precisely!

This is why I wish this Blog to be a little different…plus I read and learn from these Professionals daily just as you do!

I will certainly post visuals, charts, and graphics as needed because if you are anything like me….just reading commentary can become a little redundant. As an artist…I always like to have something to look at anyway!

I wish to thank my friend and one of my personal mentors, Raghee Horner, for planting the seeds of this endeavor by allowing me to guest post on her Chartology blog right here on FXStreet.

Of course, my dear thanks go to Francesc Riverola, Owner/CEO of FXStreet, and his entire Professional Team for support of this idea!

I may be contacted at ultramaxgroup@yahoo.com , and I deeply welcome any feedback, suggestions, and questions as we move along. Of course, you can also post right here on the blog!

It is certainly a historic time in the Foreign Exchange world, and there is plenty to discuss…so away we go!