Friday, March 08, 2019

Wrapping Up My Forex Week, My Thanks to the Dumb Money

This past Sunday I detailed a Forex trading strategy I've been using, betting against what retail traders think is the right way to go. My main trade for the week became AUD short, as retail traders in those pairs were 65-70% long.

Here's how it turned out, from where I got in, to where I got stopped out:


This mostly went according to plan. Mostly, because I got a little too tight with a stop-loss order and the trade terminated early during a period of low liquidity (price action becomes a lot more volatile during these times). The red arrow approximately shows where I initiated the short Sunday evening, the green arrow is where I got stopped out a few days later, and the blue "oops" arrow is where I had my original take-profit order set.

Oh well, a gain is a gain.

As of this moment, retail traders are actually still adding to their long positions compared to where they were at on Sunday, thus demonstrating the method behind the madness here: as this relatively small pool of traders attempt to catch a falling knife and go (or stay) long, the whales out there are all too happy to keep taking the opposite side of the trade and mop up all of the retail traders' stop-loss orders. I'd like to go long as the chart suggests price action will head back up from here, but until I see the retail traders begin to capitulate and go short, I'll wait.

The same thing happened just now in GBP/USD: retail traders flipped and went majority-long this week and are going more so now... which was rewarded by the pair dropping throughout the week. There was a sudden spike up just now (who knows why, probably Brexit minutia), on which I went short and took the ride down to a take-profit order as the spike got decimated only minutes later; once again, the big players stepped in and slapped down the retail traders. I was already short the pair on two open trades and am near to another take-profit order on one of them as my retail trader peers continue to bet the other way...

I'll probably just close out this entire position before New York goes to lunch this afternoon. Fed Chair Jerome Powell is speaking somewhere this evening, and that could have major implications for the USD; could be good for me, could be bad, but over the weekend I can't adjust my positions while the market is closed, so I'd just prefer to be sitting in cash.

About a 5.2% gain for the week if I get out right now, so... "bird in the hand" time, perhaps.

*10:23 -8 GMT, the GBP/USD retail trade continues to go long, but volume has dried up and momentum appears to have stopped for now ahead of the weekend, so I closed out my short, locking in 6.05% for the week. $$*

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