Wednesday April 6, 2005 - 10:40:58 GMT
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Black Swan Capital - www.blackswantrading.com
Aussie price action on news
“Virtually every successful trader I know ultimately ended up with a trading style suited to his personality.”
As traders, we often over analyze because we want to be “right.” So we focus most of our efforts on the seemingly powerful set of quantitative technical tools that the miracle of technology has provided. (I plead guilty.) But because of this, we often miss subtle market cues. And I believe these subtle cues--the qualitative stuff—at least that based in market price action, is the best. I think the Aussie dollar provided a good example of that recently…
chart: aussie 60-min
Above is an hourly chart of the Australian dollar as an example (similar to a chart sent to Black Swan clients after the announcement). Labeled (B) on the chart is the reaction low after Australia’s central bank announced it was not raising benchmark interest rates. This alone was all the information we needed for action.
We often search and search for the perfect setup before pulling the trigger on a trade and miss when the market is providing us with a powerful and simple qualitative signal to act. Here is what I mean…
Talk in the currency markets lately has been dominated by yield differential i.e. it is the key to a stronger dollar over the intermediate-term blah, blah, blah…you have heard it hear and other places.
Therefore: If we accepted that as prevailing market sentiment before the “expected” 25-basis point hike by the Reserve Bank of Australia, we would have expected the Aussie to tumble if the bank didn’t hike. Sure, there was an initial sell off, but not much. This was a cue and a legitimate reason to take a position, as it falls under the category of:
“Positive price action relative to the news”
And because the Aussie acted well to the news, it should have been validated by the other majors—and it was. Black Swan clients bought both Aussie dollars and euro on this qualitative indicator of price action last night. Sure, we had a decent technical setup in euro. And the majors looked a bit oversold against the buck. But the qualitative stuff was the catalyst to add confidence to take the trade.
Don’t get me wrong. I am not saying this is some type of wholesale change to the dollar trend. I am just pointing out that often we don’t need to overanalyze this stuff to get us into a decent trade. (In this case, the Aussie may not turn out to be a decent trade, but we have achieved our first profit target going long euro, so we are already at least one out of two.)
No, the qualitative stuff is not the Holy Grail. But then again, what is?
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