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Prop Trading Futures

Chart Patterns and Trading Strategies for the week of June 30

As many of you already know, I trade breakouts in commodities, currencies and other financial markets. I keep my market analysis simple and almost mechanical (many times I have I been tempted to code it!). On the other hand, money and risk management are the most discretionary parts of my system.

 

A Framework To Read Any Market

I classify the markets that I’m following (around 50) in trending and no trending markets. In the first category fall all those markets that have a “Pattern in Play” or, in other words, a completed classical chart pattern (of duration of at least 10 weeks) and the price is moving to its pattern’s measured objective.

In the second category fall all those markets that are potentially forming a classical chart pattern, but are not quite there yet. They are what I call “Developing Patterns”.  Everything that falls outside these two categories is “Market Noise”.

Below is a chart aimed to briefly explain these three situation and how they may evolve from one to the other.

PropTradingFutures.com

A few words to highlight some key aspects about charting and trading out of charts>

  1. A classical chart pattern cannot be defined as such until there is a clear, decisive breakout from it. It needs to be completed. Until then, a Developing Pattern can morph into Market Noise again and again for several time before eventually breaking out. Many traders fail to understand this and get killed in price congestion areas trying to anticipate a breakout.
  2. If you are a trader, and not an analyst, your should strive to filter out all breakouts and presumed breakouts that are likely to bring to a pattern failure. That is why I discourage “creative” and “complex” interpretation of charts. In my experience they are likely to bring the trader to over-trade, get frustrated and use incorrect money management procedures.

 

Markets Update and Commentary

Briefly, based on the framework explained above:

PATTERNS IN PLAY AND OPEN TRADES:

  • GBP/USD*, NZD/USD*, BNO, PA (Futures), UNG, DFJ, EWC, EWZ, TLT, UGA, OIL

DEVELOPING PATTERNS:

  • AUD/USD*, EUR/AUD, USD/JPY*, HO (Futures)

* For these cross rates I trade the spot market (FOREX). Not the futures market.

Patterns in Play and open trades

Continuous strength in the Cable and New Zealand Dollar are supportive of my long positions. As highlighted on my previous market update, the break of NZD/USD to new highs was a good to add another layer of capital on the long side. So I did.

 

NZD/USD Daily Plot - Breaking to new highs

NZD/USD Daily Plot – Breaking to new highs

Long term targets for Cable and NZ$ remains unchanged: 1.021 for NZD/USD and 1.943 for GPB/USD. Money management will dictate with how much of my current position I want to hold until there (or until I get stopped out) and how much I want to unload earlier.

All other Patterns in Play that review in last week’s report are playing out. Because its development, TLT (ETF) it is worth a mention: the 20+ year Treasuries ETF was on the verge of completing a reversal pattern, but it failed adding more conviction that the this marked is headed to $117.5.

TLT - Small H&S failure confirms the move started with the completion of the bigger Inverse Head and Shoulder

TLT – Small H&S failure confirms the move started with the completion of the bigger Inverse Head and Shoulder

Developing Patterns

None of the Developing Patterns from last week’s review managed to breakout. So they all remain in my watch list for the next days.

In addition to them, this week I include in this list also  USD/JPY: in case that market reaches the lower 100sh, a top may be in place and the uptrend that we are enjoying in  USD/JPY since 2012 may be in jeopardy.

USD/JPY - Possible reversal Descending Triangle

USD/JPY – Possible reversal Descending Triangle