15 July 2012

EUR/USD + Gold : Trading Mistake

  • Original plan to pyramid short EUR/USD position on close of NY business below 1.2287. Market, however, ran sharply ahead and made a low of 1.2162 before I could do anything. Sometimes it pays to sell the first break way ahead of week's close. Other times, being patient and waiting till the last few hours is better. This is very much about luck, no hard and fast rule. No issue here.
  • In my anxiety of missing piling onto an ever larger Risk Off position, I sold gold at 1559 instead, before the sell signal was confirmed by the weekly close below 1570. First big mistake = being greedy.
  • Disregarded my own earlier conclusion that under current market conditions, not all Risk Off proxies are created equal. eg 1. S&P500 - as proven time and again, people like to buy on dips no matter how bad the news. Selling this is not a good Risk Off proxy. eg 2. Gold - again heavy support from all kinds of buyers eg central banks. Until a confirmed technical break, I must not jump the gun. 2nd big mistake = lacking focus.
  • I'd best stick to shorting EUR/USD if I want to increase Risk Off exposure. Commodities a bit dicey due to threat of QE3.
  • [Short Gold stopped out at 1594 on Friday night] 
  • Addendum 16Jul12 7:08 pm : Because of the error in Gold, I did not add on to the short EUR/USD as planned. Double whammy.


Anonymous said...

Hi TS,
Share your experience - we're all human. I've come to a similar conclusion regarding Risk on/off. The markets are so strongly correlated that we might as well just trade one in each direction. In gold and SP500 as you note, there is strong buying whenever there is a dip - whether from Central Banks, or the PPT, or the market. My strategy is to choose the weakest for risk-off (EUR), and the strongest for risk-on (AUD), and trade only those pairs.

Taichiseal said...

Thanks. Good advice.