A Few Reasons I Like Forex
Well it was long
overdue, and yesterday it finally accelerated — the pull-back in
gold mining stocks. Those of you who have been reading my column for some time
know I have been accumulating the mining shares since the spring and summer as
long-term investments. This pull-back I suspect will provide me with yet
another buying opportunity. The sell-off also translated into some decent
HVT set-ups as well in the mining stocks.
The stronger dollar was certainly one reason that
gold stocks took it on the chin, but you could see that throughout the day, the
normal relationships between the DXC and
gold were broken, this forced myself and other traders to rely solely on the
technicals of the stocks themselves, not an approach that I find terribly
convincing. My whole basis for effective trading requires a “lead” indicator,
like the S&P’s or in this case the price of gold or the DXC.
I suspect that as we head into the last
“unofficial” two weeks of the trading session you will see even more of the
standard relationships break down. This will lead to more of “trading the stock
on its’ own merits” as opposed to the lead indicator method mentioned above. Bear
in mind, institutions will be adjusting portfolios or simply doing large amounts
of outright selling and buying without any real concern for the short-term
dynamics that we focus on. Bottom line: expect some odd price action, and do
not force things.
The action in FX
even cooled down, although not until the BoJ came in and once again
injected another $6B into the markets to stem the strength of the
JPY. Take a look at your charts at 11 PM PST
from 12/9, you will see some wide ranging bars. When I wrote Wednesday’s column
it was before the intervention had taken place, so my hunch and desire to book
profits paid off nicely.
So now what? Well, I suspect that the
action in the mining stocks might pick up a bit on the heels of yesterday’s
flogging. I am beginning to see a lot of the sub-$10 gold stocks continually
add volume on a day to day basis, this is a sure sign that the sector is
becoming more in favor. Believe it or not, stocks like
WHT, GSS
and CDE are tradable. So while you may not
want to drill down to a 1-minute chart, a set-up on the 5-minute chart offers an
edge. I know what you are saying, “I looked at the 5-minute chart of those
stocks, the have little range, are you kidding me?” No I am not, do not lose
sight of the orderliness the these stocks possess. These stocks will not make
you 1/2 points and points, but 8-12 cents over several minutes or a few hours
with very minimal drawdown is pretty attractive to me. Secondly, if you are
comfortable doing it, you can easily move several thousand shares at a time.
Several thousand shares * a nickel or dime
= A decent trade
Lastly, I want to talk a little bit about FX. I
have received several emails in recent weeks regarding my increasing discussion
about it here in my columns. I have been trading/studying this market for just
about a year now, I find it completely fascinating. For me the decision was
really quite simple, we were, and still are, in a market (equity) that is
experiencing decreased volatility and range. I have no clue as to when this
will change. Yes, there are still opportunities for me each morning in stocks
with HVT, but after that, what next? There
are sometimes a trade or two in the afternoon, but the trades are not nearly as
robust or clean in terms of their set-up.
So, I could sit here and wait for perhaps a very
long time, or apply my talents and experience to other markets. You know what
my choice was. Sure, there were some new rules and specifics that needed to be
had, but a focused and disciplined trader should be able to trade a couple of
markets after paying their dues. I have reached that point. Secondly,
embarking on a new market was very stimulating, and we all need to be
challenged. I strongly encourage you to consider the approach I have taken,
trade like a mad-man on the opening (HVT), make yourself available on the close
and the rest of the time, use your skills to learn this very liquid and volatile
market.
In coming weeks, I will be structuring this
column in such a way that it will address both trading styles each day, or as
conditions warrant. Unlike HVT, FX trades are longer in duration, several days
or several hours, sometimes even several weeks. There is a reason that most FX
brokers are seeing their business grow by leaps and bounds. Stocks are quiet,
bullets have been eliminated, SEC fees have been increased while the FX market
has NO COMMISSIONS, free charts and quotes, guaranteed stops (no slippage),
generous margin and tight spreads. Gee, on paper that deserves a look.
I strongly encourage you to send me questions,
this is a new market to most traders and will require some base building. I
look forward to assisting you in this truly fascinating and lucrative market.
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