todd gordon senior technical strategist fx trader, gain capital asset management author, strategy of...

Todd GordonTodd Gordon• Senior Technical Strategist

• FX trader, Gain Capital Asset Management

• Author, Strategy of the Day

• Regular contributor to CNBC’s Fast Money

• Popular Twitter contributor

• FOREX.com booth # 6314

Beirut 2010Beirut 2010

Forex trading involves significant risk of loss and is not suitable for all investors.


What We Will CoverWhat We Will Cover

Part 1 – Introduction and services we providePart 1 – Introduction and services we provide

Part 2 – The 3 dimensions of tradingPart 2 – The 3 dimensions of trading


Part 1Part 1

IntroductionIntroduction


Buying BreakoutsBuying Breakouts


Trading and Ski Racing?Trading and Ski Racing?


SStrategy trategy OOf f TThe he DDay ay SStrategy trategy OOf f TThe he DDay ay ** **The following are my actual trades as recommended through SOTD. The following are

successful examples, though unsuccessful trades can and will occur.

Due to timing, S.O.T.D. recommendations and actual executions will vary slightly. Additionally, the spreads inherent in my performance are generally at more favorable rates than that

available to the typical retail investor. As such, you may not be able to achieve similar results as illustrated in this presentation.**


SStrategy trategy OOf f TThe he DDayayResultsResults


TwitterTwitter

www.twitter.com/ToddGordonForex•General market commentary•Trading, position, SOTD updates•Occasional attempts at humor

www.twitter.com/ToddGordonTrade•Trading, position, SOTD updates• Ideal for SMS text alerts

5213 followers

989 followers


GAIN Capital Asset ManagementGAIN Capital Asset Management

Money management firm established in 2000Money management firm established in 2000

Clients are both institutional and individual Clients are both institutional and individual investorsinvestors

Focuses solely on spot trading in G-7 currenciesFocuses solely on spot trading in G-7 currenciesUSD, EUR, JPY, GBP, AUD, NZD, CADUSD, EUR, JPY, GBP, AUD, NZD, CAD

Approximately $70M under managementApproximately $70M under management


Part 2Part 2The 3 Dimensions of TradingThe 3 Dimensions of Trading


3 Dimensions of Trading3 Dimensions of Trading

# 1 – Intermarket analysis# 1 – Intermarket analysis• Identifying individual currency movementIdentifying individual currency movement

• Identifying leading/lagging asset classesIdentifying leading/lagging asset classes

# 2 – Identifying trading opportunities# 2 – Identifying trading opportunities• Disciplined pattern recognitionDisciplined pattern recognition

• Precise, pre-planned trading strategiesPrecise, pre-planned trading strategies

# 3 – Account management# 3 – Account management• Appropriate deployment of trading capitalAppropriate deployment of trading capital

• Understand, acknowledging capital at riskUnderstand, acknowledging capital at risk



#1- Intermarket analysis#1- Intermarket analysis


Identifying Currency LeadershipIdentifying Currency Leadership

USDUSDEUR

JPY//



USDUSD JPY

//

EUR



EUR JPY/


Which Currency To Trade?Which Currency To Trade?

EUR/JPY USD/JPY

EUR/USD


Indentifying LeadershipIndentifying Leadership


““Market trends anticipate economic trends.”Market trends anticipate economic trends.”

-John Murphy

Inter-Market AnalysisInter-Market Analysis


AUD/JPY & Dow Overlay


USD/JPY & US 10-yr Yield


EUR/USD NOW Trades With EquitiesEUR/USD NOW Trades With Equities


USD/CAD & Crude OilUSD/CAD & Crude Oil


AUD/USD & High Grade Copper



#2 - Identifying trading #2 - Identifying trading opportunitiesopportunities

With Elliott Wave and FibonacciWith Elliott Wave and Fibonacci

Forex trading involves significant risk of loss and is not suitable for all investors.Forex trading carries a high level of risk and is not suitable for all investors.

ELLIOTT WAVEELLIOTT WAVE

A A DisciplinedDisciplined Approach To Approach To Pattern Recognition and Risk Pattern Recognition and Risk

ManagementManagement

*Paul Tudor Jones ..calls Prechter and Frost's standard text *Paul Tudor Jones ..calls Prechter and Frost's standard text on Elliott "a classic," and one of "the four Bibles of the on Elliott "a classic," and one of "the four Bibles of the business" --business" --

““...and...and The Elliott Wave Theorist The Elliott Wave Theorist both give very specific and both give very specific and systematic ways to approach developing great reward/risk systematic ways to approach developing great reward/risk ratios for entering into (trade)ratios for entering into (trade)""[19]

* http://en.wikipedia.org/wiki/Paul_Tudor_Jones* http://en.wikipedia.org/wiki/Paul_Tudor_Jones

http://en.wikipedia.org/wiki/Elliott_wave_principle


Ralph Nelson ElliottRalph Nelson Elliott(1871 - 1945)


BASIC 5-WAVE PATTERNBASIC 5-WAVE PATTERN

Wave 1Wave 2

Wave 3

Wave 4

Wave 5

1

2

3

4

5

Forex trading involves significant risk of loss and is not suitable for all

investors.


BASIC 5-WAVE PATTERNBASIC 5-WAVE PATTERN

Wave 1Wave 2

Wave 3

Wave 4

Wave 5

1

2

3

4

5Wave 1

- Fundamentals poor- Investors fully, bearishexpecting new lows-Heavy short selling - 5 wave subdivision

Wave 2 -Investors fully bearish, certain of new lows- Heavily retraces W.1- Fundamentals horrible, doom and gloom- Volumes light, as sellers dry up - 3 wave subdivision

Wave 3- Strong, deliberate, and extended price action- Fundamentals increasingly better- Investor confidence greatly improved- 5 extended subdivisions

Wave 4-Fundamentals temporarily peak, then pullback- Often shallow, yet prolonged consolidation

Wave 5- Investors extremely optimistic-Fundamentals return, but often not to W.3 levels- Price momentum less than W.3

Forex trading involves significant risk of loss and is not suitable for all

investors.


TREND WAVESMOTIVE WAVESTREND WAVESMOTIVE WAVES

.i

.ii

.iii

.iv

.v

.a

.b

.c

.i

.ii

.iii

.iv

.v

.a

.b

.c

.i

.ii

.iii

.iv

.v

1

2

3

4

5 • Subdivides into waves of 5Subdivides into waves of 5

• W.2 can’t go below the W.2 can’t go below the beginning of W.1beginning of W.1

• W.4 always retraces less W.4 always retraces less than 100% of W.3than 100% of W.3

• W.4 can’t go below the W.4 can’t go below the beginning of W.3beginning of W.3

• W.3 is often the longest, W.3 is often the longest, never the shortest.never the shortest.


Corrective WavesCorrective Waves

• Corrective- possesses a 3-wave structure Corrective- possesses a 3-wave structure that retraces percentage of a prior motivethat retraces percentage of a prior motive• Waves 2,4 and B are correctiveWaves 2,4 and B are corrective

• Subdivision are labelled with letters.Subdivision are labelled with letters.

• Waves are corrective when trending in the Waves are corrective when trending in the opposite direction to the wave of 1 larger degree.opposite direction to the wave of 1 larger degree.


CORRECTIVE WAVESCORRECTIVE WAVES

.1

.2

.3

.4

.5

.A

.B

.C

UptrendUptrend DowntrendDowntrend

A

B

C

A

B

C


Completed A-B-C CorrectionCompleted A-B-C Correction


Fibonacci Ratio AnalysisFibonacci Ratio Analysis

The map legend of Elliott Wave The map legend of Elliott Wave Principle…Principle…


0.382 0.618 squared

0.500 2nd N / 3rd N

0.618 Inverse of Golden Ratio

0.707 Square root of 2

0.786 Square root of 0.618

1.000 1.618 x 0.618

1.272 Square root of 1.618

1.618 Golden Ratio (Phi)

2.000 1st N x 2nd N

2.618 1.618 squared

FIBONACCI RATIOSFIBONACCI RATIOS


FIBONACCI ANALYSISFIBONACCI ANALYSIS

Retracements Extensions Projections


Fibonacci RetracementsFibonacci Retracements

1

2

3

4

5

A

B

C

1

2

3

4

5

A

B

C

1

2

3

4

5.3

.4

.5

.2

.1

1Used to analyze Used to analyze CORRECTIVE WAVESCORRECTIVE WAVES


1

2

3

4

5

A

B

C

1

2

3

4

5

A

B

C

1

2

3

4

5.3

.4

.5

.2

.1

1

100%

61.8% 100%

38.2%

Fibonacci RetracementsFibonacci RetracementsUsed to analyze Used to analyze CORRECTIVE WAVESCORRECTIVE WAVES

…….by measuring .by measuring impulse wavesimpulse waves


AUD/USD – AUD/USD – 11/11/09 – 5:01 PM 11/11/09 – 5:01 PM ESTEST

“…“…I will be bidding I will be bidding for 2 units of for 2 units of AUDUSD at 0.9220 AUDUSD at 0.9220 with stops for now at with stops for now at 0.9142. If filled and 0.9142. If filled and Aussie shows Aussie shows favorable upside favorable upside action, I will quick action, I will quick trail the stop up trail the stop up behind me…”behind me…”



“…“…Filled on our AUDUSD Filled on our AUDUSD bids today as the risk bids today as the risk trade was hammered trade was hammered today. EURUSD seemed to today. EURUSD seemed to the downside …Oil the downside …Oil inventories were released inventories were released today and came in higher today and came in higher than expected. And when than expected. And when combined with high risk combined with high risk aversion on the session, aversion on the session, we would expect to see we would expect to see crude breaking significant crude breaking significant support levels…. but support levels…. but support held at $76.50…support held at $76.50…as did Australia's major as did Australia's major export, Copper, hold export, Copper, hold support at around support at around 297.30 .”297.30 .”



“…“…Booking half of our Booking half of our profits on 0.9220 long profits on 0.9220 long AUDUSD at 0.9285 and AUDUSD at 0.9285 and trailing trailing a stop on the a stop on the balance to entry price. balance to entry price. EURUSD is acting very EURUSD is acting very heavy into the 1.4885 heavy into the 1.4885 wave 4 resistance wave 4 resistance mentioned below…In light mentioned below…In light of fairly strong commodity of fairly strong commodity markets, a positive equity markets, a positive equity close, and dollar overlap, I close, and dollar overlap, I will remain long AUDUSD will remain long AUDUSD over the weekend with over the weekend with 0.9220 stops. 0.9220 stops. ””



“…“…We are still long the We are still long the final piece of AUDUSD final piece of AUDUSD from 0.9220 and I am from 0.9220 and I am actively searching for a actively searching for a final exit spot. I have final exit spot. I have moved stops on the moved stops on the balance to 0.9320 locking balance to 0.9320 locking in 100 pips on the final in 100 pips on the final piece.”piece.”

AUD/USD – 11/16/09 – AUD/USD – 11/16/09 – 3:23 PM EST3:23 PM EST **POSITION UPDATE ****POSITION UPDATE **

“…“…Target #1 0.9400 Met Target #1 0.9400 Met and Held. Closing last and Held. Closing last piece of AUDUSD long at piece of AUDUSD long at 0.9375 for +155 pips. 0.9375 for +155 pips.



#3 - Account management#3 - Account management

Calculating Stop LossesCalculating Stop Losses

Depending on your conviction in the tradeDepending on your conviction in the trade

• LOVE THE TRADELOVE THE TRADE6-8% of total capital at risk per trade6-8% of total capital at risk per trade

• Strong ConvictionStrong Conviction4-6% of total capital at risk per trade4-6% of total capital at risk per trade

• Average TradeAverage Trade2-4% of total capital at risk per trade2-4% of total capital at risk per trade

• Marginal SetupMarginal Setup1-2% of total capital at risk per trade1-2% of total capital at risk per trade


Capital at Risk per TradeCapital at Risk per Trade

Available Capital x 5%Available Capital x 5%-------------------------------- = Maximum Position Size-------------------------------- = Maximum Position SizeCapital Exposure per LotCapital Exposure per Lot

$50,000 x 5% = $50,000 x 5% = $2,500$2,500------------------------------------ =------------------------------------ =52 pips x $10.00 /pip = 52 pips x $10.00 /pip = $520.00$520.00

4.8 lots. 4.8 lots. 5 LOTS5 LOTS



Planning TradesPlanning Trades

Create a trade journal to develop disciplineCreate a trade journal to develop discipline

Disciplined trade planning prevents an Disciplined trade planning prevents an unplanned, emotional entry into the marketunplanned, emotional entry into the market

Should include:Should include:


Position TrackerPosition TrackerJanuary 2010January 2010


Elliott Wave PrincipleElliott Wave PrincipleBy Frost and Prechter

Strategy of the Day Recommend Reading

Strategy of the Day Recommend Reading

By Robert Miner

Intermarket Analysis

Intermarket Analysis

By John Murphy

Dynamic TradingDynamic Trading


[email protected]

Tel: (877) 367-3946

www.forex.com

Both #6314

todd gordon senior technical strategist fx trader, gain capital asset management author, strategy of...

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