Ended Q3 with 4.44% gain

Rational Move’s capital growth for Q3 of 2011 was 4.44%. Year-to-date growth is 3.07%. I traded 6 times during this 3 month period.

If the memory in my brain has not been manipulated for my convenience (I don’t trust human memory too much unless the memory is also recorded on medium in a credible way), I recall that I was anticipating this year to be a tricky one for traders. I thought so mostly by observing the charts with through the lens of Elliott Wave, but underlying reasons may be the post QE 2 market condition, and so on.

I struggled in the first half of this year. I only traded 3 times because I did not see much opportunities. This blog is recording only the Forex and metal trading with Elliott Wave. I traded ETFs successfully when the unrest in Middle East broke out. So, as a whole, I was still ahead by a little.

Because of Dodd-Frank Act, it became unclear whether personal trader like me could trade metals. I thought it is not worth the risk. So, I decided to stop trading gold although I was correct in anticipating the big rally of the precious metal.

Q3 was very good. I traded 6 times, and I won all. After the big win shorting EURUSD, I am not sure how much longer EURUSD will keep getting downward pressure as it seems to have completed an downward impulse wave as I predicted in the previous post. I am not surprised if this cross currency makes a sudden change of the direction to north. I think it’s time to wait and see.

As for AUDUSD, I am waiting for a clear rebound over the parity to define the current bottom. After that, I will wait and see if AUDUSD accelerate the rally or goes below the bottom.

I also have some personal matter to take care of. So definitely no trade in the first week of October.

Update on EURUSD and gold

EURUSD gradually formed a short-term bottom, and struggled to reach over 1.4300 last week, followed by a sudden drop to 1.4100 to the end of the week. I’m still thinking this is just B of b, meaning EURUSD will try 1.4385 to complete the upward flat wave b. But just in case the rebound had faded already, I set my stop sell order at 1.4038. I may cancel this order if I confirm EURUSD is still in wave b.

I prefer to think gold’s rally has not completely ended. The current nervous price action shows the characteristics of Wave 4. I did finer Elliott wave analysis in the 180min chart:

I give enough time to gold price to swing on the seesaw. There is a good possibility that gold goes down to $1460 level before resuming the rally.

This is how I pyramided gold

90% of the decision making process in my trading is based on technical analysis (Elliott wave), but in this gold trade, I think the fundamental reasons are clear. If I list from what I think to be the biggest factors, they are:

  1. FED’s loose monetary policy
  2. US fiscal deficits
  3. Sovereign crises in Europe
  4. Japanese earthquake
  5. Unrest in Middle East
  6. Central banks’ purchase of gold
  7. Real demands from China and India

It’s funny no body except for Indian wedding is buying gold for real use (yes, it’s an exaggeration). But sinking dollar and uncertainties in all over the world driving people buying this useless metal just because it does not stain. Yet when it goes up, anything goes up like smoke.

After I saw the initial wave (.1), I immediately thought some crazy acceleration of the price might be following. In terms of Elliott wave, it meant an extended 3rd wave. So, I bought gold at $1446 on March 24, risking about 2.5% of my capital.

The price went side-ways for a while, but finally it overcame 1 on April 5, so I bought more, and my average entry became $1450. Again, the total risk was 2+% with the narrowed stop loss level. After a few days pause (and patience), gold never looked back and kept breaking the record. There was no meaningful pullback that one can enter the market…until $1518 (iii).

After we saw the quick pullback to $1492 (iv), we confirmed that the FED assured cheap money for the extended period. I bought once again at $1520 when it went higher than the previous high of $1518. I moved my stop loss to the current level ($1491), and this guarantees the profit since the average entry point is now $1473.

Now, this is my way of pyramiding the position. I think a pyramiding requires extended rally like this time.

Beginning the new week, we are seeing biggest correction down to $1542 after the gold briefly hit $1576. $34 drop is big, and we may see a volatile yet choppy market from here for a while as people start to take profits. But I sit tight here because it perfectly make sense in terms of Elliott wave; this should be the 4th wave correction (4 in the chart), not the market reversal.

Real time trading tweets

The plan in the article may get rejected any time, so please check out my tweets on Twitter.

Current risk exposure:

Rational Move always use stop loss orders, and this is the worse case potential loss over the capital for the currently open positions. This is unrealized loss is less or equal to the risk exposure.

Capital growth

From recent 100 trades (%) The growth right before the 1st trade is set to 0%.
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From recent 100 trades (%)
About this graph

Total returns

Since inception
(Aug 10, 2009)
Year-to-date Quarter-to-date
0% 0% 0%
This is a normalized value: the return on each trade is normalized against the capital just before the trade execution. This way, it is eliminating the effect by the capital change from deposits and withdrawals. The calculation thus reflects the trading performance of each trade. The value does not contain unrealized profits and losses. RM's trading strategy never risks more than 5% of the present capital. Not including subtraction by tax.

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