ForexLive Americas Wrap: Manufacturing up, Sector Employment not so Good

Forex headlines for July 1, 2013: US final manufacturing PMI 51.9 ISM manufacturing PMI 50.9 US construction spending +0.5% ISM manufacturing prices +52.5 European bourses end day in positive territory Deutsche bank analysts see S&P holding above 1525 Goldies forecast for June jobs data below median The main theme for Monday in NY trading was better than expected manufacturing PMI data coupled with softer hiring in the sector that was seen as the weakest in almost 4 years. US equities benefited from the data and were up around 1% for most of the day before slipping a little in afternoon trading with the S&P500 last at 1614 and up 0.48%. EUR/USD spiked to the session low at 1.3014 following the ISM manufacturing number before heading to the day's high as the USD stalled. EUR/GBP buying was also seen supporting the EUR/USD move from the session lows. USD/JPY traded a narrow 99.58-99.86 range in NY today and continues to find support on dips back towards the 99.50 level after having broken higher in late Asian/early London trading. Yen crosses remained well bid for the NY morning before pulling back from the days highs. AUD/USD remained well supported on AUD/JPY buying following the break of the 91.70 level that had capped on numerous attempts to break higher since Friday. The markets will be focused on the RBA interest rate announcement in Australia today with no cut in rates expected. Gold has bounced back from its worst quarter on record last quarter rallying just under 2.5% today. Oil benefited from the better than expected manufacturing data today with Brent Crude ending up 0.82% at 103.00. 10 year yields peaked at 2.56% prior to the NY open and then proceeded to drift lower to 2.48% during NY trading and ends the session just above the days low.

Euro Finds Support. Pound Earns a Reprieve

By: Mike Paterson

Forex trading headlines for the European morning session UK markit mftg PMI june 52.5 vs 51.5 exp 51.5 prev revised up from 51.3 UK BBA mortgage approvals may 58,242 vs 55,050 exp 54,312 prev revised up from 53,712 Eurozone unemployment may 12.1% vs 12.3 exp 12.0% prev revised down from 12.2% Eurozone flash CPI june +1.6% as exp  +1.4% prev Italian markit mftg PMI june 49.1 vs 47.8 exp 47.3 prev French markit mftg PMI june 48.4 vs 48.3 exp 48.3 prev German markit mftg PMI june 48.6 vs 48.3 exp 48.3 prev Eurozone markit mftg PMI june 48.8 vs 48.7 exp 48.7 prev Nikkei closes up 1.28% at 13,852.50 Swiss SVME PMI june 51.9 vs 51.8 exp  52.2 prev Italian unemployment 12.2% vs 12.1% exp 12.0% prev Merkel to speak with Obama over bugging allegations It's been mostly a quiet start to the week with the main features being a steady grind higher for the euro after positive data, while the pound looked shaky again before earning a get-out- of- jail card with stronger than expected mftg PMI. USDJPY moved higher earlier as the Nikkei closed firmer but has shied away from strong sell interest/resistance ahead of 100.00. EURJPY found good buying interest to take out offers at 130.00 but similarly found the next strong line at 130.20 one step too far for the moment at least. The fimer euro theme was widespread with EURUSD grinding its way up to 1.3060 again and EURGBP having another assault on the strong resistance arear at 0.8590-0.8600 only to retreat sharply to 0.8554 after the UK data release. EURAUD has once again been a lively play with plenty of movement in a 1.4150-1.4250 range. EURUSD sell interest between 1,3060-80 and higher again at 1.3100 has so far capped the rally in a lack-lustre session overall. Cable struggled to keep pace with EURUSD early on and found itself kicked down to 1.5185 in a rush from 1.5217 only to be bailed out moments later after the data and we saw a quick rally to 1.5247 before falling back once more. AUDUSD's strong rally from Asian lows of 0.9111 ran out of steam at 0.9207 ahead of good sell interest starting at 0.9220 and was kicked back lower to 0.9170 exacerbated by EURAUD buying. All in all a cagey start to a week that will undoubtedly be kicking off again before too long.

U.S. Dollar Closes Lower on Taipei Forex

Taipei, July 1 (CNA) The U.S. dollar fell against the Taiwan dollar Monday, shedding NT$0.005 to close at NT$30.115 as traders took cues from the strength of the Chinese yuan and the South Korean won to raise their holdings in the local currency, dealers said.

The willingness to hold regional currencies was boosted by the latest manufacturing activity data in China, which was within market expectations, they said.

The losses suffered by the greenback, however, were recouped to some extent after the local central bank stepped in, as it has done in recent sessions, to prop up the currency and slow the pace of the Taiwan dollar's appreciation, they added.

The U.S. dollar opened at NT$30.179, and moved between NT$29.952 and NT$30.185 before the close. Turnover totaled US$498 million during the trading session.

The U.S. currency continued to strengthen against the Taiwan dollar from a session earlier soon after the local foreign exchange market opened, but became weaker in the wake of gains posted by several regional units such as the Chinese yuan and the South Korean won, the dealers said.

The higher yuan and won largely reflected the latest purchasing managers' index (PMI) in China, which showed that manufacturing activity there expanded in June, although the PMI fell to 50.1, down 0.7 from a month earlier. A PMI above 50 indicates expanding manufacturing activity.

The June PMI in China came within market expectations, which encouraged traders to buy the yuan, while such buying also spread to the won, which rose 0.5 percent at one point against the U.S. dollar, making the fifth consecutive session in which the currency gained, the dealers said.

The stronger yuan also reflected optimism toward China's financial system after the Chinese authorities told the market that the Chinese banking sector has plenty of reserves to take on a credit crunch that had hit China's financial markets in recent sessions, they said.

After the U.S. dollar fell below the NT$30 mark against the Taiwan dollar, the local central bank entered the trading floor again to push the greenback back to a level preferable to the central bank in a bid to make locally made goods cheaper in the global market, the dealers said. 

Introduction To Guerrilla Trading

"Guerrilla trading," as the colorful term suggests, refers to the technique employed by nimble traders who dart in and out of the financial jungle in short skirmishes that aim to generate quick profits while keeping risk to a minimum. A guerrilla trader’s defining characteristic is a very short-term trading timeframe that is even smaller than that of a scalper, and makes a day trader look like a long-term investor. Only computerised trading systems such as high frequency systems have shorter trading timeframes than the guerrilla trader.

Since the objective of guerrilla trading is to make small profits in multiple transactions, its success depends on low commissions, high leverage and, most importantly, tight trading spreads. So while guerrilla trading techniques can be used in any financial market, it may be best suited to foreign exchange trading, especially the major currency pairs that have abundant liquidity and low spreads.

Characteristics of Guerrilla Trading

A guerrilla trader’s modus operandi is to make low absolute profits per trade, but to trade multiple times in a session so that the overall gains are substantial enough to justify the risk incurred in such short-term trading. Based on this profile, guerrilla trading generally has the following characteristics:

Very short-term trading timeframe: The average trade for a guerrilla trader only lasts a few minutes, and hardly exceeds this timeframe. This is because the longer the time spent in a trade, the greater the risk that it can go against the trader.

Small profits, even smaller losses: The guerrilla trader is quite content to make only 10 to 20 pips on a forex trade, compared with a scalper who may have an objective of more than twice this amount, or 25 to 50 pips. This means that the guerrilla trader cannot afford to risk more than a few pips on a single trade, with the maximum loss capped at levels as small as 5 to 10 pips.

Large number of trades: Successful guerilla traders may execute more than 20 to 25 trades in a single trading session when conditions are conducive to such frenzied trading. This is generally likely to happen when important economic data such as the monthly U.S. payroll numbers or trade data is released.

Technical analysis: Due to its short-term focus, guerrilla traders usually rely on technical analysis for timing their trades, and are adept at using tick charts or 1-minute charts to pinpoint entry and exit points for their trades.

Low commissions and spreads: Because of its high trading volume and low-return nature, guerrilla trading is heavily reliant on low commissions and tight trading spreads. Guerrilla traders therefore limit themselves to the major currency pairs where liquidity is assured, rather than exotic currencies that may have greater profit potential but significantly lower liquidity.

Experienced traders: Guerrilla trading is usually the province of experienced traders who possess enough trading acumen to have survived for a number of years. It is not recommended for novice traders, as such rapid-fire trading may wipe out their risk capital in a few sessions.

Calculated risk-taking: Since guerrilla traders engage in calculated risk-taking that entails having a stop-loss of only a few pips per trade, they may often choose to stay on the sidelines when the markets are too volatile and the risk of loss is too great.

Example of a Guerrilla Trade

Consider a guerrilla trader with risk capital of $50,000 to be used as margin in a forex trading account with a major bank. The bank has a margin requirement of 2%, meaning that it offers leverage of up to 50 times. It also offers trading spreads of 2 pips on EUR/USD and charges commissions of $35 per USD$1 million traded.

Assume our trader executes 10 EUR/USD trades on a given day with an average position size of EUR1 million. The trader has six profitable trades with an average gain of 12 pips and four losing trades with an average loss of 6 pips. Let’s further assume that the EUR/USD exchange rate is about 1.3000.

Based on the average position size of EUR1 million, each pip is worth exactly $100. Therefore, the trader’s profit and loss (P&L) position looks like this:

Profitable trades = 6 x 12 pips per trade x $100 per pip =  $7,200

Less: Losing trades = 4 x 6 pips per trade x $100 per trade =($2,400)

Gross P&L =                                                         $4,800

Less: Trading commissions **                               $455

Net P&L =                                                          $4,345

(**10 trades x EUR1 million x 1.3000 = $13 million total value of trades x $35 per $1 million traded = $455).

This is obviously a highly simplified example of guerrilla trading. However, as the example demonstrates, the success of such a trading strategy depends to a very large extent on the trader’s ability to cut losing positions quickly, and let the profitable positions run just long enough to generate sufficient gains that more than offset such losses. At $100 per pip, even a single loss of 50 pips would wipe out most of the trader’s gains over this trading session.

Could you Be a Guerrilla Trader?

A successful guerrilla trader possesses the following traits:

Quick decision making: As forex markets are notoriously fickle, the successful trader has the ability to make trading decisions very rapidly so as to maximize gains and minimize losses.

Emotional detachment: Successful traders are emotionally detached from their trades; they neither fall in love with them (that is, they do not stand by a losing position), nor do they face perpetual regret about their trading decisions.

Adequate risk capital: The successful trader has sufficient risk capital and knows exactly how much to risk both on an individual trade and in total.

Trading experience: He or she is also likely to have cut their teeth in high-pressure trading situations over a number of years.

Guerrilla Trading Tips

Individuals who possess the trading experience, risk capital and mental fortitude to take the plunge into guerrilla trading should take note of the following tips:

Stop losses are the key: Guerrilla trading relies on keeping trading losses as low as possible, with the expectation that gains on profitable positions can more than offset these losses. Automatic stop losses that are triggered when a specific trading level is breached are a great way to ensure such trading discipline is enforced.

Trade the trend: Trading a strong short-term trend – for example, long USD-short EUR upon the release of positive U.S. economic data – may be the best way to generate quick profits, rather than adopting a contrarian position.

Use pro traders techniques: Risk mitigation by capping losses is the hallmark of the trading pros. As a general rule, refrain from "averaging down" by adding to losing positions, and avoid runaway losses by cutting a losing position quickly.

The Bottom Line

Guerrilla trading is not as easy as it may seem at first, and hence should only be attempted by experienced traders with sufficient risk capital. Novice investors who are tempted to try it, however, would be better off trying scalping or day trading to begin with, since the trading skills required for success – formidable though they may be – are still less than those required for guerrilla trading.