Thursday, March 17, 2011

The Japan Trades

Has been awhile since I've posted, probably been trading a lot more than usual, and been learning a lot of lessons along the way.

I want to rehash a AUD trade that pretty much depicts the volatility of the market, and how when combined with leverage, you need balls of steel and a stomach that can swallow the shit that dish out in fear-factor.

So last Friday at 2pm the Japan earthquake broke out, and then the tsunami.

As you can see from the chart below the AUD moved swiftly to the downside and I got set at the red arrow - obviously repatriation and risk off sentiment should account for a move strongly to the downside. So riding the moment I shorted the AUD at 1.0006.

However, in life nothing ever goes so smooth - the market quickly turned around as people had thought the damages were not so bad, initially only 20 people reported dead, and just a few others missing.
With the euro bailout fund looking like a success for the euro, the AUD swiftly moved to the upside, closing higher at 1.015 and making my weekend sleep terrible.
Normally I would put a stop on my positions, but when there are situations as obvious as the Japan, where effects would surely be deflationary and risk off - I took double my normal positions without stops. When I woke up on Sat morning and saw that my PL was 700 in the red, about 2% of my total portfolio position, I pretty much puked. It was good that the weekend was there to let my emotions calm down and try to think about the situation calmly.
I still had no explanation of this AUD spike upwards, so I decided to wait til monday.

Then on Monday morning this week we had the radiation scare and uranium and global indices proceeded to tank, in the range of 1-3% then Japan further exacerbating 8% the next day.

The AUD soon followed suit, and the trade played out as I had thought it would, and I exited my trade .9880 - still a lot higher than the .97 reading we saw 2 days later.