Boomshakalaka! We’ve got the Final Four coming up next weekend, but it’s still Monday and y’all know what that means – it’s time for my Weekly Winner! I’ve got a sweet-looking setup on EUR/JPY that in hindsight, I should have tried my luck on!
Again, if this is your first time checking out my Weekly Winner, make sure you read my introductory post so that you’d have a better understanding of the framework that it’s based on.
March 21 – March 25, 2011: EUR/JPY Price Action Review
If you’re a keen follower of Pip Diddy‘s (as you should be, he’s the coolest thing since sliced bunny and cranberry sauce!), then you’d know that the biggest driver of euro trading last week was concerns about Portugal and its debt. The resignation of Portuguese PM Jose Socrates weighed down on the shared currency, which was why euro pairs fell at the beginning of the week.
After testing the PWH, EUR/JPY dropped nearly 200 pips before it found support just above 113.50. We then saw a midweek reversal as EUR/JPY got nice support when French and German manufacturing and services PMI came in better than expected. But the good times didn’t last as the pair ended the week on a sour note after S&P downgraded Portuguese debt.
Looking back, there was a really slick setup that in hindsight, I probably should have gone with, even though I still have that long EUR/JPY setup from a couple weeks back.
Not once, but twice, did price test the PWH. Bearish divergence had formed, as a double top formed while Stochastic showed lower highs. What I could have done was short at 115.50 with a 75/1/1 stop-trail-add strategy while aiming for the 114.00 handle as my profit target.
Why a 75/1/1 STA and why aim for 114.00 you ask?
In my opinion, a 75-pip stop would have been appropriate as it would have placed my stop above 116.00. The 115.00 to 115.50 area has been a strong resistance (remember, it’s the neckline of the double bottom formation on the weekly chart!), so if price were to trade above at 116.00, it would signal a breakout. As such, if I had shorted and had gotten stopped out, I could have simply reversed my position and went with that long setup I’ve been raving about.
Now, as for aiming for 114.00, this would have meant a modest profit target of 150 pips. 150 pips also happens to be just about equal to the pair’s average daily true range.
In the end, with a 75/1/1 STA, I would have bagged a decent 3:1 trade which isn’t bad in my books.
While I didn’t feel bad about missing last week’s setup, this is one that actually hurts my tiny little trading heart just a bit. After all, this was a pretty easy trading setup and the reward-to-risk ratio was good enough.
But hey, that’s how the market rolls – if you ain’t ready, it’ll leave you in the dust in a blink of the eye… which makes it doubly worse for me since I’ve only got one eye! Ha!