EUR/USD: Buying on a Retracement – Closed at Breakeven

Trade Closed: 2011-3-28 1:04:22

EUR/USD 4-hour Chart Update

The 1.4200 psychological handle proved to be too much for the euro to handle. You may find this funny, but I actually dreamed the on Thursday that my trade had already hit my profit target at 1.4250. Sadly, it was only a dream. :(

Nevertheless, I didn’t let my fantasy get the best of me. I moved my stop to breakeven after seeing the pair retreat from 1.4200. Lo and behold, EUR/USD was only able to go as high as 1.4222 before slipping below 1.4100 again.

I must admit that the comment of one of my readers also got to me. He (or she) told me that he would NEVER let a trade that’s +140 pips positive turned into a losing trade!

It seems like Europe’s sovereign crisis has finally caught up on the euro. S&P downgraded Portugal’s credit rating and fueled talks of an impending bailout for the debt-ridden country. The lack of any concrete agreements at the EU Summit might have also made matters worse for the shared currency.

Yeah, I’m not the happiest trader in the FX hood. Heck! I was soooo ready to call myself the new Pipstradamus! On the bright side though, at least I was able to keep m account from sustaining another burn.

Stopped at breakeven (1.4107): +0 pips

Trade Update 2011-3-23 23:53

EUR/USD 4-hour Chart Update

I checked my charts during my break at work today (Sorry boss, I just HAD to sneak in some chart time… Not that you’d see this) and I was immediately swept off my feet by what I saw on the 4-hour chart of EUR/USD.

A long-legged doji formed on the 38.2% Fib level and on top of that, Stochastic indicates that the pair is already oversold and is sporting a hidden bullish divergence.

See that?!?

The Stochastic made lower lows while price formed higher lows! According to the School of Pipsology, this kind of divergence works very well with retracements, so I pulled the trigger.

However, there’s a little voice inside my head which tells me that EUR/USD may retrace further so I only risked half of my position. I saved the other half for another buy order around the 1.4000 region, near the 61.8% Fibonacci retracement level. I placed my stop well below the 61.8% FIb at 1.3950 and I’m looking to take profit at 1.4250.

According to news reports and as one of my readers pointed out, the euro dropped because Portugal’s Socialist Prime Minister Socrates resigned after he couldn’t get the parliament’s backing in his austerity plans.

I don’t think bearishness towards the euro would last long though, especially since the ECB is widely expected to raise interest rates in April.

Here’s a recap of my trade plan:

Entered at market (1.4107), buy again at 1.4000, PT at 1.4250, stop loss at 1.3950 and risking 0.5% of my account in EACH position for a total risk of 1%.

Trade Idea 2011-3-23 3:53

EUR/USD 4-hour Chart

Let’s start with the technicals. As you can see, the pair has been on an uptrend recently, rising from its low this month at the 1.3800 region before topping out a couple of pips above 1.4200 yesterday. With the falling trend line on the longer time frame already broken (you can check out my previous post if you have completely no idea what I’m talking about), I think we could see the pair climb even higher after a quick retracement.

But where should I enter? Well, since the Stochastic is showing that the pair isn’t oversold yet, I believe there’s room for the pair to fall. I’m hoping to jump in the uptrend somewhere between the 38.2% and 61.8% Fibonacci retracement levels.

Like my other entries, I’m going to enter ONLY IF THE CANDLESTICKS SAY SO! (I’ve already bookmarked the candlestick cheat sheet to make sure I don’t miss any patterns. You should too!) I won’t even dare think about pulling the trigger without any confirmation especially now that sovereign debt woes are slowly creeping back into the spotlight.

Word on the street is that Portuguese Prime Minister Socrates threw a fit and warned that he’ll resign if the Parliament rejects the proposed austerity measures. Consequently, this has gotten a few naysayers thinking that this political debacle could send the debt-ridden country asking for a bailout from the EU and IMF. Uh-oh….

However, this is only one side of the coin. What if the Parliament gives the go signal to the spending cuts? Mr. Socrates won’t have to leave and everyone will be happy! More importantly, talks about a Portuguese bailout would die down! Yipee!

Maybe then the market’s focus would go back to the possibility of the ECB hiking interest rates in order to tame inflation. Okay, I know all the free coffee I get from work makes me a tad too excited at times, but I don’t think that it’s just the caffeine talking. Earlier today, Slovakian central bank governor and ECB member Jozef Makuch said that there’s a good chance that the ECB will holler a rate hike next month!

Now I guess the best thing to do is just wait… and maybe get some shuteye. I may end up looking ten years older for my date this weekend. Eeek! Anyway, that’s all for now. Follow me on Twitter so I can let you know when I have a valid trade. Skadoosh!

  • Inflatormouse

    Out of curiosity, how does this tie in with your trend following strategy? Or is this a one off trade independent of it?

    Regards,
    Inflatormouse

  • Inflatormouse

    Out of curiosity, how does this tie in with your trend following strategy? Or is this a one off trade independent of it?

    Regards,
    Inflatormouse

  • Sosafuzion

    It appears things are not all rosy in the Portugal parliament!! Socrates resigned today! How does this change of events effect your trade strategy? Thanks :D

  • Sosafuzion

    It appears things are not all rosy in the Portugal parliament!! Socrates resigned today! How does this change of events effect your trade strategy? Thanks :D

  • Huck

    @Inflatormouse

    Oh, my discretionary trading is indepdent of my trend following strategy. The HLHB system is my mechanical system. I treat is as an academic study to see if mechanical systems can be profitable! They’re on different accounts with totally different risk management rules!

  • Huck

    @Sosafuzion

    I actually thought the news was GOOD for my trade as it helped the pair reach my desired entry point!

  • Huck

    @Inflatormouse

    Oh, my discretionary trading is indepdent of my trend following strategy. The HLHB system is my mechanical system. I treat is as an academic study to see if mechanical systems can be profitable! They’re on different accounts with totally different risk management rules!

  • Huck

    @Sosafuzion

    I actually thought the news was GOOD for my trade as it helped the pair reach my desired entry point!

  • Wiltons

    Keep truckin’ Huck, you’ll get there! Really finding the blog helpful!

  • Anonymous

    Having the 2nd position stop loss moved to 1.4150 price level would have being a great idea and you could have take your first profit after the 1.4200 break or when you saw the market early reversal. Thereby if the market moved to the 1.4050, to me the trade is no longer valid and still you could have make some profit

  • pipsinvestigator

    Anonymous- pips investigator

  • pipsinvestigator

    You know i have a feeling that by using a smaller MA VAlue for your crossover. Am sure it would had give you an early signal to exit all your position

  • Anonymous

    After analysing the HLHB system, i found that by removing your stochastics filter,30 pips filter and using a reasonable lower MA value for crossover with a good SL AND TP. You would end up being profitable.
    I believe for your criteria to be met, 80 pips would have being gone and all you do is by staring at it. And for stochastics, i think it should be used more with chart patterns and candlesticks to have a good winning ratios instead of using as OS/OV Region because strong trend happen in those area, and if you are thinking about tops and bottom, Lower MA CROSSover would give an signal . Cos believe me i had also work that path before…. Pips investigator

  • pipsinvestigator

    Pips investigator

  • pipsinvestigator

    Pips investigator…After analysing the HLHB system, i found that by removing your stochastics filter,30 pips filter and using a reasonable lower MA value for crossover with a good SL AND TP. You would end up being profitable.
    I believe for your criteria to be met, 80 pips would have being gone and all you do is by staring at it. And for stochastics, i think it should be used more with chart patterns and candlesticks to have a good winning ratios instead of using as OS/OV Region because strong trend happen in those area, and if you are thinking about tops and bottom, Lower MA CROSSover would give an signal . Cos believe me i had also work that path before…

  • pipsinvestigator

    Pips investigator… Pls i want you to read a comment on your blogs as of Nov 26,2010. I wrote some info on strategy. Hope it helps. Have a nice day

  • pipsinvestigator

    I hope i dont confuse by putting my name at my article.@ Huckle. Its saying anonymous except when i use my name at the begining of my words, for it to see am pips investigator

  • Wiltons

    Keep truckin’ Huck, you’ll get there! Really finding the blog helpful!

  • Anonymous

    Having the 2nd position stop loss moved to 1.4150 price level would have being a great idea and you could have take your first profit after the 1.4200 break or when you saw the market early reversal. Thereby if the market moved to the 1.4050, to me the trade is no longer valid and still you could have make some profit

  • pipsinvestigator

    Anonymous- pips investigator

  • Anonymous

    After analysing the HLHB system, i found that by removing your stochastics filter,30 pips filter and using a reasonable lower MA value for crossover with a good SL AND TP. You would end up being profitable.
    I believe for your criteria to be met, 80 pips would have being gone and all you do is by staring at it. And for stochastics, i think it should be used more with chart patterns and candlesticks to have a good winning ratios instead of using as OS/OV Region because strong trend happen in those area, and if you are thinking about tops and bottom, Lower MA CROSSover would give an signal . Cos believe me i had also work that path before…. Pips investigator

  • pipsinvestigator

    Pips investigator

  • pipsinvestigator

    Pips investigator…After analysing the HLHB system, i found that by removing your stochastics filter,30 pips filter and using a reasonable lower MA value for crossover with a good SL AND TP. You would end up being profitable.
    I believe for your criteria to be met, 80 pips would have being gone and all you do is by staring at it. And for stochastics, i think it should be used more with chart patterns and candlesticks to have a good winning ratios instead of using as OS/OV Region because strong trend happen in those area, and if you are thinking about tops and bottom, Lower MA CROSSover would give an signal . Cos believe me i had also work that path before…

  • pipsinvestigator

    Pips investigator… Pls i want you to read a comment on your blogs as of Nov 26,2010. I wrote some info on strategy. Hope it helps. Have a nice day

  • pipsinvestigator

    I hope i dont confuse by putting my name at my article.@ Huckle. Its saying anonymous except when i use my name at the begining of my words, for it to see am pips investigator

  • PipBandit

    Well at least you can reassess the situation now at no loss to your account. If you still feel bullish you can get in now at a better price. If you’re feeling bearish you can try to sell a rally.

    You should check out the Technical Templates thread in the Forex Systems area of the forums sometime. Very logical and clear – if you take in what Tess, Jocelyn, etc. explain it’ll go a long way to helping your trading overall. I believe they trade on behalf of themselves and clients so they definitely know what they’re talking about.

  • Huck

    @Wilston Thank you :)

    @pipsinvestigator I saw your suggestions, but I think the 30-pip filter is alright. It helps me avoid whipsaws. You’re correct about the Stochastic though. Any suggestion what indicator I should use? RSI? MACD? I’ll have to backtest it though. :)

    @PipBandit I checked out that Technical Templates thread and it’s pretty nice! It will take time for me to read everything though.

  • PipBandit

    Well at least you can reassess the situation now at no loss to your account. If you still feel bullish you can get in now at a better price. If you’re feeling bearish you can try to sell a rally.

    You should check out the Technical Templates thread in the Forex Systems area of the forums sometime. Very logical and clear – if you take in what Tess, Jocelyn, etc. explain it’ll go a long way to helping your trading overall. I believe they trade on behalf of themselves and clients so they definitely know what they’re talking about.

  • Huck

    @Wilston Thank you :)

    @pipsinvestigator I saw your suggestions, but I think the 30-pip filter is alright. It helps me avoid whipsaws. You’re correct about the Stochastic though. Any suggestion what indicator I should use? RSI? MACD? I’ll have to backtest it though. :)

    @PipBandit I checked out that Technical Templates thread and it’s pretty nice! It will take time for me to read everything though.

  • Sosafuzion

    Thanks again for your insights. I always find your blog helpful since I am also another FOREX Newbie.

  • Sosafuzion

    Thanks again for your insights. I always find your blog helpful since I am also another FOREX Newbie.

  • Huck

    @Sosafuzion

    Glad I could help! We’re both newbies and we have a looooooooooooooooooooooooooooooooong way to go!

  • Huck

    @Sosafuzion

    Glad I could help! We’re both newbies and we have a looooooooooooooooooooooooooooooooong way to go!

  • Aimoc

    I just happened to come across this and i think it is great work… Going to be following from now on!

    Thanks

  • Aimoc

    I just happened to come across this and i think it is great work… Going to be following from now on!

    Thanks