EUR/USD: Is 1.4000 A Top? – Trade Closed

Trade Closed: 2011-3-21: 1:29

EUR/USD Weekly Chart

I think I jinxed my trade again by calling 1.4000 a top! Boo! After I entered my trade, EUR/USD only dipped to a low of 1.3751 before skyrocketing past the resistance at the falling trend line and stopping my trade out at 1.4050. Drats!

EUR/USD Daily Chart

I thought I’d hold on to my trade amid fears of a nuclear breakdown in Japan. Too bad for me, the mixed U.S. reports didn’t give the dollar enough espresso shots to rally like a 5-year-old on a caffeine high!

I’m definitely not happy that I lost on this one, but I’m not gonna let it rain on my parade. As far as I know, I had a sound trading plan. The market just didn’t go my way. And besides, this is only my second loss of my discretionary trading system this year!

Sometimes, that’s just how the cookie crumbles.Surprise news may help some trades, but prove to be detrimental on others. Let’s just see what kind of trade ideas I come up with next!

Closed at 1.4050: -159 pips / -1.0%

Oh, don’t forget to follow me, Huck, on Twitter! I’m looking for other trader friends. :)

Trade Idea: 2011-3-9 1:21

EUR/USD Weekly Chart

As you can see from the weekly chart, EUR/USD has found resistance right on the falling trend line that extends AAALLL the way back from July 2008. When I saw this, I knew that I had a good trade in front of me and it was just a matter of zooming in to a smaller time frame for a more precise entry.

EUR/USD Daily Chart

On the daily chart, I noticed that a “three inside down” candlestick formation has appeared. I have learned from the School of Pipsology that the “three inside down” candlestick formation is a very strong reversal pattern and could mean that the bears are starting to take control again. My short bias is also confirmed by the divergence between price and Stochastic.

This is a long-term trade so I plan to milk it for all its worth if price goes in my direction. While I’m ultimately aiming for 1.3000, I’m going to add to my position every time price falls 160 pips but also move my stop loss 160 pips to make sure that my total risk does not change. I believe my trade idea will be invalidated if price breaks the falling trend line and goes above this year’s high.

Alright, that’s it for technicals… Let’s move on to my fundamental reasoning.

Yesterday, ECB Member Axel Weber talked about the possibility of inflation in the region being stronger than it is perceived. That should have been bullish for the euro, right? But guess what, it still lost against the dollar!

I did a little research and found out that Greek bond yields skyrocketed to record highs yesterday. Portuguese and Spanish yields have also been on the rise lately which could mean that the focus is shifting away from an ECB interest rate hike and moving back to Europe’s debt crisis! Hmmm, can anyone holler risk aversion?

Rumors about the Fed scrapping the “extended period” portion of its usual rhetoric are also making me more giddy about my trade. But I guess we’ll have to see a handful of sexy digits to fuel this speculation. I’ll be sure to keep my fingers crossed for better-than-expected figures from this week’s roster of high-caliber reports which includes data on employment, trade balance, and retail sales.

Okay, that’s all I have for you all today. I haven’t gotten enough sleep yet so I’m off to get more shut eye. I don’t think people want their coffee served by a sleepy barista. Ha!

Once again, here are the details of my plan:

Short at market (1.3891), sl at 1.4050, pt at 1.3000, add every time price falls 160 pips from my entry.

Follow me on Twitter so I can update you. Skadoosh!

  • Cuddykid

    Looks like a fantastic setup. Just have to hope the data coming out of the US is nice and bullish!

  • Cuddykid

    Looks like a fantastic setup. Just have to hope the data coming out of the US is nice and bullish!

  • Huck

    Thanks Cuddykid! :D

  • Huck

    Thanks Cuddykid! :D

  • mikhail86

    Very nice setup Huck! Have two questions though. Why did you choose 1.3000 as a target? Any technical reason or simply using a round number? And, also why add positions every 160 pips? Is it because that is the average daily range for the pair? Thanks and hope this one works for you!

  • Huck

    I chose 1.3000 because it’s NEAR the most recent swing low on the daily. I would’ve aimed lower, but 1.3000 is also a nice round number.

    I’ll add every 160 pips because it’s equivalent to the pair’s 20 day ATR and so that my 1% risk doesn’t change. :)

    Hope that helps!

  • mikhail86

    Very nice setup Huck! Have two questions though. Why did you choose 1.3000 as a target? Any technical reason or simply using a round number? And, also why add positions every 160 pips? Is it because that is the average daily range for the pair? Thanks and hope this one works for you!

  • wealth1on1

    HUCK:DOES THIS YOUR TARGET IS FOR THE WHOLE DAY OR WEEK BECAUSE THE MARKET IS GOING TO CLOSE TOMORROW, SHOULD WE I STILL GO ON SHORT UNTIL THE MARKET CLOSE FOR THE DAY?

  • hawkesbayj

    Nice explanation and reasoning behind the trade.

  • Constantine

    Huck,
    Excellent setup and very nice analysis. I especially like your combination of the Japanese candlestick pattern with the bearish divergence. East meets West!!
    I went short a little later and a little higher than you did; 1.3909 at 14:11, have kept my stops a little closer and my objective a little closer (1.3430) but I have TRIPLED my position since entry! Thanks again for the great analysis. I’m going to put a candlestick cheat-sheet right next to my screen.

  • wealth1on1

    HUCK:DOES THIS YOUR TARGET IS FOR THE WHOLE DAY OR WEEK BECAUSE THE MARKET IS GOING TO CLOSE TOMORROW, SHOULD WE I STILL GO ON SHORT UNTIL THE MARKET CLOSE FOR THE DAY?

  • Huck

    @wealth1on1 This is a long-term trade so I’ll hold on to it over the weekend… But that’s just me!

  • Huck

    @Constantine I know I’m up but… I’m still far off from my target and I still haven’t closed my position. Anything could happen… Heck, I could lose! I’m glad that you were more aggressive than me though. I should’ve done the same thing and I could’ve closed by now. :)

  • Huck

    @hawkesbayj Thank you! I hope it turns out to be a winner!

  • hawkesbayj

    Nice explanation and reasoning behind the trade.

  • Constantine

    Huck,
    Excellent setup and very nice analysis. I especially like your combination of the Japanese candlestick pattern with the bearish divergence. East meets West!!
    I went short a little later and a little higher than you did; 1.3909 at 14:11, have kept my stops a little closer and my objective a little closer (1.3430) but I have TRIPLED my position since entry! Thanks again for the great analysis. I’m going to put a candlestick cheat-sheet right next to my screen.

  • Huck

    @wealth1on1 This is a long-term trade so I’ll hold on to it over the weekend… But that’s just me!

  • Huck

    @Constantine I know I’m up but… I’m still far off from my target and I still haven’t closed my position. Anything could happen… Heck, I could lose! I’m glad that you were more aggressive than me though. I should’ve done the same thing and I could’ve closed by now. :)

  • Constantine

    Hi Huck,

    I moved my stops last night to lock in the gain on the intial position and got stopped out about 19:30 Eastern. Still made 75 pips. A small gain is better than a small loss.

    I’ll be looking at the EURJPY to put on a position before markets close for the weekend. Things get pretty slow on Friday afternoons.

    Thanks for the great setup and trade well!

  • Constantine

    Hi Huck,

    I moved my stops last night to lock in the gain on the intial position and got stopped out about 19:30 Eastern. Still made 75 pips. A small gain is better than a small loss.

    I’ll be looking at the EURJPY to put on a position before markets close for the weekend. Things get pretty slow on Friday afternoons.

    Thanks for the great setup and trade well!

  • Huck

    @Constantine

    Good for you! I’m still in the trade… Thinking if I should pull out early and cut my losses. The earthquake in Japan was a really big unexpected event…

  • Huck

    @Constantine

    Good for you! I’m still in the trade… Thinking if I should pull out early and cut my losses. The earthquake in Japan was a really big unexpected event…

  • PipBandit

    In my opinion a trade that is +140 pips at one point should never be allowed to turn into a loser. Move the stop to breakeven and if it gets tripped then you can re-assess the situation at no loss to yourself.

  • PipBandit

    In my opinion a trade that is +140 pips at one point should never be allowed to turn into a loser. Move the stop to breakeven and if it gets tripped then you can re-assess the situation at no loss to yourself.

  • winstonereed

    Sorry to be critical but the trade was essentially calling a top. The market was bullish. Higher highs and lower highs. Your trend line is off and the divergence was weak. You had a nice counter trend trade but a short to 1.3000! it was destined to fail. Trade with the trend Huck. Hang in there!

  • Huck

    @PipBandit I think you’re correct. I guess I was too confident believing that the trade will go my way! The surprise move by the G7 was a real bummer too!

  • Huck

    @winstonereed Yeah, my trade was counter-trend… But when I think about it, if I was right (which I’m not), the potential reward-to-risk ratio would’ve been huge. I guess I thought the amount I could lose is well-worth the amount that I could gain. :) Ah well…

    I will hang in there! I’m still positive overall for the year! I can still lose 2 more trades. Hah!

  • Huck

    @PipBandit I think you’re correct. I guess I was too confident believing that the trade will go my way! The surprise move by the G7 was a real bummer too!

  • Huck

    @winstonereed Yeah, my trade was counter-trend… But when I think about it, if I was right (which I’m not), the potential reward-to-risk ratio would’ve been huge. I guess I thought the amount I could lose is well-worth the amount that I could gain. :) Ah well…

    I will hang in there! I’m still positive overall for the year! I can still lose 2 more trades. Hah!

  • 6505341124

    As far as I can remember, you have been trading against the trend for last 4-5 times for this pair. Most I believe were loses.If you had traded with the trend after initial 2 lossess you may have reaped a substantial profit.Ever heard of the saying, “once bitten, twice shy,twice bitten ,sure to die” I think it is not wise trying to find the top or for that matter a bottom.

  • Huck

    @6505341124

    Yeah I took a look at my past EUR/USD trades and you’re right. I’ve been doing well on the other pairs, but it seems that I am being overly bearish on this pair. I’ll try to trade with the trend on EUR/USD next time!

  • 6505341124

    As far as I can remember, you have been trading against the trend for last 4-5 times for this pair. Most I believe were loses.If you had traded with the trend after initial 2 lossess you may have reaped a substantial profit.Ever heard of the saying, “once bitten, twice shy,twice bitten ,sure to die” I think it is not wise trying to find the top or for that matter a bottom.

  • Huck

    @6505341124

    Yeah I took a look at my past EUR/USD trades and you’re right. I’ve been doing well on the other pairs, but it seems that I am being overly bearish on this pair. I’ll try to trade with the trend on EUR/USD next time!

  • Babynords

    I agree with Huck, a trade like this could never be a loser for me, I would move it to break even as soon as the the trade becomes positive by more than the daily ATR. You know what is funny, the trade was too obvious. The E/U will be bearish very soon but the thing is when?. Right now its pointing down but I would wait until it jumps back up before I try to enter, look for something close to a head and shoulder, if I miss the trade then so it be.

  • Huck

    @Babynords Moving my stop to breakeven after it moves positive more than the daily ATR is such a great tip! Thank you!

  • Babynords

    I agree with Huck, a trade like this could never be a loser for me, I would move it to break even as soon as the the trade becomes positive by more than the daily ATR. You know what is funny, the trade was too obvious. The E/U will be bearish very soon but the thing is when?. Right now its pointing down but I would wait until it jumps back up before I try to enter, look for something close to a head and shoulder, if I miss the trade then so it be.

  • Huck

    @Babynords Moving my stop to breakeven after it moves positive more than the daily ATR is such a great tip! Thank you!