EUR/USD: Shorting on a Fib – Trade Closed

Trade Closed: 2011-6-30 02:08

EUR/USD 4-hour Chart

As one of my readers (hi there hh!) have pointed out, I failed to correctly assess the market sentiment. I focused too much on fundamentals, and did not realize that the market has been pretty optimistic about Greece’s austerity vote. Rallies were strong, while the dips were quickly erased.

Closed 1.4400: -118 pips / -1%

Despite my botched trade, I don’t feel bad. I mean I don’t feel THAT bad. Losses are normal and I stuck to my risk management rules. My account took a 1% hit, which could easily be recovered with one win. In fact, even if I lose more trades, I could get them back with trades which have good reward-to-risk ratios.

Trade Update: 2011-6-29 2:13

EUR/USD 4-hour Chart

It seemed like investors were as giddy as teenage girls in a Miley Cyrus concert for Greece’s austerity measures yesterday. But while EUR/USD closed above 1.4300 and almost hit my stop loss, I think I’ll keep my trade open.

In my humble opinion, I think the fundamental background hasn’t really changed. The fact is, while the Greek parliament will start the discussions on austerity measures later, the failure for the government to pass the budget still remains to be a realistic possibility.

Also, on the technical side of things, it seems like the pair is testing resistance at the falling trend which I drew from the highs of June 15. Stochastic also indicates overbought conditions.

Sure, I may end up losing my trade, but I have considered all possibilities and the reward far outweigh the risk. Wish me luck guys.

Trade Idea: 2011-6-28 3:08

EUR/USD 4-hour Chart

Thank you Big Pippin! I took a gander at his Daily Chart Art today and I decided to take one of his setups. I think it’s a very good one, as the risk I have to take is far outweighed by the possible profits. If I play my cards right, the trade could have as high as a 5:1 reward-to-risk ratio!

As you can see, EUR/USD just bounced from the 61.8% Fibonacci retracement level. With Stochastic already in the overbought territory AND crossing over, we could see the pair start to fall. Also note that the 1.4300 major psychological number coincides nicely with the Fib level. Sweet, huh?

Shorting the pair is fundamentally-sound too. Well, kinda. I think the outcome of my trade will largely depend on whether or not the Greek Parliament would agree to more austerity measures.

I know that most analysts are excited to see policymakers implement more budget cuts and tax hikes. Pip Diddy has told us time and again that if the Parliament votes for further fiscal discipline, the euro would probably rally as this would ease concerns about a Greek default.

However, after seeing the currency rally up the charts yesterday, I’m thinking that perhaps the event is already priced in the market and we could see a classic “buy the rumor, sell the news” move when the decision is finally announced. Or, who knows, perhaps the Greeks wouldn’t be able to come into terms with each other and spark a massive wave of risk aversion to send the euro tumbling down the charts. Hey, anything can still happen, right?

On top of that, I have a feeling that the end of QE2 would also give traders one more reason to root for the dollar.

So basically, here’s what I did:

Short at market (1.4282), stop loss at 1.4400, ultimate profit target at 1.4100. I have risked 1% of my account.

Since I’m going with the trend, I want to really get the most out of my trade. I will scale in and add half a position every time the pair moves 50 pips in my direction. Of course, I will also move my stop by 50 pips to reduce risk as well.

What do you think of my trade? Hit me up on Twitter (@LoonieAdventure) and Facebook!

11 comments

  1. TradeViper

    Hello Huck. I would like to point out something that may help you for
    the rest of the summer. One thing to remember is that, in “general” most
    of the multi “Yard” traders in Spot Currency are off on holiday from
    about the second week of June through the second week of Sept. There are
    events that might bring them back in, BUT it is rare. Now when I say
    holiday I mean literally and mentally, rolling the accounts in Ts and
    other fixed instruments is common, so the volume really takes a hit.
    This can lead to false crosses in the Sto, and MA’s. So in general the
    usual “rules” don’t apply.

    For example, the general rule is to wait on a Sto cross below 80 before
    taking a short position, however with a low volume situation, many times
    a trader take the short position and then price whipsaws back and
    causes a loss or hits a stop. Because of the frequency of this happening
    in low volume conditions sometimes the trader thinks that the Broker is
    running the stops or position, when in reality it is just the
    Volume/Price Action that is getting Him/Her.

    So I would like to suggest the following, if you cannot stay out and
    rotate into a fixed instrument, then it may be wise to cut down your
    size so that if you get into a draw down situation due to volume
    issues/no follow through, you will not devastate your account. Also
    remember that the moves will be very short lived and there will be more
    spikes in prices both higher and lower, so when you see the long
    wicks/shadows in the candles it might be time to back off of the pedal a
    bit.

    The Ever Willing To Share Some VIPER

    Reply
  2. John

    Your fundamental may be correct but you fail to consider the sentiment of the market. For the last 2 days, EURO have been push up on hope of  measure being pass. Any dip is quickly followed by a strong bounce the next day or 2.You can get a sense of what the market wants by simply look at how long it takes the selling to move the euro down by 50pips (6-7 hrs).Compare it to the speed and strenght it rebound (within 1-2 hours),The pair just powered pass 1.44!!!

    Reply
    • Hucklekiwi Piphuck Post author

      I understand what you are saying about market sentiment. You are correct! Thank you for your insight John, I appreciate it.

      Reply
  3. Nan

    It’s probably risky to short EUR now as Greece is likely to pass the austerity program and traders are longing on the speculation that interest rate will hike in July.

    Reply
  4. Azrijaafar

    Hi there.. very nice setup. But im long at the moment from 14224 and targetting 14400. I drew channel between previous week high and a week before that. i bought as soon the MAs crossed (i used your HLHB method on 1hf TF). Bullish flag formed since noon till 9pm now (malaysian time).

    Reply
    • Hucklekiwi Piphuck Post author

      That means you win! Good job!! As for me, well… I was one pip from getting stopped out! Hopefully it heads back down again!

      It’s nice that the HLHB system works for you!

      Reply
  5. Jamilgaruty

    good luck but your stop loss is in a bad level try to get it higher abet 
    hope the Parliament give us a neg impact in order to see the whole word is selling the euro :P 

    Reply

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