Forex Trade Idea: EUR/USD’s Major Resistance at 1.1400

Spotted a potential forex trade opportunity on EUR/USD! What do you think of the 1.1400 level as a resistance for the pair?

I was looking for trade ideas this week when I zoomed out and spotted this one on the daily time frame. As you can see on the chart below, EUR/USD hasn’t traded above the 1.1400 major psychological handle since the start of 2015.

What caught my attention was that the pair is also showing a bearish divergence right around the time when it’s also throwing out one doji after another on the daily chart.

EUR/USD: Daily Forex Chart

EUR/USD: Daily Forex Chart

Fundamentally it also makes sense to short the pair. Mario Draghi and his friends are still huddling over ways to introduce more stimulus into the economy. On the other side of the pair, Janet Yellen and her gang are still on track to raise their interest rates (though not in the same pace as we initially expected).

Over the next few days we’ll see Uncle Sam’s retail sales and inflation reports, both of which are expected to print better numbers than the previous month. If they do print as expected, then we might see a renewed demand for the recently weakened dollar.

I’m planning on risking an initial 0.25% of my account at the 1.1400 handle with my stop 250 pips away to make room for long-term volatility. I’ll also add another 0.25% once the pair pops up a bearish candle among the dojis. My initial profit target is at around 1.1000 but I can adjust depending on the fundamental landscape at the time.

What do you think about this short EUR/USD trade? Should I wait for the 1.1400 handle or should I just ride the anti-dollar wave and look at the other pairs?

Let me know what you think!

XOXO,

Huck

P.S.: Remember to never risk more than 1% of a trading account on any single trade and to adjust position sizes accordingly. Create your own ideas and donโ€™t follow what I do. Better yet, read the Risk Disclosure!

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  • Jason

    My account size is not big enough to handle 1% on this trade unfortunately. I will be very interested to see how it plays out, though.

    • Better safe than sorry! Glad to know you’re not sacrificing your risk management in favor of getting on a potential trade. Do you have any positions open though? ๐Ÿ™‚

  • pipflow

    Hi, so your R/R is about 400/250 ? Is your stop choice of 250 pips arbitrary/random? How would you choose it? Since you mentioned initial ProfitTarget @1,10 would you leave it absolutely unchanged till the end or would you consider taking partial profits before reaching 1,10? And finally, at what poing would you consider moving the initial stop ?

    • Hiya, pipflow!

      I chose a 220-pip stop because it’s about the size of the pair’s weekly ATR last week.

      Right now my initial profit target is at around 1.0850 but I can definitely move it if there’s not enough catalyst to push the pair to that level.

      As to moving stops, I’ll only consider moving it if
      a. My trade is up by at least 100 pips (half of my stop)
      b. There’s a strong catalyst that could invalidate my long-term trade idea
      c. I’m adding to my positions.

      Hope this helps!

  • pipflow

    Hi again! I am watching this trade ( I have also condidered it as a great valid trade idea due to its characteristic complex top+resistance area) so, would you mind sharing the thought process of your actions/trade management (this is where the knowledge lies !!!) ? Is your trade still active unchanged, with stop unchanged and trade idea unchanged? Or have you moved your stop to breakeven (as long as the downmove was more than half the stop) and then stopped out? My personal struggle lies on when and why to move my stops (Firm Initial Stop=> Breakeven => Trail/Profit Target) and that is why I find it really difficult to take relatively long term positions. It would be extremely rare to see a steady clear move…..

    • Hello again, Pipflow!

      I ended up closing this trade and another one at losses. You’re right, it’s tough to see steady clear moves!

      I like your strategy of moving stops when price moves in your favor. Some traders move them every after a pre-determined number of pips while others move them as soon as there’s a shift in catalyst that could threaten the long-term trade idea.

      What are your usual parameters for moving stops? Maybe having a set of rules would help you become more confident in making adjustments ๐Ÿ™‚

      • pipflow

        Hi Huckle! I do believe in firm rules, but I cannot find rules reliable enough to be consistent in relatively long term moves (Daily charts) and the worst part is you cannot test it or experiment enough (cant wait 2 months to have an answer normally ! Thats why I mostly experiment on 15m charts…And still on demo). I tend to move the stop to breakeven when price exceeds 1:1 R/R, eg. if my stop is 150 pips when price moves 150 pips in my favor I would move the stop to breakeven, since it has already validated my idea enough to not want it to be converted in a loss. However, you could see that I could not prove that this is reliable , and in THIS particular trade, with my type of setup style (say sell@ 1,14 and ~150 pips stop above recent highs) i think I would be marginally stopped out – again frustrating! But, no loss theoritically. I wish I could find more reliable/consistent rules. I always want to be honest with myself , otherwise there is no gain, no learning.

        Back to your INITIAL ARTICLE and IDEA (to which again I completely agreed so I still watch the progress of this “trade”) I am in favor of firm rules (yeah difficult….i am trying at least) and I think that when there is a valid initial idea we should avoid changing our minds because of news / catalysts etc when IN the trade. This would invalidate our planning, our analysis, our train of thought, the reasons for setting rules after all!!Even trading! As well as creating a subconscious habit of not trusting ourselves. THAT IS DANGEROUS. Beware of the process of habit creation! That is a dangerous psychological trap -that i am also a victim- you tend to be afraid that you are gonna be wrong once again…But that is OK, let it unfold, and THEN JUDGE IT. Why judge a project before it is completed? Like judging a flower before it opens up… After all, we could live with the loss, couldn’t we? That’s why we set our money management rules.

        For now that I am writing this and watching the trade, [EURUSD ~1,1150] it seems that your original trade idea unfolds beautifully – after temporarily shaking out many traders which ok, happens all the time… we have to live with it. Even the price target of 1,10 seems very much realistic, considering even the “bad scenario” of an uptrend channel.

        So, In HINDSIGHT, your initial stop loss of 220 or 250 pips was never triggered to invalidate YOUR personal view, opinion and analysis, since the price went up to 1,1614…

        My point is

        A) Both my setup style and yours should not end in a loss in this particular trade. I do not say a win, but not a loss I think. After all , a shakeout of “weaker hands” usually confirms the initial idea [ and here you had made a great stop loss selection for that ]

        B) Thats why we establish rules from the beginning for every particular trade or maybe the same ones for all trades, which WHEN TRIGGERED ONLY, would invalidate our view, our trade.

        C) What I can see here is that we could have the same idea but different trade setups/implementations. They could all work interestingly , or…they could all fail gloriously. What strikes me is that you seem to not have followed any of your rules – except for the most vague and subjective one: “seeing strong catalyst that could invalidate my long-term trade idea”. Leaving your initial idea intact, right now it is @ a R/R=1 which is a nice confirming point… Having moved the stop @ half the StopLoss pip range , would have protected you against a loss. Both scenarios of your rules bring about a much better result than a loss. And they seemed really solid choices of rules.

        D) I cannot find any other flaw , other than possibly “sticking to our rules” ?? IS IT REALLY THAT SIMPLE to push us to the next level? Just my thought !!!!! Really messes my head!

        E) This was/is a great learning trade. For journalling/reviewing/rethinking purposes. I hope we get the best of it!

        Soorry for the long post.
        Hope to help us get better & Learn, Learn, Learn.
        I have learned much from this trade myself!

        • pipflow

          Oh my god, this was a huge post – sorry

          • Took me a few weeks by I finally finished reading the comment! I’m kidding lol.

            Thanks a lot for your two cents. Much appreciated. I especially like the part about the psychological trap of not trusting ourselves. I guess it’s easier to think of our last-minute changes as being “flexible” than “not following the original rules” especially after experiencing a string of losses.

            For this specific trade I probably could’ve placed a wider stop loss. I was trading the daily time frame after all, and was targeting pretty ambitious profit levels. On my next trades I’ll take another shot at moving my stops to lock in gains/minimize losses. Thanks again for your tips!

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  • pipflow

    Out of subject : I am new here on babypips and I have difficulties posting. I can only post after signing in to “disquss” , is this the only way? I am trying to post by pressing the “babypips” login but i cant.