Trading the Falling Wedge on EUR/USD – Trade Closed

Trade Closed: 2012-3-19 23:07

EUR/USD 1-Hour Chart

On Friday, my order got triggered when the pair finally broke out of the falling wedge formation. However, EUR/USD got rejected at its first test of the 1.3100 psychological handle and hit my trailing stop. Boo!

I’m pretty bummed out about it especially seeing that my trade could’ve hit my profit target at 1.3200 when the dollar became overbought and traders took profit on their dollar-longs.

Long EUR/USD at 1.3050 closed at 1.3058: +8 pips/0.001%

Lesson learned I guess. Next time, I’ll set wider trailing stops. After all, trailing stops are used to make sure that you stay in the trend for the longest possible time.

Trade Idea: 2012-3-15 00:18

Big Pippin spotted a nice potential reversal on the EUR/USD 1-hour chart. I thought it was a great idea so I decided to come up with a trade idea based off it!

EUR/USD 1-Hour Chart

As you can see, the EUR/USD 1-hour chart has formed a very clear (at least to me and Big Pippin) falling wedge. The falling wedge is a bullish pattern that begins wide at the top and gets smaller as price moves lower. Sooner or later, the falling wedge will become too tight and will break either to the upside (likely) or to the downside (unlikely).

On top of that, a hammer candlestick has formed, which is a reversal candlestick pattern. I’m also concerned about the significant 1.3000 psychological level. It has served as a major support level in the past, and could serve as one once again.

But I won’t jump in and buy the pair just yet because if there’s one thing I’ve learned in forex is that trading against the trend is pretty risk. I’ll wait for price to break out of its consolidation and close somewhere around 1.3050 before pulling the trigger.

If I enter, I’ll ultimately aim for 1.3200 but I could take my position off any time before that if price shows signs of stalling. I’ll also set a 60-pip trailing stop just to be safe.

There are a couple of reports due later from the U.S. Individually, they wouldn’t normally cause a breakout. If taken together, however, then some strong moves could happen. The reports I’m talking about are the weekly unemployment claims, producer price index, TIC long-term purchases, and the Philly Fed manufacturing index.

To recap:

Long EUR/USD at 1.3050, profit target at 1.3200, trailing stop of 60 pips. As usual, I will risk 1% of my account.

XOXO,

Huck

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  • Adrian Fx Trader

    You do realise that this trade fits the criteria for entry on HLHB Trend Catcher 3.0

  • kypppp

     that’s probably not gonna work, there are pretty strong levels up to 1.3200  -  the 1.3111-around level is semi-strong, but price will meet the 150 EMA around there, and the 1.3143-around level is really, really strong, there could be many sellers waiting there (including me, of course :) )

    • Jill

      What seller??? The pair went all the way to 1.3180. Look likely to hit 1.32!!!

      • kypppp

        Nope, that was the very best it can do…

        • Jill

          Don’t be too quick to write off the move up yet. It did not move up to 1.32 but it sure did not drop much as anticipated by your prediction of “strong sell’. If it closes at 1.3170 level during weekend, there is a chance that it may still hit 1.32 on Monday during asian session as there is a tendency for asian session to be euro bullish.

  • Jeffro_afro

    cor blimey you’re brave!

    • huck

      I was, wasn’t I? Hah! It worked out though! :)