A Euro Trade Ahead of Draghi’s First Rate Decision – No Trade

No Trade: 2011-11-03 13:10 ET

Good afternoon! It looks like the price action played out pretty much as I had hoped as the pair did have a chance to retest my area of potential resistance.

Before you move on, for those who are not familiar with my framework, signals, setups, or acronyms, please visit my discretionary trading framework blog.

PCDPOD20111103.review.png

As we can see in the 15m chart above, EUR/USD moved slightly lower during the Asia session before rallying during the morning European trading session. With a couple of hours to go ahead of the ECB interest rate meeting, I decided that the market reaction was too uncertain to leave my orders open, so I decided to close orders to short at 1.3830 and announced it on my Twitter and Facebook pages.

Well, it looks like keeping them open would have be the more profitable move as the PDH held as resistance and the market fell, with the help of a surprise ECB rate cut to 1.25% and Mario Draghi announce a mild recession in the cards coming up for Europe. The pair proceeded to drop about 170 pips before bottoming out at the Asia/European session lows around 1.3660. Definitely a frustrating missed trade.

Was it right to close my orders early? Reflecting back, I probably should have considered a rate cut as more of a possibility with a new guy coming in. After all, with Greece on the edge of being booted form the EU, and other countries looking just as bad with debt issues, it makes sense that a new guy would come in and try something different than the last guy. But from a perspective of risk management, the market could have spike higher just as easily, so Imma say the answer was cutting out was the right thing to do.

Overall, I think it was a great setup, pick the turn right on the dot, but in the future I may limit my day trades to 1:1 potential return-on-risk plans. It seems unless there’s a big event, a 1:1 is a more reasonable potential return given normal volatility conditions.

Well, that’s all for today folks. I hope everyone is trading safe and doing well out there in the wild. Thanks for checking out my blog and please stay tuned for new ideas…good luck and good trading!

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Trade Idea: 2011-11-02 19:05 ET

Good evening forex warriors! I’ve decided to take a EUR/USD day trade for the upcoming Asia and European trading sessions. In the past few ECB rate decision days, the market hasn’t been too kind to the euro–will we see the same thing this time around?

PCDPOD20111103.png

On the 60m chart above, I marked an area that might be of interest to traders who like me, thinks the euro is a bad short-term bet given the recent turn of events in Greece. The call for a referendum by Greek Prime Minister George Papandreou basically halted the EFSF bailout and brought uncertainty back into the euro. I feel traders will be wary of buying euros by the boatloads until we get passed the vote.

But for now, Bernake’s reiteration today that the Fed will do anything necessary to prop up the economy is giving risk a short-term boost, which leads me to believe I can play my weak euro bias at a better price than at the current market levels.

I think if we do see EUR/USD rise, the area between 1.3800 – 1.3850 could possibly draw sellers in and push the pair back down. Also, on the past five ECB interest rate releases, EUR/USD tended to fall on the day and close lower.

So, I look to hop in the upper part of that range, with a stop of half the daily average true range, and I’ll target the current week’s lows between 1.3610 – 1.3635. Here’s what I am going to do:

Short EUR/USD 1.3830, stop at 1.3920, pt at 1.3640

Remember to never risk more 1% of a trading account on any single trade. Adjust position sizes accordingly. Risk disclosure.

Since this is a day trade, I look to only risk 0.50% on this one. Also, there is an “x-factor” in that we have Mario Draghi taking the helm of his first ECB interest rate meeting. There’s so much uncertainty on what’s he’s gonna do or say, so I think I’ll look to adjust an open trade or position by closing it down before the event.

As always, stay tuned for thoughts and adjustments by following me on Stay tuned for updates and adjustments by following me on Twitter and Facebook! Good luck and good trading everyone!

8 comments

    • Pipcrawlerpipcrawler Post author

      The thought did cross my mind, but the market structure shifted in a way that made the potential return-on-risk not desirable for me.  That asia/euro session low looked strong and may hold again.  Especially when the Greek referendum was taken off the table. 

      Reply
  1. Diptheria

    Still, was a great call. Really appreciate the heads up. Decided to go long and ride it up and then went short when I seen it turning down. Fun ride!
     Just missed the Guppy divergence tweet by 50 min. Would have been spectacular to be on board.

    Reply

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