A Swing Back Lower for EUR/USD? – Trade Closed

Trade Closed: 2011-09-15 06:05 ET

It looks like the signals were right on as the pair quickly fell, but unfortunately, the signal and entry is probably the least important part of trading. How you manage the trade after you’re in it is what matters the most, and this time I didn’t do so well. Check out my review and see what lessons we can learn…

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

PCDPOD201109013.review.png

As I mentioned above, EUR/USD quickly dropped after I saw the signals, bottoming out at about 1.3600. Buyers took control at that point, which was later fueled by a meeting between French President Sarkozy, German Chancellor Merkel, and Greek Prime minister Papandreou to find a way to keep Greece in the currency union. This is where trade management skills and experience come into play.

My thinking was that, it was only a statement to keep Greece in and no plans to give Greece more bailout money was made official. To me, this wasn’t enough to break 1.3770 resistance area because my question was, “Was anything fixed?” I didn’t see a solution, so I decided to hold the trade as I thought not many new buyers would buy, or sellers cover, into this. I guess I was wrong. Needless to say, EUR/USD kept rallying to my stop out point at 1.3785.

Total: -85 pips/ -1.0% loss

In retrospect, I could have done two things differently.

1. Take profit or take some off the table at 1.36. I did recognize the “higher” lows, but I held on to the “hope” that it would break. Given that there wasn’t a catalyst to do so, taking some off the table would have been the better move.
2. Don’t fight the flow on new “news.” As much as I knew that there was no solution, it was new data to the market and the market spoke. There are times when you have to set aside your biases, no matter how right you think you are, and just go with the order flow.

So, I went from over a +1.00% gain to a -1.00% loss. Kind of annoying, but I’m over it. It’s all part of the business, especially in this choppy and volatile environment. Plus, I don’t feel so bad after reading the news of the rogue trader who lost $2B for UBS today.

Anyways, I’m gonna be watching Cable today around the 1.5850 area for trader interest, as well as some other pairs about to hit weekly support and resistance levels. I’ll be sure to call out setups on my Twitter and Facebook pages if I see anything. Stay tuned and good luck!

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Trade Idea: 2011-09-13 15:12 ET

Good afternoon! Looks like quite a few patterns are signaling a potential swing move back to the downside for EUR/USD. Are traders ready for another round of euro selling?

PCDPOD201109013.png

On the one hour chart above, we can see a few patterns giving a strong signal for a reversal back down:

  1. Divergence between price action and Stochastic
  2. Testing resistance at Fibonacci levels and major psychological level
  3. A quasi bearish “flag/rising wedge” type chart pattern

All of this is happening in a downtrend, so it’s a pretty strong argument that we may see a reversal back to the downside. Also, given that there seems to be no end to the issues in Europe, I’m pretty short bias until there is a positive development in the European sovereign debt story.

I have decided to go in short at the major round number, 1.3700, and my stop will be a quarter of the weekly ATR, placing it just above the 61% Fibonacci retracement level. My target will be this week’s low at the very strong psychological level of 1.3500, giving me a potential return-on-risk of over 2:1.

Short EUR/USD at 1.3700, stop at 1.3785, pt at 1.3500

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

This week, we do have a few major events on the forex calendar, most notably US CPI and Retail Sales, but I think the biggest risk to my trade is if a new plan to save European sovereign debt comes out. If we do see another EU bailout, the result could be a strong euro rally and bad for my trade. With so many events and risk, I’ll definitely stay on my toes and be ready to adjust as soon as the market tells me to.

Stay tuned by following me on Twitter and Facebook…good luck and good trading!

  • Cillian Murphy

    Got in on it this morning around 1.374. Also spotted the bearish flag, oversold stochastics, divergences, as well as some fib lines and a downward trendline.

    Obviously none of it was strong enough to deal with some finally positive news out of the euro!

    Easier in retrospect

    • pipcrawler

      Yeah, everything is easier in hindsight…and even then, trading is still hard to figure out… haha I hope you did well Cillian

  • Ms Ramah21

    This is what happened…http://http://www.dailyfx.com/forex/fundamen...

  • SurfnCamel

    I am with you at 1.36 (had my position before you posted yours – should have waited for you :). I hope china don’t buy anything soon for our sake ;)

    • pipcrawler

      1.36 looks to be a strong area of interest for both buyers and sellers.  Hopefully the sellers win.  Good luck to ya!