Flipping Back to Short EUR/USD – Trade Closed

Trade Closed: 2012-01-31 14:00 ET

Good afternoon! Both of my short positions triggered during the European trading session, and I was lucky enough to get the price action I had hoped for. But did I execute well?

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

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Obviously, if I’m asking such a question, then the answer is that I probably didn’t play the market to my full potential. But before I dive into that, let’s review what happened.

During the Asia session, we saw general risk-on flows, pushing the euro higher. There were no new news catalysts, so it looked like more short covering after that one-way risk-off move on Monday. The upside was limited during the European trading session as the 1.32 major psychological level held, probably helped by weak second tier European data. Finally, the US session brought on a series of weak US data (weaker housing, Chicago PMI, and Consumer Confidence). Not usually the biggest market movers, but it definitely brought some traders back to risk aversion mode at the end of the European trading session.

My two short positions were triggered during the last of the short covering during the Asia session, and fortunately stayed alive and prospered throughout the European session. As the European session closed, I decided to close as I thought the US data didn’t provide much of a spark and that the rest of the day would be a snoozer. Closed both positions manually at 1.3129.

First half: +8 pips
Second half: +41 pips
Average position total: 24.5 pips/ +0.14% gain

While this day turned out to be positive, it wasn’t a good trading day for me as I made a couple of mistakes.

First, that straight move lower on Monday convinced me that traders were ready to sell, sell, sell. It was the beginning of a potential reversal, and not a continuation move, so I shouldn’t have used the Fibonacci tool. Had I not used that tool, I probably would have looked more to shorting around 1.32 instead of the Fibs.

And second, I closed early because I thought volatility would drop and traders would be done for the day after the morning US reports. I could have done better by closing down a position and leaving the other open, or just moving stops on both open positions. It’s not often we see strong moves, but when we do, we need to take advantage of them because it’s those 20% of your trades that make up 80% – 90% of your profits. To put it simply, if I was more patient and disciplined, I wouldn’t have left so much on the table.

Well that’s my review and I’m sticking to it. Stay tuned for new ideas or market observations by following me on Twitter and Facebook. Good luck and good trading!

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Trade Idea: 2012-01-30 18:42 ET

Good evening forex friends! Risk aversion is back on track as the Greek bailout negotiations come back into the forefront. Will the uncertain outcome continue to push the euro lower?

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We’re back to worrying about what will happen with the talks between EU leaders and Greek bond holders, so today we saw broad euro weakness and a rise in European sovereign debt yields. French President Sarkozy expects a final agreement within the next few days, but how many times have we heard that song before? I’ll believe when I see it. Let’s be honest. Politicians cutting spending for their constituents has never been in their playbook, so this may drag on for a bit longer. Shoot, it’s tough for world leaders to agree on anything nowadays; just look at the results of the recent World Economic Forum.

So, on this renewed focus of the Greek debt crisis, and on recent forecasts of weaker than expected growth in 2012 for France and Spain, I believe the short-term sentiment will be risk-off and further EUR/USD weakness this week.

Technically, the pair has been rising over the past few weeks, but Monday’s strong down move maybe the first impulse on a new leg lower. According to the stochastic indicator, the pair is showing overbought conditions on the daily, and it’s testing a previously strong inflection area around 1.3150. Finally, on the 15 minute chart above, we can see the pair bouncing higher after today’s downtrend move and it looks like it’s meeting resistance at an area that has shown interest to traders over the past few sessions.

I’d like to scale into a short position in this area for a swing move lower. Here’s what I am going to do:

Sell half position EUR/USD at market (1.3137), stop at 1.3235, pt at 1.3005

Sell half position EUR/USD at 1.3170, stop at 1.3235, pt at 1.3005

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

If both positions are triggered, this trade structure gives me a potential 1.25:1 return-on-risk, and because it is a day trade, I am reducing my risk to 0.50% of my account.

On the forex calendar, we do have German data forecasted to come in better than the previous read, so I may get a further bounce higher to trigger the second half of my position. As always, if the market environment shifts on a new catalyst, I’ll be sure to adjust my open orders or open position quickly. Be sure to follow me on Twitter and Facebook for updates. Thanks for checking out my blog…good luck and good trading!

  • pipcrawler

    Thanks for the analysis and comments everyone!  I really appreciate both the similar and opposing views…it helps me out with my own analysis greatly!  It looks like I caught a lucky break on this one, but it could have easily kept going the other way.  Gotta love this game!

    • Dakota Lally

      I am glad i took your advice on this one, not only did i gain 50 pips, but this isnt one of my normal pairs, but on my own, i would have gone long.  When that 89 pip drop hit in 14:00, i would have figured it to bounce back at least 30 pips, if not return in the uptrend. I would have tried to catch this recoil.  
      Either that, or i would have held out for a while longer and watched as a triangle formation seemed to be forming, i was going to wait for the breakout.
      Nice job catching the short-term trend reversal! Never would have caught that on my own.

  • Xan

    Thanks for another trade idea, I’m along for the ride as well.

  • Dakota Lally

    I hit a gain of 50 pips after reading the trade idea at 10AM CDT.  I just wish i had hit that 89 pip drop in the 14:00 GMT hour!
    This was still a good day for me though.  
    Yesterday i opened a trade on CAD/JPY, closed it last night with a 150 pip loss (i dont like stops…) BAD DAY!
    It then recoiled a lot(too lazy to check, but i think about 80 pips…) literally the hour after i closed the position, if i had held out a bit longer, i wouldnt have lost so much.
    I have decided to only work on the trades professionals are eyeing.  Even if not every trade is perfect, i stand a greater chance compared to my current record, plus i can learn how to use the tools more effectively.  
    My position was largely based on rising oil prices, CAD is an exporter, JPY is an importer, and oil took a major hit recently, so CAD/JPY should drop. -Indirectly trading commodities, unfortunately, this is not the only driving force behind the pair, and i got hit by some bad economic data.

  • Maxiv

    my short position left open….

  • Slevin Kelevra

    well done, now I’m in at 1.3176, waiting for some pips ;) good luck guys :)

  • Jay

    The move down on monday does not look like a “strong move” as mentioned. It can at best be described as “choppy downward move” . The move was  like:  moved 10 pips down and retrace 8 pips the next minute. Looking at the hourly chart, every hour it manage to move about 10-15 pips only. A strong move would be like 50-150 pips move within the first 2 hours after which it consolidates. The move on monday resembled a  man,  exhausted and out of breath, crawling his way down a slope.This morning, the pair has poped up again. Tested 1.32 again.  Your target of 1.300, almost 200pips away looks far- fetched for a intraday trade. The 4 hrly chart does not look bearish. The pair may not move up much now but it certainly does not look like it is going to have a sharp drop soon unless some very EUR negative or Dollar positive news emerges during US session.
    Maybe holding the trade for a few days may help.

  • Teaching Trading

    To avoid getting another losing year don’t try to get the falling knife… To me it’s no-sense to short eur/usd in this strong uptrend after the broke of 1.32 last week.

  • Pradip

    I done USD/EURO trade after longtime and I gain 75 pips. Thnak you very much Pipcrawler for tips

    Pradip

  • Costarica

    well, i’m monitoring this too..good luck man