Trade Closed: 2011-10-07 15:00 ET
Good afternoon forex fanatics! My swing setup for the week didn’t pan out as the sentiment shift back to risk tolerance was the real deal.
Before you move on, for those who are not familiar with my framework, signals, setups, or acronyms, please visit my discretionary trading framework blog.
The euro rallied this week as optimism grew with reports that plans were in motion to recapitalize banks. This not only sparked a rally in the euro, but also risk taking in general. The Greenback took losses across the board as traders piled back into riskier assets.
For a while, the previous week low held as a resistance level, but it was the ECB press conference where they announced extending loans to banks is where EUR/USD really took off higher and broke that crucial psychological area. Top off the week with positive jobs data from the US and the bulls never looked back. My trade was triggered and stopped out today at 1.3485.
Total: -85 pips/ -1.0% loss
Looking back, I think the setup and execution was pretty straight forward. No mistakes there. The only frustrating thing was that my trade missed being triggered earlier in the week by 1 pip and a 150 pip dropped followed. This would have been a near 2% gain on my account. Also, I probably could have gone more conservative with my trade entry and gone in at the 61% Fib, but I think I’ll stick to being aggressive on my entries for now because for me, getting in the move outweighs missing the move with a too conservative entry.
Overall, I think it was a good setup that just didn’t work out this time. Can’t win’em all, right?
That’s it for this week. Thanks for checking out my blog and have a great weekend!
Trade Idea: 2011-10-04 13:45 ET
Good afternoon! The week has already kicked off and it looks like volatility has not yet left the building. The European debt and banking issues continue to drive sentiment, but earlier today, Bernanke’s testimony to Congress may have setup another opportunity to play the overall trend.
As I mentioned up top, the markets priced in news from over the weekend that Greece would not receive its next tranche of loans until November. EUR/USD continued its sell off from Friday, dropping 200 pips from the week’s open. Today, Bernanke testified to Congress’s Joint Economic Committee. His most moving statement was that the Fed “will continue to closely monitor economic developments and is prepared to take further action as appropriate to promote a stronger economic recovery in a context of price stability.” Traders took this statement as a sign the Fed may not be done year with quantitative measures, sparking short-term risk taking sentiment.
For me, this is a short-term reaction, especially since nothing was really changed policy wise, nor new actions were announced. I’ll look at this pop higher in EUR/USD as an opportunity to short–at the right price of course.
And what price may that be? Using the one hour chart above, to me it looks like broken support may be an area of interest for sellers to jumb back in. This area also happens to be between the 38% and 50% Fib levels, as well as being just under a psychological handle. Stochastics have not yet indicated overbought conditions, so I think the market may get up to that area.
If the market does reach those levels, I think the possibility of resistance holding in that area is strong in my opinion, so that’s where I look to short. Here’s what I will do:
Short EUR/USD at 1.3400, stop at 1.3485, pt at 1.3150
Remember to never risk more than 1% of a trading account on any single trade. Adjust position sizes accordingly.
This trade structure puts my stop above that 61% Fib level and gives me a near 3:1 potential return-on-risk.
We do have major events on the Forex calendar this week, most notably the US Non-Farm Payrolls report this Friday, but I think the sentiment will continue to be focused on the European debt/banking issues and a possible fall back into global recession.