Trade Closed: 2013-03-26 3:15 ET
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It looks like market was seeing the same thing I was seeing as traders priced in the fears that Cyprus wouldn’t be the only time depositors are forced to share the cost of a bailout. It was almost a straight move down until 1.2850, previous week lows, where EUR/USD finally found support.
On the way down, my order to short another position was triggered at 1.2925, at which point I adjusted my full position stop to 1.2990. But there was no fear of that being hit as EUR/USD made a low around 1.2830, hitting my limit orders at 1.2850 and taking me out for a profit.
In retrospect, I probably should gone with my original idea to close my orders Friday and re-enter them, or just enter the market after I saw the initial reaction on Monday. That’s probably the more logical move, but I was pretty convinced there were no good scenarios for the Cyprus bailout outcome, so I left my orders on. If I closed and waited for Monday, I probably could have entered my position at a better price and done much better.
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Trade Update: 2013-03-25 5:35 ET
Good morning! This whole Cyprus fiasco is an unprecedented event and has me flipping one way or another, jumping in and out. After some thought and a couple of adjustments, I’m gonna stick this trade out. Here’s a quick update.
This may go down as probably my worst managed trade in a while, but I also feel it has the potential to be a nicely profitable trade for me as well. I just can’t see a reason why the euro should rally at the moment. But before that, I’ll quick go through that what happened so far.
As the market approached the close of last week, I was thinking of closing out my orders at 1.3000 to avoid weekend risk and the reaction to one of two scenarios: a Cyprus bailout or default. After a bit of contemplating, I decided to leave it open because both scenarios aren’t good. A bailout that includes a levy on any deposit sets a dangerous precedent for the rest of the Eurozone, and a default and exit by Cyprus from the eurozone is also an unprecedented event that challenges the validity of the euro experiment. Both scenarios are very negative for the euro over the long-term in my opinion.
So, the week opened up with new bailout terms from the EU to Cyprus (only accounts 100K euros and up will be affected) and the markets shot up. I closed immediately because while I’m still negative on the euro, who knows how this emotional reaction will last; plus I like to cut my losses quickly now. I took a small -0.26% hit on that initial position. Plus I thought I could maybe get in short at a higher price.
Well, instead I decide to wait for London to open up, which by then EUR/USD found resistance at 1.3050 before dropping back below the 1.3000 handle. To me that was a bit of confirmation that the rally was short lived, so I jumped back in short.
Re-entered short at market (1.2990), stop loss at 1.3075, profit target at 1.2850.
Since I already took a small hit, my position size is also a bit smaller. My total account risk overall is 0.62% if 1.3075 is reached. But, since I am confident that recent eurozone weakness and the dangerous precedents that the Cyprus event may bring in an aversion to euros, I will scale in another position to max out my reward.
Short second position at 1.2925. Stop at 1.2990. Profit target at 1.2850
This trade structure gives me a potential return-on-risk of 2.86:1 on the new position, and when coupled with the first position loss, a potential return of 0.89% on 0.62% total risk. And depending on what happens this week, I may let it run further than 1.2850 if the market goes my way.
Okay, that’s it for now as it is up to the market to figure out how they want to price in the new Cyprus bailout terms and this week’s events.
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Trade Idea: 2013-03-20 4:35 ET
My idea for today is to short EUR/USD if the market makes its way back up to the major psychological area of 1.3000. The market is currently trading below that area and I think today’s FOMC monetary policy decision could push EUR/USD up there. Expectations are for the Fed to keep its program of $85B a month in asset purchases, and even with recent US data showing signs of strengthening, I don’t see them cutting that off just yet. IF this is the case, we may see temporary USD weakness on the session as the traders who are hoping for an unlikely Fed QE exit may lighten up on their USD long positions.
So, if this scenario plays out and we do see 1.3000, I can play my short bias on the euro (Cyprus debt crisis and general economic weakness) and long bias on the US Dollar (improving economic data and safe-haven status). My stop will be a nice cushion of 1/3 the weekly average true range, with my max profit target around the current week’s lows. Here’s what I am going to do:
For this trade, I’m only risking 0.50% of my account, and with this trade structure, my potential return-on-risk is about 2:1. Of course, if the story changes then I’ll adjust my position quickly. Stay tuned to my market thoughts and adjustments by following me on Twitter and Facebook.