Taking Another Shot at EUR/USD short–Trade Closed

Trade Closed: 2011-01-04 11:35

review.PCDPOD20110104.png

Good morning Forex friends! My trade was closed during the closing moments of 2010 as the pair found a bottom during the light holiday trading and with positive data from the US sparking a bit of risk taking. After finding support around 1.3100, the pair moved higher to my adjusted stop loss at 1.3400.

1st half: -200 pips/ -0.25% loss
2nd half: +390 pips/ +0.4875% gain
Total: +190 pips/ +0.2375% gain

So, what can I improve? Well, looking back I saw a divergence signal indicating the downward move may have run out of steam. With the holidays in play, it probably would have been better to close out the whole position and lock in more profits, then re-enter after the break if the fundamental story was the same.

Other than that, it was a good shot at riding the trend, unfortunately for my trade, the economic story did change a bit as the US released positive week jobs, Chicago PMI, and pending home sales data last week to spark risk tolerance behavior.

So, the markets remain uncertain and ever changing…but what’s new? It’ll always be that way to some degree, so the best we can do is to control what we can (i.e. doing our homework, developing good trade ideas, risk control, etc). Remember that the process should be our focus, and not the market outcome.

That’s it for now, but be sure to check back soon for new swing trade ideas and as I will get back to the “Pick of the Day” format. A the close of each US trading session, I will review of the day’s best trade setup and the best way to play it. It’ll be a great way to review and see what you can look out for in the next trading session. To stay on top of those updates, don’t forget to click on our Twitter, my RSS feed, or email signup buttons in the upper right hand corner of this page.

Thanks and I’ll see you soon!

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Trade Adjustment: 2010-12-22 15:00

PoD Chart

My second half position was triggered at 1.3475 and fortunately, the broken rising trendline/61% Fibonacci retracement level turned into resistance. Since holding, the pair has dropped back lower as European debt worries continue to plague the minds of traders.

Now with the long holiday break coming up for the markets, I have decided to adjust this trade to lock in profits.

Closed second half positions (1.3475) at 1.3085.

I will leave my original half position opened at 1.3200 and adjust my stop to 1.3400. This essentially makes my trade risk free as I’ve already locked in a larger profit than the potential loss if the market moves back up to 1.3400.

I will continue with my original plan of trailing my stop and adding half positions every 200 pips. This means if we see 1.3000, I will add and adjust my stop on all positions to 1.3200.

So, a risk free trade is a load off the shoulders going into a long holiday, don’t you think?

Well, thanks for checking out my blog and joining me in my up and down journey in the Forex markets. It’s been a wild year as usual and I don’t expect nothing less than that for 2011. I hope this blog has helped you in finding your own way to trade, and I wish you all much success and many pips in your account going forward!

Have a happy and safe holiday and see ya next year!!!

Trade Adjustment: 2010-12-13 13:30

PCDPOD20101202.b.png

Just a quick update for my long term short position on EUR/USD. Since entering, the pair has stayed rangebound but with sellers slowly gaining strength–until today. Earlier, China announced no change to their interest rates and this sparked a major risk rally, killing the Greenback against all of its major counterparts.

The pair is now trading just above 1.3400, but still well below my stop of 1.3600. I will continue to hold onto this trade as I think the China announcement has a short term affect on the markets. The driving sentiment for EUR/USD is still the European debt mess and what EU will do to solve it. EU leaders are meeting this week and if the markets don’t like what they have to say, then favor should fall out of the euro just as quickly as we saw a Dollar selloff today.

Now, this pop higher may be an opportunity to max out my potential reward. If the market rises to the broken rising trendline/61% Fibonacci area, adding another half position there will take my total account risk from 0.50% to 0.65%–an additional 0.15% risk as I keep the same stop loss for both at 1.3600. But my potential gain is now double beyond a new average price of 1.3337.

So, a higher breakeven price, double my reward potential for an additional 0.15% risk? Sounds like a good idea to me! Here’s what I’m going to do:

Short another half position at 1.3475, stop at 1.3600

Again, this adjustment means I’m raising my total risk from 0.50% of my account to 0.65%. That’s barely anything at all for a pretty big reward if the trade goes my way and EUR/USD drops like it did during the Greece debt crisis.

Now we do have risk events that can push the market around further, most notably the FOMC rate decision. But since Big Ben Bernanke already laid out the play for the next 6 months, this might be a non-event and the market may focus on the EU leadership decision.

Of course, anything can and will surprise us in the markets, so stay on your toes and ALWAYS MANAGE RISK FIRST! Stay tuned and good luck!

Trade Idea: 2010-12-02 12:11

PoD Chart

In my last blog post, I tried shorting EUR/USD on the idea the Irish debt crisis was only the beginning, but unfortunately I was a tad too early jumping in short. After being stopped out, then watching the pair drop like a rock and missing it (grrrr), it looks like I may have another chance short the pair as it pulls back. Second time’s a charm?

The European sovereign debt crisis has been the main driver for EUR/USD movements since trader’s focus shifted to there from the Fed “quantitative easing part 2″ story at the beginning of November. I believe it will continue to be the main driver for the rest of the month as the uncertainty remains on whether or not Portugal and Spain will need a bailout as well.

Today, the ECB delayed its withdrawal of emergency liquidity measures and bought more government bonds to help fight against the spreading sovereign debt crisis. Trichet said the ECB will continue to help banks by offering as much cash as they need through the first quarter of 2011. This brought a bit of relief to the markets and we’re now seeing a quick boost to the euro today. The fact that they have to offer this doesn’t sound to good to me, and Forex Gump goes through the importance of bond purchases in his blog post on the Irish bailout plans.

The bottom line is that Portugal and Spain are at risk for needing a bailout as their bond yields continue to rise, and the current 750B euros set aside in the emergency rescue facility may not be enough to cover both. Until the EU, ECB, and IMF comes up with a plan to fix this mess that the market likes, the risk is for further euro weakness in the short term.

Of course, we need to take a look at the other side of the pair, and it looks like recent US data has been showing improvement as private payrolls rise, the trend in weekly claims has shifted below 450k, and manufacturing indexes showed an expansion in activity in November. We still have Non-Farm Payrolls tomorrow, but it is looking promising for the US with a stronger private payrolls number (+93K) this week and a +145K net jobs projected for tomorrow’s read. The question is, “if jobs data comes out positive, will traders buy the Dollar or send their cash towards higher risk assets?” We’ll just have to wait and see…

For now, I am still EUR/USD bearish and looking at the chart above, there is potential resistance at the broken rising trendline and Fib retracement levels. Because we can never tell where or when a market may turn, I look to short now and scale into a bigger position if it goes my way.

My stop will be above the 61% Fib/rising trendline, at 400 pips from my entry (weekly average true range). It’s a huge stop, but this will be a longer term position play as I think if Portugal and Spain do take bailouts, EUR/USD has the potential to drop big. Let’s remember that after the bailout of Greece last spring, EUR/USD dropped from around 1.36 to 1.19 (1700 pips). Here’s what I am going to do:

Short half position EUR/USD at market (1.3200), stop at 1.3600.

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

You may notice that I do not have a profit target as I will trail my stop by 200 pips, a bit more than the daily average true range, and scale in half positions every 200 pips as well.

So, my risk will be limited to 0.5%, but the reward could be 10 times my risk if everything works out and we see the market test the summer lows around 1.2000. Not a bad trade setup.

Anyways, that’s all for now and it’s time to sit back and see where the market takes us. Thanks for checking out my blog, good luck and good trading!

  • Babysteps

    Hi
    That’s nice and I have the same view and almost same target@1.28xx
    Let’s Watch

  • Babysteps

    Hi
    That’s nice and I have the same view and almost same target@1.28xx
    Let’s Watch

  • Babysteps

    Old sell@1.34 and now add Sell@1.3360

  • Pipcrawler

    Thanks for the comments guys…. yeah the market is testing that broken trendline now. May be a good area to add on to your short positions, but ALWAYS remember to manage your risk!! Good luck and let’s see if it holds!

  • Babysteps

    Old sell@1.34 and now add Sell@1.3360

  • Pipcrawler

    Thanks for the comments guys…. yeah the market is testing that broken trendline now. May be a good area to add on to your short positions, but ALWAYS remember to manage your risk!! Good luck and let’s see if it holds!

  • 10dec

    Hi, I don’t understand the followings: Given the bullist sentiment on the euro even before Friday NFP reports,was not it more prudent to have taken a position on Friday iso of on Thursday? I assume your current trade is more than -ve 200pips in the red! Could this be avoided?
    Also, why are you so confident that euro woes will continue to dominate traders that you are willing to set a stop loss of 400? Is’nt this unecessary risk? If I am not wrong, the market reacted to the Greece’s bailout issue months after it surfaced. Does that means you probably have to hold your current trade for months before you can see a meaniful returns (+1000 pips). Is this worth the risk?

  • Babysteps

    I’m not convinced with this Big up move and at same time worry but i will trade what i read on my own system And hold my trade.
    Monday close will clear this if i lost i will stop and take vacation for while.

  • 10dec

    Hi, I don’t understand the followings: Given the bullist sentiment on the euro even before Friday NFP reports,was not it more prudent to have taken a position on Friday iso of on Thursday? I assume your current trade is more than -ve 200pips in the red! Could this be avoided?
    Also, why are you so confident that euro woes will continue to dominate traders that you are willing to set a stop loss of 400? Is’nt this unecessary risk? If I am not wrong, the market reacted to the Greece’s bailout issue months after it surfaced. Does that means you probably have to hold your current trade for months before you can see a meaniful returns (+1000 pips). Is this worth the risk?

  • Babysteps
  • Babysteps

    I’m not convinced with this Big up move and at same time worry but i will trade what i read on my own system And hold my trade.
    Monday close will clear this if i lost i will stop and take vacation for while.

  • Babysteps
  • Pipcrawler

    @10dec…Greece actually started getting its credit rating downgraded in Dec. 09 when EUR/USD was about 1.5000. After the Greece bailout in April ’10, the pair dropped from 1.36ish to 1.19.

    Do I know the pair will drop again after the Irish, and possibly Portuguese and Spanish get bailed out? Nope, no one knows what’s going to happen. Trichet can come out tomorrow with a 1T bailout fund and we still won’t know what will happen to EUR/USD in a month or two…look what happened to USD after QE2?

    But based and past market behavior to similar situations and the current information we have, the best we can do is decide where the pair MIGHT go and make a bet on it. That’s what traders do: make decisions and take risk with a set of incomplete, imperfect, or constantly changing data.

    Our edge is that we create trades where our winners far out weigh our losers.

    On this trade, I have a 400 pip stop, but because I adjusted my position size by making it smaller, my total risk is 0.50% of my account. That’s not much to lose at all if I am wrong. Now, if the trade does go my way and I add to a winning position, then my reward could be 5.0%…. Shoot, I could add another half position at 1.3400 and that’s still less than a 1.0% loss at my stop of 1.36, but I essentially doubled up my reward potential…this sounds like a good risk to take to me… how about you?

    Anyways, yes this may take a while, but that’s no biggie…I’m patient… :)

    I hope this answers your question and thanks for the comments.

  • Pipcrawler

    @10dec…Greece actually started getting its credit rating downgraded in Dec. 09 when EUR/USD was about 1.5000. After the Greece bailout in April ’10, the pair dropped from 1.36ish to 1.19.

    Do I know the pair will drop again after the Irish, and possibly Portuguese and Spanish get bailed out? Nope, no one knows what’s going to happen. Trichet can come out tomorrow with a 1T bailout fund and we still won’t know what will happen to EUR/USD in a month or two…look what happened to USD after QE2?

    But based and past market behavior to similar situations and the current information we have, the best we can do is decide where the pair MIGHT go and make a bet on it. That’s what traders do: make decisions and take risk with a set of incomplete, imperfect, or constantly changing data.

    Our edge is that we create trades where our winners far out weigh our losers.

    On this trade, I have a 400 pip stop, but because I adjusted my position size by making it smaller, my total risk is 0.50% of my account. That’s not much to lose at all if I am wrong. Now, if the trade does go my way and I add to a winning position, then my reward could be 5.0%…. Shoot, I could add another half position at 1.3400 and that’s still less than a 1.0% loss at my stop of 1.36, but I essentially doubled up my reward potential…this sounds like a good risk to take to me… how about you?

    Anyways, yes this may take a while, but that’s no biggie…I’m patient… :)

    I hope this answers your question and thanks for the comments.

  • Babysteps

    Morning
    My positions still in play and …. :-)
    Watch out +++

  • Babysteps

    Morning
    My positions still in play and …. :-)
    Watch out +++

  • Babysteps

    I’m out @1.34
    Not understand why this change to UP ,Look to today candle!!

  • Babysteps

    I’m out @1.34
    Not understand why this change to UP ,Look to today candle!!

  • JamesJones

    News is only white noise! There’s a ABCD pattern on the weekly chart! I entered @ 1.41855..

  • JamesJones

    News is only white noise! There’s a ABCD pattern on the weekly chart! I entered @ 1.41855..

  • AntoineHaddad

    How could your reward be 5% ?

    You have a 0.9200 target on Eur/Usd ??

  • AntoineHaddad

    How could your reward be 5% ?

    You have a 0.9200 target on Eur/Usd ??

  • Pipcrawler

    @AntoineHaddad–when you add to winning positions you increase your potential reward. It increases the distance the market has to go your way, but if you catch a big move you multiply your reward-to-risk ratio. This is why trend traders don’t need to have a strong win ratio to make money at the end of the day.

    It’s all explained in our scaling lesson found here: /school/what-is-scaling.html

    Also, while I mentioned 1.20 as a possible target because the market hit that area this summer, I don’t know if it will get there or not. Based on the information I argued, that’s the likely direction, but in reality nobody knows because anything can happen or change at anytime and the market’s reaction to any unknown or unforeseen change is unpredictable as well.

    I’m just playing the current trend and let the market will take me out at my trailing stop.

    I hope this helps.

  • Pipcrawler

    @AntoineHaddad–when you add to winning positions you increase your potential reward. It increases the distance the market has to go your way, but if you catch a big move you multiply your reward-to-risk ratio. This is why trend traders don’t need to have a strong win ratio to make money at the end of the day.

    It’s all explained in our scaling lesson found here: link to babypips.com

    Also, while I mentioned 1.20 as a possible target because the market hit that area this summer, I don’t know if it will get there or not. Based on the information I argued, that’s the likely direction, but in reality nobody knows because anything can happen or change at anytime and the market’s reaction to any unknown or unforeseen change is unpredictable as well.

    I’m just playing the current trend and let the market will take me out at my trailing stop.

    I hope this helps.

  • Malcolmfx

    Great advise, thanks.

  • Malcolmfx

    Great advise, thanks.

  • rrram2

    This is where you add longs down into 132.00, and hold for a final TPT of 134.50

    Look at the struggling USD Index, now is not the time to get short EU (EUR/USD)

    If you were really slick you would have gotten long when I suggested it elsewhere at 131.00

  • rrram2

    This is where you add longs down into 132.00, and hold for a final TPT of 134.50

    Look at the struggling USD Index, now is not the time to get short EU (EUR/USD)

    If you were really slick you would have gotten long when I suggested it elsewhere at 131.00