Taking Another Swing at EUR/USD – Trade Closed

Trade Closed: 2013-05-24 6:00 ET

I wasn’t expecting positive euro data this week, but that’s what we got when the German Ifo Business confidence data printed better-than-expected numbers earlier today. This was great for the euro, so I decided to close out my position manually.

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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Since my adjustment, EUR/USD rallied higher throughout the Thursday and Friday session. It looks like the traders came to the their senses and realized that Bernanke didn’t say anything definitive and took back some of their long Dollar bets.

Today, we got the German Ifo data, which printed better-than-forecasted numbers, pushing the euro up fast in the morning European session. It’s the first better-than-expected read since February, which means it’s a possible short-term sentiment shifter for EUR/USD. The pair popped higher, but initially found resistance at 1.2950. It eventually broke and after seeing the break I decided to close manually, but unfortuantely I couldn’t save more than 5 pips when I was finally able to close at 1.2970.

Total: -70 pips/ -0.30% loss

So, another trade bites the dust as I can’t seem to get the break down that I’m looking for to ride a trend…or maybe I’m just looking in the wrong places? I’m still bearish on EUR/USD longer term, but I think we’ll see a bit of choppiness now that we’re back to a bit more uncertainty of what the Fed will do and when they’ll do it, and as data seems to be a bit weaker than the first quarter. With sentiment and behavior possibly shifting once again, I’ll keep a close eye on data and look for shorter-term trades going forward.

On the bright side, I limited my loss to a very small percentage of my account, and that’s always something I can live with going into the weekend.

That’s it for me folks. I wish everyone good luck in the US session and to have a great weekend! See ya next week!

Trade Adjustment: 2013-05-23 4:00 ET

It was a huge day for the global markets on Wednesday as Fed Chairman Bernanke had traders tossing and turning with his testimony to Congress and the release of the minutes from the last FOMC meeting.

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In his testimony to Congress, he stated that the QE program would continue for now as a premature exit from bond purchases could hurt the economic recovery, but it was later conveyed to the market that if the employment conditions warranted confidence in a sustained recovery, they would back on the bond purchasing program. This was pretty much summed up in previous market talk that the Fed will act according to economic conditions.

The initial reaction to the statement of a continuation of the bond purchasing program naturally brought on a US Dollar sell off–which narrowly missed my second position entry by about two pips–and the latter statement of possibly “tapering” off lead to a sharp USD rally and risk aversion flows.

This brought EUR/USD to a low of around 1.2825, but the pair is currently bouncing higher at around 1.2880 at the moment. I’m still EUR/USD bearish at this time, but I want to reduce my risk. So, I decided to close my open orders to short at 1.3000 and adjusted the stop on my remaining position from 1.3070 to 1.2975. My target is still 1.2750, but instead of taking profit, I’ll reassess and possibly add to the position if conditions warrant a continued move lower.

This new trade structure reduces my potential loss to 0.37% and my max gain at about 0.62% if I take profit at 1.2750. With ECB President Draghi speaking later today, as well as some tier 1 reports to close out the week, I feel it’s a good idea to reduce risk for now, but still leave the door open for maximum gain if the market continues to move my way.

That’s all I have for now. Thanks for checking out my blog and stay tuned by following me on Twitter and Facebook. Good luck and good trading!

Trade Idea: 2013-05-20 6:00 ET

Good morning forex friends! This week, I’m taking another swing at EUR/USD, looking for a retracement setup to play my biases on the euro and the US Dollar, with the FOMC as my catalyst for a move.

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One of the biggest drivers in today’s market has been recent talk of the Fed “tapering” out of the bond purchasing program sooner than expected. This is a pretty big deal as the additional liquidity over the past few years–as well as the future outlook of it–has sparked a big shift in where capital has gone since the financial crisis. An official statement of a change in that direction will most likely have a huge effect through out the global markets.

Over the past few months, US data has been been on the up and up, but most analysts still think it might be too early to pull things back. But when you pair the Congressional Budget Office expecting a smaller deficit for 2013 with a few of the positive data points, I think the odds of the mention of the Fed increasing quantitative easing is very, very low. I think the worst case scenario for the Greenback is that the FOMC maintains the same rhetoric from the last meeting which is basically: whether or not things get worse or better, we’ll act accordingly. But for now, I think we’ll still hear that there are some Fed members who are ready to cut the cord sooner than later.

So this week, I don’t think we’ll see dovish comments from the Fed and that the US Dollar rally may continue. But we saw a pretty strong rally over the past week and a half after speculation first came out that the Fed was working on a plan to ease back on QE, so we also may see a pullback higher ahead of the FOMC meeting minutes this week. That’s where I look to enter multiple positions short. My stop will be above recent swing highs and my max profit target will be the strong support we saw in mid-March. Here’s what I am going to do:

Short half position at 1.2900, stop at 1.3070, max profit target at 1.2750

Short half position at 1.3000, stop at 1.3070, max profit target at 1.2750

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

For this trade, I am going with a full 1% risk because of the trend and my biases on the USD and euro, and with this trade structure (if both positions are triggered), my potential reward-to-risk is about 1.67:1. What I’ll do differently this time around is that if I don’t get the retracement I’m looking for, I’ll look to jump in short at market, while also taking into consideration what the FOMC says this week. We also have European data this week (most notable are the Euro zone PMIs) which are expected to print better than previous readings, but given the weakness in the Euro zone, I won’t hold my breath.

Of course, anything can happen in the forex markets, so if the story changes I’ll be sure to reassess and adjust quickly if necessary. Stay tuned by following me on Twitter and Facebook!

  • liliku

    what do you mean by short half position?

    • pipcrawler

      I mean that I calculate my full position size (based on my entry points, my stop, and my total risk as a percentage of my account) and cut that in half.

      Using this trade and a hypothetical account of $10K, based on my entry points of 1.2900 and 1.3000, my average entry is 1.2950. My stop is 1.3070, which means my stop is 120 pips. I’m comfortable with a 1% loss to my account, so using the position size calculator (http://www.babypips.com/tools/… my total position size is 8333 units. Half of that is 4166 units, so I’ll short 4166 units at 1.2900 and 4166 units at 1.3000.

      I hope this helps.

      • felipe

        Hi, I also appreciate very much your tips on the market. I wanted to ask what do you mean by “my total position size is 8333 units”. How do you calculate units?
        Thanks!

        • pipcrawler

          Hello Felipe… the math can be found in our lesson on “position sizing” found here: http://www.babypips.com/school

          I hope this helps!

  • liliku

    very helpful ,thanks. Sir How if you ask babypips school to add average true range in the school.

  • Nic

    Why is it that most of your short trades since begining of the year for EUR/USD end up in the lost??? Maybe you should look at other pairs instead of repeatly trying to short this pair.

    • pipcrawler

      Yeah most of my trades this year have been on the euro, which haven’t gone well, but I have had some good trades this year with EUR/USD. I’m just not a big believer in the euro I guess and there seems to be plenty of catalysts for both the euro and the US Dollar. I’ll do some weekend research on this year’s price action and see if I can revamp my processes. Thanks for sharing your observation.

      • Amit Desai

        Based on these comments, I think you would need to adjust your entry/ exit rules. because you have been right on the direction. So logically, its the entry and exit point that has failed you. Thanks for the insight guys ! I am facing something similar in my trades…

  • FXJunky

    For years you have been posting your trades guys on this website, however, following your history, you havent been making consistant profits, actually I see that the sum of your trades is negative. Hope you get some real traders post their trades.

  • FXJunky

    I also noticed that you have following the same technique(fibonacci correction and stochastic!) which proved inefficient you can pick some new ideas from your school section