Trendline Break on EUR/USD for a Day Trade? – Trade Closed

Trade Closed: 2011-10-26 12:30 ET

Good afternoon! I deviated from my original plan a bit as I held onto my EUR/USD short overnight. This turned out to be a good decision as the market found a reason to continue the trendline break lower. Check it!

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

PCDPOD20111025.review.png

At the end of yesterday’s US trading session, it came time for me to close down my day trade. But the questions on my mind were, “Can the leaders of 17 different countries agree on anything in a few days?” and “With everyone going austerity crazy, will they come up with a number over 1T euros?” Again, anyone with common sense would answer “no,” and with that outlook I figure traders would sell off the euro on the first sign of disagreement. So, I decided that the small risk was still worth the reward given that outlook, and luckily, that’s what I got.

At first, things looked up after the German parliament voted to support any new strategy to resolve the eurozone debt crisis, but that sentiment was quickly turned after reports came out that the talks between the EU and banks on Greek debt had become deadlocked. Talks are in the range of a 40% – 60% write off and that’s where we’re stuck at the moment. As I assumed, euro traders didn’t like this development and EUR/USD quickly dropped below 1.3900, maxing out the move at 1.3800.

During the drop, I saw temporary observed support at this week’s lows, around 1.3850, and not wanting to press my luck, I decided to close my short position at market (1.3843).

Total: +53 pips/ +0.33% gain

After a little bit of reflection, there were a few things I could have done differently.

  1. I definitely could have waited for a better price. I saw the break and definitely thought, “That was it. It’s dropping.” I did want to miss a move, but I should’ve stuck to my usual “wait for a better price mantra.”
  2. I could have added to my position. After the German parliament vote, I saw that the market shot up, but found resistance around Tuesday’s high. I thought about adding to my position since it was nearing my stop out level (less than 10 pips away) and the potential reward-to-risk would my many times higher, but adding to losing positions is a big “no-no” unless it was pre-planned. Since it wasn’t, I didn’t do it. Given that my risk was so low, it’ll be a situation that I’ll have to review and create new processes for in future situations.
  3. Should have waited for a reversal bar to finish forming to take profit. Again, at the time it looked like support at 1.3850 area was for real, but I definitely should have waited for that hammer to form to get out of dodge.

Overall, it was a good trade and I got lucky going on basically nothing but my gut. For those who are new to trading, this is probably some of the craziest, most fickle price action I have ever seen. The level of uncertainty is unreal and I’d hate to be those guys on Wallstreet putting on billion dollar trades every day. Technology is changing the world of trading and it’s definitely a different market out there. Take your time learning the ropes and ALWAYS trade safe.

Thanks for checking out my blog, good luck and good trading!

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Trade Idea: 2011-10-25 10:04 ET

Good morning forex friends! Breaking news from Eurozone leaders and a nice chart pattern propelled me to take a day trade on EUR/USD today. Check it out and see if it makes sense to you.

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

PCDPOD20111025.png

News just came across the Twitterverse that the EU finance ministers meeting has been cancelled but the EU leaders meeting is still on. While not a big deal as any kind of delay was expected by anyone with common sense, I still think this will have downward pressure on the euro for the day.

What has me more enticed for a short play is the breaking of the rising trendline marked on the 15 minute chart above. That line has been tested and held two or three times before, and it looks like the fourth time is the charm for a break. Also, the area just below the major psychological area of 1.4000 has held as resistance, showing that there are sellers ready to get back in the game.

So, I actually already shorted at market, getting in at 1.3896. My stop will be about half of the daily average true range (and above today’s highs) and my target will be around yesterday’s lows as I think volatility will be limited ahead of the EU leader meeting. Here’s what I am doing:

Shorted at market (1.3896), stop at 1.3980, pt at 1.3820

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

This trade structure gives me about a 1:1 potential return-on-risk, and because this is a day trade, I’ve only risked 0.50% of my account.

As always, stay tuned for updates and adjustments by following me on Twitter and Facebook! Good luck and good trading!

3 comments

  1. tim

    You are lucky this time round indeed. The move down barely touches 1.38 before shooting all the way above 1.4. (>200 pips) Refering to your “What you should have done better analysis”: Knowing the bullish sentiment for Eur for past week (trend is up for 1 hrly and 4 hrly) you should also  ask yourself should you have long on dip instead of shooting for a possible top and scrapping for miserable 50-60 pips on retracement.

    Reply
    • Pipcrawlerpipcrawler Post author

      Thanks for the input Tim.  I learn something new everyday.  In response, I’d say anything can happen.  Everyone already know the debt write-off would be in the 50% range and the fact that it was “voluntary” wasn’t very pleasing.  The market didn’t rally until the story that China may step in, which was a surprise to traders.  That was the catalyst for the rally, and if we didn’t see it, the EU agreement wouldn’t have been as compelling and we could be seeing EUR/USD still at 1.38 or below if it didn’t come out.
       
      Sure I missed out on 200 pips, but in this environment where we see news/direction changes 3 or 4 times a day, I’ll take 50 pips and happily move on to the next opportunity.  

      Reply
      • tim

        There is no indication anywhere to point to china stepping in as the main catalyst(It is one of the reason but not the main one). It is the market sentiment. The market has been expecting a solution from the EU summit for the past 2 weeks and had rally substantially before the summit. It is this hope to see some kind of solution from the summit (Never mind whether the solution is workable or not) that kept the euro up. The signs were there but many have bank on a euro collapse ALL ALONG and fail to see (Or they may have chosen not to see) that the market have become irrational and still banking on fundamental and technical aspect of the pair. Many of the trade setups on babypips tends to be countertrend and I am not too sure whether this is advisable newbies reading these setups.

        Reply

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