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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

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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!

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