Wednesday, September 16, 2009

Be willing to reverse


Yesterday I closed out my short Euro trade that I had entered at 1.4632 for a paltry 18 pips. I then went long at 1.4607. Why? The simple answer was that it was time to do so—the charts, they were a talking. I had to listen. Remember, I already lightened shorts this week because of the overall bullishness around the pair, the slight expansion on the hourly chart, and triple witching (which traditionally has resulted in a positive week for the Euro.)

Look at the candles on the 15 minute chart below. I captured yesterday’s price around the gravestone doji and price/RSI divergence that I’d pointed out. The little blue triangle is my long that I entered.

Things had started changing on the 15 minute chart. For one thing, the only reason I’ve been short at all was weakness on the lower time frame charts. But all of a sudden strength started to appear which was in line with the longer term charts. There were hammers followed by an immediate rally. There was also positive divergence between price and RSI. Finally, the lows of the last two hammers I marked corresponded to support and resistance (polarity) that was on the 3 hour chart from several days ago. So I closed my short.

Then I had a decision to make. Do I go long or do I stay out? I struggled with that a bit. I could have gone long right after the close of the strong 15 minute candle after the last hammer I marked. Instead I waited until another small drop and immediate rally where I saw a higher high and higher low. I set a stop below the 1.4562 low of the last hammer.

I’ll tell you the truth. I had to hold my nose and sit on my hands to keep from closing out as it neared yesterday morning highs, especially after I saw the upper shadows appearing. I didn’t close. OK—time for a moment of truth. The real reason I didn’t close is because I forced myself to get away from the monitor. I was developing a case of “tickitis,” which in me is characterized by starting to watch the 1 minute chart, the 30 second chart, the five second chart. Did I really watch the five second chart? Yes, for a dreadful few seconds I did. I forced myself to leave my desk. Actually I got something to eat (this has to stop, too, but that’s another entry). When I returned, there was that nice strong bar on the 15 minute chart where it broke away from the early morning highs. I’m still in. I moved my stop up to take a 47 pip profit if it drops suddenly. We’ll have to see where it goes. I do expect serious resistance around the December high of 1.4720 and may lighten up considerably there. Or close. By the way there is already negative divergence on the 15 minute chart so I’ll be watching that today, too.

All this switching back and forth between charts—15 minute, 3 hour, etc—during the course of the trading day is tedious, of course. But I don’t know how else to trade. It has taken me a few years to get to the point where I resolutely watch price and act on what I think the price is telling me about supply and demand. When more than one clue starts building—candle behavior, support and resistance, divergences—I normally take the trade. What is technical trading but acting on the preponderance of evidence?

Some day I’ll share one or two of the many times I didn’t.


Yesterday I also wrote that I thought the EUR/GBP looked interesting. It certainly was. Did I get in long? No! Oh well. It’s just one that got away.


I’m also out of the Ozzie. I’m embarrassed to say that I had my profit target at .8660 and forgot to move it up as I moved my stop up yesterday. It hit the profit target overnight. It was 90 pips profit but the oversight cost me more profit, maybe much more. Now I have to wait for a reaction to see if I should or could get back in.

None of the above is a trade recommendation. Trading carries a substantial degree of risk.

© Dianne Fecteau, 2009. No part of this material may be reproduced in any form, or referred to in any other publication, without the express written permission of the author.

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