AUDUSD—Nice pullback

My long AUDUSD from yesterday stopped at 10 pips above breakeven (about 3 seconds after I moved my stop up from just breakeven, LOL). I immediately reversed and went short. Why? I’d just blogged a few minutes before about the rounding top on the hourly chart. Rounding tops and bottoms stick in my mind because they indicate a slowing of buying or selling. The pair had touched and fallen away from the 62EMA. It’s not that the EMA had been containing price action. I didn’t like the way the curve down intersected at that point. I also had pointed out the negative divergence.

At the moment I was stopped and immediately shorted I wasn’t thinking about all those factors. My analytical self was no longer analyzing. The trader took over based on the information my analytical self had fed her from the prior analysis. Analysis builds on itself. During my weekend analysis I’d felt the pair was top-heavy and the ascent too steep. I was long because first, the pair was in an uptrend and second, there’d been a bit of a pullback. I thought I’d easily grab a hundred pips. But when I blogged about the hourly chart I no longer felt positive. Still, it wasn’t enough to close my long. I needed to be stopped out. I needed the market to show me I didn’t want to be long. Had my stop been below breakeven—that is, I’d taken a loss—would I have shorted just as quickly? Yes. That’s the purpose of the stop. So the market can tell you when your analysis is wrong.

On the three hour chart today one can see the EMA rounding off and heading down. Note that the pair is at a minor support. I’ll have to wait until the three-hour candle closes to see how it deals with that support. On the 15-minute timeframe it has bounced off it a bit. There are a lot of AUDUSD bulls so this pair probably won’t fall easily even if it’s getting ready to fall. One can ask the question. Why is the CAD, a commodity currency, falling? Why does AUD seem to be joining in on this fall? My honest answer? It doesn’t matter. I’m going to make money taking trades, not trying to answer what is probably unanswerable. Here’s the three-hour chart:

© 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.

My purpose in writing this blog is to show you how one trader, me, makes trading decisions and survives while trading Forex. One of the biggest problems I had when I first started trading was trying to apply the “rules” to actual trades. Another was the psychology—limiting losses and letting profits run. If you study my blog you’ll see how I deal with both those issues. So my writings are not trade recommendations but rather educational in purpose. You have to decide on your own approach to trading. Remember that trading is risky.