Perhaps this decline will show some strength, after all. On the daily chart, price is dropping down through its generally bullish upward channel and has crossed below an interim upward trend line that began in August. RSI is accompanying the decline. On the daily chart, RSI is at its lowest level since April.
Why did I sell in the middle of the channel? One reason was the breach of the trend line as mentioned. Another reason was RSI behavior on the 1-hour chart. It couldn’t seem to rally above a certain point and I considered that bearish, given its strength in recent months. A third reason was that the pair was top heavy as I had pointed out. In addition, when price rallied to the support that was now resistance, upper shadows appeared on the candles. This is a hint that the market is rejecting higher prices, particularly when it occurs at resistance. Finally, I had already been short (a trade I did not blog about and will not count toward monthly pips here) and had recently been profit stopped. I wanted to get back in on the slight rally. That’s not always smart but I could justify the trade based the factors above. Always be able to spell out your reasons for a trade. If you can do this, it’s a good trade even if it doesn’t make money.
The pair sat overnight and is still sluggish, showing only +64 pips so far. I’m going to move the stop to breakeven, take off a small portion of the trade at +64, and watch short-term price action carefully.
Here are the charts:
© 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.