I shorted yesterday at 1.4421 (I actually got in first at slightly better than that at 1.4435 but moved my stop to breakeven too quickly and the market took me out—more about that a bit later). All my reasons for shorting were still there so I piled back in. I took some profits at +25 pips and have my stop at somewhat better than breakeven now.
The pair fell to 1.4283 overnight where it stalled out. It’s now climbing. Resistance is at 1.4400, 1.4485, and 1.4500. If it makes it through 1.45, the Euro bulls will be very happy. However, the pair needs to close above the bear flag on the daily chart (1.4520) that I wrote about yesterday before it proves out as a buying opportunity. Not that that little detail would stop a determined Euro bull.
Support is at 1.4283 (duh), the low this morning. Next support is at 1.4274, 1.4217, and then a seriously strong support range of anywhere from 1.4070 up to 1.4192.
Remember, if it breaks (and ideally closes on the daily chart) below the flag (1.4274), the length of the flagpole suggests a drop into the 1.34 range. That would make a Euro bear more than happy.
Now about being stopped out on my first short yesterday….Obviously I was too cautious in moving my stop to breakeven and a little spike took me out. How often do those little spikes happen? Too often for most traders and it’s annoying when it does. All you can do is what I did. Quickly verify that your reasons for your trade are still valid and go back in. Could I have been a little less cautious? Undoubtedly. If the pair had started to plummet, it would have done so without me being in. Well, those things happen. I probably do err on the side of caution on moving stops to breakeven but my overall philosophy is that if I’ve picked my entry point well, I can usually depend on the trade going the way I expect it to without those silly little spikes. If there is one, I know why I got in the trade and can quickly get back in most of the time. This is why you need to keep a journal, especially when you’re new at trading (I’ve been doing this several years and I still keep a journal). All it consists of is printing off the chart when I make the trade and jotting my reasons for doing so right on the chart. Once a week or so, I gather all these little charts up and put them in a three-ring binder. I also write out my chart interpretations on the weekly charts so I’m ready to begin my trading week.
I can’t stress this enough. Journal your trades!
OK—back to the Euro. On the hourly chart, after the low at the bear flag bottom, you can see there is a candle formation known as “Three White Soldiers.” These are three white candles, each with a higher close than the prior one. These can predict more strength, particularly if they occur after a price low. We’re just going to have to see what happens. But they're enough to stop me from adding to my short here.
Here’s the hourly chart:
© Dianne Fecteau, 2010. 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.