Tuesday, after I was stopped out of my short, I wrote that I was studying the pair as to whether to go long. Yesterday I finally did so at .8593. The pair is up 157 pips as I write at 5:55AM EST.
This was a tough trade for me as I am biased short on this pair (as well as some other pairs that have been rising lately such as EURGBP, EURCHF, etc). I was also seeing some negative divergence on some time frames and I love, absolutely love, divergence as a piece of evidence. But bias and what was only one piece of evidence had to give way to the charts. It did. Not that it's easy.
This, to me, is the key challenge of trading. Anyone can read a chart. However once you've read it and formed an opinion that you're willing to place a trade on, the opinion itself can get in the way by becoming a mind set. You can get caught up in taking trades that conform to that mind set and find yourself getting stopped out over and over. This is the market's not so kind way of saying, "You're wrong." Most of us hate being wrong. But to survive and make money trading you want to embrace it. "I'm wrong and thank you so much for telling me that—I've learned something." This attitude would probably improve our lives immeasurably if we would consistently practice it but regardless of that overreaching thought, we must practice it when trading.
OK, enough of the mind stuff. I went long because it was clear, on the chart, that the pair wanted to go up. It had confirmed the double bottom (.8616/17) when it exceeded .8510. Yesterday, after a low of .8450, it began to move up with some strong candles. More important was that momentum (as represented by RSI) was strong. I had good price targets on my P&F charts that didn't look as though they were being compromised in any way. The mealy-mouth RBA statement earlier this week had been well-received. Risk sentiment seemed to be improving overall. So I bought at .8593.
I am not abandoning my opinion that this may be a corrective C wave. But let's look at that opinion at the time I placed my trade. If it was to be .618 of A's length then .8597 was the target. So why didn't I short with a tight stop? Because the pair wasn't faltering. In fact you could, if you put your ear to the chart, almost hear the engines roaring. Other pair's had roared past their .618 of A moves so why not this pair? I'd blogged yesterday morning that .8640 was possible resistance. C equal to A would be .8688. What if C became 1.618 of A? The decision rested on whether I could set a tight stop. The prior hourly candle had a low of .8560 with a drop just below the 70 RSI on the hourly chart. Bam, I was in, as they say. I did draw a breath of relief when I moved the stop to breakeven on the close of the trading candle. My short bias hasn't fled.
OK, now what? The pair is currently hovering just below this morning's high of .8761 which is polarity and just above the 50% retracement of .9364 to .8067. It bears watching and I may take some profits off the table. The next target range is .8835 to .8860. (.8835 is 1.618 of the A wave; .8868 is .618 of the .9364 to .8067 move; .8859 is a June 21 high and polarity).
Here's the one-hour 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.