EURUSD—desperately clinging to 50%

The 50% retracement of the move up from June's 1.1892 to 1.3335 is at 1.2613. Yesterday's low was 1.2588; today it has managed to achieve 1.2726. On the hourly chart, this high was a shooting star candle (small body with a long upper shadow). While a shooting star by itself is not a major reversal signal after an uptrend, it was followed by a very bearish engulfing candle. Its top was near that of prior price resistance and, on August 15, of a low. This combination of resistance and support is polarity. Also weighing on the pair are several daily moving averages: the 10 SMA is 1.2757; 50 SMA is 1.2749; and the 100 SMA is 1.2742. Finally, as though we need more evidence that things look bearish, price may have completed a fourth wave EW correction. And then there's all that bearish sentiment out there….Gee, it almost sounds as though it's time for a strong rally. There is positive divergence on the hourly chart with RSI.

My short from 1.2684 stopped at breakeven. I shorted again this morning at 1.2648. So I got a worse price than before but if further declines are in the cards that's OK. I'm moving my stop too quickly, no doubt because of my concern over the illiquid August market. Corrections can be tricky to trade as well. Still, you can stop at breakeven all day long—it doesn't hurt your capital position. If the trade gets away it gets away. Continued weakness should mean a break below 1.2580. Any move above 1.2775 suggests bigger gains.

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.