I just bought at 1.5704 because even though the pair dropped sharply this was near support and was polarity. This meant I could set a very tight stop. In addition, even though cable floundered at resistance, the uptrend, as it were, is still in force. That's a reason to buy dips. Finally, this may be a chance to work out the negative divergence.
Here's why you might not want to buy (and I go through this pro and con before every trade I make). There's a much larger degree downtrend in force. The price dropped just below the daily 10 simple moving average (currently 1.5729) which is not great and below short-term support. It also fell below the uptrend line of the channel. I can counter these warnings by speculating that on the last day of the month people might be taking profits and by seeing that the move below support is a small one. In addition, there was more upside possible than was achieved based on the corrective move in force.
Now we'll just have to wait and see. The profits I have from cable over the last week will more than offset any losses which is not a bad position to be in and, as I wrote above, any loss will be limited by the tight stop.
© 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.