EURJPY—Long term range within long term downtrend

Yesterday, I wrote that my buy order executed at 109.27. I should have written sell order since the pair was at resistance as I stated in the title of that post. Early yesterday morning I placed a limit order for a sell at 109.27. Around 8:15 EST, the market filled the order.

There were a variety of reasons I was leaning short—in the longer term there was a downtrend in place since October 2009, another leg down of that downtrend had began in early October 2010. There was a double top in place from October 6 (115.69) and November 4 (115.42), confirmed with the break of the trough at 111.56. One could make the case for a triple top if the 114.95 high from November 22 is included with the trough at 111.05. The target from this was 106.41. EURJPY reached 107.62. It then rose to 111.24 on January 4. This rally looked like an ABC correction on the hourly chart. I would have entered then but I missed it because I was busy with setting up charts and worksheets for the coming year.

This happens—small traders miss good trades because there are only so many things a person can do at once. My planning is more important to me than any given trade.

When I looked at the pair early yesterday morning it had reached a low of 108.52. I decided that if it rallied 50% of the recent move down, I would go short and this is why I entered a limit order to do so.

In deciding on the limit order, I also had to decide on where to put my stop, of course. Above 111.24 was too much risk in my mind because there has been a rough range since May 2010 of 115.69 down to 105.80 (It hasn't again achieved that low which is troublesome—but that's another part of a longer term analysis). In any case, if EURJPY decided to climb to the top of the range, I didn't want that much risk. I set my stop at 109.77, 50 pips above my short. This was above the .618 retracement and well into the long hourly bar that had started the current decline.

I watched it for a while and was frankly concerned that it hovered about without doing much of anything once I was short. In general, hovering is not a good sign. At best, it indicates too much uncertainty; at worst, it indicates the pair is storing up energy for another big move (often up in a scenario such as this). I do have higher price targets from other calculations so this was weighing on me. I finally stopped watching—I was in the trade for decent reasons. If it went against me, it went against me.

Looking at it this morning, I see it came within one pip of my stop! As of 7:43 Am EST, it's only 23 pips in my favor. Clearly, the pair is trying to base in the 108 area (overnight low was 108.81).

Now I need to decide whether to close the trade or stick to my original analysis. If I stick to it, is it too early to move the stop to breakeven? I always use the market to tell me if my analysis is wrong—here I'm detecting mixed signals in the short term. The strongest is the lack of any real movement in over 24 hours. Regardless, I still have an overall longer-term range to play in—certainly if the pair rose to the 115 area it would be a sweet short.

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.