EURUSD—Back at retracement point

My short from 1.3882 on Tuesday profit-stopped out at 1.3851 in yesterday's bounce for +31 pips. I have taken another short trade this morning at 1.3882, the same price as the original. My reasons are:

1) Euro is back at the .618 retracement (Nov. to June) that it fell through on its descent this week
2) This corresponds with a corrective channel top
3) It's nearing the 50% (1.3905) retracement of the move down from 1.4080
4) Within an Elliott Wave interpretation, a wave three is beginning
5) It's near a psychological 1.39 price point
6) The daily 10 SMA at 1.3896 and the daily 20 SMA at 1.3901 add to potential resistance

The 1.3905 provides me with a potential stop and reverse point (although that’s a very tight stop). Another stop point is 1.3948, last week's channel line I was trading off of. Why would one reverse? There's a potential ABC correction on the daily chart. In addition, we've had a higher low (first low of 1.3697 then 1.3794). If it clears the .618 of the longer term move down and clears the 1.3905, there's a chance at another high. I'd expect failure at 1.4035 (the downward resistance line) or at a retest of 1.4159 or perhaps slightly above.

So, even if this trade doesn't succeed, it has the elements of a good trade—reasons for entering, price points that will hint I may be wrong and even a reversal strategy. If I'm right and price starts down, expect support at 1.3794 (yesterday's low) and 1.3697. A move below 1.3587 or 1.3500 would be signs it was in a new leg down, probably to 1.3375/35.

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.