“A man always has two reasons for what he does–a good one, and the real one.” — J.P. Morgan
Last week we had a few potential trades. I recommended scalping the euro long around the open last Monday for a few pips into prior consolidation areas. That trade could have paid some nice pips. The second trade we talked about was trading a break of the daily regression trend channel for a longer term move short.
ENTRY AND TRADE MANAGEMENT ARE KEY
One of the biggest problems with picking swing points in the market, is even if you’re right on a direction change, it’s hard to figure out how long you will be right for. In other words, by definition, if you catch a change of direction of a swing move long, there is a lot of Fibonacci and prior support that things can bounce off of while price is either consolidating or trending to the short side. That’s why, entry and trade management are both key. I often hear traders say something like “well, I’m not getting out because price hasn’t hit my target.”
BE FLEXIBLE
Really? Think about that for a minute. Yeah, that makes sense. You aren’t going to change your trade plan a little because a multi trillion dollar a day market hasn’t hit your target yet. That’s a good idea.
That’s where trade management and experience both come in. Let’s look at that swing trade I pointed out last week. We broke short of the trend channel and price moved right down to the 50% retracement of the swing move long from 1.275 to 1.320. An astute trader could have made some pips. But maybe a better call would have been to buy around that 50% retracement. But then again, I wrote last week’s article on Monday and not Wednesday.
PICK YOUR POINTS
Kidding aside though, the move from 1.297 to current prices offered a good buying opportunity. Buying on that larger 50% retracement for a long move to a retracement of the retracement from 1.297 to 1.320 is perfectly valid. After all, price this morning topped out at the 1.618 retracement of that move. Yea, that’s a lot of retracements, but trading in a consolidation pattern is tricky. The important part is to not get overwhelmed and trade off levels. If you pick entries that make sense and manage your trade you should do just fine.
