Forex: Three Choices In Trading $EURUSD

And for the support of this Declaration, with a firm reliance on the protection of divine Providence, we mutually pledge to each other our Lives, our Fortunes and our sacred Honor. —Declaration of Independence

Pretty strong words huh?

MARKET RECAP

Last week I said I’d let you know how my trading turned out. Like most weeks, it turned out not too bad, but could have been better.

THREE CHOICES IN TRADING

We’ve been talking about entering trades in the direction of the trend and tools for identifying potential changes in a trending environment. At any given time, there are three things you can do when you’re trading. You can buy, you can sell, and you can sit there and do nothing. Depending on your strategy, all of those are generally valid moves.

JUMPING IN

For example, if a market is in buy mode, a position or swing trader may not care to wait for a consolidation before getting in. They might just jump in and wait out a small drawdown. The currency day trader or scalper may short the trend over the New York afternoon to catch a few pips in the consolidation.

ON THE SIDELINES

And I’m sure the novice and professional trader can generally find a lot of reasons not to trade. For example: “it’s Monday, it’s Friday, it’s NFP week, there’s a full moon out, there’s a new moon, the market feels funny (I’ve never gotten that one), there’s a high tide, the market feels undecided (that makes a lot more sense), some financial bigwig is going to be talking somewhere sometime.” Anyway, you get the idea and some of these reasons may or may not be better than others. Personally, my superstitions prohibit me from trading on Blue Moon weeks (or Bud Light days for that matter).

EURO ACTION

So, last week, the trend on the euro was short. But price was sitting on a .618 retracement and a 50 day moving average. And Friday / Sunday left us with three four hour candles with some nice wicks to the south. This means each time price tried to move lower, selling power lacked momentum and a lot of stops were cleaned out. Well, that’s rule one and two of a potential trend reversal. Find a level and watch price action.

THE TRADE

So, I bought. I bought short term in expectation of a trend continuation. But I know that price tends to get slow especially on a Monday and if new significant moves aren’t made early in the trading day, they likely won’t occur that day. Later that same day, I sold for a trend continuation trade. So, at the time of trade one, I could have bought, sold and sat out a little correction, or done nothing (and waited for trade two) and as long as I managed my risk properly, I would have made money. Now of course this example worked out nicely but I’m sure we’ll have one that doesn’t work as well before long that I can illustrate.