Trade update at end of blog post
In this weeks Forex and cryptocurrency setups, I asked readers of the blog to comment how they would approach a trade entry in the EURUSD.
There were a few good answers but most of them used one approach to get into the trade. What was nice to see was that each person had a well thought out reason for their entry that made good sense.
What I’ve tried to do with these free charts I post is to show that while there are many ways to look at a chart, only a small handful really have an edge. In fact, you can read about an exchange with a former reader who criticized me looking for longs when “everyone” was looking to short.
That’s not to say I will always be right and I don’t care about being right. Many times when a setups does not work out, it is a failure of the pattern which is something you can see as opposed to being way off the mark in terms of analysis.
A failure of a trading pattern, while not always a trade in the opposite direction, can give you valuable information about the market condition.
Everything I do in trading, I can reason. I follow what I know and have quantified actually works in the market.
Let’s get back to the EURO.
One comment was by a reader named Sara and she was close:
A few way.
Failed test of lows on daily.
4 hr cht, break of triangle but prefer small range.
What she was saying in those four lines was there are a few ways to find a trading entry.
So what happened?
Once I saw price sitting around the highs on the daily chart, I went to the four hour chart to notice the price action. The green arrow points to the entry which is shown by the tiny arrow.
- This is an inside resistance line that ignores the pivot high. This is the zone I look to when zeroing in on how price is behaving near the highs for a long trade consideration.
- This is the high that most traders look at and play breaks of the highs or pullbacks. I prefer to be positioned before the breakout
- This is the reason I like to be in a trade before price breaks. If it is a true breakout, there should be some type of momentum and being already positioned before volatility sets in, cuts down on increased spreads and slippage. You also gain profits quickly.
The bottom red line is my stop location at the point I set up the trade. In this case, it just happens to be at the extreme of the range and under the higher range that occurred before the break. I could have, in retrospect, used the higher range but I used an ATR stop placement for this trade setup.
Why Is This Entry Decent?
Price action and structure gave me an objective area to take a position. Price basing under resistance is a bullish situation. We also had higher lows leading into resistance which also sides with the bulls.
If price were to break and then pullback, that does not invalidate the trade nor the breakout.
What I don’t want to see is price to pullback with momentum or pullback, head back in the direction, and then put in a lower high.
Until then, I will stick to my usual trade management style, reduce my risk, and let a portion ride.
The point is:
- Ensure you have a method to get into a trade
- Understand, in advance, what you will use for a protective stop
- Decide how you will determine if the trade is failing so you can either cut risk or exit the trade
All of those and more should be contained in your trading plan. Failure to plan…….plan to fail.
UPDATE: I was asked if I was still in this EURUSD long trade. The answer is no. My trailing stop was hit on Jan 29 @ 9:38 at the price of 1.2350.
Pip totals on 2 scale outs and trailing stop: 131 (1st scale), 183 (2nd scale), 52 (trailing stop)