I went LONG NZDUSD

My most thought out and complete trade, ever!

Final update and thoughts post trade.

1st position hit limit for 159.9 pips gained.  Newly added (4th position) hit limit and closed for 61.6 pip gain.  Original position 2 and 3 hit trailing stop and closed for 140.2 pips each.

My most thought out and complete trade ever, and still I did not remain in the trade until targets reached.  I over managed and was to aggressive with the stops.  The final two open positions closed after hitting aggressive trailing stop on “shake out” day.  Had trailing stop been better placed, targets would have been achieved as price move up sharply after “shake out,” right up to 0.81015

Though price had put in a double top and moved down to the 21 ema sharply, I could have been more patient as this alone was not a signal that price was reversing trend from up to down.  I have a lot of tools I could have used to help determine if this was a reversal or pull back.  In hind sight, almost all of my tools showed it did not signal a reversal though live the signals were and remained bullish.

The aggressive trailing stop was poorly placed as it was both above the 4-hour 21 ema, and at a previous resistance area that was coming back to be tested as a, now, support level.  This is not an ideal area to sell especially in a bullish trend and impulse legs.  The resistance turn support held and price quickly propelled up to targets.

I have to let my winners run and be more patient.  Had I read the charts with a little more focus and patience, A long trade should not have stops above the 21 ema, and at a recent broken resistance level.  It would have been better placed below the immediate impulse leg which began at the opening of the week.   I was concerned with locking gains and lost sight of the trade set up and it’s that it’s potential was still in place–price action was bullish not bearish.  I had little to fear except greed.

The fear and greed cost me, since closing this trade, prematurely, I have missed out on a few excellent trade set ups for NZDUSD.  This is just another example of losing even when I close for a gain.  I lost my focus, edge and confidence as my emotions were focused on missing out hitting identified targets.  This distracted me from seeing and feeling the rhythm of price and I became unsure.  I need to trade with more focus, patience and never stop reading the charts while keeping my emotions out of the process.

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Update Monday July 22nd, added a new Long Position

Update of open Long trades in NZDUSD.  Added a new long position and adjusted targets.

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The Entry on July 12th.  Writing blog July 19th. 

I have been studying price action of NZDUSD, almost exclusively the past month or so.  Here is the NZDUSD Case Study.

From the rotation, price moved up sharply breaking structure resistance to the upside.  I thought, if price moves back down to the previous resistance it should now hold as support and I should take a long entry.  Priced moved down and closed below the 21 EMA but also put in an immediate short term double bottom and price remained above the lower lows.

Seeing all of this, I took three long positions.  It was not the best entry at price kept moving against me, but stops were not hit.  Stops were big as they were below the established lower low below .77000 and limits were big too.

Partial target taken at double top of the recent highs from July 11th.  The next target is at a previous LH, from June 19th, which is below .81000 and also near the .382 level of the impulse leg retrace.  Extended target is further above, at the high of June 14th, and just above .81000, but may get adjusted if target two is achieved.

Partial Target hit and remaining position are positive and risk free.  Two positions remain open.

At the time of writing, Friday evening, 1 position hit limit and closed with two positions still open and stops at positive levels.  The daily chart is looking bullish and the 4-hour chart has run into some resistance. This is expected resistance and why position partially closed here.

Next Wednesday July 24th, 5pm EST, NZD official cash rate announcement followed by statement.

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The Overview

NZDUSD fell sharply from about .85800 down to .76800 creating a down impulse leg.  But, I started following it from .81300 down to the low of about .76800 which was hit on June 24th.  From here July NFP numbers, and FOMC minutes were on the horizon.

Before the release of the NFP numbers, I was studying which way price may move and noticed a pattern I have seen many times before.  I call it “rotation.”  Rotation is market moves switching sides, in this case unloading shorts and picking longs.

I was initially looking, even expecting, price to retrace up to the .382 level before NFP and FOMC releases.  That did not happen as price moved side ways, in a range between  of about .77000 to .78200, for about 11 or 12 trading days.  As price unfolded in this range, I thought a direction would be given with the release of both NFP and the FOMC minutes.  Either price would continue it’s way down establishing new lower lows or begin it’s retrace to .382 or higher of the big down impulse leg.

Here is a chart daily chart highlighting the identified points.  With the release of both NFP and FOMC price did move sharply down, from where it was, but it did not produce a new LL below the June 24th low.  This led me to believe that a bottom was already found at about .77000

I should start to look for long trades up to the .382 level.  If price won’t break a support or resistance level then it is likely to go in the opposite direction.  In this case, it found support at .77000 and could not break it.

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EURUSD Trend Reversal or Pull Back?

EURUSD: Is the 15 day down move over?
Has Euro found a significant level at 1.2756, support?

Update August 19th, one month later.

The take away lesson one month later is trading with identified levels goes a far way to give insights of where price may go and the patience it takes to see it through.  To answer whether it is trend reversal or pull back is still uncertain, but identified levels are still valid and in place.   The analysis was right.

Though the chart and price action has been bullish up for all of July and most of August price is at a double top resistance level at 1.34215.  The impulse down leg of June has retraced almost 100% back up.

If price level 1.34215 (the beginning of the impulse down leg) gets broken and closed above, on the daily chart, then EURUSD may run up to 1.37000. NOTE: the impulse down leg did not produce a new lower.  The March/April lows are still in place, which are also the lows for the year, 1.27460

I need to watch for price action behaviour to determine if buyers or sellers are in control.  If buyers out number the sellers then 1.34215 may get violated and price could run up to 1.37000.  If the sellers are in control and short EURUSD in large amounts, then price will hold at 1.34215 and decline down to key support retracement levels or further.

I need to watch levels and alignment of signals all pointing in the same direction, when this happens that will be the direction price moves in sharply.

Price moved up above the “Buy ?” blue line and continued up where is slowed down a little at .786 after a slight pull back and delay it resumed up to .886 level then pulled back again but still bullish.  A double top at 1.34215 is still play.

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July 15th, 2013

Below are Daily, 4-hour, and 1-hour charts for EURUSD with key support, resistance, and Fibonacci levels identified.  Based on which way price break I will look for entries in that direction.

The charts with their identified levels provide me with “if then” statements allowing for quick and easy evaluation of the charts.  Now that the levels have been identified just need to check in periodically to see if they are reached and how they are reached.  Trading levels like this instead of individual bars, tick-by-tick, is a lot less stressful!

On the 4-hour chart there is a blue line labelled “Buy ?” and one labelled S2.  When price breaks and closes on either side of these lines trade in that direction.

  • If below S2 trade short and target the .618 level, S1, or a double bottom and below if move is strong impulsively.
  • If above “Buy ?” blue line then trade long targeting the recent high and or the .786 retrace level of down impulse leg and further up to a double top at 1.34162 and beyond if move is strong.

How not to trade, importance of well placed stops

This morning after watching a news release I took a short trade on USDCAD.  The trade was up about 22 pips with in 15-minutes, but ended up closing for a 9.1 pip loss.  Two things, first, I traded the news and second, poorly adjusted my stop.  After being up 22 pips my stop should have either remained above the daily high where it started or to break even, no in between.  Moving it to break even would have made it a risk free trade.  I did neither, instead made a bad decision with the stop at a 9 pip loss.

By choosing a 9 pip stop instead of break even or leaving it above the daily high; I was undecided between it being a trade or a scalp.  And, I over managed the whole thing.  If it’s a trade then leave the stop above the daily high, if a scalp then move to break even.  Waffling between the two turned a winning trade unnecessarily into a losing one.

USDCAD, Wrong Stop.  Trade technical price action NOT the news
USDCAD, Wrong Stop. Trade technical price action NOT the news

To make matters worse, I stopped thinking and over traded!  After the short closed for a loss I took a poorly thought out long position.  It was poorly thought out as I saw price rally up but it did NOT make a new higher high.  Instead it rallied into a former support level turn resistance.  Since it did not make new highs, I should have been more patient, waiting for a deeper retrace.

I took the long trade at another resistance level which got broken during the rally.  I was thinking this was price coming back to test the resistance as now support but, I should have seen that the rally only produced a new lower high NOT a new higher high.  This means that a long signal was not in place at this level.

The news release moved price but in an undecided way.  The moves were in both directions to support and resistance levels.  The Resistance level was at a .618 retracement and the support was also at a .618 retracement.  Trading either .618 resistance / support levels would have produced quickly in excess of 30 pips, in both direction.

Lessons:

  • When trading I must understand the difference between scalping and trading.  If scalping, I cannot allow a winning scalp to turn into a losing trade.
  • A scalp which is winning should either hit targets, close for positive gain or close for break even, but cannot close for a loss.
  • When scalping, I must define stops and limits in advance and even more so after entry and then even more so if it starts to be in the money.
  • Stops and limits are not only determined by price level but time can also be a factor, especially when it comes to stops.  For example, after identifying stop area(s) sometimes it may be best to use them only after a certain time has elapsed.
  • Never stop analyzing levels, do not get blinded by price.  Look for rallies or declines, do they create new higher highs or higher lows / lower lows or higher lows.  This may help determine trend reversal or trend continuation.
  • Do not over trade!
  • Do not over manage a trade! (If it is a trade)
  • Always identify whether it is a scalp or trade and set limits, stops and trade management accordingly.
  • Do not trade 15 minute charts.

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Another example: News moves price sharply but to a Resistance level and can’t break it.

Rally from News to Resistance level
Another example of price moving on news but, in this case, to a Resistance level.

The above chart shows another example of news moving price sharply to a reference (resistance) level.

How to trade this?

  • The 9pm bar would have been hard to trade live, it would be best to wait for it to close then analyze close relative to levels.  After it closed as a big up bar the simple instinct might be to wait for a retrace back down and enter long.  Is this right?
  • Upon close inspection I can see the rally during the previous day created a new short-term impulse leg up.  The low of the 9pm EST bar was just shy of retracing to that .618 level.
  • The move up from the .618 (point cc) broke above and closed above point bb.  However, it did not close above the earlier high (point xx) that produced the last leg down.
  • Yes, bb was broken but the nearby xx did not.  xx is a critical point as that was the highest high that produced the most recent down leg establishing the lowest low.
  • Price then remained in this resistance region for about 6 or 7 hours without breaking through or  closing above xx.  This suggest that the resistance level may hold and price continue back down in the overall down trend direction–presenting a high probability low risk trade.
  • Price could have continued up and break point xx and stop the resistance short trade out but depending on entry it would not have been more than a 30 pip loss.
  • If price cannot break a resistance then it will likely go the other way to the next support level which, in this case is over 90 pips away.  This gives a better than 3:1 ratio again, presenting a nice high probability low risk trade.
  • There are several entries, but no entry should be before point dd is set–that is the 1am EST 1-hour bar.  This is the first indication that sellers are greater than buyers.  The 1am bar went out of the resistance region but closed down.  After this bar closes any short entry in the resistance blue box would be ideal giving a very low stop-loss with a good payout.  It is important to see some selling come back into the market like it did after the 1am EST bar as price could have rallied up higher to the qualified Fib extension point sitting above which is also in another resistance zone.

NOTE:

It is important to see that this could have been a losing trade but it would have been low risk.  There was about 9 hours of price action between the 9pm EST news rally and the ideal entry going short from a resistance zone.