EUR/USD Trade

Subjects Covered:

• Intraday Trading
• Signal Candles
• Position of Support/Resistance
• Quality of Support/Resistance
• Fibonacci Retracement Levels
• Whole Numbers
• Pivot Points
• Multiple Profit Targets
• Trade Management

Developments within the European Debt Crisis generate a deep fear of financial contagion. A number of Eurozone banks are believed to be seriously affected. A widespread sentiment takes root, questioning the Euro's future as a strong and stable currency.

As this negative sentiment grows during the summer, EURUSD consolidates within a narrow range, showing choppy price action. Many traders are caught on false breaks to the downside. The break down takes a long time to come, but it is very sharp when it finally arrives. There is big money to be made selling short, but eventually the EUR begins to recover against the USD by early 2012.

The strong recovery and upwards move in early 2012 causes many analysts to conclude that an impulsive upward wave had begun. Technically speaking, EUR/USD has now come to a moment of decision, as it has broken only just past the 50% fibonacci retracement of the initial downward move. The moment has arrived to start looking for a long-term trade, so we watch carefully.

A little more than a week after EUR/USD reaches a pivotal point, the European Central Bank hints at continued lack of growth and low interest rate in the eurozone for most of the remainder of 2013, possibly tipping the balance in sentiment against the EUR. Therefore we now have a short bias, and we are waiting for the right moment to enter a short trade.

Following the news, the EUR/USD closes the week with a strong reversal, breaking the weekly low and covering most of the previous two week's rise. The close was very close to the low and happened at the end of the week: a bearish sign. It was also well below the level of the 50% Fibonacci retracement of the bearish wave from 2011 to 2012. Traders went home looking for a lower EUR/USD next week. We are preparing to enter short at the right moment.

EUR/USD rose over the last two days, approaching what looks to be IRATE resistance: a combination of the psychologically key whole number of 1.35 and the 50% Fibonacci retracement of the down move from 2011-2012, both at about the same price level. Tomorrow may show whether the EUR/USD can break this level or whether the IRATE resistance will be too strong. Note 1.35 was breached to the upside only a few days ago, hinting at a break. We continue to wait for a good entry opportunity.

A strongly bearish large pin bar formed on the hourly chart just as New York opened. The wick of the bar showed a strong and sharp rejection from the 50% Fibonacci level of the 2011-2012 down move, the key psychological level and whole number of 1.35, two recent pivots, and the 48 hour high. We enter a short trade immediately with the stop loss above the hourly candle. Aggressive profit targets at daily support levels are set as 25% of the position at each of: 1.3363, 1.3287, 1.3051, 1.2903, and 1.2702. We monitor the trade.

Within less than 24 hours, the first target of 1.3364 was hit, giving a realized profit of +0.65 units of risk. The daily chart also printed a bearish pin bar yesterday. These two factors indicate the fall in EUR/USD is likely to continue further. We continue to monitor the trade.

We had to wait about one week from the trade entry for the second profit target of 1.3287 to be hit, giving a realized profit of +1.71 units of risk. During this period the price did pass a 50% retracement of its initial down move in our favour, but we sat tight and were rewarded for our perseverance. We continue to monitor the trade.

Five days later, our third profit target of 1.3051 was hit, giving us a realized profit of +3.51 units of risk. Note that again, the price did pass a 50% retracement of a down move, but we were not shaken out. We have exited from most of our position with excellent profits, awaiting our final exits at 1.2903 and 1.2702. We continue to monnitor the trade.

We have to wait almost an entire month until our fourth profit target is hit. The Fibonacci retracements against us have been growing much deeper, we have been in the trade for over a month, and the price just opened this Sunday evening with a large gap down that will probably be filled. It seems our trade has lost momentum, so we decide to make a full exit at the fourth profit target. We end with a final profit of +9.81 units of risk, an excellent reward to risk ratio.

We can see the power of combining the identification of major S/R using higher time frames with a pinpint price action entry on a lower time frame, and having the courage to ride the length of a trend without getting shaken out. In longer-term trends, taking partial profits at key levels can be a useful tool to maximise profits in case of trend change.